Executive Summary / Key Takeaways

• Pioneering Technology with Proven Success: NXT Energy Solutions Inc. ($NSFDF) leverages its proprietary Stress Field Detection (SFD) technology, an airborne remote-sensing system, to offer a significantly higher drill success rate of approximately 70% for hydrocarbon exploration, dramatically outperforming traditional seismic methods.
• Strategic Pivot Towards Diversified Growth: Under new leadership, NXT has shifted from an exclusive focus on large National Oil Companies (NOCs) to a diversified strategy, actively targeting Independent Oil Companies (IOCs) and expanding geographically, aiming for more consistent revenue streams and mitigating past periods of inactivity.
• Expanding Horizons with Geothermal and Data Monetization: The company is actively developing its SFD-GT technology for geothermal exploration, with Phase II sensor development underway, and plans to monetize its extensive library of over 140,000 line kilometers of existing survey data, opening new revenue avenues.
• Improved Financial Trajectory and Liquidity Management: Recent financial results show a reduction in net loss and improved working capital, supported by a successful debenture financing and ongoing cost-reduction initiatives, positioning the company for better cash flow as new contracts materialize.
• Active Commercial Pipeline and Optimistic Outlook: With an active pipeline including draft contracts and formal proposals across Africa, the Middle East, and Asia, and a new SFD survey contract in Africa announced for Q3 2025, management expresses confidence in generating significant revenue and enhancing shareholder value in the near term.

The Quantum Edge: Reshaping Energy Exploration

NXT Energy Solutions Inc. ($NSFDF), headquartered in Calgary, Canada, stands at the forefront of geophysical services, offering a disruptive approach to energy exploration through its proprietary Stress Field Detection (SFD) remote-sensing survey system. Incorporated in 1994, the company's core business revolves around this airborne technology, which utilizes principles of quantum mechanics to infer stress anomalies indicative of fluid entrapment with commercial hydrocarbon and geothermal potential. This innovative method provides a non-invasive, efficient means to identify promising exploration targets both onshore and offshore.

The tangible benefits of NXT's SFD technology are compelling for an industry constantly seeking to de-risk exploration and optimize capital. The company boasts an impressive commercial success rate of approximately 70% on wells drilled based on its recommendations since 2009, encompassing 30 wells. This figure significantly surpasses the success rates achieved by traditional 2D and 3D seismic methods, which typically stand at around 19% onshore and 9% offshore for wildcat exploration. This superior accuracy translates directly into substantial time and cost savings for clients, de-risking exploratory acreage and ultimately leading to much higher returns on invested capital. The ability to speed up the survey process and provide high-confidence targets forms a critical competitive moat for NXT.

The broader industry landscape, characterized by strong commodity prices and a renewed global push for energy security, provides a fertile ground for NXT's offerings. Increased exploration activity worldwide, partly spurred by geopolitical events, has led to a more receptive market for efficient and effective exploration technologies. This favorable environment marks a significant shift, with management noting that the current reception of their technology is "incomparable to 2018, 2019, 2017."

Competitive Dynamics and Strategic Diversification

NXT operates within a competitive landscape dominated by global oilfield service giants such as Schlumberger NV (SLB), Halliburton Company (HAL), and Baker Hughes Company (BKR). These larger players offer comprehensive, integrated services across the entire oilfield lifecycle, from drilling to production. While NXT's SFD technology provides a specialized niche advantage, particularly in its speed and precision for early-stage exploration, it faces challenges in scale and diversification when compared to its rivals.

Schlumberger, for instance, leverages its extensive global network and technological expertise in data analytics to offer integrated solutions, often bundling services for full-cycle projects. Halliburton focuses on drilling, completion, and evaluation services, demonstrating robust operating margins through effective cost management. Baker Hughes emphasizes digital solutions and partnerships, driving revenue growth through innovation in subsea and data-driven exploration. Against these formidable competitors, NXT's unique value proposition lies in its specialized, non-intrusive airborne technology, which can offer notably faster and more precise surveys in remote or challenging terrains. This differentiation can appeal to clients prioritizing environmental considerations or seeking to reduce upfront exploration risks. However, NXT's smaller operational footprint and project-based revenue model mean it lags in overall product breadth, customer reach, and the financial stability that comes with diversified income streams.

