PeterGibbons
Joined: 08 Jan 2006
Posts: 128
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 Posted: Mon Feb 27, 2006 9:54 pm Post subject: Oil Sea About That |
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Oil Sea About That
SmartMoney.com
By Lawrence Carrel Published: February 27, 2006
Shares of OYO Geospace (OYOG: 46.43, +5.73, +14.1%) jumped 14% to $46.43 Monday after a unit of oil giant BP (BP: 67.00, -0.60, -0.9%) gave the maker of seismic-data equipment a $14.2 million order. BP Exploration agreed to purchase a system to monitor reservoirs in the Azerbaijan sector of the Caspian Sea. OYO Geospace expects to make delivery during its fiscal fourth quarter, which ends Sept. 30, and recognize the revenue in fiscal 2007.
"We estimate that this contract alone will account for 55 cents of fiscal year 2006 earnings per share," wrote Kurt Hallead, an analyst at New York investment bank RBC Capital Markets, in a note Monday. Hallead's estimate assigns the deal a value greater than the earnings for OYO's entire fiscal 2005, which totaled 44 cents a share.
"Seismic contractor capital spending is expected to accelerate in 2006 through 2007," continued Hallead. "And OYO's growth opportunity is in its reservoir systems segment. Recent high-margin contracts for its reservoir products may signal oil company readiness to adopt this evolutionary technology."
Houston-based OYO makes geophones and hydrophones used by oil and gas companies to gather underground and underwater data. Its new reservoir characterization systems, like the one ordered by BP, help companies extract more oil from mature reserves, thereby taking greater advantage of current high oil prices. OYO calls the reservoir characterization market a growing sector and said this is the fourth contract to deliver a system.
"There have only been four reservoir characterization systems ever sold and OYO sold all of them," says Thiru Ramakrishnan, an analyst at Houston investment bank Simmons & Company International. "BP absolutely loves it. It bought three of them. And Royal Dutch Shell (RDS.A: 60.91, -0.09, -0.2% RDS.B: 63.65, -0.15, -0.2%) is testing one now."
Sercel, a unit of France's seismic data firm Compagnie Generale de Geophysique (GGY: 26.35, -0.15, -0.6%), and Schlumberger (SLB: 115.38, -2.76, -2.3%) have shown interest in entering the market for reservoir characterization systems. But Ramakrishnan says OYO already has 10 years of practice while these companies are just starting to look at the technology.
"We've heard rumors that those two companies are bidding on contracts in which they would use OYO's technology," says Ramakrishnan. "So, it's a win-win for OYO."
For its first quarter ended Dec. 31, OYO earned $1.3 million, or 22 cents a share, beating the Thomson First Call consensus estimate by three cents. In the year-ago quarter it earned $372,000, or seven cents a share. Revenues surged 43% to $21.9 million on strong demand for its marine product line. OYO said demand for its nonseismic offshore cable products soared in the December quarter from companies repairing platforms and rigs in the Gulf of Mexico, which suffered damage from last year's hurricanes.
"There is a pressing need for major oil companies to meaningfully grow supply from the fields they currently have," says Ramakrishnan. "OYO's technologies help to not only increase daily production, but also meaningfully grow reserves from existing, deep water, mature fields. It's all order flow and it's all real."
While the company recognizes all the revenue from a contract upon delivery of the merchandise, Ramakrishnan thinks these deals might be the basis for a recurring revenue stream.
OYO declined to comment.
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Peter Gibbons
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