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Summary

  • Petroleum Geo-Services is a major seismic services providers for offshore oil exploration.
  • Dividend and profit growth are good.
  • Proper timing is required considering the negative sentiment of seismic services.

Petroleum Geo-Services (OTCPK:PGSVY) from Norway is one of the major seismic services providers for offshore oil exploration. For the moment PGS is not a good investment, but is worth following considering the dividend and profit growth. Proper timing is required because seismic services stocks have a negative sentiment for now, which is not always correct considering the results.

Petroleum Geo-Services

Petroleum Geo-Services is a Norwegian company which provide seismic services to oil companies to find offshore oil and gas reserves worldwide. The services provided are:

  • Seismic and electromagnetic services;
  • Data acquisition and processing;
  • Reservoir analysis/interpretation;
  • Multi-client library data.

All financial data used is published by PGS. To calculate dividend and dividend yield an exchange rate of NOK/USD 0.1687 is used with a stock price of $11.02

PGS (x1M)

2013

2012

2011

2010

2009

Revenue

$1,502

$1,518

$1,253

$1,135

$1,350

Net income

$238

$186

$34

-$14

$154

EBIT

$382

$294

$139

$51

$222

EBIT%

25.45%

19.35%

11.07%

4.53%

16.42%

FCF

-$35.5

$97.0

-$22.6

-$35.9

$258.2

EPS

$1.10

$0.85

$0.15

-$0.07

$0.82

Dividend

$0.39

$0.28

$0.19

$0.00

$0.00

Dividend Yield

3.52%

Revenue has not grown a lot in the last few years. The profitability has and dividend payments have started in 2011 and are increased each year up to now.

PEERS

Peers that are active in the seismic services are CGG (NYSE:CGG) from France, Polarcus (OTC:PLRUF) from the U.K., WesternGeco [which is part of U.S./French Schlumberger (NYSE:SLB) ] and Fugro (OTCPK:FURGF) from The Netherlands. These companies combined have a market share of about 90% in the seismic services segment.

Fugro has sold its Geoscience division to CGG Veritas in 2012/2013 and is no longer a player in the seismic services segment. Since Fugro was not able to become market leader, it divested its activities.

WesternGeco is reported as part of Schlumberger's Reservoir Characterization Group. In recent financial reporting, it is not clear how much of the revenue is generated by WesternGeco. From previous financial reporting, it can be deduced that it is about 20% of the Reservoir Characterization Group. Revenue and EBIT are deduced using this percentage. WesternGeco-Schlumberger is included for comparison purposes.

Seismic services (or geoscience) is capital intensive because specialized ships (and aircraft for some companies) are required to acquire geological data. The largest clients for seismic services are in the oil and gas industry. Geoscience services range from acquiring 3-D and time-lapse (4-D) seismic surveys and processing this data. This is done during the entire life span of exploration, production and finishing exploration of oil and gas fields.

Multi-Client Library

Collected seismic data is often stored in a multi-client library, so the data can be sold to multiple clients. Fugro was the first company to do this, but is finishing its multi-client activities in the next few years.

A multi-client library is profitable for the seller of seismic data as it can be sold several times and profitable for the buyer because it is not as expensive as dedicated acquisition. The value of the data when sold to customers is about 1.5 times the cost of acquisition.

PEER BENCHMARK

(Source: Confero)

Revenue (x1M)

PGS

Fugro

CGG

WesternGeco

Polarcus

2009

$1,350

$805

$2,379

$2,122

-$25

2010

$1,135

$865

$2,083

$1,987

$123

2011

$1,253

$1,028

$2,290

$2,435

$299

2012

$1,518

$1,227

$2,828

$2,232

$529

2013

$1,502

$969

$3,522

$2,449

$532

(Source: Confero)

EBIT%

PGS

Fugro

CGG

WesternGeco

Polarcus

2009

16.42%

25.14%

-10.88%

15.36%

-75.46%

2010

4.53%

19.17%

1.78%

13.44%

2.13%

2011

11.07%

18.90%

0.39%

19.28%

5.20%

2012

19.35%

18.36%

7.19%

27.50%

17.27%

2013

25.45%

13.92%

-12.12%

29.78%

22.19%

Although revenue is not increasing, profitability is a respectable 25%. PGS also pays a good 3.5% dividend per year in 2013. However, the dividend has only been paid for the last few years, so it may be scrapped in difficult times.

Part of this is caused by decreasing investments of oil companies, but also because of the competition in seismic services.

When acquired with good timing PGS could be a nice dividend stock, but PGS is also much smaller than CGG and WesternGeco [Schlumberger], in a market where margins are under pressure because of competition and decreasing investments in exploration of oil companies.

The stock prices of oil services companies are generally in a down trend and PGS is no exception. Paying attention to the trend in the oil industry is advisable.

When oil companies are investing more in exploration it is a good moment to get in. When the oil price comes down (e.g. when Iran is able to export oil) getting out of the stock is probably a better move.

Editor's Note: This article covers a stock trading at less than $1 per share and/or has less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Petroleum Geo-Services: Interesting But Requires Proper Timing