Focus Company: Boots & Coots International (WEL)
By: Bill Mathews - The CHEAP Investor - Date: May 8, 2004
Introduction
Since the days of Red Adair and John Wayne's "Hellfighters" movie, much has changed in the energy industry. Advanced training, better designed and built equipment and superior engineering have decreased the number of well blowouts and fires. At the same time, the procedures and challenges associated with such events have become more complex. With fewer events to learn from and downsized, younger engineering staffs, many energy companies are contracting with Boots & Coots/IWC to not only respond in the event of a blowout, but also to work to serve customers in preparedness and prevention.
Utilizing the database of experience within the company, Boots & Coots/IWC is focusing much of its non-critical response efforts on Pre-Event and preventative services, such as, site inspections, contingency planning and training.
Commercial Business
Boots & Coots International Well Control, Inc. is a global-response oil and gas service company that specializes in responding to and controlling oil and gas well emergencies, including blowouts and well fires. In connection with these services, the company has the capacity to supply the equipment, expertise and personnel necessary to contain the oil and hazardous materials spills and discharges associated with oil and gas emergencies and restore affected oil and gas wells to production.
Through its participation in the proprietary insurance program WELLSURE®, Boots & Coots provides lead contracting and high-risk management services, under critical loss scenarios, to the program's insured clients. Additionally, under the WELLSURE® program the company provides certain pre-event prevention and risk mitigation services.
The increased recognition of the importance of risk mitigation services, training and emergency preparedness, are having a profound impact on the emergency response segment of the oil and gas services industry. Instead of waiting for a blowout, fire or other disaster to occur, both major and independent oil producers are coming to Boots & Coots for proactive preparedness and incident prevention programs.
Boots & Coots has also established and maintains industry supported emergency response centers. The centers allow the company to generate a line of predictable revenues while expanding its geographic presence. Under a typical "SafeGuard" agreement, the company will sell to producers the equipment required to respond to a blowout or oil or gas well fire and provide an ongoing maintenance and monitoring program to ensure the equipment is certified for emergency response. The company also provides an "in-country" Well Control Specialist in order to minimize initial response time. The company currently has Emergency Response Centers in Anaco, Venezuela, and Hassi Massad, Algeria.
Results
Boots & Coots' fourth quarter and year end financials for the period ended December 31 are shown below.
| Fourth Quarter 2003 | Fourth Quarter 2002 | Fiscal Year 2003 | Fiscal Year 2002 | |
| Revenues | 8,902,000 | 2,644,000 | 35,935,000 | 14,102,000 |
| Earnings | 169,000 | -2,335,000 | 5,868,000 | -12,292,000 |
| Earnings/Share | 0.04 | -0.21 | 0.26 | -1.14 |
| Shares_Outstanding | 27,500,000 | |||
"Revenues were strong in both of the company's business segments," stated Jerry Winchester, President and CEO. "Response revenues were, of course, principally driven by our work in Iraq. Our prevention segment was a very strong performer for the year due to the continuing success of our SafeGuard an WELLSURE® programs. We believe that with the successful implementation of the 2004 business plan our prevention revenues will be sufficient to sustain our current operations."
"Last year was a year of great progress," stated Kirk Kirst, Chairman of the Board. "We paid down or converted to common equity most of our senior debt and preferred stock, we restructured our remaining senior and subordinated debt into long-term debt and we strengthened the leadership of our board. We are now able to direct our energies into the growth of our business."
One significant contributing factor to the balance sheet is shareholders' equity improved $14.4 million during the year to $0.4 million from a deficit of $14 million at December 31, 2002.
Recent Developments
During the year ended December 31, 2003, the company relied heavily upon the 'Restore Iraqi Oil Program' (RIO) contract to generate income and cash flow. The company operated under the contract as a subcontractor to KBR, the engineering and construction subsidiary of Halliburton.
On January 16, 2004, Halliburton confirmed that the US Army Corps of Engineers had awarded KBR a contract to continue its RIO operations in southern Iraq for a period of two years, with three one-year renewal options.
Pending the transition to the new contract for the RIO program in Iraq, the company has temporarily demobilized its personnel in the region. Currently, it is unclear when the company will re-mobilize its personnel, if ever, although the company remains positioned to continue its previous work and respond immediately whenever an emergency arises in Iraq.
Boots & Coots was awarded a two-year contract from the Oil and Natural Gas Commission of India (ONGC). The SafeGuard contract is for training, inspection and blowout control for ONGC's 28 offshore rigs and 94 land rigs. Under the terms of the contract, Boots & Coots will train 30 ONGC engineers in Houston, and then send two engineers to provide training in India at ONGC's six regional centers. The contract, which is expected to commence the beginning of the second quarter of 2004, also provides for the inspection of, and suggestion of remedial measures for, all of ONGC's well control equipment.
Mr. Winchester commented on both events, "While the delay in redeployment was unanticipated, it occurs during a period when our domestic response business has improved. Additionally, the prevention side of our business continues to grow, especially in Venezuela and North Africa. We also expect our expanded relationship with ONGC to create additional opportunities for us in Asia."
Conclusion
Boots & Coots has been a major player in oilfield service and emergency response to the oil and gas industry. With continued worldwide terrorism, there will be a growing need for the company's specialized services. Currently Boots & Coots has not received a renewal of its RIO (Restore Iraq Oil) contract. That contract is important as it provides a significant portion of the company's revenues and earnings. We are assuming that the RIO contract will be renewed sometime in the near future.
Based on the latest earnings release the stock is trading at a p/e of approximately 5.5.
On top of that the stock is selling close to it's 52-week low.
If all goes 'well for WEL' the stock has the potential to move at least 50% over the next year or two.
General information
| Market: | AMEX |
| Symbol: | WEL |
| Price: | $1.38 |
| Contact: | Boots & Coots International - 11615 N. Houston Rosslyn - Houston, TX 77086 |
| Telephone: | (281) 931-8884 |
| Website: | www.bncg.com |
© Bill Mathews - The CHEAP Investor
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