This summer, natural gas prices dropped below $2 U.S.per thousand cubic feet, a 10-year low. That’s mainly because of new shale gas discoveries. Prices are now around $2.84, still well below last year’s high of almost $5. Oil prices have weakened, as well. They are now down 16%, from $109 a barrel in February to $92 today.
Oil prices will continue to vary, while gas prices will likely recover. The key for this tech stock that serves the energy industry is that prices remain high enough to generate increased drilling for both oil and gas.
PASON SYSTEMS (Toronto symbol PSI; www.pason.com) rents equipment for monitoring and managing oil and gas rigs. It also sells communication systems, such as its satellite system, which companies use to remotely collect data from their drilling operations.
Pason serves oil and gas producers and drilling contractors throughout Canada, the U.S., Mexico, Argentina and Australia.
In the three months ended June 30, 2012, Pason’s revenue rose 29.8%, to $81.1 million from $62.4 million a year earlier. Cash flow rose 31.5%, to $30.1 million, or $0.37 a share, from $22.9 million, or $0.28 a share.
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Technology stocks: New gear and equipment upgrades are a plus for Pason
Even with declining oil prices and continued low gas prices, drilling activity rose 6% in Canada and the U.S. in the latest quarter, with a combined 188,291 active days and a rig count of 2,069, compared to 177,791 days and 1,954 rigs a year earlier.
The company’s systems are installed on approximately 97% of all active land-based rigs in Canada and 57% of the landbased rigs in the U.S. But there is still lots of room for international expansion. Operators are also upgrading their equipment, creating demand for new gear like Pason’s hazardous gas alarm system.
Pason holds cash of $138.6 million, or $1.69 a share, and has no debt. It raised its semi-annual dividend by 10% with the July payment, to $0.22 from $0.20. The shares now yield 2.8%.
In the latest edition of Stock Pickers Digest, we look at the company’s heavy reliance on the resource sector and whether Pason will be able to keep on profiting from increased oil and gas drilling in an uncertain climate for energy prices. We conclude with our clear buy-hold-sell advice.
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With the shale discoveries in North America, production of oil is liable to outstrip demand just as it has with gas. How do you see this affecting the outlook for energy prices and energy stocks? Do you believe this is a good time to invest in energy stocks? Let us know what you think.
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