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ION Geophysical Corporation (IO) |
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WIKI ANALYSIS
Introduction
Ion Geophysical Corporation (NYSE: IO) provides seismic technology to help E&P operators and contractors generate high-resolution images beneath the surface. Ion offers both land and marine acquisition systems and is based has offices in the United States, Canada, Latin America, Europe, Africa, Russia, China and the Middle East. Demand for oil drives Ion's bottom line. When there is high oil prices, clients are more likely to increase exploration plans. In 2010, Ion's revenues was $444.3 million and its net loss was $38.77 million.[1]
Business Growth
With North American production recovering from the BP oil spill, Ion has been looking to expand overseas. 60% of Ion's revenue comes from outside North America. In particular, the launch of INOVA, a joint venture with Ion and BGP, a subsidiary of China National Petroleum Corporation, will be a strong driver of their growth in the future.
Trends and Forces
Declining Reserves and Cyclicality
With energy demand held relatively stable and declining reserves, E&P companies need and are finding it even harder and more difficult to extract hydrocarbons. As E&P operations become more complex, there is an increased need for sophisticated seismic acquisition technology. One of these untapped regions is the Arctic, which has been relatively unexplored and E&P companies will need a lot of seismic data to assess the potential of projects.[2] Oil shale opportunities is increasing and will utilize Ion's technology. Almost 60% of new U.S. onshore natural gas production is now coming from the shale gas plays.[3]
Political turmoil and regulation
This industry is extremely sensitive to geopolitical events. In October 2010, the US Department of Interior ended the six-month moratorium on certain drilling activities in the Gulf of Mexico after the Deepwater Horizon rig explosion. The government is also expected to issue new safety and environmental guidelines and regulations for offshore operations, which will drastically increase the cost of exploration and production. The permitting process for the gulf has also slowed and has reduced E&P activity and Ion's sales of marine seismic equipment in the region.
In addition, political turmoil in Libya caused the cancellation of two multimillion dollar contracts. Another deal with an Iraqi customer closed, but actual shipping was delayed due to the uncertain political environment.[4]. Although unrest in the Middle East tends to increase oil prices, ION has suffered because traditionally 10% of its revenues comes from that region.
Competition
- CGGVeritas is a French-based manufacturer of geophysical equipment and a provider of a range of services, including seismic data acquisition, to E&P companies. The company had revenues of $758 million in 2010.
- Geokinetics is headquartered in Houston, TX and provides seismic data acquisition services to companies worldwide. The company had revenues of $558 million in 2010.
- TGC Industries provides seismic data acquisition services throughout the US and Canada. TGC has six seismic crews, four in the United States and two in Canada, and revenues of $108 million in 2010.
- Schlumberger supplies technology, integrated project management and information solutions to the international oil and gas exploration and production industry. One of their five business segments, WesternGeco, provides seismic data acquisition, to E&P companies. In 2010, the company had revenues of $8.7 billion.
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