Oh, Say Can You CGG?

While the company is certainly positioned in a hot sector, results out of leading seismic company CGG Veritas (NYSE:CGV) were less than star-spangled.

In a vacuum, there's nothing obviously wrong with the numbers that the French/Texan (Texrench?) firm reported on Thursday. In dollar terms, revenues were up 33%, operating income increased 50%, and net income doubled. EBITDA margin increased six points to 45%, on strong performance from both the services business and Sercel, arguably the National Oilwell Varco (NYSE:NOV) of the seismic equipment business.

Part of investors' disappointment may stem from the greater surge experienced by others in the space. Ion Geophysical (NYSE:IO), for example, recently reported a tripling of its per-share earnings. It's more likely than not, however, that CGG simply failed to meet expectations, particularly with regard to the profitability of its new push into wide-azimuth surveys.

Just to get everyone up to speed, seismic surveys use acoustic waves to identify and model potential hydrocarbon-bearing structures. A wide-azimuth survey enhances illumination and resolution of the resulting image, but according to the company, this takes three to six times as much vessel time as a regular 3-D survey. So it wasn't cheap for CGG to add this more detailed data to its Gulf of Mexico library, and it noted on the call that after-market sales were slower than anticipated.

I think the hit to CGG shares is overblown, for two reasons.

Given the frantic moves by Schlumberger (NYSE:SLB) and Petroleum Geo-Services to snap up smaller seismic players with modern vessels, and CGG's own statements as to the strength of the market over the next two years, it is clear that the seismic business is not slowing. Not even remotely. Just look at the bids by Petrobras (NYSE:PBR) and Marathon Oil (NYSE:MRO) in the recent Central Gulf lease sale.

With regard to the new wide-azimuth data, or any newly shot seismic, it's common for amortization charges to obscure the actual cash-generating power of the data. The seismic data business is a beautiful one, in which customers pay for the same data over and over again. Particularly given this data's high quality, I'm sure it will be of economic value far beyond what accounting conventions might dictate.

Related Foolishness:

• I love the smell of seismic in the morning.
• There's even more to learn from the seismic story.