Oil Prices and Weather Weigh Down Dawson Geophysical's Q2 Results

By Markets Fool.com

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Weak oil prices continue to affect demand for Dawson Geophysical's (NASDAQ: DWSN) seismic data services. Unfortunately, oil price volatility was not the only issue plaguing the company during the second quarter. The inclement weather, as well as several client delays, hurt utilization -- adding further pressure on revenue and profits.

Dawson Geophysical results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Operating revenue

$28.1 million

$43.3 million

(35.2%)

Net income

($11.6 million)

($11.9 million)

N/A

Earnings per share

($0.54)

($0.55)

N/A

YOY = year over year. Data source: Dawson Geophysical.

What happened with Dawson Geophysical this quarter?

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Conditions are brutal in the oil patch right now:

  • Dawson Geophysical operated four to six crews during most of the quarter. However, inclement weather conditions at the beginning and the end of the quarter affected the utilization of its crews.
  • The company also experienced a few client-driven project delays, which caused longer-than-expected crew moves.
  • On a more positive note, operating expenses fell alongside revenue, slumping 40.1% year over year. Meanwhile, general and administrative expenses declined 28.3%. These spending reductions keep its net loss relatively flat.
  • The company also improved its underlying profitability with EBITDA rising from a negative $5.7 million in the year-ago quarter to a negative $1.5 million in the second quarter. Even better, the company's EBITDA through the first half of the year was positive at slightly more than $1 million.

What management had to say

CEO Stephen Jumper commented on the company's results:

Demand for seismic data acquisition services in North America and worldwide continues to be soft in response primarily to low and uncertain oil prices. During the quarter ending June 30, 2016, oil prices averaged approximately $45 per barrel after reaching a decade-low price of $26 per barrel on February 11, 2016, and ending the quarter at approximately $48 per barrel for West Texas Intermediate. Since the end of the quarter, oil prices declined once again to below $40 during the first week of August.

Volatile oil prices are making it tough for producers to get a handle on their cash flow, which in turn is making them reluctant to spend capital on things like seismic data. That is tamping down demand for the company's services. According to Jumper, "2016 will be a difficult year" for the company. In fact, he said that it would likely be the "most difficult in my thirty-plus years of experience with the Company and in the industry." That statement really says it all.

Looking forward

Because of the current conditions, Dawson Geophysical's outlook for the balance of the year is uncertain. Jumper stated:

Given the recent fluctuations in oil prices, it remains to be determined when strengthening in oil prices will be sustained. As we experienced during our first quarter of 2016, due to uncertainty in oil and natural gas prices, our client base continues to take a cautious approach to their capital spending budgets. Based on currently available information and anticipated seismic data acquisition service demand levels, we believe we will continue to operate four to six crews through the third quarter of 2016. However, visibility beyond the third quarter remains limited. In response to these factors, we will continue our ongoing effort to control costs, maintain a strong balance sheet, retain our key personnel and expand our position as a leading onshore seismic data acquisition company in North America.

In other words, investors can expect at least one more very tough quarter for the company.

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Matt DiLallo 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.