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Executives

George LiszicaszPresident and Chief Executive Officer

Greg Leavens – Chief Financial Officer.

Andy Steedman – Vice President of Operations

Analysts

Stan Trilling – Credit Suisse

Michael Mork – Mork Capital Management

NXT Energy Solutions Inc. (OTCQB:NSFDF) Q2 2014 Earnings Conference Call August 28, 2014 4:10 PM ET

Operator

Good day ladies and gentlemen. Welcome to the NXT Energy Solutions Conference Call. I’d like to introduce George Liszicasz. Please go ahead.

George Liszicasz

Thank you, Michael. Hello and we would like to welcome back those of you who are with us in the last – during the last conference call of NXT Energy Solutions and those of you who are joining us for the first time. My name is George Liszicasz, President and CEO and with me today on this call is Andy Steedman, our VP Operations and Greg Leavens, our Chief Financial Officer.

The purpose of today’s call is to inform you about the results for the recent Q2 period and give you an update our new developments since our recent July 22nd conference call. Please note that this conference call contains forward-looking information for which we note the standard disclaimer that such information is by nature uncertain and therefore future results may vary from expectations.

Our MD&A and financial statement for Q2 have been filed on SEDAR in Canada and EDGAR in the USA. All totals noted today are in Canadian dollars unless otherwise stated.

Our G&A over has a running as roughly C$1 million per quarter and our cash and short-term investments were C$7.5 million at the end of Q2. Digital and financial position allows us to continue to pursue many significant survey contract opportunities, which we will be discussing shortly.

As a high level summary we did not recognize any revenues in Q2, the six month year-to-date revenue total was C$3.9 million. NXT had a net loss of C$1.3 million for Q2 and a six month year-to-date net income of C$1.3 million.

On our July 22 conference call, we talked in detail about our recent history with PEMEX the national oil company of Mexico and the significant energy reforms which have taken place in 2014. Recently, we held meetings at the highest level with the PEMEX Exploration Department and have been assured that PEMEX intensity used with SFD Technology in the near future.

We all need to remember that we are dealing with a $450 billion giant that is now required to change course for the first time. Furthermore, it needs to accommodate the international E&P that we will soon be invited to participate in bidding on onshore and offshore blocks. The monumental Round Zero process was recently announced as completed ahead of the original September 17, deadline and PEMEX retained roughly 31% of their production and exploration. This milestone is very important for NXT as it means number one. PEMEX now as certainly – certainty as to what undeveloped an exploration landings will retain.

NXT will be able to work with PEMEX to assess which of their blocks are prime candidates for the application of new SFD surveys. Number two, with the upcoming Round Zero – Round One process next year many new international E&P players will be entering the Mexico market which should serve to expose SFD to broader potential customer base.

Offshore exploration is very expensive and throughout with risk. We aim to make SFD a key tool in this exploration process. To showcase and promote the benefits of SFD service in this region. We have several initiatives underway we will be attending and presenting in the 2nd annual Latin America Oil and Gas Summit in Houston on September 10 and 11. Our presentation will focus on NXTs experience with PEMEX utilization of SFD in the Gulf of Mexico.

Also we will be attending the World National Oil Companies Congress hosted by PEMEX in September 23 to 26 in Cancun, Mexico. Naturally, we have a number of client meetings scheduled at both conferences. In the meantime, we continue our plan to conduct direct meetings with PEMEX exploration units FDOs in order to proactively discuss new SFD projects. In an effort to extend our eighth international opportunities we will also be attending and presenting at additional E&P Industry Conferences in South America, Africa and Pakistan this fall.

As we continue developing PEMEX into Marquee long-term client we also want to stay on course to broaden our client base around the world and the short-term we are advancing many existing opportunities primarily in the USA, South America, Pakistan and Malaysia. In Q1 2014, we delivered a large survey project for a new US based exploration client Kerogen and we are encouraged that they have expressed interest in future SFD surveys. The recognition of all additional revenues in 2014 will depend on a number of factors including the timing of successful negotiation of the terms of new SFD projects and obtaining regulatory permits, importation and other approvals.

This process is generally quicker for surveys we may conduct in North America and Mexico. We are also very encouraged by the expansion of interest in SFD in multiple new countries such as Bolivia, Paraguay, Ecuador and Malaysia. Request for formal quotes for survey project have been at this highest level ever and since our last conference call additional request have been received.

We are also advancing several opportunities with existing customers, which is very beneficial in the process of expanding his industry acceptance of SFD. On our July conference call, we also noted the importance of enhancing our sales and marketing staff resources in order to aid in expanding our client based and project orders. Finding, the right individuals, who have extensive experience in selling geophysical services globally is a recognized priority for us and the process is currently underway.

