NXT Energy Solutions Inc.

Good day, ladies and gentlemen. My name is Michael, and I will be your conference operator today. At this time, I would like to welcome everyone to the NXT Energy Solutions Incorporated investor update conference call. All participants will be in listen-only mode for the first part of the conference call, with the ability to ask questions after the presentation by the company. I would now like to turn the meeting over to Mr. Eugene Wojcicin. Vice President of Finance and Chief Financial Officer of NXT Energy Solutions. Please go ahead, Mr. Wojcicin.

Thank you, Michael. Welcome, and thank you, everyone, for joining us today for the NXT Energy Solutions Investor Conference Call. My name is Eugene Wojcicin, NXT's Vice President of Finance and Chief Financial Officer. Joining me on today's conference call from our management team are Dr. Xiang Gui, Director of R&D, Enrique Hum, Director of Geosciences for the Americas, Rashid Tipu, Director of Geosciences for Africa, Asia, and the Middle East, and Mohamed Saqib, Head of Interpretation and Project Engineer. In addition, with us we have Charles Selby, Bruce Wilcox, and Jerry Sheehan, who are members of the Management Subcommittee of the Board of Directors. During today's call, we'll provide a 10-minute update on management changes business development, and technology status. We'll then open up the line for questions. Please note all statements made by the company and management during this call are subject to reader's advisory regarding forward-looking information for non-GAAP measures set forth in our Q3 2022 MD&A issued on November 9th, 2022. All dollar amounts discussed in today's conference call are in Canadian dollars unless otherwise stated. It was with great sadness that we announced that our Chief Executive Officer, George Lasichakatz, passed away last week. In 1986, George established an R&D company where his research in the field of physics and electronics led to an airborne gravity-based transducer named SFD, which is capable of detecting small-scale gravity anomalies applicable to hydrocarbon exploration by delineating boundaries, trap and seal of fluid-bearing formations. The technology was extensively developed, tested and improved in the Western Canadian sedimentary basins before commercialization. In 1996, George founded NXT Energy Solutions, which he led until his passing. George was charismatic, passionate and committed to the commercial application of SFD the technology to increase the effectiveness of oil, gas, and geothermal exploration worldwide. The NXT family is profoundly saddened by George's passing and extends its heartfelt condolences to George's loved ones. As previously announced, the board of directors has formally empowered the management subcommittee of the board to assume the CEO's duties until further notice. The committee, which meets three times weekly with NXT management, consists of lead director Charles Selby and directors Jerry Sheehan and Bruce G. Wilcox, who collectively possess senior operating and management experience in the energy and capital market industries. All committee members are present on today's call and are able to answer any questions you have for them. Priority of the committee is to formalize new contracts, including repeat business for NXT's proven SFD technology. The committee will undertake its executive role until further notice in close cooperation with NXT's qualified management team that will continue to manufacture SFD systems, perform SFD surveys, and provide vital interpretation work once SFD surveys are conducted. Management members included in this seamless process are on this call today also. On December 2nd, 2022, we reported the closing of the rights offering announced on October 31st. The company issued 2.15 million common shares at a price of 18 cents per common share for proceeds of approximately $387,000. Last week, on January 25th, we closed the private placement that was announced on December 22nd, 2022 for total proceeds of approximately $1.882 million. in connection with the issuance of 9.658 million common shares for 19.5 cents per common share. Insiders contributed a total of $1.7 million, or 95% of the private placement. Altogether, a total of $2.269 million was raised through the offerings, and all five directors and the chief financial officer participated in either the private placement, the rights offering, or have elected to take a portion of all their recent direct your fees in the form of options. Proceeds and rights offering and private placement are being used to support general administrative costs which include business development and marketing activities to transform the existing pipeline of opportunities into firm contracts which we will explain in more detail. We currently have a very robust project pipeline and are experiencing an increased level of business development engagement with our customers. This is attributable to a number of factors such as strong commodity prices, increased exploration activity around the world, and heightened empowerment of our senior operating staff. We have increased our focus on technical and commercial meetings that target markets directly and through qualified and informed agents to secure new SFD surveys. Since the passing of George, we have had several meetings with our sales agents around the world. While universally saddened and shocked by his passing, They remain very committed to securing future SFD surveys. Operationally, the aircraft stands ready, having completed all of its scheduled maintenance requirements, and is fully prepared for up to 300 flight hours. Additional logistics planning continues, and we are in active discussions to arrange ground operations in the targeted survey locations. Recently completed rights offering and private placement give the company sufficient working capital to execute on near-term business opportunities. The opportunities, our engaged network, and our committed team give us confidence that we can achieve near-term success. In the hydrocarbon segment, there are multiple opportunities that have our attention at various levels of probabilities. We'd like to highlight three SFD survey opportunities that we are currently focused on through daily communications. This level of focus is necessary when dealing with levels of bureaucracy in government-controlled companies. Progress continues to be made with our African SFD opportunity. This customer is very familiar with NXT and appreciates the value that our previous surveys have brought them. We believe that we are in the final stages before contract execution. Secondly, as mentioned last quarter, NXT carried out two consecutive business trips to the Middle East. After several technical meetings through the fall of 2022, the discussions have advanced the commercial stage with meetings during December 2022 and continuing through January, which are moving us closer to an SFD survey in the Middle East. Our clients, alongside their technical and financial partners in the UK and Canada. We are undertaking operational and readiness activities for one of these potential customers, including the approval of SFD process. prospecting technology as a work commitment for licensed blocks to conduct geophysical activities for oil and gas exploration. Thirdly, in Asia, we have navigated several necessary government approvals for our technology to be adopted for both hydrocarbon and geothermal applications. As of today, we have conducted the necessary technical meetings and submitted relevant documents to have SFD included at the strategy level of the national hydrocarbon and geothermal companies. We are in the final steps to secure phase two of the IWRAP funding to move NXT to the next stage of the SFD geothermal sensor development. We continue to improve the SFD hydrocarbon sensors and to constantly review our procedures to ensure the processes are properly and securely documented. highly trained and experienced SFD interpretation team will continue to improve or continue to provide quality lead recommendations for areas of exploration interest to our repeat and new customers. In summary, NXT has a strong team that is continuing to move the business forward and highly incented agents. Our SFD opportunity pipeline is strong with two plus SFD business opportunities, and commercial discussions. We remain confident in our ability to execute on our SFD survey opportunities. On behalf of our board of directors and the entire team at NXT, I want to thank all of our shareholders for their continued support. I'll now ask our operator, Michael, to open up the line for us to take a few of your questions. Thank you.

