Weak crude oil prices have been the bane of the energy industry, having an impact on activity levels throughout the industry. Dawson Geophysical (DWSN +13.03%) has seen demand for its seismic services drop substantially from peak levels before oil's collapse, and even though the energy sector started to stabilize last year, customers weren't quick to ramp up their exploration efforts, holding Dawson back from sharing in the industry's partial recovery.
Coming into Thursday's second-quarter financial report, Dawson investors foresaw flat revenue but were hoping that the company would be able at least to narrow its net losses. Instead, the red ink got deeper for the seismic specialist. Yet Dawson is still optimistic about its long-term future once conditions in the industry return to something approaching normal. Let's take a closer look at Dawson Geophysical and how its latest numbers reflect the current state of the industry.
Image source: Dawson Geophysical.
Dawson Geophysical faces new challenges
Dawson Geophysical's second-quarter results had surprises in both directions. Revenue jumped 8% to $30.5 million, which was far above the flat performance of roughly $28 million that most investors were expecting to see. However, Dawson's net loss widened by more than a quarter from the year-ago period to $14.8 million, and the corresponding per-share loss of $0.68 was far worse than the consensus forecast among those following the stock for a loss of $0.41 per share.
Taking a closer look at Dawson's results, the biggest culprit for the company's profitability was a big jump in expenses. Operational costs soared more than 20%, and overhead expenses were up 10% from the year-ago period, dramatically outpacing growth in revenue. Part of the uptick was likely due to what the company called a "small internal reorganization" that cut support service capacity and included some management changes.
Dawson's crew capacity varied to a large extent during the second quarter. In April, weather delays and project readiness problems limited work crews to as few as two. By June, that number was up to six crews in the U.S. and an additional crew in Canada. Things have gotten better during the summer months, though, and Dawson reported that July has boosted the number of working crews in the U.S. to eight.
On a more hopeful note, Dawson was optimistic about how bidding activity looks right now. The company finished a large micro-seismic project during the quarter, which was the first it had done in more than a year. The seismic specialist received an award for a second such project, which is expected to reach completion late this quarter or early in the fourth quarter. Demand for the company's specialty multicomponent recording crew has been regular, although Dawson is having trouble making good predictions about 2018 activity levels.
CEO Stephen Jumper wasn't happy with recent events. "We are disappointed with our second-quarter results," Jumper said, "which were impacted by low utilization of our data acquisition crews." The CEO pointed to the drop in oil prices during the first half of 2017 as having a particularly chilling effect on activity levels in the industry.
Can Dawson Geophysical rebound?
Yet Dawson thinks things could get better soon. As Jumper pointed out, "There are more than 5,000 drilled but uncompleted wells in inventory in the U.S., the majority of which are in the Permian/Delaware and Eagle Ford basins." The chief executive sees potential for rising demand for micro-seismic services in those areas as a key driver of future growth.
Yet one issue that Dawson faces has to do with the way business is getting done in those parts of Texas. Dawson doesn't participate actively in producing multiclient data library assets, instead acting as a contractor for several of the largest providers of those services. Because there's so much activity in the Permian, Delaware, and Eagle Ford areas, there's a lot of value in those data libraries, but the timing of projects for Dawson resulting from the companies that produce the data can vary widely and is out of Dawson's control.
Dawson Geophysical shareholders initially seemed worried about the company's prospects, but early pre-market losses gave way to a 5% rise in the stock in the morning session following the announcement. With company executives seeing better times ahead in the long run, Dawson has potential for substantial gains if exploration and production companies start using seismic services more extensively to assist in their drilling efforts.
