Doodlebuggers essentially fall into two camps: They either provide a multi-client library or individual project contract work. The contract firms will conduct a seismic survey at the request of a single operator, charging a fee for each square mile. Multi-client providers will market their databases of seismic information to several clients. So if Apache (NYSE:APA) is interested in a deepwater block in the Gulf of Mexico, it would purchase seismic data on that block to determine if it’s worth the company’s time. E&P companies also use the data to pinpoint prospective areas for test drilling.
Given the perilously dwindling reserves facing many E&P companies, seismic data remains the key to long-term growth and success. Spending on seismic data currently represents only a small proportion of the sector’s capital budgets, but that’s changing in the face of the new energy reality.
BP‘s (NYSE:BP) technology budget increased by an average of 15% a year from 2003 to 2006. Overall, global spending on seismic data and survey collection reached nearly $7 billion in 2011. Analysts expect that to increase 30% in 2012 and over the next three-year period to clock in at a compound annual growth rate of around 9%.
Bet on the Doodlebuggers
Despite the imperative of finding new oil reserves, seismic-data stocks are often ignored by portfolio managers aside from service giant Schlumberger’s (NYSE:SLB) WesternGeco division. That provides lots of opportunity for investors. One lies within a beaten-down French seismic superstar.
Recently receiving an upgrade to “buy” from Goldman Sachs (NYSE:GS), Compagnie Générale de Géophysique-Veritas (NYSE:CGV), or CGG-VERITAS for short, could be great way to play this sector. The company is one of the biggest pure players in the industry and continues to rack up long-term contracts for its 4D seismic equipment, both off- and onshore. The latest is a five-year deal with fellow French oil major Total (NYSE:TOT) to search for oil off Angola.
Deals like this have helped the French company report stronger revenues and free cash flow for 2011. The two metrics were up 10% and 36%, respectively. Overall, the continued high-priced oil environment, need to find more energy and higher CAPEX spending will benefit the company’s high-end products and expertise.
CEO Jean-Georges Malcor said of CGG-VERITAS’s outlook for 2012: “The ongoing strengthening of our high-end positioning and technological differentiation positions us to fully benefit from the expected robust seismic market conditions. In this context, I believe that CGG-VERITAS in 2012 can start a new journey of growth and strengthen its financial and operational performance.”
Those improving results have also boosted the stock price — it’s nearly double the 52-week low. However, an “It’s European” discount is firmly keeping the shares from realizing their full potential. Accordingly, as European stocks slumped over the summer, so did shares of CGG. For investors, that makes the shares a value in the oil-services and seismic sector.
Competition in the space is fierce, with smaller competitors such as Bolt Technology (NASDAQ:BOLT) and Global Geophysical Services (NYSE:GGS) chomping at the bit to get a piece of the action. But CGG’s size and scope makes it the proven technology leader for major energy producers looking to expand their operations. So investors may want to give the stock a go.