NXT Energy Solutions Inc.

Good day, ladies and gentlemen. My name is David and I will be your conferencing operator today. At this time, I would like to welcome everyone to the NXT Energy Solutions 2020 Third Quarter End Operating and Financial Results Conference Call. All participants will be in listening-only mode for the first part of the conference call, with the ability to ask questions after the presentation by the company. For the question and answer session, if you would like to ask a question, please press star 1 on your telephone keypad. Should you wish to cancel your question, please press pound. So that all callers have an opportunity to answer a question, we will limit each caller to one question and a follow-up question. I would now like to turn the meeting over to Mr. George Lucides, President and CEO of NXT Energy Solutions. Please go ahead, Mr. Lucides.

Thank you, David. Welcome and thank you everyone for joining us today for NXT Solutions Energy Solutions Third Quarter 2020 Financial and Operating Results Conference Call. This is George Licitas, and joining me today's conference call is Eugene Washishin, Vice President of Finance and Chief Financial Officer, Dr. Xiang Gui, Director of R&D and SFD Sensor Development, Rashid Tipu, Director of Geosciences for Africa, Asia, and the Middle East. Also, Enrique Hung, Director of Geosciences for the Americas, and Mohamed Saqib, Operations Director and Head of Interpretation. The purpose of today's call is to briefly discuss the highlights of the release of NXT's third quarter 2020 financial and operating results. Following our update, we will open up the line for questions. Please note, all statements made by the company and management during this call are subject to readers' advisory regarding forward-looking information and non-GAAP measures set forth in our Q3 2020 result press release and MD&A issued yesterday. All dollar amounts discussed in today's conference call are in Canadian dollars unless otherwise stated. The complete financial and operating results are condensed and condensed consolidated interim financial statements for the third quarter of 2020 were published yesterday, November 16th, and are available on NXT's website, Cedar's website, and soon will be available on Edgard's website. Now I am turning over the call to Eugene for the financial review.

Thank you, George, and welcome everyone. As George mentioned, our third quarter 2020 financial statements and management discussion and analysis were filed on CDAR's website yesterday and will shortly be available on EDGAR. From a financial perspective, the focus remains on continuing to control and optimize non-core corporate costs and support of the business development effort. We continue to also participate in the Canada Emergency Wage Subsidy Program during the quarter. For the third quarter, our financial results were as follows. Cash and short-term investments were $4.06 million at September 30th, and net working capital was $3.99 million. We currently expect a final payment of approximately $500,000 from the 2019 Nigerian SFD survey, which is in fact a performance bond later this year. We have elected not to enforce payment of it until either upon the completion of a new contract with PE Energy or at the closure of the 2019 contract. Operating activities used $830,000 of cash during the quarter and $2.53 million year-to-date. There was no revenue earned in the quarter. For the quarter, NXT recorded a net loss of approximately $1.5 million or a basic and diluted two cents per share based on 64.4 million weighted average common shares outstanding. This compares to a net loss of $0.8 million in Q3 2019 or one cent per share basic and diluted. For year to date, NXT recorded a net loss of approximately $4.31 million or basic and diluted of seven cents per share based on 64.4 million weighted common shares outstanding. This compares to a net income of $5.55 million in 2019 year-to-date were $0.08 per share basic and diluted. Total operating expenses for the third quarter were $1.44 million including survey costs. This includes non-cash expenses of $0.48 million related to amortization and stock-based compensation expenses. Total operating expenses for year-to-date were $4.67 million including survey costs. This includes non-cash expenses of $1.4 million related to amortization and stock-based compensation expenses. G&A expenses decreased 20% or $174,000 in Q3 2020 compared to 2019 as a result of the following. Salaries, benefits and consulting charges decreased by $148,000 or 38% due to the company participating in the Canada Emergency Wage Subsidy and the Scientific Research and Development Tax Credit programs. Boarded professional fees and public company costs increased $30,000 or 13% due to professional fees. Premises and administrative overhead decreased 2% due to reduced office expenses. And business development costs decreased $51,000 or 91% due to business development discussions being conducted with teleconferences and online video conferencing. G&A expenses decreased 3% or $86,000 year to date compared to 2019 for the following reasons. Salaries, benefits and consulting charges decreased by $178,000 or 15% due to participation in the Canada Emergency Wage Subsidy and the Shred Tax Credit. One less headcount in the first half of 2020 versus 2019, offset partially by $178,000 of salary costs being allocated to survey costs during 2019. Board professional fees and public company costs increased 15% due to higher professional fees. Premises and administrative overhead decreased $25,000 or 4% due to reduced spending on office expenses and building common area costs. And business development costs increased $16,000 or 14% due to the negotiation of further African surveys during quarter one of this year. During 2019, company resources were focused on the implementation of Nigerian SFD survey and business development expenses were minimal. To summarize some key financial points, we ended the quarter with $4.06 million of cash and short-term investments on hand and a net working capital balance of $3.99 million. Net loss for the quarter was $1.5 million. Cash used in operations was $829,000. continue to focus on cost control. I would now like to hand the call back over to George to further discuss our business update and forward plans.

