Stock advice in actual English.
Joined Sep 2, 2009
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Basic Energy Services (BAS) Didn’t Really Lose Much Money

BAS is up 12% right now following their earnings report. They lost a ton of money on paper and the market isn’t falling for it.

Basically, despite idling equipment and firing 20% of personnel, BAS wrote off more in depreciation than the same quarter a year ago. But properly stored and idle equipment isn’t really depreciating, is it? So there was about $20 million there over my fair guess for what the company’s actual depreciation probably looks like, best estimate. Then they wrote off another $5 million or so in non-cash items tucked into expenses for employee retention and such.

You pull out the write downs and the company lost may $0.19 per share, compared to a gain (after one time items) of $0.11 per share in Q4 of 2014.

Let’s look big picture here; the company saw revenues plummet 35%. I mean, Completion and Remedial Services alone plunged 45%. All of that cost me $0.19? (Cue crude jerking motion of the arm)

I don’t care. We’re fine here. Management knows what they are doing. The company just renegotiated their credit facility, lowering the issue amount by $50 million to $250 million outstanding in order to strip some undesirable covenants, but adding an accordion feature that can get them to +$50 million or $350 million total if it’s an emergency. They have headcounts under total control, and they are defending market share vigorously. They’ll get cash flows to balance in the next 6 months and we go forward from there.

I’m not worried about BAS. BAS’ competition should be panicked.

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  1. Po Pimp

    Having worked in the oil and gas industry for years and most of that time being on the service side this part would scare the hell out of me as an investor:

    “they are defending market share vigorously”

    That means they are cutting rates… hard; hence the freefall in revenues. Once you cut rates they don’t bounce back to the good old days levels any time soon even if market conditions improve.

    The big multi-national oil and gas company I work for now is beating the shit out of service companies to drop rates. They come back with big reductions and then we hammer them for even more cuts. As long as there is one company out there willing to “defend market share” we’re in the best bargaining position. There will ALWAYS be some cowboy outfit that will be willing to give away their kit for next to nothing thinking they will make it up on the upswing. This is especially true in the North America land market.

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    • henceforth

      I agree. It doesn’t seem like management’s strategy of revenue growth has benefited shareholders, just look at the 10 year chart.

      Meanwhile, I’m sure they use revenue growth as justification to up their own compensation year after year.

      Is 25 cent earnings, like what was seen during one quarter last year, the best shareholders can hope for?

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  2. henceforth

    Cain, do you have any thoughts on NGL energy partners?

    They upped their distribution today and recently raised guidance. This comes as a bit of a surprise to me, based on their business description.

    I only became aware of the company today, so I know next to nothing about them.

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  3. Mr. Cain Thaler

    These are all good a fair criticisms.

    I don’t know for sure, but I am wagering that it’s more than enough to get them back to $15.

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