Year End #16: PFIE - Why I sold out.

I’ll make this short and sweet. I sold out of PFIE. Why? Because of the total crash of oil prices. I felt that with all the new salespeople they hired, they could have large new expenses which would overwhelm any new sales, and could show (perhaps large) losses. I could be completely wrong, but thinking of all those pink-cheeked new salesmen and women making cold calls on oil companies who are shell-shocked from the fall in prices, just didn’t seem promising. It’s not their fault, as they certainly didn’t anticipate this oil crash when they hired those people a few months ago, but I’m not obliged to stick around to see how it turns out. I’ll watch from the side-lines.

Saul

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I think this makes sense to monitor and wait for a bottom in oil, particularly given all the hiring. And with all the negativity, we aren’t likely to miss a big spike in PFIE.

However, does anyone know how much of their business is linked to the Canadian Oil Sands? Those are never coming back as a source of revenue – there is far too much, much cheaper supply in fracking, etc.

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Yes there is risk that ProFire sales could dip. I have not sold my shares and want to see how this last quarter turns out. We should expect the Q3 results announcement around the middle of February.

The following has me hopeful that the oil price drop won’t devastate revenue:

  1. Management stated on their last call that in the past they have not experienced and sensitivity on revenue to oil prices. They have been in business for 13 years. I checked a chart on real oil prices from Oct 2001 to present and after looking at the chart and thinking for a couple of minutes, I’m not as confident that things won’t be different this time.

http://www.macrotrends.net/1369/crude-oil-price-history-char…

In examining the chart, I can see that oil has been above $65 (in current dollars)since the Spring of 2005. It dropped below $60 for 4-5 months at the end of 2008 through 2009 from a peak of $145 in the Summer of 2008. Now, the shale revolution really didn’t get going until 2007 so we are in uncharted territory in that respect. Also, the dip in 2008/2009 was a brief one; it is possible that the current drop could last a lot longer. So to summarize, I’m no longer as convinced by management’s comment that past dips in oil haven’t affected their sales. Maybe oil prices won’t have an effect but I’m not comfortable relying on solely on their past pattern.

  1. The regulations will require oil and gas producers to install burner management systems. If I recall correctly there are both state (ex: Colorado) and federal regulations coming on line in 2015. I wonder what the actual date for compliance with the new regulations is. It will be worth watch this as well as any pending legislation that might weaken or delay the new rules.

  2. A large part of their sales come from sales to manage burners on gas wells. NG prices are still above $3 and prices have not completely collapsed. In looking at the price data, NG prices seem to fluctuate more.

  3. Despite the steady decline in oil prices, I keep seeing the number of rigs idled as very, very low. Oil is still being pumped and I’m hearing that US production won’t slow in 2015.

I don’t know what will happen to PFIE in the near-term but I’m willing to wait and see what they report in a month from now.

Chris

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Those are never coming back as a source of revenue – there is far too much, much cheaper supply in fracking, etc.

Really, a process that has been around for 100 years has suddenly been put in the position of “never coming back” due to a 3 month decline in oil prices. (Less if you measure it from the point oil sands economics (new) becomes challenging.)

OK, I guess, if you say so. :<)

B

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I don’t know what will happen to PFIE in the near-term but I’m willing to wait and see what they report in a month from now.

Chris, I can certainly understand that point of view. If they do report well they could have a nice bounce.
Saul

Good point rjf53.

I was being a bit dramatic, but the sands are only profitable above $80/barrel. So unless we get sustained prices above there they aren’t going to come online, so I think this is going to be a volatile business, with thin profit margins even when oil is high. If PFIE is primarily linked to the oil sands, I’d be concerned.

I keep seeing the number of rigs idled as very, very low.

You would do well to remember that producers budgeting decisions lag price, which is my way of saying that “rigs idled” numbers likely reflect prices significantly above where the price is sitting today.

In addition pad drilling and rigs under contract can also slow the rate at which rigs might have otherwise been laid down.

Oil is still being pumped and I’m hearing that US production won’t slow in 2015.

Oil production doesn’t need to slow in order to reduce the number of wells drilled, upgrading the wells they choose to drill, which virtually every producer is currently doing, can have a significant impact on their production numbers…for awhile anyway.

I don’t know what will happen to PFIE in the near-term

Me either.