Going forward, we plan to continue hold these calls – these conference calls as part of our regularly scheduled earnings releases. Thank you for your interest. And with that we are open to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Bradley Richmond. Please go ahead.

Unidentified Analyst

Hi George, how are you? On the last call you mentioned, you started talking about the vertical companies and how they might be implemented. Is there been anymore progress on that front but you can update us on.

George Liszicasz

I will ask Andy to address that for us.

Andrew Steedman

Hi, Brad. Sorry, I am told to get closer to the microphone. I apologize, so it is something that we have been working on and there has been progressing, formulating the plan has been progressed in identifying the value et cetera of the data that we have as well as there’s been some identification of some candidates to basically take us to the process of evaluating all the information, formulating actual management team. And then going obviously then you’ll be taking that to market to be separately funded. So that process is underway and there is lot of progress has been made and are hoping in the coming months, there will be more details that we can share with you.

Greg Leavens

Also we like to mention with our board is actively involved in the process.

Unidentified Analyst

Thank you.

George Liszicasz

Thank you. You’re most welcome.

Operator

All right, next question comes from Peter Mark. Please go ahead.

Unidentified Analyst

Hey, guys. Good call, can you hear about the verticals are moving ahead too, but my question was coming back to contracts. I’m just scaling the MD&A that was put up and you know you are talking about specifically Mexico, Kerogen, Pakistan, Southeast Asia, Bolivia. Could you quantify for us or as best you can, I know nothing is exact, but what’s – what are the chance of getting done this year what are the best opportunities out of those in which would be the first that you would see, where revenue be actually in income statement?

George Liszicasz

That one for me…

Greg Leavens

Thanks, Peter, it’s a very challenging question because in all the places that you mentioned all of the discussions are at the very advanced stage. Its and each one of them has, I guess you could say, its quartz towards getting to the finalization. So I think any one of those things could happen in the very short-term to be actually have the contracts announced anything that you want to do it. The timing of the delivery of the contracts market-by-market it depends. As George said earlier in the call, it’s once a contract is done, the approval process is faster in the US and in Mexico then it is for example in Pakistan. So that process varies, but everyone of those particular markets that you mentioned all of those are at that later stages of negotiations with the clients.

Unidentified Analyst

In certain terms of getting something signed they are all closed. Obviously it’s – in terms of wanting the revenue gets recognized that’s going to depend on the timing and what not been in terms of getting a press release out or we’ve – you’ve signed a lot of intend, better we had a contract those are all advanced stages and sounds like.

George Liszicasz

That’s correct.

Unidentified Analyst

And does that means this year, the next couple of months?

George Liszicasz

We are very much hoping Peter that not only we’re going to be able to sign a contract, but maybe able to execute it as well, but that would be the whole.

Unidentified Analyst

Okay.

George Liszicasz

Just to, you know how it is easy – it’s difficult to say these things particularly on a conference call. And so I think we are very much in agreement here, you know that, not only signing but starting a contract, which would also result in revenue recognition this year. So in any revenue this year, what we are talking about the contracts signed, quite significant some of them would definitely put NXT in the black.

Unidentified Analyst

Sure. As soon as they are signed I think what’s going to get people’s attention as well. Just partially says out there, because it’s going to come at that point. So, anyway that’s sounds great guys, thanks a lot.

George Liszicasz

Thank you, Peter.

Greg Leavens

Thanks, Peter.

Operator

All right. Next question comes from Stan Trilling from Credit Suisse. Please go ahead.

Stan Trilling – Credit Suisse

Gentlemen thank you for the time. And guys I’m a little disappointed in the answer to the question about the verticals. It sounds like a lot of mush, mush to me. Is there any – can you be a little bit more specific about not – I don’t want the specific names, but the type of players you are talking to, the type of size of verticals they’re talking about. And are there more than one party who you’re talking to, just like a little bit more specificity a little more visibility?

George Liszicasz

Okay, I will start. Thank you very much Stan. I will start and then Andy has anything or Greg add to it. It’s a significant they were each vertical with their significant undertaking and require a significant financing. There is a tremendous interest out there as you remember we discussed this the last time. It’s very important for NXT to make these verticals happen from the perspective of strength. We’re working on developing the first vertical internally, we cannot really stay specifics and I hope you appreciate that because we don’t want to alert the countries or the players and so on and so forth that we are going to be using this technology to go out there and get their lands basically, because we have to negotiate for their land positions correct. And so we don’t want to say names that who are the players, but they’re significant players.

Also the funding that is discussed internally is also seeing significant. So, we’re talking about minimum C$100 million and up to finance one of these verticals. And also we have many types of interest, I give you another version of its investment bankers who would like to submit proposal to NXT to utilize this technology in the Gulf of Mexico.

