PSD.to - Pulse Seismic

[finetrader]

Came through this article last night.

 

http://www.gurufocus.com/news.php?id=120227

 

I had PSD on my radar screen a few years ago but removed it from it since then..

 

The recent asset acquisition from Divestco seems to be accretive to FCF.

Would be nice to know how much of the revenue comes from 3D versus 2D and the potential for oil and gas exploration in the Edson - Grande Prairie multi-zone corridor area, but I estimate this will double FCF from about 12-13M to 25M. While the share count increased by 25-30%.

 

PSD has an historic of generating cash.

 

Stock has been up lately but think it is still cheap. I get

P=131M

EV=131+51=182M

P/FCF=5.5

EV/FCFF=6.6

and these are actual earnings in a low natural gas environment.

 

Opened a sizable position today.

 

 

 

 

 

[merkhet]

I've been looking at this one as well -- how did you get comfortable with the declining revenues?  I understand that (1) the land purchases are supposed to be predictive of exploration & drilling, and (2) exploration & drilling are predictive of seismic data use, but how strong is the relationship in (1)?

 

Additionally, as I understand it, the value of the seismic data remains for future operators, but it seems to me that land would only revert to the crown or be sold if the original guys don't find anything.  How many times can a piece of land be sold (along with the seismic data that comes with it) before people just stop drilling in that area?

[OracleofCarolina]

Why were they able to get Divestco at such

a cheap price?

[given2invest]

This idea is being whored all over the internet.  The initial pop came from it appearing on value investors club late Friday.

 

 

[turar]

This idea is being whored all over the internet.  The initial pop came from it appearing on value investors club late Friday.

 

Yeah, it was pretty interesting to see this pop up over and over during my morning reading of investing blogs and this forum. Herd mentality? (Note, I haven't looked at this idea at all, just an interesting high-level observation).

[finetrader]

I've been looking at this one as well -- how did you get comfortable with the declining revenues?  I understand that (1) the land purchases are supposed to be predictive of exploration & drilling, and (2) exploration & drilling are predictive of seismic data use, but how strong is the relationship in (1)?

 

Declining revenue is due to weak exploration, great recession. Look at all the oil and gas servicing companies(ex:drilling) and you will see a sharp decrease in their revenue after the 2006-2008 peak. That is the thesis of this investment. i.e. to buy in the low of the cycle.

 

Concerning land purchase to be predictive of exploration, I don't know about the relationship other then being an indicator. But there should be a strong correlation between PSD revenue and # well drilling.

Here's an article for 2011 well drilling prediction in Alberta:

http://communities.canada.com/calgaryherald/blogs/tertzakian/archive/2011/01/19/2011-will-see-more-alberta-more-oil-more-horizontal-wells-and-more-deeper-wells.aspx

 

Additionally, as I understand it, the value of the seismic data remains for future operators, but it seems to me that land would only revert to the crown or be sold if the original guys don't find anything.  How many times can a piece of land be sold (along with the seismic data that comes with it) before people just stop drilling in that area?

 

Good question. I had/have the same question to some extend. But new technology(ex:horizontal drilling),

higher commodity price, shale gas are all factors that encourage companies to buy lands that have already been explored.

 

Why were they able to get Divestco at such

a cheap price?

 

I believe Divestco had liquidity problems:

-They have had negative working capital

-The great recession has put pressure on the balance sheet

 

here is a quote from Divestco Q1 2010  p.22:

 

^{To mitigate further economic pressure on Divestco, the Company remains committed to limiting capital expenditures unless they are}

^{well funded (mainly seismic participation surveys) and implemented further cost-cutting measures to reduce aggregate labour costs. In}

^{addition to funds from operations, the Company will continue to explore the possibility of disposing of certain assets (which could result}

^{in an accounting gain or loss). Over time Divestco expects that current austerity measures in addition to existing and future}

^{opportunities will generate the cash flows required to rectify its working capital shortfall.}

[farnamstreet]

Does anyone know what % of their revenues are re-licensing as opposed to licensing -- the company doesn't seem to disclose this.

 

I can't really work my way around the value of their data the second, third, and fourth time. I get that "improved analytics" in processing the maps might find something that was previously missed, but are you going to find something large? or are you going to find small pockets here and there? ...

[nkp007]

Does anyone know why the stock price has been rocketing up over the past couple days? I know they released their quarterly filing, but they announced those earnings weeks ago.

 

Thoughts?

[nkp007]

Anyone still invested in this? HI!

[Evolveus]

I still have a position. I have taken most of my profits off the table as it ran up pretty good in the last six months. I've had it for about 2 years. Based on managements annual reports cash flow co to use to be strong. I like the fact that once they have captured the seismic data, they can resell that same data multiple times.

[BG2008]

To add my two cents, the following was from an e-mail that I sent to a friend of mine.  My conclusion is that the maintenance cap ex is a lot higher than people claim it to be. 

 

"I took 2 days to go over their annual reports over the last 10 years. 

