The Company That Provides the Lifeblood of the Oil and Gas Sector
Here’s a neat little formula for making money in the stock market.
Find a resource that a particular industry can’t live without, and then, isolate a supplier. I’m not talking about a pick-and-shovel play, per se. I’m talking about the purveyor of a finite commodity – something that can’t be reused.
I’ve come across just such a company in the oil and gas industry.
It supplies one of the most used, most in-demand products in the sector.
In fact, I doubt there’s an oilfield or natural gas rig anywhere in the world that doesn’t rely on this product on a daily basis.
And this company has a veritable ocean of it.
I’m talking about fluids…
Specialized drill chemicals are vital in keeping drill bits cool and clean of debris. They’re also used in the cementing and completion process of a well.
Once the well is drilled, other specialty chemicals are used for stimulation and production. (Stimulation helps break up the resources locked in the formation. Production helps push the oil to the surface.)
The right chemicals are mandatory for a safe and productive well. They prevent damage to the surrounding formations, ensuring that the well bore isn’t contaminated or corroded.
The company has been pursuing aggressive growth. Through a series of strategic takeovers within the industry, it’s expanding its reach across North America and further into U.S. markets.
In February 2012, it acquired Petrotreat Inc., a company that specializes in stimulation and production chemicals.
In November of that same year, it acquired drilling fluids assets from Tervita Corp., an energy services company in North Dakota.
Then, in January 2013, the company’s wholly owned subsidiary, AES Drilling Fluids, LLC, acquired the drilling fluids business assets of Mega Fluids Mid-Continent, LLC, giving Canadian Energy Services a presence in Mississippi.
Finally, in March of this year, the company closed a deal to acquire JACAM Chemicals. The company has been providing chemical fluid solutions for drillers across the United States, including the Eagle Ford shale and the Permian Basin in Texas, for years.
This aggressive round of takeovers has definitely paid off.
Canadian Energy Services generated gross revenue of $130.7 million during the second quarter, compared to $104.1 million for the same three months in 2012 – an increase of $26.5 million, or 25%.
Year-to-date, gross revenue totaled $280 million, compared to $260 million – an increase of $19.3 million, or 7% year-over-year.
So it’s no surprise that investors like what they’re seeing from Canadian Energy Services. At the current price of around $17, shares are up almost 70% since the beginning of the year.
And from my research, shares of Canadian Energy Services still have some gas left in the tank.
With these latest numbers, some analysts have readjusted their price targets higher, projecting the stock to hit anywhere from $22 to $28 per share.
That represents potential gains of between 30% and 64%.
And here’s the kicker…
You won’t have to wait around for the stock to go higher to make any money off these shares, because Canadian Energy Services pays out a monthly dividend.
And “the chase” continues,