Acceleware® Ltd. (“Acceleware” or the “Company”) (TSX-V: AXE), a
leading developer of technologies targeting low-cost and clean
extraction of heavy oil and bitumen, today announced its financial
and operating results for the three and six months ended June 30,
2021 (all figures are in Canadian dollars unless otherwise noted).
Acceleware’s second quarter results reflect contributions from the
Company’s two business units, comprised of radio frequency heating
technology (“RF Heating”), which supports a cost-effective and
environmentally friendly alternative to steam assisted gravity
drainage (“SAGD”) for the extraction of heavy oil and bitumen
through its proprietary RF XL heating technology, along with
high-performance scientific computing applications (“HPC”). This
news release should be read in conjunction with the Company’s
unaudited interim condensed financial statements and the
accompanying notes for the three and six months ended June 30,
2021, and management’s discussion and analysis (“MD&A”)
thereto, together with the audited financial statements for the
year ended December 31, 2020, notes and MD&A thereto, all of
which are available on Acceleware’s website at
www.acceleware.com or on SEDAR at www.sedar.com.
HIGHLIGHTS
Acceleware continued to advance the development
of its patented RF heating technology through the second quarter of
2021. This progress builds on the Company’s previously announced
key accomplishments including the following highlights from the
past twelve months:
- New funding of $5 million from
Alberta Innovates for the RF XL Pilot at our site in the Cold Lake
Oil Sands region near the town of Marwayne, Alberta (“RF XL
Pilot”);
- A successful full-power test of two
modules, or 500 kW, of the Clean Tech Inverter (“CTI”)
prototype;
- Receipt of all required regulatory
approvals from the Alberta Energy Regulator for the RF XL
Pilot;
- Grant of a key RF XL patent in the
United States;
- Confirmation from the first major
oil sands producer of ongoing support for RF XL Pilot;
- Commitment from a second major oil
sands producer for support of the RF XL Pilot; and
- Creation of Acceleware | Kisâstwêw,
a limited partnership, with Saa Dene Group.
During the three months ended June 30, 2021 (“Q2
2021”) the Company made a significant addition to its leadership
team and overall industry expertise with:
- The election of Jim Boucher
to Acceleware’s board of directors: A highly respected
Indigenous leader, executive and philanthropist, Jim Boucher is a
champion for sustainable and environmentally responsible
development, social prosperity, and economic inclusion for
Indigenous peoples. In 2020, he cofounded the Saa Dene Group of
Companies. In his role as President, Jim is working with a variety
of partners to pursue opportunities in multiple sectors with one
clear vision: to increase diversity and inclusive opportunity
through meaningful economic and social participation in the global
economy.
The RF XL Pilot is fully funded based on current
costs estimates, which range between $16 and $20 million. As of
June 30, 2021, total direct funding committed to the RF XL Pilot
included $5 million from Alberta Innovates, $5.5 million from
Sustainable Development Technology Canada (“SDTC”), $5 million from
Emissions Reduction Alberta (“ERA”), and $4 million provided by two
major oil sands producers. During the six months ended June 30,
2021, the Company received an additional payment of $262,500 from
SDTC in response to ongoing challenges arising from the global
pandemic, increasing their total commitment up to approximately
$5.5 million from $5.25 million.
Effective July 5, 2021, a third major oil sands
producer signed as a consortium member of the RF XL Pilot and
committed up to $2 million in funding and technical expertise. In
exchange for this funding, Acceleware will provide exclusive access
to detailed technical data and test results, prioritized rights to
host a subsequent test, preferred pricing on pre-commercial
products and preferred access to RF XL products. Acceleware’s three
oil sands partners now represent well over one million barrels of
oil sands and heavy oil production per day and a commitment of up
to $6 million of funding.
The current status of the RF XL Pilot is
summarized as follows: drilling and completions program is now
underway at Marwayne; industry-standard and proprietary well
completion materials have all been received and are either ready
for deployment or are in the final stages of testing protocols;
surface equipment and facilities have been received or are in final
stages of construction at suppliers’ facilities; and service
company partners have been selected and contracted. Barring
unforeseen delays, construction at the site is scheduled to be
complete at or shortly after the end of Q3 2021, with power up and
heating commencing shortly thereafter. While the initial heating
phase is planned for approximately six months, this period may be
extended to allow Acceleware to capture additional information on
the efficiency and operation of the technology.
There are 10 patents granted or allowed to
protect various proprietary technologies related to Acceleware’s RF
Heating research and development (“R&D”), and 25 patent
applications pending or under development. The Company continues to
work closely with the patent offices and its intellectual property
advisors.
