Sector Watch: Seismic data stocks

Increased global energy demand, supply and demand imbalances, declining inventories and geopolitical instability are likely to keep crude oil prices high in 2008. The average price for for benchmark West Texas Intermediate (WTI) crude, for example, rose to $71.36 per barrel in 2007, from an average of $66.02 in 2006, and is expected to exceed $80 in 2008. WTI crude oil futures traded up to $100 per barrel in early January of this year before retreating to the current $96 to $98 per barrel area.

The rising energy prices have encouraged many oil and gas companies to step up exploration activities, thus creating demand for the seismic data services provided by Mitcham Industries, Inc. (Nasdaq: MIND) and Dawson Geophysical Company (Nasdaq: DWSN).

Drilling companies have been using seismic data since the 1920s to identify geological conditions favorable for oil and gas and to evaluate drilling potential. Seismic equipment works by sending an acoustic wave beneath the earth’s surface to bounce off underlying rock layers. The acoustic signal, enhanced by sophisticated computer software, produces a 3-D image of subsurface strata that can be used to map exploration projects.

Mitcham Industries and its subsidiaries lease and sell seismic equipment used by drilling contractors worldwide and is the world’s largest independent lessor of seismic equipment.

Mitcham’s advantages include a much larger equipment pool than competitors, consisting of some 58,000 seismic recorders and exclusive lease referral agreements with the industry’s leading equipment manufacturer, Sercel. The company’s equipment leases generally have terms ranging from three to six months and are thereafter renewable month-to-month. Mitcham plans to grow by expanding its technologically advanced seismic equipment pool, entering new international markets such as the CIS and North Africa, strengthening its supplier alliances and introducing new products and services. During this year’s September quarter, the company added 5,750 seismic recorders to its lease pool; it was to have taken delivery of another 6,500 recorders before year-end 2007. Equipment purchases have totaled $20 million in the latest year.

---You can read the FULL article when you register (registration is free!) or sign-in to SmallCapInvestor.com---