Thanks, Eugene. First, I want to convey my sincere hope that everyone is well and continues to stay healthy. In general, there is an ambience of optimism related to the announcement of vaccines that favorably impacting business opportunities. This improvement is reflected in the continued stability in oil prices. The world is ready to go back to work in 2021. That brings us to the business at hand and the opportunities NXT is pursuing currently. NXT continues to focus most of its business resource on opportunity development on NOCs and IOCs. Let us review the status of our business development. We start with Africa. With respect to Nigeria, we anticipate to finalize SFD data sale alongside a similar size data acquisition contract in the near term. Simultaneously, we have made significant progress on medium and long-term opportunities in Nigeria that are individually expected to be similar in value to our first contract. Leveraging upon our Nigerian success and working closely with our local partner, PE Energy, headed by Mr. Daira Kobo, the company has made substantial foray into a number of neighboring countries that is projected to develop into a long-term opportunity pipeline. With respect to Mexico, since our last call, NXT with its local resources in conjunction with PAMEX personnel and their relevant departments have identified the immediate target areas for potential SFD surveys. This progress has been made possible by documented success from the surveys conducted to date. The process is now in the administrative stages and NXT will provide further updates as warranted. NXT is also pleased to report the number of Bluebird opportunities that we are actively pursuing in South, Central America, and Southeast Asia. These opportunities have come forth from NXT's prior efforts in these regions over the last couple of years. I can report that we have a strong pipeline development built to create a sustainable revenue flow for the future. I am also pleased to announce that we have extended our MOU with BGP Inc., a subsidiary of China National Petroleum Corporation, for an additional two years to identify joint opportunities for NXT and BGP. NXT's go-forward strategy is to secure SFD contracts with BGP and its affiliates. If you have any questions regarding this business development effort, please put them forth in the Q&A session. Let us turn our attention to the technological advancement that NXT has made, especially in the last quarter. As you may recall, the company has been working on a number of new algorithms and approaches to bridge the gap between our clients and the SMD products. Over the last quarter, we have prototyped mathematical data transformation routines to enhance the quality and repeatability of SFD data. While these methods need final formalization and field testing, NXT expects that the eventual application of these transformations will allow the extraction of additional important information to increase the reliability of interpretation and to increase the overall efficiency of operations. The company anticipates that the application of these data transforms to NXT's historical data library is expected to identify new revenue streams. These methods are also expected to provide the first steps towards algorithmic interpretation to significantly increase SFD's valuation in the energy industry. Based partly on these methods, NXT has initiated efforts with leading industry vendors, such as Schlumberger, to standardize SFD data loading, display, interpretation, and integration with generally accepted industry processes. I am very proud of our current efforts. I wish to emphasize that this work is in progress with risk attached. Nevertheless, it carries tremendous upside. NXT is on track for the implementation of these new mathematical methods by the time the next survey commences. We will continue to update our investors on our progress as warrantied. If you have any questions regarding this research and development undertaking, please ask them during the Q&A period. In conclusion, we will continue delivering results and growth for our shareholders. On behalf of our Board of Directors and the entire team at NXT, I want to thank you all, all of our shareholders, for their continued support in these trying times we wish the best of health to you and your families i would like to ask the operator david to open up the line for questioning and we take a few questions thank you thank you as a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pounder hash key please stand by while we compile the q a roster

Again, if you would like to ask a question, press star 1 on your telephone. Your first question comes from the line of Mike Mork with Mork Capital Management. Your line is open.

Hi. Hi. With this advance in your technology, I know that the SFD is not only good in the oil and gas industry, but potentially earthquake detection is. And recently there's been a little talk about geothermal surveys. Is this going to help in these two areas also?

Okay, I will ask Mo to give you an answer to that. Thank you, Mike, for the question.

Hi, Mike. So the geothermal application of SFD is actually very, like the deployment of the technology itself is very similar to what we are currently using it for in the oil and gas industry. As in the subsurface features that are required to be identified are quite similar. So it would be a natural extension of the method that we're using to date. And with a growing interest in geothermal, yes, we do expect that there will be a significant place for SFT in the future as things develop. We have done some preliminary work and we'll continue advancing that and hopefully see how it plays out. We have a number of test opportunities right here that we can test this on, and we'll continue working on that.

Mike, I would just like to add that this also requires us to modify the sensor for this application, but this would be the easiest modification at this point. Would you like to add?

Okay, that sounds good. It's just that oil and gas currently, rightly or wrongly, probably wrongly, is out of favor. And if this company was looked at as more of a revolutionary technology rather than just an oil and gas service company, I think the valuation of the company would change dramatically.