Recognizing the limitations of its historical "elephant hunting" strategy—an exclusive focus on large National Oil Companies (NOCs) that often led to "extended periods of inactivity" and "balance sheet stress"—NXT has embarked on a strategic pivot. Under Interim CEO Bruce Wilcox, the company's vision is to "actively market, high grade, diversify, monetize, collaborate, and grow." This involves diversifying by geography (Africa, Middle East, Southeast Asia), company size (increasingly engaging with Independent Oil Companies or IOCs alongside NOCs), and expanding its network of sales agents. This shift aims to secure a more consistent flow of smaller, quicker-developing projects while still pursuing larger NOC opportunities.

Technological Innovation and Future Growth Avenues

Beyond its core hydrocarbon exploration services, NXT is actively innovating to expand its technological applications. A significant initiative is the development of its SFD-GT (geothermal) sensor technology. The company has successfully completed Phase I of this program and is currently preparing for Phase II, which involves developing a prototype for both land-based and flight testing. The stated goal is to adapt existing SFD sensors to be "more suitable for geothermal exploration," aiming to effectively locate geothermal resources with high potential by pinpointing areas with optimal water and temperature gradients. This could allow clients to identify the best candidate wells from existing depleted wells, reducing the need for new drilling.

The "so what" for investors here is clear: this diversification into geothermal energy opens a new, growing market for NXT, leveraging its core technological expertise. While initial pilot geothermal projects may see lower turnkey fees (potentially around 50% of hydrocarbon survey costs) to encourage adoption and compete with existing technologies, the long-term potential for increased pricing and market penetration is significant as more case studies and successes emerge. The company is actively seeking funding for Phase II from NRC IRAP, with an application in the "low 6 figures," and there is potential for a "significant amount of capital" infusion to create a dedicated geothermal subdivision within NXT.

Furthermore, NXT possesses an extensive library of over 140,000 line kilometers of historical SFD survey data. This asset is now being strategically "monetized" by marketing it to IOCs, who are currently enjoying stronger financial positions and undertaking more robust exploration programs. This initiative represents a low-cost, high-margin revenue stream that leverages past investments and contributes to the company's diversification strategy. NXT is also fostering collaboration, initiating dialogues with other service providers, such as seismic survey companies, to explore mutually beneficial opportunities.

Financial Performance and Operational Efficiency

NXT's recent financial performance reflects both the challenges of its past "elephant hunting" strategy and the early impacts of its strategic pivot. For the fourth quarter of 2023, the company recorded SFD-related revenues of approximately CAD2.15 million, primarily from its first SFD survey contract in Turkey. This marked a significant return to revenue generation after periods of no reported survey revenue in Q1, Q2, and Q3 of 2022.

Despite the revenue, the company reported a net loss of approximately CAD0.43 million (CAD0.01 per share) in Q4 2023, an improvement from a net loss of CAD1.47 million in Q4 2022. The year-to-date net loss for 2023 was approximately CAD5.45 million (CAD0.07 per share), also an improvement from CAD6.73 million in 2022. Gross margins on the Turkish contract were lower than expected, around 42%, primarily due to the lower volume of total line kilometers, which impacted the spread of fixed costs, including aircraft maintenance. This highlights the critical need for increased survey volume to enhance profitability.

The company has been diligent in its cost-reduction efforts. Operating expenses decreased in Q4 2023, with salaries, benefits, and consulting charges down 10% due to allocation as direct labor to the Turkish survey and a reduction in headcount. Professional fees and public company costs also decreased by 9% due to lower audit fees following a change in auditors. Business development costs saw a substantial 75% reduction in Q4 2023, as the company focused on the Turkish survey and virtual meetings, contrasting with more extensive travel in previous years. Overall, G&A expenses decreased by 8% in 2023 compared to 2022. NXT is further reducing its office space by an additional 30% starting May 1, 2024, bringing the total reduction to approximately 40% from the original lease.

From a liquidity perspective, NXT ended Q4 2023 with CAD0.4 million in cash. Accounts receivable stood at CAD1.83 million, with approximately CAD1.43 million collected by March 27, 2024. To bolster working capital, debentures announced in November 2023 were finalized on January 12, 2024, raising $1.87 million, with $0.72 million received in Q1 2024. Notably, insiders, including all directors, participated in these debentures for $1.5 million to $2 million, signaling strong internal confidence. This follows a rights offering in late 2022 that aimed to raise approximately $4 million for anticipated SFD surveys and working capital. The company benefits from over CAD 30 million in tax loss carryforwards, which can shield future income.

