Topic: Energy Stocks

The profits of these two energy stocks stand up to current oil prices

current oil prices

Today, we look at the oil and gas industry from the perspective of two tech stocks that serve energy producers. Thanks to their ability to substantially increase the efficiency of oil and gas recovery, both of these stocks remain profitable in spite of current oil prices.

COMPUTER MODELLING GROUP (Toronto symbol CMG; ) sells software and services that help conventional oil and gas producers create 3-D models of reservoirs. That lets them squeeze more out of those reservoirs using advanced recovery techniques, such as injecting steam or chemicals. Typically, only 25% to 30% of oil and gas is recovered during primary production.

Unconventional producers using hydraulic fracturing, or fracking, of oil and gas-bearing shale can also use Computer Modelling’s software to determine optimal drilling locations and depths.

In the three months ended March 31, 2015, the company’s revenue rose 2.0%, to $20.4 million from $20.0 million a year earlier. Software licensing revenue (89% of the total) rose 2.8%, and consulting and professional services revenue (11%) gained 9.6%.

Overall earnings rose 2.8%, to $7.9 million from $7.7 million, while per-share profits were unchanged at $0.10 on more shares outstanding.

The company makes mostly recurring revenue from software licences and maintenance contracts on its products. Its renewal rate is over 98%, and most of its clients are major oil and gas firms. That gives it longterm stability, even when oil and gas prices are falling.

Recommendation in Stock Pickers Digest: BUY 

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Current oil prices: Pason’s products let producers increase revenue despite slower drilling activity

PASON SYSTEMS (Toronto symbol PSI; rents equipment for monitoring and managing land-based oil rigs. It also provides communication systems clients use to remotely collect data from their drilling operations. Pason serves oil and gas firms and drilling contractors throughout Canada, the U.S., Mexico and Argentina.

In the three months ended March 31, 2015, the company’s revenue fell 19.3%, to $99.4 million from $123.2 million a year earlier. A rise in the U.S. dollar only partly offset an industry-wide slowdown in oil and gas drilling.

The company earned $14.2 million, or $0.17 a share, in the latest quarter, down from $20.8 million, or $0.25 a year earlier. The lower revenue was the main reason for the decline. Cash flow per share fell 23.5%, to $0.52 from $0.68.

To keep its cash flow as high as possible, Pason plans to reduce its capital spending by 46.3% in 2015, to $65 million from $121 million in 2014. It has also cut its staff by 5%.

Meanwhile, the company’s balance sheet is strong, with cash of $191.8 million, or $2.29 a share, and no debt. The stock yields a high 3.1%, and its dividend appears sustainable.

Oil and gas producers’ capital spending cuts have cut North American drilling activity by 50% or more this year. However, Pason’s products let producers increase their revenue and lower their operating costs. That should keep the company’s sales and profits from falling much further. It also leaves Pason well positioned for gains when oil and gas prices recover.

 Recommendation in Stock Pickers Digest: BUY  


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