Hi Mike, it's Eugene. Just to leverage off your point there, we are also just getting in line now for various programs within Canada that would support research and development in this area. So we're doing some just very high-level work to get one in line there. We're sharing information and getting what the potential resources could be to help us.

Yeah, they are ready to help us, and that's the good news. Also, of course, Mike, the detection of earthquakes is a paramount opportunity, and SFD would be a very effective method to forecast earthquakes down the road. We are not undertaking that program right now, because we just can't do it all. But I think it would be very, very important development in the future. And I agree with you that the company should become a technology-driven corporation with all the applications that is available to us.

Okay, that sounds great. And just to remind you, Healdsburg, where I live, five miles north of here, is the largest geothermal facility

system in the uh in the united states so i hopefully you'll fly over it see what the signal looks like then stop in and have dinner with me excellent i would like to also mention you know that um um the you know given given the industries the oil industry situation today the possibility if if there will be a reduction biden wins the election uh then there will be a reduction in exploration and exploitation in the United States, which would open up new opportunities in other regions of the world. So I think that it's sort of a catch-22 for the U.S., but it is a great opportunity for other countries and other companies So what I'm trying to say is that we will be flourishing in spite of the current situation.

It sounds good, and thank you.

Thank you very much, Mike.

Your next question comes from the line of Stan Trillin with Morgan Stanley. Your line is open.

Good morning, George. Hello, Jane and fellows. Could I... just like a little more specificity on the technology improvements. Can you be more specific on some of the things that you've come up with that make the interpretations more significant, makes them more accurate, and also how does How does it create new lines of income?

In terms of the data interpretation, in the past we mainly concentrated on visual inspection based on our extensive experience with the help of a large collection of anomalous waveforms over many known fields and geological features. With time goes by, we have documented our success stories with respect to the SFD discovery. We are now trying to develop some mathematical algorithm to make the interpretation process easier and more rigorous. One thing that we did is to design an in-house software package based on National Instruments LabVIEW system. SFD is basically a geophysical time series. With the newly developed package, we can characterize sensors' behavior from the statistical signal processing perspective. This can be done for SFD sensors individually or combined for every single survey flight. Another study being performed is based on surveys in great patterns. The deliverables can be a productivity, I mean, a prospectivity map, which is a product, which is produced in a way adhering more closely to the oil and gas industry standards. The above two approaches can possibly be employed together to generate some more sensible results. At this stage, more numerical experiments are still needed, and this is an ongoing investigation project. And I think our head of interpretation Mo can give you some more details.

Okay, so I think, you know, Siang has pretty much addressed the whole workflow here. But, you know, I would just add that the processes that we are undertaking are, you know, designed to bring it closer to the industry. They're designed to make it easier for outside people to understand and comprehend the data. that makes it easier to explain the technology eventually and hopefully bridge the gap a little bit quicker. I think as George mentioned in his remarks, this has allowed us to talk to the likes of Schlumberger, for example, to deal with Petrel, which is just about everywhere in the industry, to see how we can get the data in there. and make it accessible in a more familiar manner and more easier manner to a bigger subset of people.

Maybe mention that petrol is a software.

Yeah, but George just pointed out that petrol is, in case for some details on that, it's an interpretation software that's very widely deployed in the hydrocarbon industry, so getting the SFT data into their platform in a native manner would be a big step.

I'd like to really give us more focus on the thing that George said about that could create more new revenue opportunities. Could you expand on that statement?

You want to expand? Go ahead. So basically, I'll give some technical details on that, and then maybe Eugene or George can add on. But basically, the idea is that now we can use these algorithms to revisit the old data sets that we already have, refine them, and bring them up perhaps to more modern-day standards that will allow us to relook at if those data sets, whether they were acquired by NXT or have reverted to NXT, can be remarketed or reconsidered for use in those regions. This would include some of the Canadian data or some of the more international data that we have done in the 2005 timeframe and thereabouts. Obviously, if we can clean up the data and bring it up to more modern standards, then it provides a way to potentially remarket that data.

Is it more than putting a new dance on an old pig?

Of course. The entire idea here is to, along with the development of the technology itself that Dr. Gui is heading, and we are making significant progress there as well, also how the data that is being produced is being processed and interpreted and analyzed and what kind of mathematical transforms and algorithms we apply to it is going to define our future. So we have to be concurrent, and I think that the relationship that is being established with Schlumberger now is going to become a significant part of that, and we will continue to stun the industry, to put it mildly. Thank you very much. Thank you. Thank you, Stan, for your question.

Again, if you would like to ask a question, press star 1 on your telephone.

No more questions.

There are no further questions at this time. I will turn the call back over to Mr. Lasikis.

I would like to thank everybody for participating in our Q3 2020 investors conference and I'm very hopeful that next time we talk, which is going to be hopefully this year very quickly, we are going to have some very positive development. Thank you again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.