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 nine months ended September 30, 2021
(all figures are in Canadian dollars unless otherwise noted).
Acceleware’s third 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 nine months ended September 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 achieved a major milestone in the
execution of the commercial-scale RF XL pilot project at Marwayne,
Alberta (the “RF XL Pilot”) by kicking off the drilling and
completions program during the quarter. The RF XL Pilot is the
final step before commercialization of the Company’s
patent-protected Clean Tech Inverter (“CTI”), a novel
electrification “engine” for industrial heating, first applied in
the extraction of heavy oil and oil sands. Acceleware believes the
CTI can economically decarbonize many industry verticals through
electrification with immediate application in the clean energy
transition. Functionality of the CTI has already been proved
through scaled field tests conducted in 2019 and 2020, and when
combined with existing heating systems and an immediate appetite
within industry to adopt a clean technology, can facilitate an
economic decarbonization strategy for many organizations.
In addition to the ongoing activities for the
drilling and completions program, the Company achieved the
following highlights in the last twelve months:
- CEO, Geoff Clark, received Canada’s Clean-50 Award;
- A third major oil sands producer signed-on as a consortium
member of the RF XL Pilot and committed up to $2 million in funding
and technical expertise;
- Jim Boucher was elected to the board of directors;
- Alberta Innovates granted new funding of $5 million for the RF
XL Pilot at our site in the Cold Lake Oil Sands region near the
town of Marwayne, Alberta;
- A second major oil sands producer committed up to $2 million in
funding to support of the RF XL Pilot;
- The Acceleware | Kisâstwêw limited partnership with the Saa
Dene Group was established;
- Acceleware was granted a key RF XL patent in the United States;
and
- The Company completed a successful full-power test of two
modules, or 500 kW, of the CTI prototype.
The RF XL Pilot is fully funded based on current
cost estimates, which range between $16 and $20 million. As of
September 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 $6 million from three
major oil sands producers.
All three consortium members of the RF XL Pilot
have 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.
Project Update: As noted above,
the RF XL Pilot is progressing through the drilling and completion
stage. The producer well was successfully drilled and completed as
of September 30, 2021. The reservoir characterization appears in
line with expectations and there were no major issues encountered
while drilling the producer well. The surface and intermediate
sections of the heater well were also complete as of September 30,
2021.
Horizontal drilling of the heating well was
paused by Acceleware in September 2021 due to manufacturing timing
for a few remaining components and the lack of rig availability.
Drilling re-commenced in early November 2021 and both the producer
and heating wells have been drilled with casing and production
liner installed in the producer well and RF XL transmission lines
installed in the heating well. The drilling rig has been released
and a service rig will finish the remaining completion tasks near
the end of November such as running internal electrical lines in
the heating well and production string in the producer well. The
building containing the CTI (“E-house”) and related electrical
equipment, was in the final stages of construction as of September
30, 2021 and as of the date of the MD&A is ready to move to
Marwayne, Alberta.
Barring delays that could not have been
reasonably foreseen, surface construction and facility installation
at the site is scheduled to be completed by, or shortly after, the
end of Q4 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.
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
R&D spending has increased significantly, in
lockstep with progress towards completion of the drilling program
and the purchase and manufacture of surface and sub-surface
equipment. Cumulative RF XL Pilot expenses as at September 30, 2021
were approximately $15.2 million (December 31, 2020 - $7.6
million). The remaining cash committed but not yet received from
SDTC, ERA and Alberta Innovates, including holdbacks receivable was
$5.6 million as at September 30, 2021 (December 31, 2020 – $4.2
million) and amounts committed but not yet received from three
major oil-sands producers was $3.2 million as at September 30, 2021
(December 31, 2020 – $3.2 million).
QUARTER IN REVIEW
Revenue of $0.3 million was generated in the
three months ended September 30, 2021 (“Q3 2021”) compared to $0.1
million in the three months ended September 30, 2020 (“Q3 2020”).
Revenue of $0.1 million was generated in the previous quarter ended
June 30, 2021 (“Q2 2021”). Revenue is attributable to software,
maintenance and services with the largest amount attributable to
software. The increase in Q3 2021 compared with Q3 2020 and Q2 2021
is attributable to a significant contract in the HPC segment and
sales of RF simulation services within the RF Heating segment.
Total comprehensive loss for Q3 2021 was $1.1
million compared to a comprehensive loss of $0.5 million for Q3
2020 and a comprehensive loss of $0.7 million for Q2 2021. The
higher comprehensive loss in Q3 2021 compared to Q3 2020 and Q2
2021 is due to an increase in spending for R&D in Q3 2021.
Gross R&D expenses incurred in Q3 2021 were
$4.0 million compared to gross R&D expenses in Q3 2020 of $0.5
million and $1.8 million in Q2 2021. The increase in Q3 2021 and Q2
2021 over Q3 2020 is due to significant investment in the RF XL
Pilot activities in 2021. During Q3 2021, a significant portion of
the drilling activity was completed, and the majority of surface
and sub-surface equipment was received and completed. Federal and
provincial government assistance of $3.0 million was recognized in
Q3 2021 compared to $0.3 million in Q3 2020 and $1.4 million in Q2
2021, offsetting gross research and development costs.