In order to prioritize in high grade the upcoming Round One block sales. So, and they have two or three of these and then we have our verticals that we are working on internally for sometime now and advancing it further and have the management team in place and so on. And basically we’re working up the place right now as we speak. So I would close with that at the moment.

Stan Trilling – Credit Suisse

Let me just follow-up question, how important is a contract from PEMEX to the verticals?

George Liszicasz

I would say that it’s not PEMEX itself is the important part. I think any of the contracts that Andy mentioned today in Bolivia or anywhere else they will be all significant that we can move forward. Of course the PEMEX contract is, to me personally important, but not necessarily for the company. Yes, repeat customers that’s the key right. So PEMEX, everybody is looking at PEMEX in Latin America as a major customer for NXT. We’re very pleased with the progress that we actually make them.

Greg Leavens

Stan, if I can just add one thing the team that we identified to be involved with this, is a very experienced team with experience in the markets, I mean from a delivery of a E&P company perspective as always well in the financial markets. They’ve had success in the past they’re excited about taking this technology and using into the differentiating tool. And as soon as we get it sort to – sort of the next stage, obviously we will be informing investors about it. And we are thinking at the board now to give their blessing, we have the whole plan, so I think we are doing well on that.

Stan Trilling – Credit Suisse

Okay, thank you. I just wanted, as I told George at sometime in the past. This is the longest pregnancy I have ever been [indiscernible]. Thank you, guys.

George Liszicasz

Let me talk to the board.

Andrew Steedman

Thanks, thank you very much

Stan Trilling – Credit Suisse

Well, I have patience, they have unbelievable patience.

George Liszicasz

Thank you very much. Ben.

Stan Trilling – Credit Suisse

And thanks for your support and all of you.

Operator

Next question we have, another question from Mork Capital Management from Michael Mork, please go ahead.

Michael Mork – Mork Capital Management

Well, guys, yes I’m long over due. Question and couple of questions one is you are going to be meeting PEMEX twice since September, I mean some of the top people at PEMEX and do you think by the end of the September, you will have a pretty good feel for when not to be able to, but just kind of when you’re going to get the final say from PEMEX as far as the date and when you will be in the year for them?

George Liszicasz

We are definitely going to have a much better idea, but that’s above these that I can say, it’s certainly our goal to try to get that signature, signature is always to good to get as much information detail from plans as possible and we are going to working with them not just when we are meeting them in those meetings, it’s ongoing things that are happening currently. So, it’s certainly not a goal to get to that resolution, but again it’s PEMEX so you never know for sure.

Michael Mork – Mork Capital Management

Okay. And then now on Kerogen, you obviously, at least all indications are your flights for them are very successful in the first quarter, what’s holding that went up to second contract or the third contract, I guess it is and when do you think, you might be fly for them again?

George Liszicasz

Andy.

Andrew Steedman

Well, I am little reluctant to say on a conference call, somebody’s plans. Because I know what they are, but I can’t say until they actually commit and go forward to really seeing them.

Michael Mork – Mork Capital Management

Okay.

George Liszicasz

It includes contracts it includes also drilling that they are planning to do and so that’s a wide range of the customers are very happy. And said they want to use the tool again and they will use it in the appropriate point within their exploration projects and plans.

Michael Mork – Mork Capital Management

But they were happy with the results?

George Liszicasz

They are static with results what and said to us.

Michael Mork – Mork Capital Management

Okay. And then just lastly I know its kind of a different question, but when you’re down in the Gulf, what you are planning for PEMEX whatever and would you apply say that the shallow regions of the Gulf of Mexico, that haven’t been explored on our own defined hopefully some Elephant fields down there are you allowed to do that or what – that’s a real deep stuff that cost a 100 million plus to drill. But the shallower stuff that might cost 25 million or 40 million to drill. Could you just go down there and fly that and find the elephants on your own and then really have something in your back pocket?

Andrew Steedman

There is potential to do, we have to make sure that we do everything within the new regulatory frameworks that have happened within Mexico. But we’ve done similar things in other countries to acquire information that can be useful and beneficial for us and certainly as long it’s within the framework that’s permitted within the Mexico we would intend to do things like that, yes.

Michael Mork – Mork Capital Management

Okay, very good. Good conference call. Thank you.

Andrew Steedman

Thank you, Mike.

George Liszicasz

Thanks Mike.

Operator

All right. We don’t seem to have any questions in the queue at this time. (Operator Instructions) And we don’t seem to have any questions at this time.

George Liszicasz

In that case, thank you very much. Thank you, all for joining us this conference call. And as I mentioned we are going to repeat every time we are going to have quarters released and thank you.

Operator

Ladies and gentlemen, this concludes the NXT Energy Solutions conference call. Thank you for your participation. And have a nice day.

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