Paul,
At least with headquarters in Houston, you get to watch the Senate investigations on TV.
Seriously though, I do follow seismic and any company with over exposure to the North American market probably has some downside risk over the next 12 months or so. Veritas is fairly well diversified throughout the world and they do tend to benefit from a backlog of business that tends to carry them through sector weakness. It's very much a cyclic market and runs about 6-12 months behind oil and natural gas prices. Close to 80% of the drilling activity in North America is for natural gas. BHI publishes rig count numbers every Friday and historical monthly figures are available on the BHI website. Exploration activity in North America has been on a steady decline since last Summer. Partly due to lower commodity prices, partly due to cutbacks in capital spending and partly due to weather conditions in the Arctic areas where if the ground isn't frozen, they can't move the equipment.
Veritas is fundamentally a reasonably sound company, but they don't have anything close to the resources necessary to carry PGO if it gets in trouble, and PGO is bring a lot of debt to the table even with the recent asset sales. The Cayman Islands angle makes me a little leery, partly from personal prejudice, and partly from watching how money tends to vanish when it hits the money laundering capitol of the world. Also, as a general rule, I've found it prudent to watch a company after anything like a merger of equals for at least 2 quarters before considering a position in the stock. The consolidation process always takes at least that long, and I've found a lot of companies that no longer look attractive once they've had a chance to mess things up. It also seems like a lot of the excitement over the merger tends to wear off once it's a done deal and all the one time charges start hitting the balance sheet. I suspect it will be a situation where the first person to pull the trigger at $6.90 wins, and everyone else gets what the littlest pig got. The combined company has the potential to be a real powerhouse, but the consolidation process is going to be taking place at near the bottom of the market cycle.
From reading your posts over the years my impression is you are more of an investor than a short term trader. I think the merged company 'could' be worthy of investment 6 months from now after the bugs have been worked out, but I also think PGO is currently more appropriate for someone looking for a 15%-20% gain on a short term trade and who is willing to take whatever is on the table without getting greedy while playing with tight stops. |
