Who Knows What Lurks Beneath Our Feet?

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3-D subterranean imaging specialist Dawson Geophysical (Nasdaq: DWSN) is no stranger to seismic experiences. Following a 70% decline in its share price during the past year, a reasonable Fool might have expected a significant bounce as the company reported a 26% increase in revenue for the fiscal year 2008, and a 29% increase in net income, to $35 million. Sadly, these are not reasonable times, and the markets appear to be effectively ignoring earnings results left and right as broader fears of a prolonged recession and locked-up liquidity continue to rule the day.

Dawson is the top supplier of seismic data acquisition services for the energy industry in the lower 48, with 16 crews operating at full capacity. CEO Stephen Jumper indicates that demand "continues at high levels" despite the ongoing weakness in energy prices. Although Dawson's service contracts are not as binding as those of deepwater drillers like Transocean (NYSE: RIG), or even terrestrial drillers like Nabors Industries (NYSE: NBR), the company expects to keep those seismic crews operating at full throttle at least well into 2009.

With both oil and natural gas prices down by more than 50% from their midsummer peaks, the key question remains where they will go from here. In a trend being played out within several commodity sectors, Chesapeake Energy (NYSE: CHK) has already lowered its capital expenditure budget through 2010 to reduce risk exposure, and Valero (NYSE: VLO) has signaled a similarly defensive posture within the refining industry. A recent research report from IHS Global Insight suggests that while major producers like ExxonMobil (NYSE: XOM) may not feel much pain from the credit crisis, smaller producers with cash-strapped balance sheets will likely begin to defer longer-term projects with target completion dates after 2012. Eventually, I believe these reduced investments will bolster energy prices, while in the meantime the fate of the U.S. dollar is more likely to be a major factor.

Dawson Geophysical, fortunately, carries virtually no long-term debt and boasts a mobile fleet of seismic crews that will likely remain in some demand even if leaner times prevail within the industry.

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