Dawson Geophysical Remains Mired in Oil's Slump

By Markets Fool.com


Image source: Dawson Geophysical.

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Companies that provide vital services to the energy industry have gotten crushed in the aftermath of the sustained downturn in crude oil and natural gas prices. Seismic-services provider Dawson Geophysical has given shareholders heavy losses in their portfolios, and coming into Tuesday's first-quarter financial report, Dawson investors were prepared for another round of red ink and falling revenue on its income statement.

Dawson's performance was somewhat worse than what followers of the the stock had expected; but even though the company sees conditions that are among the worst in the industry in 30 years, it hopes that the recent rebound in oil prices could spur a longer-term turnaround. Let's look more closely at Dawson Geophysical, and whether it can weather the storm.

Dawson Geophysical sees wider losses

Dawson Geophysical's first-quarter results continued its trend of uninspiring performance under nearly unprecedented industry conditions. Revenue for the quarter was $47.1 million, which was down 36% from the year-ago period. That represents a troubling acceleration in top-line declines compared to the fourth quarter of 2015.

In addition, Dawson's net losses widened during the quarter, to $8.6 million, 30% greater than the year-ago loss, and worked out to $0.40 per share. That's $0.05 per share worse than the consensus forecast among those following the stock.

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Looking more closely at Dawson's numbers, there were some signs of life amid the general industry gloom. Operating income before depreciation and amortization actually rose nearly 75% for the quarter, to $2.51 million. Cost-cutting measures were instrumental in cushioning the blow to Dawson's bottom line, although the 26% drop in general and administrative overhead expenses was nevertheless slower than the pace of revenue declines.

Operationally, Dawson Geophysical continues to run on a dramatically reduced work schedule compared to normal conditions. During the quarter, Dawson operated between four and six crews in the U.S. market, which was down from eight to 10 crews in the previous quarter. The company did say that it hit a peak of eight crews at one point early in the quarter, but bad weather later in the period caused reductions that persisted into the current second quarter. Now that the winter season has come to a close in Canada, Dawson's business operations there are currently inactive.

Dawson kept having to fight poor oil-price movements during much of the first quarter. At its worst levels, oil hit $27 per barrel for West Texas Intermediate. The corresponding impact on exploration projects affects Dawson's business directly, and CEO Stephen Jumper called 2016 "likely the most difficult year in my thirty-plus years of experience with the Company and in the industry."

Yet the company is hopeful that the poor pricing environment might be coming to an end. "Oil prices have recently climbed to approximately $45 per barrel," Jumper said, calling the move "encouraging." However, the CEO also reined in premature enthusiasm, arguing that "it remains to be seen if the recent strengthening in oil prices can be sustained, and the price increases have yet to result in an increase in demand for our services."

What's ahead for Dawson Geophysical?

Dawson sees a lot of uncertainty in the industry in forecasting where oil prices will go from here, and what impact ongoing volatility will have on the willingness of its customers to start new projects that require seismic data. Accordingly, Jumper said that he believes Dawson will keep running between four and six crews in the U.S. during the current second quarter. Beyond that, the CEO referred to "visibility beyond the second quarter remain[ing] limited."

To adapt, Dawson expects further strategic initiatives designed to make the company as productive as possible. The company will consider new cost-reduction initiatives in order to minimize losses as it waits for a general industry rebound.

Dawson Geophysical stock responded only slightly to the report, falling less than 1% on Tuesday following the announcement. In the long run, what Dawson needs is for recent oil-price gains to build up further, and encourage producers to start looking at expansion plans once again.

The article Dawson Geophysical Remains Mired in Oil's Slump originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Dawson Geophysical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.