VMC PSL 17

[JQuPrice]

NXT Energy: My Top Pick

NXT Energy Solutions, Inc (TSX: SFD.V, OTCBB: NSFDF) is a service comany that does aerial surveys for the Oil and Gas industry. They have developed a new technology that according to their website: "...represents a new generation of airborne geophysical surveys that can identify areas of reservoir potential within the sedimentary column, so you can focus your seismic programs and G&G resources on realizing it."

http://www.nxtenergy.com

They put out a press release after yesterday's close announcing a pilot program in Montana, serveral conferences that they will be attending this month, and an investor call on 4/14:

http://finance.yahoo.com/news/NXT-Announces-a-150000-Pilot-iw-2949423890.html?x=0&.v=1


Here is a copy of their most recent investor presentation:

http://www.nxtenergy.com/_downloads/AGM/2010_agm.pdf

Investment Thesis:

High margin business with a new technology that can replace 2D seismic progams at 1/10th the time and cost.

Stock is trading a multi-year lows in the 50 cent range due to major revenue disapointement in 2010:

Revenue by year:
2006: $1.1m
2007: $5.6m
2008: $2.9m
2009: $3.6m
2010: $430,000 --- ughh!!!

However, I see 2011 revenue coming in at over $7 million with net income in the range of $2.5 to $3m for the following reasons:

1. Per investor presentation above, Pacific Rubiales committed to two surveys in the Colombia's bid round in 2010. A) "1846 km of SFD as a part of their 82MM work commitment in CAG 5 block". (1846km x $1100 per km = $2.03 million) and B) "committed 1290km of SFD in COR 24 block" (1290km x $1100 per km = $1.42 million). Total revenue = $3.45 million.

2. Signed contract with PPL in Pakistan to be completed in Q2 2011. (http://finance.yahoo.com/news/NXT-Announces-a-Letter-of-iw-518152641.html?x=0&.v=1) Total revenue = $2.66 million.

3. Pilot program in Montana that was just announed. Total revenue = $150,000.

These three programs that should be baked into the cake mean total revenue for 2011 = $6.26 million

Again, according to their presentation above they have also done work with Ecopetrol, Hocol, Petrodorado and various other Canadian companies.

As of December they had 7 outstanding quotes in Colombia, 7 in Peru, and 2 in Pakistan. Closing just one more contract over the remainder of 2011 totalling $750,000 gets the company to the $7m revenue figure. [Note: Blocks in Peru where they have 7 quotes outstading are very large (~20,000km2) so just one contract could mean an additional $3-6 milllion in work]

$7 million in revenue would be a 1500%+ revenue jump over 2010 and which will surely get investors' attention.

Current burn rate is under $1 million a quarter making them very profitable with this kind of revenue.

Risks:

A micro-cap that has to prove it can not only deliver revenue this year but sustain that momentum into 2012. The 2011 revenue figure looks like it will be aided by programs that were planned for 2010 and pushed into 2011. However, if the technology preforms as they claim, revenue should continue to climb. Falling oil prices would also hurt the company for obvious reasons.

Conclusion:

Strong revenue growth should propel the stock. Management will likely have additional color to add on existing and future contracts on conference call on April 14th.


Disclosure: I am long NXT Energy

If I have time I'll do a shorter summary of my other picks CVU, DLA, LNDC, RICK, and VSNT before the contest ends. IMHO all good companies but not as much upside.

Good luck to all!