Today I’m sniffing out a solution to a teaser that is just a couple sentences long — not really a “hyped to the moon” stock like so many I write about, but one that sounded interesting to me (and to enough of my readers that the questions are piling up a little bit).
It’s from Frank Curzio for his Penny Stock Specialist newsletter published by the Stansberry folks, in this letter his general tendency is to look for stocks under $10 (just like he did at his last job for the TheStreet.com), and they’re often “value” stocks that have dipped to the $10 range after some sort of trouble.
But the reason I was interested was because he mentions the potential business boom that will be brought by new Department of the Interior rules following the BP oil spill — the new rules apparently state that old wells will have to have permanent caps (which many don’t now, we’re told), and that old production platforms that aren’t in use will have to be dismantled. Those old platforms are what’s referred to as “Idle Iron” — presumably because they were more expensive to remove than the steel or the structure would have been worth to the oil company or contractor. (So no, “idle irons” apparently has nothing to do with the fact that my golf clubs haven’t come out of the garage since the kids were born.)
And Curzio tells us that there’s a lot of business ahead for companies that can clean up these older wells and platforms:
“Regulators require these ‘idle irons’ to be dismantled over the next 12-36 months. According to the DOI, there are 3,500 non-producing wells in the Gulf of Mexico. Also, roughly 650 production platforms will need to be dismantled.”
So that sounded like a fairly large business opportunity — he mentions this largely in service to the several large-cap oil services names he mentions in the article, which appeared in the Growth Stock Wire last week (all names you probably know, like Halliburton and Schlumberger), but then, of course, we do get our little teaser tidbit about the company he really likes. And if you throw the Gumshoe an intriguing “big picture” idea and then toss out a clue or two about a specific stock … well, you know me, I need to solve the mystery.
So here’s his P.S. with the clues:
“P.S. I just told my Penny Stock Specialist readers about a small-cap oil services stock. It trades for $11 a share. And it happens to be the leading single-source provider of ‘well abandonment services’ in North America. In other words, sales will skyrocket if it’s able to capture just a fraction of the coming “idle iron” revenue. I see huge upside over the next 18 months.”
So who is it? Well, the company that calls itself exactly that in some of their materials, quoting from one of their brochures: “TETRA is the leading single-source provider of well abandonment services in North America.”
And that “TETRA?” It’s Tetra Technologies (TTI), and it was at $11 and change last week, though it’s up to about $12.50 right now — and it has been talked about recently as a “breakout” stock, and as a play on new regulations, and a possible takeover target in the assorted sea of blather that I read through in any given week. Interestingly, another newsletter guy, Kent Moors, mentioned it in a free article back in October that was not on this same specific topic but also intimated good things ahead for the big oil services companies with new Gulf of Mexico regulations.
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Tetra Technologies trades in a similar valuation range, at least if you go by the PE ratio, to other small offshore oil services companies like Global Industries (GLBL), and also close to the valuation of the somewhat larger Oceaneering International (OII), which is more well-known for their underwater drone work. Like Global Industries, which also calls itself a “one stop shop” for decommissioning (in addition to other work — construction, laying pipelines, etc.), TTI trades at a trailing PE of about 21.
Of course, the other big driver of almost every oil services stock is … well, oil, since most new oil services projects are generally in the “looking for and producing” oil, and folks naturally tend to do more of that when oil prices are higher. And oil prices are coming down from their highs at the moment, so that might be part of why the stock is down today, though it’s also coming off a bit of a jump and tends to be fairly volatile in general.
And yes, TTI did do a bit of “preannouncing” last week, indicating that the fourth quarter would come in at a loss, but that 2011 looks pretty good, in part because of that demand in their “rig removal” business… so we’ve already got some indication of what they’ll say when they report earnings in about ten days, though of course you never know for sure.
So there you have it — one fairly small oil services company in an interesting niche. Sound like the kind of thing you’d like to have in your portfolio? Or do you think it’s possibly too expensive or too levered to the Gulf of Mexico? Let us know with a comment below.