This oil services company has seen its stock plunge to bargain levels, due to sinking oil prices. The shares now trade below book value; the company has a healthy balance sheet, and the shares were just upgraded to “sector outperform” by Howard Weil.
Basic Energy Services, Inc. (BAS)
From The Cheap Investor
Basic Energy Services (BAS) provides well site services to oil and natural gas drilling and producing companies in more than 100 service points throughout the major oil and gas producing regions in Texas, Louisiana, Oklahoma, New Mexico, Arkansas, Kansas, and the Rocky Mountain and Appalachian regions. It provides well servicing, fluid services, pumping services, contract drilling, coiled tubing, snubbing services, salt water disposal, rental and fishing tools, and wireline services.
A Wall Street favorite, selling at $29.84 last July, Basic Energy Services’ price has plunged 80% while crude oil prices fell around 50% during that time. Insiders own 23% of the 41 million shares outstanding, and 217 institutions own 83% of the float (shares in public hands). Institutions purchased 2.7 million more shares than they sold for the quarter ended September 30, 2014.
The Company has a good balance sheet with $57.5 million ($1.40 per share) in cash and a book value of $8.90 per share. Like most companies in the oil industry, Basic Energy has a large debt of $909 million. The major negative factor is the tremendous drop in crude oil prices, which has caused oil stocks to plummet.
Roe Patterson, Basic’s President and Chief Executive Officer, stated, “Revenue in the third quarter came in about 10% higher sequentially, led by our completion and remedial services segment which increased revenue by 18% from the second quarter. We added 62,000 hydraulic horsepower (“HHP”) during the third quarter. Frac services were running at near record utilization rates and we were able to increase frac pricing in the 3% to 5% range during the quarter, which more than offset cost increases. Activity levels and pricing for our other three business segments were generally in-line with our expectations.
“We have experienced very few logistical issues in our stimulation business as a whole. Pricing in our other service lines remains highly competitive as there is still more capacity than demand for those services in most markets. Margins in our fluid services segment were higher on strong utilization.
“Completion activity continues to drive demand for our pumping services and coil tubing service lines. Frac calendars are full through the first quarter of 2015. In the fourth quarter, we will realize a full quarter impact from the 62,000 HHP we added in the third quarter plus the addition of two 2" coil tubing units that are being deployed in October. We expect the normal seasonal conditions, including less daylight hours, holidays and weather, to apply to all of our business segments. Based on these conditions, we anticipate that our fourth quarter revenue will be relatively flat sequentially.
“We have not seen a reduction of activity by our customers due to the recent decline in oil prices, and none have indicated reductions in their 2015 growth plans. Early indications of these capital spending programs look to be slightly higher than 2014 levels.”
We think Basic Energy Services is a great bargain. Despite posting excellent revenues and earnings, the stock has plunged to a much undervalued level, which could make it an acquisition target. Since crude oil could continue to drop, we would start to accumulate shares, but consider keeping some investment capital available to buy more shares if the price falls even lower. Basic Energy Services plans to release its fourth quarter and year-end financials on February 20 after 5 p.m.
Bill Mathews, The Cheap Investor, 847-697-5666, February 2015