NXT Energy Solutions (SFD-T)

This provides aeronautic technology that allows oil/gas companies to pinpoint where they should use seismic technology. It is about a 30^th of what the cost of seismic is. They just had a conference call and indicated they are still waiting for some contracts to come in. They reiterated that some of their previous clients have had major finds using the technology. Also reiterated their guidance of $20 million in sales for the year. The business is very, very lumpy in terms of contracts. If you are going to own the stock, you are going to have to accept the fact that there are going to be some lumpy quarters. Not a bad time to be adding to your position.

(A Top Pick April 22/15. Down 30%.) This is a cheaper way for oil/gas companies to find potential fields. Their main clients are national oil companies. Ironically when oil prices come down, those companies want to produce more because they think about revenue maximizing, rather than profit maximizing. This is long overdue for a sales announcement, so he is waiting with anticipation.

Has a technology that helps oil/gas companies locate reservoirs, at about a 30^th of the cost of traditional seismic. In April they announced a US $15 million contract with Bolivia National Oil Company. Have been paid about 40% down payment, and in October they should complete the analysis portion and then they will be fully paid. For an investor, they use a very conservative accounting technique, so they don’t recognize any of the revenues from this project until everything is absolutely done. It won’t be until 4^th quarter that we see the full revenues. On a “back of the envelope” calculation, they have 85% margins. If you strip that out, on this one contract alone they are trading 10X this year’s earnings. He is very happy with this holding.

One of his favourite names. They have a technology that allows oil/gas companies to use their exploration budget more efficiently. It augments 2-D and 3-D seismic, and about a 30^th of the cost of 2-D. Allows companies to pinpoint where they should be using their seismic budget. A lot of their customers currently are the national oil companies. Ironically, as a lot of the oil prices dumb down, there is a lot more pressure on them to increase revenues and production. Recently signed a $13 million deal with a Bolivian National oil Company and another with a national oil company in Pakistan. Both have room to expand. This is also a direct play on the denationalization of Mexico, of which phase I has actually started. Because of this, some of the super majors who want exposure in the Gulf of Mexico are going to start using this company’s technology.

There are not too many oil/gas related companies that are trading at 5 year highs. Their business is helping companies explore for oil and gas, and a lot of their prime customers are the national oil companies, which tend to be revenue maximizing rather than profit maximizing. When crude prices halve, ironically they want to produce more in order to get the revenues to their client, which is the government. Just announced a very large deal, $13 million US, and are going to have 80% margins on that. They expect to start flying in this quarter and will probably finish the flying by the end of the 3^rd quarter, so all that revenue will be reflected in there. Also have a full library of data that they are just starting to monetize, which they are going to inject into vertical oil/gas companies. With no capital on their own, they’re going to have a big stake in these companies. They’ll get a royalty stream from them as well as future business.

A company that flies planes that can actually identify potential oil/gas from 10,000 feet. They use stress field detection. This is a play on the denationalization of the Mexican oil/gas industry. They will start Round 1 in March of this year, so we are very close to this being implemented. Got their 1^st contract this year from Pakistan. Have very high margins, so even on a small contract like Pakistan; they will earn 85% margins, which flows right down to the bottom line. Sitting on $6 million cash and their burn rate is relatively low. Thinks there is a lot of upside potential. Despite the fact that oil has clearly come down in price, a lot of their customers are national oil companies, who are more focused on the volume of oil rather than profitability. Ironically when prices go down, they want to produce more oil. Now that there are big parts of the Gulf of Mexico up for grabs, it is very expensive to shoot seismic there, so if you can have something that comes across very quickly and do it at a 30^th of the cost, there will be a lot of demand.

(A Top Pick Dec 16/13. Down 26.99%.) Really more of a technology stock then an energy service provider. Their technology is very, very cheap, in terms of quickly identifying potential anomalies within a block. In 2015, Mexico is going to enter round 1 of the nationalization, which runs from February to September. Thinks Pemex and the super majors are going to be very interested in this technology to assess which blocks are worthwhile and which are not. Also, a lot of their business is related to national oil companies, who are talking to Pakistan and Bolivia, which tend to be much less sensitive to oil prices. Ironically, because of their revenue maximizing bodies, when oil prices are down the oil companies want to produce more so they can contain their revenues going to the governments.

This has had a very volatile year, and he generally doesn’t like this kind of volatility. He still thinks the fundamentals are great. The market has been waiting 1^st for the Pemex deal since Aug/13. As a consequence, the share price traded off. However, it has also forced them to look beyond Pemex for another buyer of the product. Last week Pacific Rubiales (PRE-T), one of their first clients, announced exploration deals in Mexico. Feels this helps to speed up the process. However, there has been a transformation in Pemex and NXT is the best way to play it. He would be very surprised if he didn’t hear an announcement on one of those deals before year-end.

Over night the Mexican government has changed rules to let foreign companies explore in that country. This is a great opportunity for the majors. This company surveys from the air in consulting for the majors.

This helps oil/gas companies explore for deposits. Have technology that flies in Lear jets and very, very quickly and very inexpensively identifies pockets. Not a substitute for seismic, but helps to really focus the area where seismic is conducted. Had a rough year to date, because haven’t had a contract announcement since January. Bear in mind that when they do get a contract, their ability to implement it can be very, very quick. Secondly, they have very high margins. Stock currently has a $40 million market cap. If they can do $10 million worth of business this year, which is easily doable, that is $8 million in operating profit. At 5X earnings, it is pretty attractively priced. Also, there are a lot of national oil companies that are under pressure to become more productive and profitable. Thinks it is very close to where they get the final go-ahead from Pemex. When that happens he expects to see explosive growth.

Have been talking since August that there was an imminent deal with Pemex in Mexico, the national oil company, which has been their largest customer. Pemex is a state owned company so they are dealing with a lot of bureaucracy. Feels there is a lot of potential for this company going forward and is still very positive about this.

Very interesting technology used in oil/gas exploration. Have their equipment installed in a standard Cessna plane, fly at 10,000 feet and pinpoint where to do the 2-D and 3-D seismic resulting in major cost savings. Very high margin business. Expects some very explosive growth to come shortly.

This company has what is potentially disruptive technology in that they have a system of flying over oil/gas fields and being able to pinpoint where potential fields would be. This helps 3-D seismic company spend a lot less money. In deep wells, such as the Gulf of Mexico, this can potentially save a lot of money. The downside for this company is that it is very difficult to change the technology to be adapted. Industry tends to be very reserved on technological change.