Bolt Technology (NASDAQ:BOLT) is an oilfield services equipment producer that makes seismic exploration air guns which are used to model oil and natural gas deposits beneath the ocean's floor. This technology is used to search for oil while minimizing the amount of costly exploration wells that are drilled.The company has 3 divisions which all either make marine air guns or the parts and accessories for the guns. These products are then sold in large batches to exploration companies who tow the guns in large arrays behind ships equipped with the software to interpret the results. The company's sales are tied to oil prices since high prices induce increased exploration and the expansion of existing exploration fleets. Conversely, low oil prices will decrease demand for Bolt's products. The company earned $49 million in revenue and $10.5 million in net income in 2009.
Bolt Technology manufactures and sells equipment to oilfield service companies through its three operating units: Bolt, A-G Geophysical Products (AG), and Real Time Systems (RTS). All three businesses sell equipment that is used in marine oil exploration operations. The process of searching for submerged oil is called marine seismic exploration. This process gathers data about the ocean's bottom by sending acoustic waves at the ocean floor and then using a computer to interpret the waves as they bounce back to the ship. This information can be used to model the earth below the ocean, and the resulting analysis is an important part of the decision to drill oil wells. Overall, seismic exploration has three goals:
Since drilling an exploration well is costly, this decision is critical. Each of Bolt Technologies operating units sell different parts of this system.
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AG manufactures and sells sophisticated cables, connectors, and sound reception equipment for use with seismic air guns. The receptors, called hydrophones, absorb the acoustic signals sent by the air guns and transmit them through the cables back to the ship for analysis. All of this equipment can be used with Bolt's products or with seismic equipment from other manufacturers.
RTS, which was aquired by Bolt, manufactures the controllers and synchronizers for marine air guns. This equipment allows an exploration ship to tow as many 96 air guns behind the ship and to coordinate the activity of the array of guns. This equipment is also general and can also be used with Bolt air guns and guns from other manufacturers.
Increasing oil prices is partially due to steady demand growth from emerging markets that is outpacing supply growth, but other factors such as excessive speculation have also played a role. This highly volatile commodity has a large impact on Bolt's future sales, and as oil prices retreat near term oil exploration and extraction investments will be reconsidered.
One unusual financial advantage that Bolt has in the current credit crunch is a capital structure that relies entirely on equity financing. A company's capital structure is the way in which it finances, or pays for, the continued growth of the business. There are two main ways to do this, equity and debt financing. A company financed through equity, like Bolt, sells shares of the company (stock) to the public. A firm financed with debt, or loans, can have higher returns on its equity, since it is borrowing more money to expand. Continued tightening in credit standards since the credit crunch, however, have driven up the price of borrowing for some companies and completely blocked other firms from borrowing at all. Bolt is in a good situation during this crisis since it does not rely on debt at all, which is unusual. The lack of credit use will provide an advantage to Bolt as other firms might run out of money for operations or expansion.
One caveat to this is that potential sales could be reduced if buyers also have a hard time finding money to borrow, since sales are typically large in this industry and buyers must use debt to finance purchases. Furthermore, if Bolt needs more money and can't find creditors, it will have to issue more common stock which will dilute expected earnings for current shares outstanding and the lower the price.
Bolt has three major competitors; one is another specialty manufacturer (ION) and the other two are slightly larger companies with a range of operating units that include manufacturing survey equipment (Sercel) and exploration services (Schlumberger ). Bolt is smaller than both companies, but its innovative products and focused business makes it competitive.