(Lack of) Oil Exploration Activity Continues to Crush Geospace Technologies' Earnings

By Fool.com

It seems as though the oil and gas market can't stop doling out punishment to shareholders of Geospace Technologies . The lack of demand for seismic work is pretty much a guarantee that Geospace's will post losses. This past quarter was no different, as the company posted a net loss of $13.5 million. Here's a quick snapshot look at Geospace Technologies earnings and what kind of pain investors can expect in the coming quarters.

Geospace Technologies results: By the numbers

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Source: Geospace Technologies earnings release

What happened with Geospace Technologies this past quarter?

  • As expected, demand for seismic products remains weak as many exploration and production companies scale back their capital budgets.
  • Even though the company has cut a large portion of its workforce and has reduced operating expenses drastically, the low utilization of its manufacturing facilities' capacity isn't enough to cover its fixed costs. Also, depreciation of its rental fleet is in excess of under-utilized rental fleet are wiping out any chances at a profit.
  • Despite more than $32 million in net losses so far this year, the company has lowered net capital expenditures to less than $300,000 this year and has burned through $11 million of its cash reserves. As the end of the quarter, Geospace had $23 million in cash on hand.
  • In October, the company did secure a contract with an undisclosed international oil and gas company to rent 5,000 of its OBX ocean bottom wireless seismic monitoring nodes. The contract for this equipment will be as much as $17.1 million, but it won't start until March 2016.
  • The one positive note in the company's results is that the company's non-seismic business continues to gain traction. This past quarter's non-seismic revenue of $7.2 million was the company's largest revenue source in the quarter and was an 11% improvement from the same quarter last year. It may not be much, but with Geospace struggling to find revenue sources, this segment has helped keep the company from sinking hard.
  • Geospace's CEO Rick Wheeler was nominated to the board of directors.

What management had to sayGeospace's management is not oblivious to the fact that the market for oil and gas activity is low, and based on management it may be quite some time before the industry -- and Geospace Technologies in particular -- sees a recovery:

Looking forwardSo much of what is happening to Geospace is out of its control. Without higher oil and gas prices, producers simply don't have the cash flows or the financial strength to take on any large exploration or appraisal projects. Without those projects, Geospace is without clients. The best path forward for the company right now is to keep its costs at skeleton crew levels to preserve cash, and try to diversify away from the oil and gas world through its non-seismic product offerings that seem to be gaining some traction. If it can do these things, Geospace will be able to keep the lights on until the eventual rebound in oil activity.

That beings said, it will take a very patient investor to wait for that to happen.

The article (Lack of) Oil Exploration Activity Continues to Crush Geospace Technologies' Earnings originally appeared on Fool.com.

Tyler Crowe has no position in any stocks mentioned.You can follow him at Fool.comor on Twitter@TylerCroweFool.The Motley Fool recommends Geospace Technologies. 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.

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