General and administrative (“G&A”) expenses
incurred in Q3 2021 were similar to those in other periods, at $0.4
million compared to $0.4 million in Q3 2020 and $0.4 million in Q2
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
There was $0.7 million generated from the Company’s software,
maintenance and services revenue streams for the nine months ended
September 30, 2021 compared to $0.8 million for the nine months
ended September 30, 2020. The lower revenue in the nine months
ended September 30, 2021 compared to the nine months ended
September 30, 2020 is due to recognition of a large HPC contract in
2020. In addition to recognized revenue, Acceleware has also
received non-refundable milestone cash payments of $1.9 million for
the nine months ended September 30, 2021 (nine months ended
September 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 September 30, 2021 is $2.65 million (December 31,
2020 – $0.75 million).
Total comprehensive loss for the nine months ended September 30,
2021 was $2.3 million compared to $1.1 million for the nine months
ended September 30, 2020 due to higher R&D spending for the RF
XL Pilot.
Gross R&D expenses for the nine months ended September 30,
2021 were $7.4 million compared to $1.7 million incurred during the
nine months ended September 30, 2020 due to increased R&D
activity noted above. Federal and provincial government assistance
of $5.8 million was recognized in the nine months ended September
30, 2021 compared to $1.0 million for the nine months ended
September 30, 2020.
G&A expenses incurred during the nine months ended September
30, 2021 were $1.2 million compared to $1.3 million for the nine
months ended September 30, 2020 a decrease of $0.1 million due
primarily to lower payroll and professional costs. The Company
continues to prioritize cost management.
As at September 30, 2021, Acceleware had positive working
capital of $0.2 million (December 31, 2020 – positive working
capital of $0.03 million) including cash and cash equivalents of
$3.4 million (December 31, 2020 – $1.9 million). The increase 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 $2,650,000 as at September 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.*
* 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.
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.
RF Heating Results Summary
- RF Heating revenue
was $55,000 in Q3 2021 compared to $nil in Q3 2020 and $nil in Q2
2021 due to sales of RF simulation services, a relatively new
revenue stream attributable to customers’ interest in applying RF
XL to specific reservoirs and operations. 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 September
30, 2021, deferred revenue of $2,650,000 (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 September 30, 2021,
were $1,310,076 or 177% higher than in Q3 2020 and 94% higher than
in Q2 2021. R&D expenses were higher compared to both Q3 2020
and Q2 2021 due to higher contractor and materials costs related to
the significantly increased activity for the RF XL Pilot for
drilling and completion work. During Q3, the Company completed
manufacturing and assembly of the RF XL Pilot E-house including
installation of the CTI prototype and ancillary equipment, prepared
downhole and surface equipment for installation, and successfully
completed the majority of the well drilling and completion program.
G&A expenses were higher compared to Q3 2020 and Q2 2021 due to
an increased level of activity on RF Heating as compared to
HPC.
- RF
Heating revenue was higher in the nine months ended September 30,
2021 at $140,000 compared to $nil in the nine months ended
September 30, 2020, driven by higher software revenue from the sale
in Q1 2021 of the Company’s AxHEAT RF heating simulation software
to a major oil sands producer in connection with a data revenue
agreement and due to higher services revenue for sales of
simulation services.
- RF
Heating expenses increased 76% to $2,604,071 in the nine months
ended September 30, 2021 compared to $1,477,895 for the nine months
ended September 30, 2020 because of an 212% increase in R&D
expenses for increased activity on the RF XL Pilot as noted above.
G&A expenses for the nine months ended September 30, 2021
decreased 4% compared to nine months ended September 30, 2020 due
to lower payroll related costs.
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.
HPC Results Summary
- HPC revenue increased to $242,226
in Q3 2021 from $130,219 in Q3 2020 and $97,408 in Q2 2021 due
mainly to higher software revenue. Due to the 2018 change in the
software revenue model, 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 Q3 2021 as revenue fluctuated relative
to Q3 2020 and Q2 2021.
- HPC expenses for the three months
ended September 30, 2021 were $96,414 or 36% lower than in Q3 2020
and 19% lower than in Q2 2021. Cost of revenue in Q2 2021 related
to software sales recognized in Q2 2021 with no similar sales in
either Q3 2021 or Q3 2020. G&A expenses were lower compared to
both Q3 2020 and Q2 2021 due to lower payroll and payroll related
expenses. R&D expenses were minimal in Q3 2021 and lower than
in Q3 2020 and Q2 2021 as the Company focuses the majority of all
R&D on the RF XL Pilot.
- HPC revenue was $525,740 in the
nine months ended September 30, 2021, a decrease of 36% compared to
$824,935 in the nine months ended September 30, 2020 due to the
above-mentioned 2020 revenue contract partially offset by increased
demand for software in the oil and gas sector in early 2021.
- HPC expenses were $359,356 in the
nine months ended September 30, 2021 a decrease of 31% compared to
$518,809 in the nine months ended September 30, 2020 as the Company
continues to focus the majority of resources on the RF XL
Pilot.
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,
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
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