Acceleware also continues to focus on driving
external awareness of the Company and on positioning its RF Heating
technology more prominently within both the oil and gas and
clean-tech communities. Several new blog posts and videos have been
released via social media recently which feature discussions on the
RF Heating technology by Acceleware’s engineering team. The
collection of videos is available for viewing here: Acceleware Vlog
Posts .
FINANCIAL SUMMARY
In addition to securing additional RF XL Pilot
funding from Alberta Innovates as noted above, the Company
continued to complete engineering de-risking, lab testing and
procurement, manufacturing and construction of materials and
equipment for the RF XL Pilot, all of which contributed to an
increased level of R&D spending in the period. Cumulative RF XL
Pilot expenses as at June 30, 2021 were approximately $11.2 million
(December 31, 2020 - $7.6 million). The remaining cash committed
but not yet received from SDTC, ERA and Alberta Innovates,
including holdbacks receivable is approximately $5.6 million as at
June 30, 2021 (December 31, 2020 – approximately $4.2 million) and
amounts committed but not yet received from two major oil-sands
producers is approximately $2.2 million as at June 30, 2021
(December 31, 2020 – approximately $3.2 million). Effective July 5,
2021, a third major oil sands producer signed as a consortium
member of the RF XL Pilot and committed up to $2 million in funding
and technical expertise bringing the total committed but not yet
received from all three major oil-sands producers to $4.2
million.
QUARTER IN REVIEW
Revenue of approximately $0.1 million was
generated in Q2 2021 compared to approximately $0.6 million in the
three months ended June 30, 2020 (“Q2 2020”). Revenue of
approximately $0.3 million was generated in the previous quarter
ended March 31, 2021 (“Q1 2021”). Revenue in all three periods is
mainly attributable to software and maintenance sales with a
smaller amount attributable to service revenue in Q2 2021. The
decrease in Q2 2021 compared with Q2 2020 is attributable to a
significant contract in the HPC software segment for which revenue
was recognized in Q2 2020. The decrease in Q2 2021 revenue compared
to Q1 2021 is the result of a $0.2 million contract that was closed
in Q2 2021 but not yet completed.
Total comprehensive loss for Q2 2021 was
approximately $0.7 million compared to a comprehensive loss of
approximately $0.1 million for Q2 2020 and a comprehensive loss of
approximately $0.5 million for Q1 2021. The higher comprehensive
loss in Q2 2021 compared to Q2 2020 is due to an increase in
spending for R&D in Q2 2021 and also due to lower revenue in Q2
2021 for the significant software contract noted above. The higher
comprehensive loss in Q2 2021 compared to Q1 2021 is also due to
lower revenue as noted above.
Gross R&D expenses incurred in Q2 2021 were
approximately $1.8 million compared to gross R&D expenses in Q2
2020 of approximately $0.4 million and approximately $1.6 million
in Q1 2021. The increase in Q2 2021 and Q1 2021 over Q2 2020 is due
to significant investment in the RF XL Pilot activities in 2021.
During the first half of 2021, manufacturing and assembly of the
CTI prototype was completed with many of the downhole and surface
equipment and components ordered and received in preparation for
drilling and completion construction activity scheduled for the
last half of 2021. Federal and provincial government assistance of
approximately $1.4 million was recognized in Q2 2021 compared to
approximately $0.3 million in Q2 2020 and approximately $1.3
million was recognized in Q1 2021 offsetting gross research and
development costs.
General and administrative (“G&A”) expenses
incurred in Q2 2021 were similar to those in other periods, at
approximately $0.4 million compared to approximately $0.4 million
in Q2 2020 and approximately $0.4 million in Q1 2021. The Company
continues to prioritize cost control given uncertain economic
conditions and to benefit from the CEWS government subsidy
program.
YEAR TO DATE IN REVIEW
Revenue of approximately $0.4 million was
generated from the Company’s software, maintenance and services
revenue streams for the six months ended June 30, 2021 compared to
approximately $0.7 million for the six months ended June 30, 2020.
The lower revenue in the six months ended June 30, 2021 compared to
the six months ended June 30, 2020 is due to the aforementioned HPC
software revenue contract slightly offset by increased demand for
software in the oil and gas sector in early 2021. In addition to
recognized revenue, Acceleware has also received non-refundable
milestone cash payments of $0.9 million for the six months ended
June 30, 2021 (six months ended June 30, 2020 - $0.3 million) which
are recorded in deferred revenue. Data revenue equal to the amount
recorded in deferred revenue will be recognized as revenue at the
end of the RF XL Pilot or when the data contracts are terminated,
whichever is earlier. Total deferred revenue recorded on the
statement of financial position as at June 30, 2021 is $1.65
million (December 31, 2020 – $0.75 million).
Total comprehensive loss for the six months
ended June 30, 2021 was approximately $1.2 million compared to
approximately $0.5 million for the six months ended June 30, 2020
due to higher R&D spending for the RF XL Pilot.
