RE: analyst coverageHi Everyone,
Wow, what a brutal market out there for Oil and Gas. I was running some numbers over the last few days and the whole services sector is getting creamed.
Since mid August, Trinidad Energy Services is down 20%. Trican touched $30 in February, and is now sitting at $19. Since August, Tesco is off from $24 down to $16.50.
Brutal, however, considering that Oil has shaved itself down to a price of $60 from its highs of $78 earlier in the year, the whole sector is bound to suffer. The drop has been dramatic, and the only benefit I can see is that the price of gasoline has dropped in tandem. The price at the pump in Edmonton has slid from $1.10 a liter to 90 cents. The economy should shrug off its dark cloud of recession talk with less inflationary pressure coming from energy.
The housing market in the US is another story, however it was a nice surprise to see the US Fed Reserve leave interest rates unchanged. I didn't think we would see ZED get as low as $1.09, however, this time of year is hard for energy investors year after year, with 2005 being an exception.
The natural gas price recently broke through $5.00, and the Oct 06 Contract finished at $5.95. December $7.54, and Jan, Feb, and March 07 are all approximately $8.00. Anyone who has been around in the industry can remember $2.00 gas, and $5.00 gas was a real treat. Funny how perception can alter our reality.
So how does the commodity pricing affect Zed.i? If the number of new drills and budgets shrink, Zed.i will likely be affected, however, over the past several years, the company has been expanding and broadening its product offering. More of the companies revenue is coming in from ongoing service contracts and provides a recurring revenue stream. I believe the last financials indicated that 70% of the companies' operating costs were offset by this revenue stream.
As natural gas prices drop, Zed.i's clients may be leaner and meaner compared to if they were running manually collected chart recorder information. When prices are high, you don't need to tend to the bottom line as much as when every dollar counts. A dollar saved in keeping production online, or a dollar saved in operations costs goes straight to the bottom line. Eighty dollars in fuel spent driving to wells to check on production adds up day after day.
Now may be the time where companies make that vital investment in modern technologies to improve operations, rather than investing in growing production through the drillbit.
In the whole picture, we should see prices firming up going into fall and winter, and share prices in the whole sector should improve radically.
Good luck, and hold on,
Flow