Tag Archives: PSD

Energy Services Bets – Postmortem

So I made some bets on energy services company’s over the last 18-24 months or so. I thought now might be a time to do some sort of postmortem on the trades and see how they have performed. Full disclosure: recently I have added to some, sold some and continue to hold some of the company’s mentioned. See the Portfolio page for current holdings.

This post will be structured in 4 parts:

  1. Was it wise to bet on Energy Services sector relative to the overall market for the given time period? This should provide an indication of whether looking at the sector from a top down standpoint was a wise decision.
  2. Within the sector, did I pick stocks that outperformed? This should help me understand my stock picking abilities on an individual company basis for the time frame.
  3. Did the stocks that I chose outperform the market?
  4. Did the stocks chosen produce a positive total return?

Before getting started, below are the 4 companies I bought shares in. The first 3 are based in Canada, with the last one being Nasdaq listed.

Ticker Purchase Price Purchase Date Dividends Current Total Return Hold Time (yr)
psd.to $2.30 22/11/2016 $0.20 $3.10 43.5% 1.22
hwo.to $4.75 11/05/2017 $0.12 $4.01 -13.1% 0.76
ave.v $0.49 16/10/2017 $0.00 $0.53 8.2% 0.33
pfie $1.26 20/07/2017 $0.00 $2.19 73.8% 0.57

*Note the average hold time is 0.75 years (or 9 months)

Was it wise to bet on Energy Services sector relative to the overall market for the given time period?

When grading the bet on energy services vs. the overall market I chose the XIU.to (iShares S&P/TSX 60 Index Fund) and SPY (SPDR S&P 500 ETF Trust) for the overall market. For the energy services sector I chose the XEG.to (iShares S&P TSX Capped Energy Index Fund) and IYE (iShares Dow Jones US Energy Sector (ETF)) for the energy services sector.

Here’s how the bets have panned out:

Date Energy Services Market
22/11/2016 -17.6% 5.0%
11/05/2017 1.9% 2.5%
16/10/2017 -7.1% -2.4%
20/07/2017 4.5% 7.8%
Average -4.6% 3.2%

The results show that buying this sector because it was depressed may not have been the wisest strategy.

Within the sector, did I pick stocks that outperformed?

Using the same dates, how did the stocks that I chose do against their peers in the sector? This is definitely a nuanced question. Especially if you look at all the names in the ETF. Not sure it’s fair to grade a 50mil market cap Canadian company against a much larger company. Regardless, the results are below:

Date Energy Sector Stocks
22/11/2016 -17.7% 43.5%
11/05/2017 1.8% -13.1%
16/10/2017 -7.2% 8.2%
20/07/2017 4.5% 72.2%
Average -4.7% 27.7%

As you can see, on average I did better than the energy services sector during the time frame.

Did the stocks that I chose outperform the market?

When you stack up my picks against the market, you get the following results.

Date Market Dean
22/11/2016 5.0% 43.5%
11/05/2017 2.5% -13.1%
16/10/2017 -2.4% 8.2%
20/07/2017 7.9% 72.2%
Average 3.2% 27.7%

This is with the most recent pullback in the markets.

Did the stocks chosen produce a positive total return?

The results showed an average return of 28% over a 9 month time frame. No complaints here. Not sure I can really draw much of a conclusion over a 9 month period and with only 4 stocks being chosen.

Regardless, I wanted to share the results and invite any feedback readers may have.




Disclosure: See portfolio tab for current holdings.

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Pulse Seismic Quick Update

Quick update on what is a low risk high uncertainty stock in the portfolio.

  • Q2 2017 numbers came out and were a little better than last year. The outlook provided was murky at best. Given how lumpy the transactional revenues are, it’s too be expected.
  • And very recently the company announced the largest transactional licensing sale in history at 29.5mil. This is a pretty big deal given that revenue for the previous 12 months was 15.4 mil.
  • on the news the company was up about 7.5% which equates to around 11 million in market cap. If you use the historical FCF margin for this business of 65%, the deal likely added closer to 20 mil in cash to the balance sheet.

Given how much hype there is around electric vehicles, I’m not sure there has ever been so much negativity around oil and gas production. At least not since the great recession.