Gross R&D expenses for the six months ended
June 30, 2021 were approximately $3.4 million compared to
approximately $1.2 million incurred during the six months ended
June 30, 2020 due to increased R&D activity noted above.
Federal and provincial government assistance of approximately $2.7
million was recognized in the six months ended June 30, 2021
compared to approximately $0.7 million for the six months ended
June 30, 2020.
G&A expenses incurred during the six months
ended June 30, 2021 were approximately $0.8 million compared to
approximately $0.9 million for the six months ended June 30, 2020 a
decrease of approximately $0.1 million due primarily to lower
payroll and professional costs. The Company continues to prioritize
cost management.
As at June 30, 2021, Acceleware had negative
working capital of approximately $0.2 million (December 31, 2020 –
approximately $0.03 million) including cash and cash equivalents of
approximately $3.3 million (December 31, 2020 – approximately $1.9
million). The decrease in working capital and cash is attributable
to timing of receipt of funding and R&D spending for the RF XL
Pilot. Increasing the deficit is deferred revenue of $1,650,000 as
at June 30, 2021 (December 31, 2020 – $750,000). Despite receiving
non-refundable cash payments for these amounts, the milestone
payments have not met all requirements for revenue recognition
under IFRS 15 Revenue from Contracts with Customers. These amounts
will be recognized as revenue and increase shareholders’ equity
when RF XL Pilot heating is complete or the data revenue contracts
are terminated, whichever is earlier.
In the interests of matching cash requirements
with a combination of cash generated from operations, external
funding, and capital raising activities, the Company actively
manages its cash flow and investments in new products. Acceleware
intends to maximize cash generated from operations through several
initiatives which include continuing to focus on higher gross
margin software products that are marketed through a combination of
direct and reseller models; minimizing operating expenses where
possible; and limiting capital expenditures. As the Company
continues to develop its RF Heating technology, new R&D
investments will be financed through a combination of internal cash
flow from the HPC business, project funding agreements, government
assistance and external financing, when available.1*
RF HEATING BUSINESS SEGMENT
SUMMARY
RF XL is Acceleware’s patented and
patent-pending RF Heating technology, designed to improve the
extraction of heavy oil and bitumen, with a cost effective and
environmentally friendly alternative to SAGD. When applied, RF XL
has the potential to reduce both capital and operating costs, while
offering significant environmental benefits, including:
- immediate GHG emission
reductions;
- a substantial decrease in land
use;
- the elimination of external water
use;
- no requirement for solvents;
and
- substantial elimination of water
treatment facilities and no need for tailings ponds.
The Company believes that its RF XL heating
technology, as an electrically-driven process, can provide a clear
pathway to zero-GHG production of heavy oil and oil sands and
provide optimal alignment with industry and government goals to
recognize innovation as a meaningful solution in the oil and gas
industry’s overall emission reduction plans.
Q2 2021 RF Heating Results
Summary
- RF Heating revenue was $nil in Q2
2021 and Q2 2020 compared to $85,000 in Q1 2021 due to a sale of
AxHeat RF heating simulation software in connection with a data
revenue agreement to a major oil sands producer in Q1 2021. Since
2018, the Company has been successful selling data revenue
agreements to major oil sands producers which provide the customer
with the right to access and use data obtained from the RF XL
Pilot. Under IFRS 15 Revenue from Contracts with Customers, these
contracts do not meet all requirements for revenue recognition
over-time, therefore revenue recognition defaults to the end of the
contract. As at June 30, 2021, deferred revenue of $1,650,000
(December 31, 2020 - $750,000) has been recorded under these
contracts for amounts that have been received in cash, and will be
recognized as revenue once heating is complete or the contracts are
terminated, whichever is earlier.
- RF Heating expenses for the three
months ended June 30, 2021, were $675,484 or 58% higher than in Q2
2020 and 9% higher than in Q1 2021. R&D expenses were higher
compared to both Q2 2020 and Q1 2021 due to higher contractor and
materials costs related to the significantly increased activity for
the RF XL Pilot in preparation for drilling and completion work.
G&A expenses were lower compared to Q2 2020 and relatively
unchanged compared to Q1 2021 as management continues to manage
overall administrative costs and to benefit from the CEWS
government program.
HIGH-PERFORMANCE COMPUTING BUSINESS
SEGMENT SUMMARY
Acceleware's HPC business segment helps
customers meet their oil and gas exploration needs with seismic
imaging software that provides the most accurate and advanced
imaging available for oil exploration in complex geological zones
and formations. While the Company is focusing on energy markets, it
continues to develop and sell its electro-magnetic (“EM”)
simulation software FDTD (or finite difference time domain)
solution, AxFDTD, to end users primarily through independent
software vendors that have integrated Acceleware’s solution into
their software architecture.
