would like to highlight ENGlobal Corp.
), an engineering services firm that specializes in oil and gas automation solutions, subsea control systems, and engineering and construction projects. Housed within its Subsea Controls and Integration (SCI) group is the company’s patented Universal Master Control Station (UMCS), the result of a collaborative development effort with a major global oil company that recognized an important need in the offshore oil and gas industry.
In the company’s news,
After trimming the fat in 2013 with the divestment of their Gulf Coast EPCM (engineering, procurement, and construction management) business in August, energy sector-focused automation, engineering and integration specialist company ENGlobal Corp. has subsequently managed to follow up on a banner 2014 financial performance. The company shored up share structure with a $2 million common stock repurchase program executed in April of this year and clocked in a surprisingly healthy Q1 2015, with $23.1 million in revenues yielding net income of $0.6 million ($0.02 per diluted share), backed up by a strong cash balance, and working capital in the neighborhood of $24.4 million.
All this despite the fact that the energy sector has been hammered by a slide in oil prices from over $110 per barrel this time last year, to a low point of around $46 a barrel in late December of 2014. Oil has rebounded nicely to around $58 a barrel on NYMEX for WTI July crude as of June 9th and even OilPrice.com is now reporting a trend that should be no surprise to investors who have been following the market closely, namely, a concomitance of factors which have primed the energy market for a sustained rebound. We have gasoline consumption at the highest levels since 2007 before the financial crisis, the top selling vehicle so far this year is Honda’s CR-V, a 2.4-liter four-cylinder SUV with 185 hp and181 pound-feet of torque, and long-term Globex oil futures currently outline a trend for rising energy prices, with even the short term showing a price over $61 a barrel as early as November.
Even if OPEC jacks up output, with 400k bbls/day potentially coming on-stream and Iraq tacks on another 100k bbls/day, the multiple consecutive weeks of oil drawdowns shown in EIA data, combined with falling domestic rig counts and sustained demand, could mean that the shale oil output boom that has given us back $3 regular gas, and the broader, supposedly cozy global oil supply portrait painted by the IEA, could be coming to an end. Production levels like the ones we have seen and are still mostly continuing to see require new drilling to be sustainable long-term, but with domestic rig counts disappearing as a result of the previous drop in the crude oil price, the supply picture could change rapidly in the future.
Just look at the remarkable drop in U.S. rig counts, from highs of over 2.2k in September and October of 2014, to just 868 oil and gas rigs currently drilling in the U.S. as of the week of June 5th, according to Baker Hughes (NYSE: BHI) and Rig Data. This is a drop of 114 percent YOY, with over 992 rigs taken out of the ball game, and the rebounding WTI futures have been telegraphing the curbed forward supply picture quite nicely it seems. Indeed, even output is now starting to show clear signs of falloff, with crude output from the Bakken and Eagle Ford set to drop 1.3 percent this month alone according to EIA estimates, before losing another 1.6 percent next month to around 5.5 million BOPD, lows not seen since early January’s price bottom.
All of this means one thing to a firm like ENGlobal, which has managed to weather the storm with surprising aplomb: a sudden rushed return to infrastructure deployment, after the realization that we have scaled back too far occurs, will be big business. For a company like ENGlobal that covers upstream, midstream and downstream with their deep bench of talent and extensive knowledge of the production end of the business, as well as separation and conveyance, the industry’s dawning realization that we are logistically handing OPEC the football, represents a real boon on the horizon. Mind you, what matters most in the EPCM game is trust, trust that a company can handle the complex technical requirements and really deliver a comprehensive engineering, procurement and construction solution on time and under budget. Trust cannot be garnered overnight. It takes a long time to establish yourself within this market, and this is one area where ENG really shines.
ENGlobal is currently one of the top global suppliers of turnkey enclosure and site building solutions for the energy sector today. Delivering on years of assembly, automation, fabrication, programming, and power/control integration experience, ENG is almost always rolling out custom packages from their state-of-the-art 80k square foot manufacturing facility in Houston, Texas. From robust drilling rig cabinet and refinery enclosures, through pipelines and pump stations, to the full design and engineering of treatment facilities like catalytic crackers and sulfur recovery units, ENGlobal is an experienced one-stop-shop EPCM firm, and one which is well trusted by some of the energy sector’s top players. Players like Xcel Energy (NYSE: XEL), with whom ENG even extended their long running relationship back during March of this year, executing a 5-year PSA (professional services agreement) to provide EPCM support for a wide variety of natural gas pipelining work across the many regions of the U.S. in which Xcel is a major operator.
Xcel, a company which has over 19k miles of power transmission lines, serving in excess of 22k MW across 10 states, currently also serves as a primary natural gas supplier for nearly 2 million customers across 8 states, with over 2.2k miles of transmission pipelines, and another 33.8k miles of pipes dedicated to distribution. Through 2018, this one client alone has projected some $1 billion in spending on natural gas pipeline readiness and replacement work, covering over 1k miles of pipe, making it an extremely lucrative relationship for ENGlobal.
In an energy market like the one that is now taking shape, industry operators will continue to beat a path to the door of trustworthy companies like ENGlobal. Companies who have the established track record for performance needed to ensure supreme confidence that a given solution will be implemented professionally, as well as within the necessary time and budgetary constraints, and this company also has the safety record to back up that reputation. The company has locked in numerous HSE (health, safety and the environment) awards and nominations year after year from such sources as the Golden Triangle Business Roundtable and Houston Business Roundtable, clearly evincing to all within the industry that ENG has provided the leadership and safety performance which is needed to effectively handle even the most difficult of jobs. Such high praise from major petrochemical and chemical companies, as well as local industrial organizations, is further reflected in the company’s 0.21 TRIR (total recordable incident rate) and extremely low UI modifier of just 0.53, which empirically validates their consistently high loss prevention record.
Given that the energy industry is really all about the people who make it happen on a day to day basis, this last item about operational safety should be of particular note to investors, as nothing succeeds like success.
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