Certainly, sir. Ladies and gentlemen, we will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before dialing your selection. If you have a question, you can register by dialing star 1 on your device keypad, and you can cancel the question if you wish by dialing star 2. Please dial star 1 at this time if you have a question, and there will be a brief delay while participants register. Once again, please press star 1 if you have a question at this time. And the first question is from Michael Mork of Mork Capital Management. Please go ahead. Your line is now open.

Hi, this is Michael Mork, and I've obviously known George for 25-plus years. Had a great relationship with this brilliant man. Moving on, looking at the big picture, It's becoming more and more obvious that hydrocarbons will be around for decades. Even a year or so ago, they thought that this was going to be a fantasy and green was going to take over, but that's not going to happen. We want to make sure that this revolutionary technology, we don't end up playing small ball. We light the contracts and whatnot. Again, this is very important. We want to stabilize the company and get $10 million, $15 million in the bank. But then can you give us some idea when you might be able to shift to the gross overriding royalties? And also, to me, it seems like the highest advantage that this technology brings is if you have a company with a very large block and they maybe have thousands and thousands or millions of acres and they might have 100 potential prospects. You fly the SFD over it. Instead of 100 prospects, you can narrow it down to five. That has to be invaluable to these companies. And are you moving in that direction? And if this is so, is it Jerry or who's going to be in charge of making this transition? Thanks. This is Mike.

Okay. I'll ask Mo to start to answer that question.