Q2 2021 HPC Results Summary
- HPC revenue decreased to $97,408 in
Q2 2021 from $611,712 in Q2 2020 and $186,106 in Q1 2021 due mainly
to lower software revenue. Due to the change in the software
revenue model in 2018, the Company now expects fewer overall sales
transactions with higher overall revenue per transaction, which
could potentially lead to increased volatility in quarterly
revenue. This was evident in Q1 2021 and Q2 2020 as revenue
fluctuated relative to Q2 2021.
- HPC expenses for the three months
ended June 30, 2021 were $119,108 or 23% lower than in Q2 2020 and
17% lower than in Q1 2021. Cost of revenue is related to software
sales in Q2 2021 with no similar sales in either Q2 2020 or Q1
2021. G&A expenses were lower compared to both Q2 2020 and Q1
2021 due to lower payroll and payroll related expenses. R&D
expenses were minimal in Q2 2021 and lower than in Q2 2020 as the
Company focuses the majority of all R&D on the RF XL Pilot in
2021.
ABOUT ACCELEWARE:
Acceleware (www.acceleware.com) is an innovator
of clean-tech oil and gas technologies comprised of two business
units: Radio Frequency (RF) Enhanced Oil Recovery and Seismic
Imaging Software.
Acceleware is developing RF XL, its patented and
patent-pending low-cost, low-carbon production technology for heavy
oil and oil sands that is materially different from any heavy oil
recovery technique used today. Acceleware's vision is that
electrification of heavy oil and oil sands production can be made
possible through RF XL, supporting a transition to much cleaner
energy production that can quickly bend the emissions curve
downward. Further, Acceleware’s RF XL technology could be a key
component of an end-to-end integrated carbon management system that
can eliminate greenhouse gas (GHG) emissions associated with heavy
oil and oil sands production, whether for fossil fuels, or for
future clean bitumen by-products such as petrochemicals, carbon
fibre, and blue or green hydrogen production. RF XL uses no water,
requires no solvent, has a small physical footprint, can be
redeployed from site to site, and can be applied to a multitude of
reservoir types. In shallow oil sands implementations, no tailings
ponds will be required.
Acceleware has partnered with Saa Dene
Group (co-founded by Jim Boucher) to create
Acceleware | Kisâstwêw to raise the profile, adoption,
and value of Acceleware technologies. The shared vision of the
partnership is to improve the environmental and economic
performance of the energy sector
by supporting ideals that are important to Indigenous
peoples, including respect for land, water, and clean air.
The Company’s seismic imaging software solutions
are state-of-the-art for high fidelity imaging, providing the most
accurate and advanced imaging available for oil exploration in
complex geologies. Acceleware is a public company listed on
Canada’s TSX Venture Exchange under the trading symbol “AXE”.
NOTE REGARDING FORWARD-LOOKING
INFORMATION AND OTHER ADVISORIES
This news release contains “forward-looking
information” within the meaning of Canadian securities legislation.
Forward-looking information generally means information about an
issuer’s business, capital, or operations that are prospective in
nature, and includes disclosure about the issuer’s prospective
financial performance or financial position.
The forward-looking information in this press
release can be identified by terms such as “believes”, “estimates”,
“plans”, “potential”, and “will”, and includes information about
the expected cost of the RF XL pilot at
Marwayne, the timing of the execution of
the Pilot, and the anticipated benefits of the RF XL
technology. Acceleware assumes that current cost estimates are
accurate, current timelines will not be delayed by either internal
or external causes, that research and development effort
including the commercial-scale test plans will result in
commercial-ready products, and that future capital raising
efforts will be successful.
Actual results may vary from the forward-looking
information in this press release due to certain material risk
factors. These risk factors are described in detail in Acceleware’s
continuous disclosure documents, which are filed on SEDAR at
www.sedar.com.
Acceleware assumes no obligation to update or
revise the forward-looking information in this press release,
unless it is required to do so under Canadian securities
legislation.
This news release does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities
described in this release in the United States. The securities have
not been and will not be registered under the United States
Securities Act of 1933, as amended (the “U.S. Securities Act”), or
any state securities laws and may not be offered or sold within the
United States or to U.S. persons unless registered under the U.S.
Securities Act and applicable state securities laws or an exemption
from such registration is available.
DISCLAIMER
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
For more information:Geoff ClarkTel: +1 (403)
249-9099geoff.clark@acceleware.com
Acceleware Ltd.435 10th Avenue SECalgary, AB,
T2G 0W3CanadaTel: +1 (403) 249-9099www.acceleware.com
________________________________________________* this
paragraph contains forward looking information. Please refer to
“Forward Looking Statements” and “Risk Factors and Uncertainties”
for a discussion of the risks and uncertainties related to such
information.
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