Petrowest has a below average quarter
Petrowest reported it's first quarter results on May12,2015.They were certainly not as rosy as past quarters.Petrowest was trading in the $1.25 to $1.40 price range a year ago and around $.65 six months ago and around $.30 a month ago.The drop in the price of oil and natural gas has affected all it's customers and reduced their drilling.Petrowest's CEO says that "reduced customer activity in the oil and natural gas industry had a significant effect on our operations,particularly the Construction division." Petrowest had just bought 3 small companies that are in the infrastructure business like itself.They did it quite cleverly with an equity issue priced at $1.25 a share and got a good bang for their buck at this price.The question many investors are asking now is can Petrowest hang onto these three new companies or have to sell at least one of them.The CEO adds that Petrowest picked up new contracts in May totalling $12 million;furthernore he says the Civil and Transportation divisions are not as sensitive to the price of oil as their other divisions..Lastly they are looking to secure projects in the Site C hydro project and future LNG projects.
The next two quarters
Petrowest reported revenue of only $38 million in Q1- a drop of $22 million from Q1 in 2014.Adjusted EBITDA was a loss of $1.3 million in comparison to $11 million income in Q1 2014.Petrowest also reports that it has a $50 million revolving loan and $40 million revolving credit facility. Additionally it is not in compliance with certain financial covenants on it's credit but they have been waived until Q2 2015.Petrowest hopes that the bottom has been reached for the price of oil.Three months ago many of the forecasters were predicting a peak price of oil at $65 a barrel for 2015 and now some(not all) are predicting an average price of oil at $68 a barrel.Twitter Research predicts an average price of oil at $68 a barrel.Petrowest hopes the average price starts to move
up in the second quarter.
The key to their year will likely be the third quarter.If the price of oil averages out close to $62 or $63 a barrel that will increase their customer's activity and that will leverage upwards their revenues.At this point it seems like the price in Q2 may have only averaged about $59 a barrel.On a positive note Petrowest made a astute equity issue and picked up some assets cheaply. For example,their equipment fleet was appraised recently at $130 to $155 million.While their total liabilities were recorded at only $16 million a drop from $52 million in Q1 2014.Petrowest's balance sheet looks quite solid except for the covenants on their credit.They need the price of oil to pick up somewhat and then to pick up some new contracts even if the margin on them is small.
Summary
The price of oil is the catalyst needed to increase revenues and hence the stock price.It may not average out at $68 a barrel without production cutbacks in the middle east but with luck it may peak at $68 a barrel by yearend.This will increase drilling and customer activity.But Petrowest will have to dig in and pick up new contracts in their civil and transportation divisions. Even if the contracts have below average margins.The prices they need may not materialize until Q4 and they had negative EBITDA in Q1.This blog predicts that none of their new assets will be sold and revenues will increase from Q1.At this time there is a 50% chance that Petrowest will be at $.35 in September.It will take a lot of projects to get the revenue needed to move the share price back to $.50 but if no assets are sold they will be well positioned to move again in 2016.Especially if the price forecasted byTwitter Research is right.
The next two quarters
Petrowest reported revenue of only $38 million in Q1- a drop of $22 million from Q1 in 2014.Adjusted EBITDA was a loss of $1.3 million in comparison to $11 million income in Q1 2014.Petrowest also reports that it has a $50 million revolving loan and $40 million revolving credit facility. Additionally it is not in compliance with certain financial covenants on it's credit but they have been waived until Q2 2015.Petrowest hopes that the bottom has been reached for the price of oil.Three months ago many of the forecasters were predicting a peak price of oil at $65 a barrel for 2015 and now some(not all) are predicting an average price of oil at $68 a barrel.Twitter Research predicts an average price of oil at $68 a barrel.Petrowest hopes the average price starts to move
up in the second quarter.
The key to their year will likely be the third quarter.If the price of oil averages out close to $62 or $63 a barrel that will increase their customer's activity and that will leverage upwards their revenues.At this point it seems like the price in Q2 may have only averaged about $59 a barrel.On a positive note Petrowest made a astute equity issue and picked up some assets cheaply. For example,their equipment fleet was appraised recently at $130 to $155 million.While their total liabilities were recorded at only $16 million a drop from $52 million in Q1 2014.Petrowest's balance sheet looks quite solid except for the covenants on their credit.They need the price of oil to pick up somewhat and then to pick up some new contracts even if the margin on them is small.
Summary
The price of oil is the catalyst needed to increase revenues and hence the stock price.It may not average out at $68 a barrel without production cutbacks in the middle east but with luck it may peak at $68 a barrel by yearend.This will increase drilling and customer activity.But Petrowest will have to dig in and pick up new contracts in their civil and transportation divisions. Even if the contracts have below average margins.The prices they need may not materialize until Q4 and they had negative EBITDA in Q1.This blog predicts that none of their new assets will be sold and revenues will increase from Q1.At this time there is a 50% chance that Petrowest will be at $.35 in September.It will take a lot of projects to get the revenue needed to move the share price back to $.50 but if no assets are sold they will be well positioned to move again in 2016.Especially if the price forecasted byTwitter Research is right.
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