Disclosure: the author is long PSD.to at time of writing.

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Pulse Seismic (PSD.to)

I recently purchased some shares in Pulse Seismic. I have been loosely following Pulse for several years but never in any detail. It has been profiled on a couple of blogs some time ago.



I mentioned on twitter way back in August that I was looking at O&G service companies again.


Thankfully I didn’t have to look far. My thought process for investing in oil and gas companies in the current environment is:

  1. Must have the ability to cut expenses and run at or near break even (on a full year basis) at the current level of activity
  2. Must have a clean balance sheet so the company can use the downturn as an opportunity to expand the business
    1. The last thing I want is to have the company do a large dilutive share raise and multi-year lows in the share price
  3. Must have a capable management team with high integrity and spacial awareness to understand where the current opportunities are

The idea is to find a company that can ride out the downturn and be a larger business providing more value for all stakeholders during the eventual recovery. If I am able to find a company that meets all three of these, then I should theoretically be hoping for a long pronounced downturn as it will only expose more opportunities for the business to grow.

Brief description of Pulse

Pulse Seismic Inc. is a Canada-based seismic data library company. The Company is engaged in the acquisition, marketing and licensing of two-dimensional (2D) and three-dimensional (3D) seismic data for the energy sector in Western Canada. The Company has a seismic data library in Canada, which includes approximately 28,600 net square kilometers of 3D seismic and 447,000 net kilometers of 2D seismic. The Company’s library covers the Western Canada Sedimentary Basin (WCSB). The Company’s seismic data is used by oil and natural gas exploration and development companies to identify portions of geological formations that may to hold hydrocarbons. The Company’s seismic data is used in conjunction with well logging data, well core comparisons, geological mapping and surface outcrops to create a map of the Earth’s subsurface at various depths. It designs, markets and operates participation surveys and grants licenses to the seismic data acquired to parties that participate in the surveys.

Let’s take a closer look at Pulse to see if it ticks all the boxes.

  1. Ability to cut expenses to get to breakeven.

Given the nature of their product and the overall cost of the survey relative to the large expense of drilling for oil, they are able to maintain high margins regardless of activity. Their product is a very minor expense relative to the overall cost to drill. They are not interested in racing to the bottom in regards to pricing. That only damages their brand and will be very hard to claw back in the eventual upswing. Pulse has less than 20 employees and most costs for shooting the surveys are contracted out. As you can see below they have been able to maintain their margins with less business activity. The last chart shows that they have reduced opex to align with business activity. It’s reassuring that they are not sitting on their hands waiting for a recovery. They have also cut their dividend to preserve cash.




2. Clean balance sheet to leverage as opportunities arise.

The company has paid back all the debt it took on from a large acquisition in 2010 and is now in a net cash position. They have also purchased shares and used to pay a dividend.


Given the ability to mirror opex with business activity, this company could take on a decent amount of debt without concern.

3. High integrity management team with ability to see opportunities.

This part of the due diligence process is subjective. The qualitative part of an investment is always the trickiest. The board is completely independent, experienced in the industry, versed on capital markets, and together own over 30% of the company. They also give a skill matrix in their MIC.


Management compensation is reasonable for a company this size. Their competition is global, were as they are not. So they need to know the geography inside and out. As well, the sales team needs to know the ins and outs of every project in the territory.

They have a couple of levers in regards to business growth.

  1. They can make a straight up purchase from E&Ps directly. The value of the contract may not be material to the overall costs associated with drilling for oil. Having said that, during a downturn all options are explored to be monetized.
  2. They could buy surveys from a competitor. Though not likely, it is always possible.
  3. They could conduct another participation survey. They help by doing some pre-funding but most initial costs are paid by end users.

Summing it all up

I think Pulse ticks all three boxes. In order to invest in this company you have to get comfortable to their exposure to oil and gas.


  • able to mirror expenses with activity quite easily
  • high value add product to customers
  • no debt


  • given how unique the business is, growth opportunities may not present themselves
  • they never really get expensive on a P/E or EV/EBITDA valuation
    • It’s likely from the fact that their revenues are not recurring and they have exposure to an industry which is extremely cyclical

Let me know if you are finding any value out there.




Filed under Company Analysis