Petroleum Geo-Services (Oslo: PGS, OTC: PGSVY) provides higher-end seismic solutions to deepwater operators, a segment of the market that offers superior returns. The company’s high-density 3-D data products account for 70 percent of new orders, and demand should continue to pick up as E&P firms target increasingly complex deepwater fields.
Brazil, home to some of the biggest offshore discoveries, accounts for 15 percent of the Norwegian firm’s revenue. Petroleum Geo-Services has amassed one of the largest libraries of 3-D seismic data in Brazil, giving it a leg up in this rapidly growing market.
Management’s comments during its conference call to discuss third-quarter results and recent Capital Markets Day echoed those of Schlumberger CEO Andrew Gould. The company expects the surveying market to remain weak because of overcapacity, though this glut should dissipate in 2011 as demand picks up.
Management also expects capacity to expand between 2011 and 2014 but not at a rate that will outstrip growth in demand. Its current forecast calls for streamer capacity to increase 7 percent in 2011, 10 percent in 2012 and 3 percent in 2013 and 2014. That pales in comparison to the growth that occurred during the last production boom.
Most analysts project global E&P spending to rise 10 to 15 percent in 2011. Expenditures on seismic services are expected to jump by nearly 20 percent. I regard these estimates as conservative and expect spending to increase at a faster pace. Nevertheless, in this scenario higher demand should be sufficient to absorb new capacity.
Petroleum Geo-Services’ proprietary GeoStreamer platform differentiates the company from the pack. By towing these advanced streamers further beneath the surface, the company reduces noise and weather-related disruptions, providing a sharper image and deeper penetration than conventional techniques. This technology is particularly useful in the North Sea and other markets known for their harsh weather. The company continues to hone this technology to improve accuracy and efficiency.
About half Petroleum Geo-Services’ vessels are equipped with GeoStreamers, up about one-quarter from a year ago. By the end of 2011 this technology will be deployed on two-thirds of the fleet. All the company’s ships should be outfitted with the technology by some point in 2013.
Management estimates that the company earns a price premium of more than 12 percent when clients opt for GeoStreamer-based solutions rather than conventional products. And this price premium appears to be growing. Customers are willing to pay up for high-quality data, boosting Petroleum Geo-Services’ profit margins.
In another sign of confidence, the company ordered two new state-of-the-art ships that will be ready for deployment in late 2013 and early 2014, suggesting that management expects demand for seismic services to remain robust.
Petroleum Geo-Services’ leadership in 4-D seismic technology also bodes well for future growth. The company is testing seismic equipment that’s permanently installed on the seafloor and provides a detailed glimpse of how the field’s characteristics change over time. This information enables producers to enhance their production methods and maximize ultimate recovery rates.
The company has also solidified its financial position, paying down a significant chunk of its debt and using the proceeds of an equity issue completed earlier this year to partially finance the two new-builds it recently ordered. In recognition of these efforts, Standard & Poor’s on Dec. 2 upgraded the company’s credit rating to BB from BB-.
Plans to pay initiate a dividend in 2012 that will be tied directly to cash flow could also serve as a catalyst for the stock. If the seismic business picks up substantially, Petroleum Geo-Services could surprise the market by declaring a larger-than-expected dividend. Nevertheless, investors shouldn’t bank on receiving an outsized dividend yield.
Although it’s usually preferable to buy stocks on the local exchange, most subscribers will find it difficult to buy stocks listed in Oslo. The company’s over-the-counter American Depository Receipts (ADR) trade under the symbol “PGSVY” and track the performance of the Oslo-listed shares relatively well. Daily trading volume averages about 30,000 shares, so subscribers should use a limit order to ensure a favorable purchase price.
A pure play on an uptick in spending on exploration, Petroleum Geo-Services’ ADR shares rate a buy under USD16.
The global nuclear power industry is in the early stages of a multiyear growth spurt similar to what the industry experienced in the late 1970s and ‘80s. What many have referred to as a nuclear renaissance will generate tremendous wealth for investors over the next few years.
Cameco Corp (TSX: CCO, NYSE: CCJ) is the 800-pound gorilla of the uranium mining industry and produced more than 21 million pounds of uranium in 2009, roughly 16 percent of global supply. In 2009 Cameco was the world’s second-largest uranium producer, but the company plans to double its production by 2018.
One of the cornerstones of this expansion is the company’s long-delayed Cigar Lake project in Canada. This project’s peak annual output will be roughly 18 million pounds of uranium, of which Cameco is entitled to half. Cigar Lake was supposed to begin producing years ago but a cave-in and flood has taken years to repair. Lately, management has repeatedly stated that it is now on-track to start production from the mine in mid-2013.
In addition to Cigar Lake, Cameco is opening up new sections of its massive and prolific McArthur River mine in Canada. These new zones will allow the firm to boost production by as much as 85 million pounds in total over the next decade. And at Cameco’s Ink
The global nuclear power industry is in the early stages of a multiyear growth spurt similar to what the industry experienced in the late 1970s and ‘80s. What many have referred to as a nuclear renaissance will generate tremendous wealth for investors over the next few years.
Cameco Corp (TSX: CCO, NYSE: CCJ) is the 800-pound gorilla of the uranium mining industry and produced more than 21 million pounds of uranium in 2009, roughly 16 percent of global supply. In 2009 Cameco was the world’s second-largest uranium producer, but the company plans to double its production by 2018.
One of the cornerstones of this expansion is the company’s long-delayed Cigar Lake project in Canada. This project’s peak annual output will be roughly 18 million pounds of uranium, of which Cameco is entitled to half. Cigar Lake was supposed to begin producing years ago but a cave-in and flood has taken years to repair. Lately, management has repeatedly stated that it is now on-track to start production from the mine in mid-2013.
In addition to Cigar Lake, Cameco is opening up new sections of its massive and prolific McArthur River mine in Canada. These new zones will allow the firm to boost production by as much as 85 million pounds in total over the next decade. And at Cameco’s Inkai joint venture (JV) in Kazakhstan, the company produced 1.3 million pounds of uranium in the first six months of 2010, exceeding the 1.1 million pounds produced in the entirety of 2009.
Cameco has the advantage of low mining costs. MacArthur River and Cigar Lake are the richest operating mines in the world, boasting ore grades that hover around 20 percent. (The global average is less than 1 percent).
I also like the company’s strategy of selling a portion of its production under long-term contracts and a portion on the spot market. This gives Cameco some upside during strong uranium markets while providing a degree of stability when spot prices decline. Cameco Corp is a buy under USD30
ai joint venture (JV) in Kazakhstan, the company produced 1.3 million pounds of uranium in the first six months of 2010, exceeding the 1.1 million pounds produced in the entirety of 2009.
Cameco has the advantage of low mining costs. MacArthur River and Cigar Lake are the richest operating mines in the world, boasting ore grades that hover around 20 percent. (The global average is less than 1 percent).
I also like the company’s strategy of selling a portion of its production under long-term contracts and a portion on the spot market. This gives Cameco some upside during strong uranium markets while providing a degree of stability when spot prices decline. Cameco Corp is a buy under USD30
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