 

I followed the cashflow statements and I can't convince myself how the company is getting a 20+% ROIC from performing seismic studies or acquiring previously performed seismic data

I backed out all the bad acquisitions that they made and divested and assumed that the company is now a good capital allocator.  I gave the company the benefit of the doubt 

 

If the ROIC is really in the 20+ range, there should be a lot more cash on the balance sheet today

The assumption is that if they never invest in seismic survey or acquisitions, the cashflow from their library will merely drop 5% a year.  If you perform the DCF on a 5% decline, then the NPV does make sense.  At a 10-15% decline, it doesn't make sense.  The truth is that I don't know how it will decline and I can't get comfortable with it. 

 

This company used to be profitable on a net income perspective, then they stretched out their amortization, moved to a EBITDA profitability basis.  I believe that the cashflow from operation is merely plowed back into cap ex that's labeled as growth cap ex when it is really maintenance cap ex.  There's a chance that it is growth cap ex, but I can't get comfortable with it.   

 

This company has been compared to Sanborn maps.  The difference is that once you pump the nat gas/oil out of the ground, there's no need for Seismic data anymore.  With flood maps, the insurance companies do need them all the time to quote rates.  There's a very famous fraud case in the Seismic space.  I believe Einhorn was short the stock. "

 

For those that are interested in attempting to figure out rate of return, I've attached cap ex and acquisitions data that the company have made in the past.  Look at the segment sheet in the Excel.   

 

Pulse_Seismic_Annual_Financial_Data.xls

[Liberty]

Thanks BG2008. Always good to hear well thought out criticism of an idea!

[buylowersellhigh]

Anybody still in this name?  Just started looking into it

[Guest notorious546]

Hello, all wondering if anyone has revisted the idea given the drop off in crude prices.

 

i see a fcf yield of about 15%, ev/ebitda at 5.7x on 15e consensus numbers low debt and an ongoing share buyback.

 

https://canadianinsider.com/node/7?menu_tickersearch=PSD+%7C+Pulse+Seismic

[KCLarkin]

What happens to the value of seismic data if companies stop drilling?

[Guest notorious546]

I think there is still value in the asset even if it doesn't generate cash flow in the near term. If anything it could be a small positive given restructurings/M&A in the sector could represent some re-licensing revenues.

 

Positive's -  They have tons of legacy assets which have continued to generate cash flow which they have allocated capital to share buybacks and paying a dividend. Seismic data only represents a small portion of an overall capital budget so not meaningful in terms of an overall cost for a E&P company (they have some pricing power).

 

Negatives - Commodity markets look like they will take an extended amount of time to rebalance. A lot of canadian companies have cut capital spending (exploration and production companies) and will mean less money spent in the industry as a whole. It could mean that the company's near term results are weak . Overall, there has been a shift towards 3D seismic data which has not grown since the company completed the divestco acquisition.

 

Q4 Results in early march. not much else to wait for in my view.

[Guest Schwab711]

I think there is still value in the asset even if it doesn't generate cash flow in the near term. If anything it could be a small positive given restructurings/M&A in the sector could represent some re-licensing revenues.

 

Positive's -  They have tons of legacy assets which have continued to generate cash flow which they have allocated capital to share buybacks and paying a dividend. Seismic data only represents a small portion of an overall capital budget so not meaningful in terms of an overall cost for a E&P company (they have some pricing power).

 

Negatives - Commodity markets look like they will take an extended amount of time to rebalance. A lot of canadian companies have cut capital spending (exploration and production companies) and will mean less money spent in the industry as a whole. It could mean that the company's near term results are weak . Overall, there has been a shift towards 3D seismic data which has not grown since the company completed the divestco acquisition.

 

Q4 Results in early march. not much else to wait for in my view.

 

EDIT: The following is currently incorrect. It looks like they made this change to license agreements in 2011/2012. The company has mentioned before that M&A or industry consolidation is a negative for them as the combined company has no need for them. Also, I completely agree with KC's question. Also, I think a significant portion of the seismic data is in 2-D which is becoming closer to worthless with each year. I know they've been attempting to convert 2-D to 3-D with limited results. In short, they don't seem to be able to sell the same data more than once very often. Would you be as interested in Pulse if they said that they contributed to seismic surveys for E&P companies but didn't retain the data ownership rights afterwards? I think that's what Pulse Seismic really is.

[EliG]

The company has mentioned before that M&A or industry consolidation is a negative for them as the combined company has no need for them.

 

Disagree. I follow the company closely. Pulse management stated many times that strong M&A activity is a positive. Seismic licenses are not transferable. M&A creates opportunities for re-licensing revenue.

[Guest Schwab711]

The company has mentioned before that M&A or industry consolidation is a negative for them as the combined company has no need for them.

 

Disagree. I follow the company closely. Pulse management stated many times that strong M&A activity is a positive. Seismic licenses are not transferable. M&A creates opportunities for re-licensing revenue.

