CALGARY – In the high stakes world of high-technology oilfield services, low oil and gas prices are hitting Calgary’s two largest publicly traded players, Pason Systems (TSX:PSI) and Computer Modelling Group (TSX:CMG), in vastly different ways.
Pason, which builds and rents sensitive instrumentation systems attached to most of the drilling rigs in North America, has eliminated 350 employees, about 38 per cent of its staff, in the past 12 months, to cope with severe cutbacks in drilling activity.
In contrast, reservoir simulation software manufacturer Computer Modelling added three staff over the past year to take its Calgary total to 172 and its worldwide workforce rose by seven employees to 212.
“The industry is in the deepest crisis in generations. Despite the recent recovery in oil prices, we expect conditions to worsen for Pason in the next few quarters,” warned CEO Marcel Kessler on a conference call last month.
Revenue fell by 54 per cent in the first quarter of 2016 to $46 million and Pason registered a net loss of $10.8 million compared to a gain of $14.2 million a year earlier.
At CMG, revenue slipped to $19 million from $20.4 million in the quarter ended March 31 and it registered smaller but still positive net income of $3.9 million, down from $7.9 million a year earlier.
CMG CEO Kenneth Dedeluk did not respond to a request for comment but the company indicated in its most recent news release it is actually gaining work because of low commodity prices.
“The corporation’s clients are oil and gas companies and it might, therefore, be assumed that its financial results are significantly impacted by commodity prices,” it stated.
“The corporation has, in fact, experienced growth in software license revenues during depressed oil price markets which confirms its belief that software license sales are influenced more by the utility of the software as opposed to the prevailing commodity price.”
Mike Mazar, an analyst for BMO Capital Markets who covers both companies, said both are considered top performers in the realm of oilfield services technology.
“The difference really is that Pason is directly related to drilling activity, there are no contracts for its services. So, if the rig goes down, Pason stops getting paid that day,” he said.
“CMG is not like that. They have long-term contracts on about 80 per cent of their revenue so if, to pick a name, Crescent Point (TSX:CPG), decides to stop drilling tomorrow, they still pay Computer Modelling, regardless.
“Pason is a great company, too, but CMG’s revenue model is different.”
CMG has become more valuable to oil and gas explorers as commodity prices tumbled over the past two years, Mazar said, because its software allows companies through 3-D animation to visualize the underground resource and plan the best exploitation method before drilling actually starts. Drilling and completing a single oil or natural gas well can cost millions of dollars.
“You may actually ramp up your modelling efforts in a low price environment because there’s less room for error,” he said. “It’s the last thing you want to cut back on.”
Mazar said Pason’s unique technology has allowed it to capture about 75 per cent of industry market share in North America — the company puts it differently, noting its electronic drilling recorders are installed on 99 per cent of all active drilling rigs in Canada and 54 per cent in the United States.
Unfortunately, that’s not an advantage when the active rig count in Canada is 43, down from 98 a year ago, while in the United States it is 404, down from 875, according to Baker Hughes figures released Friday.
Paris-based oilfield services giant Schlumberger is the only significant global competitor for CMG, Mazar said. CMG licenses its software to more than 500 oil and gas companies, consulting firms and research institutions in 60 countries and has offices in Houston, London, Dubai, Bogota, and Kuala Lumpur. It also offers training and consulting services.
Both Pason and CMG have lost investor favour as oil and gas prices fell over the past two years.
Pason’s shares have tumbled from more than $35 in August 2014 to a current level of about $17, giving it a market worth of $1.4 billion. CMG shares peaked at more than $15 each two years ago and now trade for around $10 each for a market capitalization of $805 million.
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