About a month ago, Dawson Geophysical (NASD: DWSN) announced its third quarter earnings. The company lost $1.6 million on operating revenues of $52 million. Dawson has been indirectly impacted by the falling price of natural gas as its customers have cut back on new data gathering.
Last week on CNBC it seemed the discussion of the day was the decline in natural gas prices and whether or not there was any event or catalyst that might push prices higher. The consensus seemed to be no. The price of natural gas has fallen from over $9/MMBTU a year ago to about $2.85/MMBTU as of 9/1/09. Given this decline, Dawson’s customers have not been too eager to scout out new gas reserves.
In the midst of this decline, Dawson has reduced its number of crews from 16 to 10. At 10 crews, the company produced EBITDA of $4.2 million, as depreciation comprised $6.5 million of their expenses. This compares to earnings of $9.7 million and EBITDA of $22.4 million in the third quarter of 2008.
Even in this downturn, Dawson has maintained strong operating cash flow. In fact, cash on its balance sheet has grown to $50 million as compared to $8.3 million at the beginning of its fiscal year. Dawson has cut back significantly on capital expenditures as crew counts have declined. This, plus the conversion of receivables to cash has resulted in a very clean balance sheet. The largest asset categories consist of cash ($50MM), accounts receivable ($50MM) and equipment ($132MM net). Dawson has no long-term debt. Shareholder equity is $200MM.
Looking forward, it is more likely that crew counts decline than increase. The same is true for revenues and earnings. In the company's press release, however, Dawson’s CEO, Stephen Jumper, notes that their 10 crews remained booked well into 2010. He also notes that 30% of their crews are working in oil producing regions rather than their more typical natural gas regions.
Based on the declines in their business and the near-term prospects, some investors might be quick to part with their Dawson shares. However, the company has a current market capitalization of $188 million, below its current book value of $200 million. A lot of damage is already priced into shares of this company. In addition, the company is well-positioned for a rebound with its significant cash and lack of debt. In its 2008 fiscal year, the company produced net income of $35 million. A rebound in natural gas prices could produce significant gains for long-term holders, while the current balance sheet position provides share price support on the near to intermediate term.
Disclosure: I currently hold shares of Dawson Geophysical