BAS is up 4% this morning after announcing earnings last night. The earnings themselves were unspectacular, but I think capital is beginning to catch on to the idea, judging by the gap up.
BAS has managed to close earnings losses by about half (so far) while keeping revenues approximately flat (-4% year over year), which in this environment with such steep competition for rig hours is an impressive feat.
The real story here is BAS’ cash position, which actually increased despite everything else. They now are sitting on $100 million, up from $96 million last quarter – and keep in mind that this time last year they were only sitting on $104 million.
The company has made a few big acquisitions over the last couple quarters, including a salt water disposal company last December. Total capital investment was $139.9 million for the last 12 months. During that same time, BAS’ long term debt increased by $82 million. So I think I can see clear value being created by the operation, the losses notwithstanding.
The real game BAS is playing here is best laid out by their CEO Roe Patterson (emphasis mine):
“With respect to acquisition opportunities, seller expectations still remain high. We expect valuations to come more into balance over the next two quarters so we will continue to conserve our liquidity until we see those opportunities. We currently anticipate spending about $165 million for capital expenditures in 2013, adding mainly higher margin rental equipment and salt water disposal wells, along with maintenance and sustaining capital.”
BAS is positioning themselves to buyout the competition at fire sale prices. That’s the real play. I first got on to this company, actually, when I was looking through the space for potential investments, and realized nobody had any cash on hand.
BAS was the first company, after checking a few dozen, that actually had suitable cash reserves.
The natural gas price collapse that occurred throughout 2011 (nice work, Aubrey…) struck the well services industry hard. I’d say BAS has a hunch a subset of their competitors might start to get in trouble here shortly – why else wait? It’s not like energy services firms (at least the publicly traded ones) are commanding high multiples these days.
The rig services guys are killing themselves right now to stay in business. This cut throat competition can’t hold up indefinitely. BAS has a mark of it falling through sometime in the next two quarters. That’s when they’ll make their big moves.
If you enjoy the content at iBankCoin, please follow us on Twitter
