“How Do You Own Seismic?” (Chris Mayer)

Sleuthifying out a seismic data company teaser pick for Mayer's Special Situations

By Travis Johnson, Stock Gumshoe, March 14, 2012

“… even with the ‘easy’ oil gone, you shouldn’t be surprised to hear more discoveries are coming online. Today I want to share with you a special way to profit from today’s newest oil finds. As you’ll see, it’s adventurous. Plus, it could be your way to profit from the next big find, before anyone even knows it’s there…”

That’s the early part of a tease from Chris Mayer that involves a stock that has something to do with seismic data — it’s more of a letter than an ad, to be sure, he talks about the use of data as a kind of way to avoid the “Vancouver roulette” of junior exploration companies that might not pan out, but in the end he tosses out a little tease for a specific company that he’s recommending to his subscribers.

So let’s get a wee taste of the idea and then see if we can ID the company, shall we?

“There is a modern-day equivalent of a treasure map, and it is just as coveted by those who seek reservoirs of oil and gas. It’s called seismic data.

“What is seismic data? In essence, it’s collected from seismic waves (or sound waves), set off either with a dynamite charge detonated down a small hole or by using what’s called a Vibroseis unit, which strikes the ground. These sound waves bounce around and reflect differently off different types of rocks and travel at different speeds through different densities. So seismic data are the data from the returning sounds. These are fed into a computer and used to create a kind of map.

“This seismic map gives oil and gas drillers a peek at what lies beneath the surface. Before seismic, oilmen had to look for obvious physical clues, such as oil seeps, where oil is actually oozing out of the surface of the earth. Or geologists would try to make inferences based on certain outcroppings of exposed rocks and ridges….

“Moreover, this map has some interesting properties as an asset:

  • You can use it over and over again for a long period of time. For instance, today, there are still seismic data being used that go back to the 1960s
  • Once you have it, the cost to maintain it is zero
  • People will pay you good money to use your maps”

Sounds pretty interesting, no? Nice to have an asset that can be used over and over without additional capital costs, unlike the real “depleting” or “depreciating” assets that you typically see in the energy business.

He then goes on to say, in not so many words, that the collection of and demand for seismic data tends to track the price of oil, similar to the other subsectors in the oil services business.

And then, for the P.S., the coup de grace:

“All fine and well, you say, but how do you own seismic? There is a company that’s made owning, growing and leasing a seismic library its primary business. Headquartered in Calgary, this little-known company has only 28 full-time employees. The insiders (management, employees and directors) own about 12% of the stock. It’s small and definitely a “Special Situation.” For all of the details on this opportunity and the full write-up, which I just sent to my paid-up readers on Friday, all you need to do is make sure you’re signed up. To do so, at a sharp discount, click here today.”

Of course, we cannot bring ourselves to sign up for a newsletter, discount or no (FYI, they’re asking $747 “on sale”), just to find out about a small “special situation.” So let’s figure out who he’s talking about, shall we?

Well, it takes but a moment to flush all that info — meager though it may be — through the sieves of the mighty, mighty Thinkolator … and soon enough a nice, pure answer emerges: Pulse Seismic (PSD in Toronto, PLSDF on the pink sheets)

There are other seismic companies that have set themselves up as libraries and licensors of seismic data, though I don’t know of any other “pure play” public companies in this space (“pure” meaning “doesn’t do anything else” — several of the larger seismic data acquisition companies also own and license data in addition to collecting it and renting out seismic equipment and crews to exploration companies). But Pulse Seismic is an interesting little public company, and they do have 28 full-time employees as of the time of their last investor presentation, and they are headquartered in Calgary.

They’ve also had a good week — it seems they might have been a bit cash-strapped recently, but they signed a big deal for what seems to be their most valuable swath of data just this week, which has helped to drive the share price up a bit. That’s a large data set for the deep basins in BC that they just acquired a year and a half ago, and they’ve now reportedly come close to breaking even on it already … so that can’t hurt.

The company’s financials will probably take some time if you’d like to grow comfortable with them, in part because they rely on licensing deals that pay off over extended periods of time, and large up-front costs for buying data or acquiring data through surveys … but it is a tiny company with an interesting business model. Pulse has released their preliminary 2011 numbers, you can see those here.

They seem to be profitable but not necessarily cheap, and they pay a dividend (just reinstated the dividend this year, at five cents a year — so about 2% based on the $2.20 share price). I’ve never heard of them before today, so I can only tell you that they’re small and interesting and profitable, and I like the basic business concept they’re following — it’s intriguing that probably half of their data is more than 20 years old, but it doesn’t seem to degrade or lose value or stop getting licensed, as long, of course, as the surveys cover the right areas where exploration activity is taking place.

You can see the basic investor presentation here if you like — one imagines that the investor argument they put forth is probably at least somewhat similar to what Chris Mayer would tell you in urging an investment in the company, should you subscribe to his letter. And yes, as one would expect, they believe themselves to be the coolest cucumbers in the patch.

It’s your money, though, so what do you think? Let us know with a comment below. And if you’ve ever had the pleasure of subscribing to Mayer’s Special Situations, well, by golly, we want to