NXT's typical contract payment structure involves significant milestone payments: an upfront fee covering mobilization costs, followed by 10% to 25% upon arrival at the location, and up to 80% of the total payment before the submission of initial results. This structure helps manage cash flow and mitigate financial risk. The company also extended its aircraft lease for an additional three years in March 2024, with ownership transferring to NXT at the end of the term, representing a strategic long-term asset acquisition.

NXT's TTM financial ratios reflect its current stage of transformation. A Gross Profit Margin of 53.69% and an EBITDA Margin of 33.37% indicate the inherent profitability potential of its services when revenue is generated. However, a Net Profit Margin of -25.25% and negative Free Cash Flow Per Share (-0.01) underscore the need for consistent contract execution and increased volume to achieve sustained profitability. A Current Ratio of 1.95 suggests adequate short-term liquidity, while a Debt/Equity Ratio of 0.31 indicates manageable leverage. The negative P/E ratio is expected for a company in its current growth phase, and the P/S ratio of 4.00 and P/B ratio of 3.14 reflect market expectations for future revenue growth and asset utilization.

Outlook and Strategic Momentum

Management expresses considerable optimism for NXT's future, with Interim CEO Bruce Wilcox stating, "2023 will be looked back upon as a watershed period for the company as we continue efforts to increase revenues and ultimately enhance shareholder value." He has "increased confidence that 2024 should bode well for the future of the company." This outlook is supported by an active business pipeline, including two draft contracts, three formal written proposals, and numerous detailed outlines with customers.

Key strategic initiatives are gaining traction. A strategic alliance with Synergy Exploration and Production Technologies Limited grants Synergy an exclusive license to market and distribute NXT's SFD Solutions in Africa. This partnership has already yielded results, with a new SFD survey contract in Africa announced in May 2025, with data acquisition expected to commence in Q3 2025 and interpretations delivered in Q4 2025. Additionally, a new sales agency agreement with Coal Cube Limited covers the United Arab Emirates, further expanding NXT's global reach.

The company is actively pursuing opportunities in the Middle East and Asia, with three projects under consideration in the Middle East alone, including with the National Company of Turkey. These draft contracts often include clauses for additional SFD contracts upon successful completion of initial projects, providing a clear path for recurring business. George Liszicasz, the former CEO, had previously estimated that initial projects could reasonably generate approximately US$10 million in revenue over the next 12 months, involving one to five companies across Nigeria, Turkey, and South America, with significant potential for follow-on work. NXT is also undertaking operational readiness activities for potential Middle Eastern and Asian customers, indicating advanced stages of negotiation.

While management is "very confident" in executing its commercial plan, it acknowledges that "things don't always happen as planned" in the "interesting parts of the world" where they operate. Delays, such as the restructuring of Nigeria's NOC, have impacted past timelines. However, the diversified approach, coupled with a strong market for energy exploration, positions NXT to capitalize on these opportunities more effectively.

Conclusion

NXT Energy Solutions Inc. is undergoing a significant transformation, leveraging its unique and highly effective SFD technology to pivot towards a more diversified and sustainable growth trajectory. The company's core competitive advantage—a 70% drill success rate that dramatically de-risks exploration for clients—remains a powerful differentiator in the energy sector. By strategically expanding its client base beyond large NOCs to include IOCs, diversifying geographically, and monetizing its extensive data library, NXT is building a more resilient business model.

The ongoing development of SFD-GT for geothermal exploration further underscores NXT's commitment to innovation and market expansion, opening new revenue streams in the burgeoning renewable energy sector. While recent financial performance has reflected the costs of maintaining operational readiness and the impact of lower survey volumes, the company's proactive cost-reduction measures and successful capital raises are strengthening its liquidity. With an active commercial pipeline and a new contract in Africa slated for late 2025, NXT is poised to translate its technological superiority and strategic initiatives into increased revenues and enhanced shareholder value. Investors should closely monitor the execution of these contracts and the progression of its geothermal technology as key indicators of NXT's future success in a dynamic global energy market.