Hi, Mike. So the first part of your question concerning the GOR question, we have, in fact, already started some work on that while we are waiting for some of these contracts to materialize in the near term. We have already started some work that we had somewhat implemented previously, and we are trying to drive it faster to completion in multiple countries on the GOR side of things. Now, with respect to the large blocks, yes, as the technology gets more and more contracts with the state-level companies, which, as we all know, control most of the large blocks in pretty much any country, then the critical momentum does build up for them to start using it at a much bigger level. An example of this is in one of the opportunities that Eugene mentioned in Southeast Asia. where we are now discussing the use of SFD at the strategic level within the government, which is pre-block areas, which is areas that have not even formally been blocked for operator use, but they're thinking about using SFD to plan the future blocks and future exploration areas and develop the blocks before they go out to the operator group.

Okay, well, that's very helpful. Thank you.

Thank you. Once again, if you have a question at this time, please press star 1 on your device keypad. And the next question is from Thomas Wood at Woodlet. Please go ahead. Your line is now open.

Hey, guys. First off, I'm just so sorry about George. I was lucky enough to have a lot of, you know, hour plus long conversations about physics with him and just what an amazing guy to, you know, go with Mike moving forward. I guess I would be curious if maybe the board members of the subcommittee could, whoever wants to represent or all three of them, maybe just talk about their plan moving forward in terms of like change of tenor, in terms of change of leadership, like how do they want to move things forward and maybe strategies that haven't been implemented before. Obviously, with any new change of leadership, even an unfortunate change like this in terms of its necessity, you know, there still is some sort of change. So, you know, what's their vision? What is their plan? What things do they want to change? Just so we can kind of have a picture of things moving forward.

Eugene, perhaps I could leap in on that question. It's Charles Selby speaking. I think that Michael Mork actually set the stage with his comment and question. We see firstly getting in contracts that are well down the road towards execution and stabilizing the company and putting some cash in. So That is the first priority. And frankly, we have the resources in place to do that with our executive committee and the people within the company have all of the skills to do that. Although George has been ill for a while and we formally empowered this committee only recently, but it is in fact been operating behind the scenes for a while. And so we do have that confidence. The second point, again, Mr. Mork raised this, and we would agree that there is considerable potential for conventional gas and oil. And given declines and given the flight of capital out of the sector, it's going to be more and more required that national oil companies find efficient programs to identify resources and get after some of the exploration and development activities that are needed to bring it to bear. And we think that NXT is well positioned to do that. We're very fortunate to have resources on the board, such as Mr. Sheehan, who's a well-known explorationist with deep experience in Africa, which is an area which we're looking a lot. So that again sets the stage. And then Moving on, how are we going to pursue these things? We're looking at different strategies, of course. The conventional model of services or fees for services is the one that's been driving us, but we are working in parallel on other strategies and where we can partner with companies and with governments and indeed take compensation in other forms. That is very much part of our current discussion. But in order for that to occur, you need to be starting from a solid base. So that's what we've got. Now, as far as leadership, of course, the company just recently suffered this loss. So I think our focus is on stabilization and then determining the appropriate resources to take us forward. And we haven't made any decision in respect to that yet. But we will obviously make the right move. But I think you're being, as shareholders, well served by the current management group. Hopefully that's helpful.

All right. Thank you so much.

Hey, this is Bruce Wilcox speaking. So the management committee's number one job is to empower and support our key operating personnel, all of whom are on the call. And, you know, in my seven years on the board, I think the team is as focused, motivated, and energetic as I've ever seen them. So, you know, this is our configuration until further notice. But I think that you can rest assured that we're paying very close attention, as Eugene mentioned in his comments, We have standing meetings three times a week. We have standardized reporting, which is something new, as the progress on each of our prospects. But the focus, as Charles said, is getting the near-term prospects over the line and making sure that our operating team feels fully supported. Great. Thank you, Bruce.

Thank you. Once again, please press star 1 on your device keypad if you have a question at this time. And the next question is from Norman Safarian at RBC Wealth Management. Please go ahead. Your line is now open.

