Adding to a Pumper

add-on purchase in my personal portfolio

By Travis Johnson, Stock Gumshoe, March 22, 2012

Nothing much new to say about the company, which I’ve written about any number of times, but I bought more shares of Canyon Services Group (FRC in Toronto, CYSVF on the pink sheets) today. Why? Because they’re cheaper — the stock took a hit, along with most oil and gas services names, including the huge players, when Baker Hughes reported weak results and cautioned everyone about the lower demand for gas drilling equipment.

Which means Canyon could certainly run into reduced demand at some point — they do depend to a great degree on the very deep gas formations in Western Canada, like the Montney and the Horn River formations, because those deep formations require more horsepower for fracking, but many of those formations also produce a good amount of natural gas liquids (NGLs), which help to keep well payback higher (NGLs track oil prices more than they do gas prices), and, of course, there’s a lot of fracking going on in the oil shales too, particularly in the bakken.

In general I think we’re going to continue to see more oil and gas discoveries that push the fracking envelope, with deeper and more aggressive pumping to fracture deeper and further on longer horizontal wells, and that plays into Canyon’s core competency of high horsepower pumping (they do other things as well, but pumping and fracking crews are their core business). The company is confident enough in the demand for their services that they dramatically raised the dividend, which they did not have to do, so the stock is now very close to a 5% yield (dividend will now be C$0.60 per year, payable quarterly) — that reassures me somewhat, and I’m willing to be patient with them if the market dips a bit on reduced natural gas drilling … partly because that problem will gradually heal itself, low prices reduce drilling and increase conversion to gas on the margins, driving demand higher, which raises prices and increases exploration and production. I wouldn’t want to bet that natural gas prices are going to bounce higher over the next year or two, but I think demand for fracking in the oil sector will also pick up and I don’t believe shale gas production will end.

All the oil services companies are cheap now (or almost all of them, particularly all of them that have any gas exposure), Canyon ...

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