High Oil Prices Fuel Demand For Data Gear
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Investor's Business Daily
Thursday April 7, 7:00 pm ET
Decker Dawson has spent more than half a century in the business of helping oil and gas companies find places to drill. He's seen plenty of ups and downs in oil prices.
So if you think the chief executive of Dawson Geophysical Co. (NasdaqNM:DWSN) is worried about oil prices peaking, think again.
"I'm optimistic," said the 84-year-old Dawson, who founded the firm 53 years ago. "Prices can obviously fluctuate, but I think we're in a range where prices could stay for quite awhile."
Oil prices are holding stubbornly above $50 a barrel and show no signs of dropping. Goldman Sachs analysts recently said prices could even soar past $100 a barrel. Meanwhile, natural gas prices have more than doubled in three years.
Those trends have oil and gas companies champing at the bit to draw more fuel out of the ground.
Dawson Geophysical can help. It gathers data to help oil and gas drillers figure out where to set up rigs. It's the largest provider of such data-gathering services for the U.S. onshore market.
Now that prices are up, plenty of companies are in need of that information.
"Oil and gas companies have income to dedicate to exploring," Dawson said. "That's been missing for a long time."
Dawson is reaping the benefits. After losing money five straight years between fiscal 1999 and 2003, the company returned to profitability last fiscal year, which ended in September. Earnings for the year reached $1.24 a share.
Earnings for the fiscal first quarter ended in December more than tripled from the prior year to 28 cents a share. Revenue gained 39% to $21.6 million.
"It's a supply-and-demand issue," said Kenneth Farsalas, portfolio manager at Oberweis Asset Management in North Aurora, Ill. "It's the simple fact that oil companies are spending more on exploration, they need seismic crews and there are not enough crews to go around."
For proof, look at how much Dawson has ramped up its operation over the past year. It boosted its number of data gathering crews by 67%, bringing the total to 10. It won't stop there, either. The company plans to add an 11th crew by June, Decker Dawson says.
It takes a big investment to add a crew. Dawson spends about $10 million and puts 50 workers on each crew.
The company finished a stock offering March 1 that raised $41 million to pay for the 11th crew. It still has more than $20 million on hand that could be used to fund a 12th crew if needed, says analyst James Rollyson of Raymond James & Associates.
A 12th crew likely would boost the bottom line by about 20 cents a share, Rollyson writes in a recent report.
As it stands, earnings are expected to keep growing at a healthy enough clip. First Call analysts see profit this fiscal year rising 18% to $1.46 a share. They expect fiscal 2006 profit to move up 38% to $2.02.
Pricing power could have an impact on future earnings. Supply and demand have enabled seismic data acquirers to push up prices. Officials at rival Veritas (NYSE:VTS - News) recently said they're bidding for onshore projects now at margins of 20% to 25%.
"Those are very high margins," said Farsalas, whose employer's Oberweis Micro-Cap Fund owns Dawson shares. "That bodes well for Dawson. They should not only see revenue growth but margin expansion, as well."
Dawson posted gross margins of 21.9% in the December quarter. Rollyson figures if the firm can push margins to the high 20s or low 30s, it could reach yearly earnings of $2 to $3 a share.
There's always the concern of investing too much in an up cycle and getting hurt if oil prices turn down.
"There is a danger, and it does happen to us," CEO Dawson said. "But from everything I read, the experts say the commodity will become more valuable. And we ought to be more busy looking for it."
A plunge in crude oil prices back to the high $20s or low $30s per barrel would hurt Dawson. Farsalas doesn't see that happening.
Landlubbers
Dawson has a stronghold on the onshore U.S. seismic data market. Veritas, the next-biggest player, runs three crews in the 48 contiguous states, compared with Dawson's 10 crews. It has less than half of Dawson's 23% market share, Rollyson says.
Decker Dawson uses the number of data channels as a measure of his firm's dominance. He compares the channels to pixels used to make up a digital photo. The more data channels, the better data it can provide to clients.
Dawson Geophysical now has the capacity for 46,000 data recording channels. That's more than double the 20,000 it had in 2000.
"That's probably half of what's available in the United States," Dawson said.
While others focus offshore or overseas, Dawson is happy to stay local.
"We want to concentrate where we have the greatest depth of experience," Dawson said. "We're land lovers, and there's still plenty of land." |