This is not Norman. This is his wife. And I would like to ask a question concerning that I'm sure George knew that his health was declining over the few months or some time. I'm not aware of that. What was his message to the board members? I'm sure he had his wish how to have this company be run. Did he communicate it with all of you or did he just communicate it with certain people? And what was his wish? What did he pass on to?

Well, just let me, again, Charles Selby, just say one thing. His companion told us that his very last words, and he was quite aware until he passed away, were, keep going. And so I think that He didn't give us a great deal of specifics during his declining health, but I think he was very supportive of the direction of the company. And indeed, it was quite interesting that he participated in a call on Friday before passing away early Sunday morning where he seemed to be somewhat robust. and was very supportive of what the company was doing and had hoped to indeed get back into the office and work directly, but that sadly didn't happen. So, Bruce or anybody else, would you like to elaborate on that? Yeah, this is Bruce speaking.

You know, George was not terribly communicative about the exact state of his condition. However, it was apparent to all of us from, you know, going back three months that he was very ill. He did not give us a specific diagnosis. But that's when we formed this subcommittee of the board. And the subcommittee has been functioning since October, and I think functioning very well. You know, I would say that Georgia's, you know, last ambition was was for this technology to become globally accepted and much more commercially viable. And that's what our focus is on. So we realized that he was very ill, even though we didn't have the details. And we organized to deal with it. And I think that it's been extremely effective. So we're going to fulfill George's legacy.

Well, I guess. We hope so. Because I know he was the brain. He knew everything about the technology. Do we have the... Well, not the board members. I'm sure people you've hired to continue this work. You know, hopefully that we can... vitalize it for some reason. I really don't see that vital, you know, essence in there to move forward, but maybe it will.

This is Bruce again. I'd like to respond to that. George was a brilliant man, but he wasn't all the brains. The people, our staff members that are on this call, George himself, you know, have said that some of them were smarter than he was. So, So there was much more knowledge, ability, execution capability behind George. George was our charismatic face of the company, but I think organizationally we are in as strong a shape as we've been for the seven years that I've been on the board. And so we've paid a great deal of attention attention to making sure our technology is documented, secure, able to be, you know, continually developed. So, you know, it wasn't just George. It was the whole team.

Yeah, and I would like to – this is Eugene. To emphasize the strength of the team that George helped develop, Dr. Xiang Gui is effectively George's inventing partner, co-inventor. The rest of the guys around the table here, including other people in the office, the capabilities are very dedicated and have potential. We've gotten great mentorship from George, and we're moving forward.

I really would like to see more contracts coming in to make it more exciting. We always have been wishful thinking that, yes, it will work, and we're going to get contracts, but we haven't so far, and it's a little bit depressing. I know you guys are all with brains, but we'd like to have that in place to bring in the revenues so we can enjoy as shareholders as well.

This is Xiang Gui. We are working on getting more contracts. In terms of the technology, personally, I joined the company over 23 years ago. Of course, George's passing is a big loss for us. But over the years, George has talked with me quite a lot. I can assure you that the SFG sensor system is in stand-by condition. The system can be deployed at any time. So, you know, in terms of the oil and gas exploration, the data acquisition and also the data interpretation, I don't see any issues right now. Okay.

We'll move on to the next question.

Thank you. The next question is from Bob McWhorter at Selective Asset Management. Please go ahead. Your line is now open.

Eugene had given a description that the company had a very robust project pipeline, and I'm wondering if you can give a bit more color on that, please.

Okay, well, I explained a couple of the ones we are working on, and I think the important item here is we are in two of our opportunities are in commercial discussions, which is, in our opinion, the final step before we get contract execution. I don't know if the guys want to add a little more specific color.

So, Bob, in addition to the three that... Eugene mentioned, we have also recently reactivated some of our agents from the past who have delivered significant commercial surveys before in South American region. And we are also in touch with a significant contact in South Asia who helped deliver one of the previous surveys. While we focus on these two almost commercial opportunities as being the near-term opportunities, we are trying to fill the mid- and the long-term pipeline at the same time so that we can have a continuous cycle of contracts going forward.

