Frank / Seismic Sector
This is the one area that I am avoiding. I've been hurt with investment into seismic companies in the past. I jumped into one U.S. company (Grant Geophysical - or something like that) and in three months they went into bankruptcy. I am aware of Kelman and they might merit someone's attention - but not mine.
I would primarily be interested in the rig providers - like Precsion Drilling. I haven't covered this sector for over two years and I would have to research companies once again. I would focus on rig technology - who has what and their booking periods. Just before I left coverage, there were one or two startups which I thought were interesting. They had something where coiling was a breakthrough. I don't know the exact terminology, will have to refresh my knowledge.
CE Franklin was the services provider who made the announcement in downgrading their forecasts.
The little company I was referring to was a shop in Edmonton who is into rig fabrication and maintenance - among other things. The name of the company is Hyduke Resources Ltd. The company has been operating at a slow pace in growth. It appears everything they undertake via acquisition and etc., is via internal cash flow - meaning little equity offerings and therefore - share dilution. From what I have heard, they have undertaken a new path which is catering to companies on an international basis. The CEO is pretty friendly and you could probably obtain more precise information from him. I put my broker into this company a couple of years back in time and as a result, he is in touch with the CEO every few months. The one thing that attracts me is that is just under 10 million fully diluted shares outstanding.
Shares are in the neighborhood of $0.64 and I am going to attempt to build a position under $0.60 over the coming months - with a little luck on profits from some of my other positions. I don't see too much downside risk at these levels.
I extracted the following from their most recent financial report. You can go to SEDAR ( sedar.com  ) to review the financial details. See the News Release filed 4/2/2002.
OVERVIEW
The general market conditions have changed significantly since our second quarter financial results. The events of September 11th, 2001 resulted in a deterioration of market conditions. Economic activity slowed down, air travel dropped and massive industry layoffs occurred. These events resulted in a decreased demand for oil resulting in an over supply and subsequent drop in prices from $28/bbl to $18/bbl. During these uncertain times it was feared that if a price war occurred, oil could drop to $10-14/bbl.
At this stage the capital expenditure budgets for E&P companies were slashed or put on hold. It was indicated that contracts would be reviewed in the following spring and would be restructured in accordance with the revised budgets due out in the new year. Given the uncertainty with respect to the price of oil following September 11, 2001, companies delayed, curtailed or cancelled a large portion of the forecasted capital expenditures.
At the end of December 2001, Russia announced it would comply with Opec’s reduction proposal and the immediate result was oil bumped up to around $20/bbl. While this news was very welcome, the E&P companies did not react by immediately opening their purse strings. The reaction was a wait and see attitude. The markets and the industry wanted to see if the prices would hold. The prices held and Opec and non-Opec producers agreed to extend the cuts for a further 3 months. Oil prices rallied to almost $26/bbl. Oil prices are now at these levels at these levels now. Also, natural gas prices dipped to around the $2.00 /mcf level in December of 2001 due to the warm weather coupled with a weaker economy. Currently natural gas prices have rebounded to $3.53/mcf.
OUTLOOK
The oil and gas industry is large and complex. Capital expenditures do not get authorized immediately. Authorizations for expenditures take a lot longer than the cancellations of expenditures. The result of this is a 3 – 6 month delay in the approvals of new drilling projects. Therefore, as the prices have recently stabilized, we expect to see a rebounding in the capital expenditure levels in about the fall of 2002 (due to the 3 to 6 month delay).
Further compounding the issues facing our industry is that there is currently an over supply of oil field equipment. The market conditions were such that 2001 was record year for E&P capital expenditures. The industry had just completed record levels of new drilling equipment purchases and work overs. The industry exited 2001 with large inventories of oil field equipment and entered 2002, which was in a state of contraction with regard to utilization of oil field equipment.
Hyduke is currently completing 2 international orders for rig packages. Renewed interest for complete rig packages is evident based on the volume of inquiries.. The work order books are beginning to fill up. Activity is already out pacing the trend in Q3. The industry is responding to the primary driver of oilfield activity, which is the price of oil. At $26/bbl oil and $3.53 gas/mcf the market conditions are very good. The forecasts are for a very busy second half of the
year.
Hyduke Resources Ltd. is an integrated oilfield services company specializing in the manufacture, repair and sales of oilfield equipment and supplies. The range of products include oilfield drilling and service rigs, pump trucks, generator & combination buildings, pneumatic controls, various models of truck mounted cranes, oilfield supplies, drilling tools, machining and fabrication services.
For further information, please contact John Babic, CEO at (780) 463-8686, by fax at (780) 988-5768 or by e-mail at jbabic@hyduke.com (John Babic) (CDNX - HYD)
Here's the company's website. hyduke.com
This also might interest you. Canadian Oilfield Services Investment Symposium psac.ca
in my prior period of coverage (2-1/2 years ago), these companies interested me and I will put them on my list for review once again. Badger Daylighting - Enerflex Systems |