 

I could be confusing companies, can you provide a source? Do you have any metrics on the number of turns for a survey?

 

Edit: The most recent investor presentation mentions M&A as a driver so you are right. It looks like they added this to license agreements in 2011 or early 2012 as there was no mention in 2011 AR and 2012 AR first mentions it with some different language than today. My original statement stands that I still don't see very many turns in the same surveys occurring. It seems like a large portion of their revenue is from recent acquisitions and not their own data. I think the majority of their organic seismic data is 2-D. Do you like IO or US seismic companies? I just don't see what makes their business so special? Are there any barriers to entry? Unless their methods of survey are unique what is proprietary? Do you consider the Western Canada region a positive or negative? It looks like Canada oil sand are $50-100 vs. $30-70 for most of the US.

 

http://reports.standardandpoors.com/data/EQ/pdf/sr/7/74586q10.pdf?username=231008019058085121035009133086161045215056052206075147018076062131243198&password=164122123151145071215101162002250124014006089022105175025152180099112134&auth=Basic_Ultra&tracking=WebSolutions

*Since investor presentations before 3Q14 are not available on their website, you can find them here. Not the greatest website security ever...

http://www.pulseseismic.com/dev/wp-content/uploads/

[Guest notorious546]

The company reported preliminary results on the 19th. results included revenue of 35 million (+32% y/y). adjusted ebitda of 28.6 (+49%y/y) and ffo of 0.54 vs 0.46 last year (funds flow from operations).

 

other notable items include

"The purchase and cancellation, through the Company's normal course issuer bid, of 2,101,277 million common shares (3.5 percent of the total outstanding at December 31, 2013) at a total cost of approximately $6.3 million;

"The Company is also pleased to announce that it has executed an agreement with a large oil and gas company to conduct a 137 square kilometer 3D participation survey in west-central Alberta. Field operations commenced earlier this month and are expected to be complete, with data delivered, by the end of the first quarter of 2015. "

- finally, growing the library i think it's been many years since they've organically grown the asset base.

 

trades at ~6.0 ev/ebitda (bloomberg consensus), ~5.0x trailing p/cf, very low debt ~5.0 million

[Guest notorious546]

conference call this upcoming friday.

 

2014 CONFERENCE CALL

Pulse will hold a conference call and live audio webcast on Friday, March 6, 2015 at 11:00 a.m. MST (1:00 p.m. EST) where Neal Coleman, President & CEO and Pamela Wicks, VP Finance & CFO will discuss the Company's 2014 results. A question-and-answer period will follow an update on the Company's strategies and outlook.

To participate please dial 587-880-2171 (local – Calgary) or 1-888-390-0546 (toll free – North America) approximately 10 minutes before the commencement of the call. To listen to the webcast of the conference call please visit the Company's website at www.pulseseismic.com.

An archival recording of the conference call will be available approximately one hour after the completion of the call until March 13, 2015. To access the replay, please dial 1-888-390-0541 or 416-764-8677 and enter the playback pass code 997259#.

 

 

Throughout periods of weaker sales, the Company will rely on its advantages of low costs, lack of capital spending commitments and low debt. Pulse will also remain open to acquiring seismic datasets that meet its criteria for geographical and geological coverage, technical quality, regional industry activity and valuation. Pulse will require approximately $13 million in data library sales revenue to cover its cash costs, pay interest on its debt and pay its dividend to shareholders, making the Company capable of generating shareholder free cash flow even in a weak revenue year. So far this year, the Company has experienced a record low level of data library sales.

 

~6% fcf yield today.

[Guest notorious546]

I pulled together a replacement cost for the company's library based on Bellatrix exploration's seismic replacement metrics. assuming the same replacement metrics and cost to be paid by an E&P it looks like a 25% discount. This includes the new survey that will be finished in May. Key driver here is the proportional cost to be paid by an e&p so below are some sensitivities surrounding it. (+/-6%)

 

http://www.bellatrixexploration.com/news/news-single?id=122676

 

 

[Guest notorious546]

First quarter preliminary results look really bad, data library sales of 1.5 million compared to 5.5 million last year. negative free cash flow of ~350,000 vs positive 3.8 million last year.

 

"Data library sales for the quarter were a record low of $1.3 million due to the drastic cutback in the E&P sector's capital spending so far in 2015," stated Neal Coleman, Pulse's President and CEO. "Although we frequently note that the Company's results vary from quarter to quarter and should be viewed annually, the fact that the data library did not generate positive shareholder free cash flow in the quarter highlights the severity of the downturn."

 

doesn't look like it will be a good year for them.

[Guest Schwab711]

Does the data lose any value over time? How much longer will the 2-D data be relevant?

[cubsfan]

If you review their investor materials on website and filings, you will see the 2 D data is valuable and still be sold.

Some of the data was shot in the 1970's. It's too expensive to reshoot data when you can just buy it.

Also, in Canada if a land lease transfers ownership, new owners have to purchase data license.