Okay. So as an example, I'm involved in a bunch of companies. One is a guy who makes puppy concrete. Basically says, look, we're currently bidding on $350 million for the business, or we have an approach for $350 million for the business, we actually have a backlog of $80 million or whatever the number is, and you end up saying, okay, hopefully over time you can convert some of that sales pipeline into actual contracts. And that's the kind of cattle I'm looking for.

Okay, so we are in the two... contracts that we are that are very close to commercialization we are looking at a procs over 6,000 line kilometers in one of them and the other is approximately eight eight hundred eight hundred okay so translating that into Fisher price terms of about a thousand bucks a kilo or kilometer what kind of price does that translate into yippee we've got 15 million bucks with potential business we're Well, we could talk about our list prices. So the list price is approximately $2,000 a line kilometer.

Okay, so I think what you're saying is, Bob, get your calculator out, take 6,800 and multiply it by 2,000, and you come up with $13.6 million. And that's, I assume, all American money. Okay, so then the question is, okay, how much of a discount off-list doesn't really matter. In other words, even if it's 20% discount off list, the Canadian peso effectively offsets that potential as well. Okay. Sales then required to break even.

Sorry, can you repeat that?

What level of sales are required to end up covering the, from recollection, approximately $6 million per year cash burn for staff, plane standby, and other fixed costs?

We need approximately $6 million to break even. $6 million a year to break even on a cash flow basis.

Okay.

Thank you very much. Thank you.

Thank you. The next question is from Jerome Haas at Lightwater Partners. Please go ahead. Your line is now open.

Yes, I have a follow-on to Bob's questions just with regards to the pipeline. Now, obviously, George was involved in negotiations with some of these sales, so perhaps you could give us some color on your top five or six prospects which will be most affected by George's absence and which will be least affected by George's absence in the process.

Right, so George obviously was always involved in the process, but in each region and with each customer, there has been somebody who has been really the main contact. So in Africa, for example, Rashid has been the main contact with our agents there, and George would provide guidance, but most of the hard lifting is done by Rashid. I don't know if you can maybe add a little bit more color for example.

Yeah, like for day-to-day and also, Rashid is here, from day-to-day talk with agent and also our customer, the end user. So normally myself is on the call with the agent and talk about technical issues. and also some part of the contractual part before bringing into George and Eugene to further negotiate down. So that's like initial pass is like I'm on day-to-day conversation with most of our agents in Africa and Middle East and Southeast Asia and Western Asia. So that's like, similarly, like on American side, Enrique Hung, he's the contact person for, you know, like all the agents. So he run all the day-to-day conversations.

Yeah, yeah. And we both, you know, Rashid and this is Enrique, either Rashid or me in the oil and gas business, we've been in the other side of the... of the game here. So we've been either gatekeepers for technology selections for some of the companies like Schlumberger or OMB or Chevron, and now we are on the other side. So we have a very vast, widespread network on these companies and also these medium-sized and national companies that we've been contacting. So we know what the process is and then We have conversations with all the levels that need to be contacted to get the contract.

Okay, and Jerome, just to maybe answer your question very directly, is George was the enthusiasm, but the real contract negotiation work was done by our teams here. And George provided, as everybody knows George, that special color. and might have opened a few doors, but it's these guys that helped get them closed in terms of getting, not closed doors, but getting the contracts secured and closed.

Thank you.

Thank you. Once again, please press star 1 if you have a question at this time. And the next question is from Michael Mork at Mork Capital Management. Please go ahead. Your line is now open.

Yes. Again, it's me, Mike Mork. One of the criticisms of the company has been you have this fantastic technology. You should be exploding with business. But you rely on agents here and there. And you've never had a marketing and sales department within the company. And why don't you? And is that something you're going to do going forward?

So as... As we, and I'll let the board chip in here also, but as hopefully Bruce and Charles had stated, we need to take time here to reset what we need in terms of resources to move this company forward. And yes, one of the issues has been do we have the right marketing resources? The agents have been at various times very effective, and they know those local markets that we're in. But, yeah, it's one of the things we have to seriously consider and put appropriate resources to it.

