Your Seismic Investment Primer
Take away the discovery and monitoring of energy reservoirs made possible by seismic surveys, and none of us would currently be considering investments in oil and gas companies.
This least-appreciated area of the petroleum industry is both vital and easily comprehended. Depending on whether a survey is targeting land or offshore formations, ships or trucks tow multiple air gun arrays that emit thousands of high-decibel explosive impulses. The changes in the seismic waves that bounce back are recorded and sorted through computer-intensive algorithms for later analysis by geologists and geophysicists.
Without seismology, we might be huddled around a campfire
When we consider the factors that have recently aided in the discovery and production of increased amounts of oil and gas, we tend to tick off hydraulic fracturing and the ability to drill in far deeper waters and into more complex formations. However, we shouldn't ignore the movement from 2-D seismic, in which the receivers are arranged linearly, to 3-D, which provides a more complete analysis and significantly more data through the use of patches, or grids.
Beyond that, as the Oil & Gas Journal said a few years ago, "What 3-D has been to exploration, 4-D seismic may prove to be for production." This latter approach is based on repeatability that permits the observation of reservoirs as they're drained. But whether it's the movement from 2-D to 3-D or the use of 4-D, effectively analyzing the heightened volumes of data would be impossible without steady leaps in computer power.
What are the best ways to play this crucial group? Let's begin with ION Geophysical, which was known as Input/Output upon its formation as a maker of seismic equipment. Today it provides a range of technology-focused seismic solutions. Included are the continuing provision of equipment, along with software and the planning of seismic surveys. It also processes the resulting seismic data.
The approximately $950 million market-capitalization company trades at about a 10.25-times forward multiple. Its $8.70 analyst price target represents a 44% increase over its Monday close.
Whereas ION Geophysical has expanded its repertoire through the years, Geospace Technologies retains a successful concentration in the manufacture and marketing of seismic equipment, including game-changing cableless seismic data acquisition systems. The company also produces seismic cables and umbilicals, marine seismic products, ocean-bottom seismic acquisition systems, and borehole-deployed acquisition systems.
With a market capitalization of about $937 million, the company is of comparable size to ION Geophysical. Like its seismic peer, it has been accorded a rating of slightly better than a buy by the analysts who follow it. It currently trades at an approximately 10.9 times forward P/E. The company has achieved an impressive 32% operating margin, and it's debt-free. Its $115.43 mean one-year price target is nearly 60% above its close at the beginning of this week.
Six decades ago, a geophysicist named Decker Dawson founded a seismic firm in Midland, Texas, that bore his name. Today Dawson Geophysical provides a full complement of seismic data acquisition services in the United States and Canada. Clearly the company is benefiting from the substantial increase in U.S. onshore oil and gas exploration and production of late: Despite its having been around since 1952, Dawson Geophysical's revenues expanded by more than 55% from 2010 to 2012.
Today, the company's market capitalization is approaching $300 million. Its forward P/E is approximately 16.6, and its one-year share-price target represents about a 10% increase from current levels.
Finally, there's the big fellow. In addition to being easily the largest member of the oilfield services contingent, Schlumberger, primarily through its WesterGeco unit, it also is the majordomo of seismology. In addition to its pure size, Schlumberger is set apart from the other members of the seismic group by its range of service offerings and the scope of its operations.
At the conclusion of the first quarter of this year, for instance, the company described its involvement in seismic programs in New Zealand, South Africa, Angola, Russia, and China, to name a few of its locations. For instance, in the South Columbus basin of Trinidad and Tobago, WesternGeco was awarded one of the largest data processing and imaging contracts ever by BP . The award was described as "part of a multiyear, multiproject collaboration between the two companies." It followed a seismic survey conducted for BP by WesternGeco during two winter seasons.
A key metric at Schlumberger involves the now nearly $1.2 billion that the company spends annually on research and development. Clearly, a meaningful portion of that amount is directed toward achieving advancements in the world of seismology.
The article Your Seismic Investment Primer originally appeared on Fool.com.
Fool contributor David Smith owns shares of BP. The Motley Fool recommends Dawson Geophysical, Geospace Technologies, and National Oilwell Varco and owns shares of Dawson Geophysical and National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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