Yeah. And, Mike, I will add on that. Because if we look at even African continent, so we started with one country, which is a leader in the African continent. So we prove over technology through a success. And then we had another contract, which was back in 2021. And based on that, the technology, once proven in the region, then that will open up the doors for other countries in the same region. So that's what the strategy was in the past as well. We started in Colombia. And then from Colombia, we moved from Colombia to Mexico, Mexico to Bolivia. because now we are working actually in the Middle East and Southeast Asia. So once we have a project and we have a proven data sample, then definitely that will open up new doors, you know, in terms of acceptance and also the project.

Let me intervene a little bit. This is Enrique Hung again, too. Mike, yes, it is a concern in the marketing department, and here we have treated this problem in the past. several times, and the problem here is that blessing and the curse combine because we are the only company in the world offering SFD technology. We have not expanded. We are the sole source of the technology, and it's very exclusive and very highly protected. But we are taking a look at that, and one of the efforts would be to expand our marketing efforts and probably improve the webpage we have discussed.

Yes, I appreciate that. But in talking to different people at the company, I hear that Peru calls you, Bolivia calls you, Mexico calls you, and whatnot. They shouldn't be calling you. You should be calling them. And how many past prospects could you be following up on Because, you know, a lot of these companies are very bureaucratic. They're happy with their jobs. It seems somebody should be stirring the pot to get things going.

So, Mike, this is Bruce Wilcox speaking. We did have dedicated marketing when I joined the board. It proved to be, you know, it was Sajid, Saeed. But it proved to be ineffective. And part of the problem was was the interaction between George and the marketing effort. So I just want to point out that with regards to Bolivia, which when I joined the board in 2015, we were in the midst of our YPFB contract. The agent, Jose Candia, reached out to us in the past month or so and said, The effect of marketing is an important strategic focus for the management committee and the staff, but there is outreach from past customers to us, and I have to say that the staff has followed up very assiduously with them. We think we're going to have enough in near-term contracts to get a little cushion under our belt, and that is a very important consideration that we need to address. But I just want to assure you that there are no stones being left unturned in terms of marketing opportunities. Yep.

And maybe again, it's Charles Selby, I can just add a few words. Mike, in the past, what we have noted is that our greatest success comes where we identify a qualified agent in a jurisdiction that knows how to pull the levers with the NOCs, has the inside knowledge. and can work in a focused way to do that. And almost without that, it's very difficult to achieve. You need that sort of dedication and you need to reward them appropriately. So that's one aspect of it. The second aspect of it is that we've increased the credibility of this technology over the years. Now that it's patented in many places, that should make it much more acceptable and should allow us to proceed. And then everybody's aware of the fact that oil and gas exploration has not been in vogue for a number of years. I think you alluded to it yourself with the green agendas, which I'm not trying to in any way criticize, but just to note that Even the major companies were talking in terms of adopting those agendas and not focusing on exploration and development activities. That pendulum is swinging back again and so we see it as a period of opportunity and we in fact think that we've put some very effective resources in certain jurisdictions that we can follow up on. Now, can we do more and can we do it better? Absolutely. But we do have limited internal resources, so we have to begin by coalescing some of these arrangements and then looking at how we can expand our resources. And frankly, we want to continue the dialogue with you and get your input and input of other shareholders that may have a different perspective on it, but I think our approach is a well-thought-out one that's likely to lead to results.

Well, it's been very helpful. Thanks for everything.

Thank you. Thank you. There are no further questions, Mr. Wojcicin. I would like to turn the conference back over to you, sir.

Okay. So, just again, in summary, I just want to thank all of our shareholders for their continued support. I just want to reemphasize that we have a very strong team. The pipeline is robust, and we're moving forward with opportunities which we hope to soon commercialize. So again, thank you very much, and I wish you a good evening. Thank you.

Ladies and gentlemen, your conference has now ended. All callers, you're asked to hang up your lines at this time. And thank you for joining today's call.