2. Business Overview Business Overview BOLT manufacturers marine air guns (emitters) and hydrophones (listeners) for the offshore exploration industry. Its products allows the vessels to map the sea bed, enabling geoscientists to figure the likelihood of existence of oil beneath. The sales of these products are highly correlated to the well being of the exploration industry which in turn rests on high oil prices and cheap financing.
3. Business Overview BOLT make complete energy source systems. BOLT make the hydrophones and the cables & connectors. BOLT’s main business is manufacturing air guns, controllers and synchronizers (for multiple guns ). There are around 160-180 vessels around the world at the moment. (16% net increase in 2008)
4. Business Overview Business Segments BOLT Air Guns (40-50%) of revenues – Growth: Market Invented the first airgun in 1963. Started selling the long life air gun in 1991, which has set the industry standard since. These air guns sell for around $13k and are aimed at getting through as many shots (uses) as possible without further service. The Annular Port Guns are a premium product (introduced 2004) which provides less drag and higher throughput than other air guns on the market. They sell for around $31k ea. Customers usually order a number of guns and replacement parts for around $1.1m per order rather than individual guns.
5. Business Overview Business Segments Cables & Connectors (40-50% of revenues), Growth: High Proprietary design but can be used with any air gun. Used for providing electric current from the vessel to the guns. These parts wear out frequently especially when used excessively (periods of growth in the industry). A typical order is around $250k, something that reoccurs frequently. This segment is also responsible for its new product (launched 2005): Seismic Source Monitoring System which sells for around $300k. It provides a cost effective enhancement for source controllers allowing recording and logging of source depth, pressure, autofire detection and calibrated near field signatures. It is experiencing rapid adoption by contractors. This part of the business is a virtual monopoly with 80%+ market share.
6. Business Segments Real Time Systems – Air Gun Controllers and Synchronizers (10-15% of total revenue) These systems can control and synchronize up to 96 air guns on a single seismic exploration vessel. Many older seismic vessels use controllers that were purchased 10-15 years ago from a vendor that no longer supports the equipment. Over time, the motherboards for these controllers wear out and the whole controller needs to be replaced. The company is currently benefiting from a strong upturn in the replacement cycle. A new controller can cost as much as $200K and is Bolt’s highest margin product, according to the company. Here BOLT compete with Seamap, and both have an equal market share.
22. CGG is a large customer of Bolt. It mainly operates a fleet of vessels for data acquisitions. The use of BOLT’s guns by CGV goes to show the level of confidence for BOLT’s products within the industry.
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24. SWOT Strengths Strong Balance sheet. Lots of cash. Differentiated, industry leading product offering Well positioned in the market to benefit from increasing E&P spend.
25. BOLT’s Cash Position BOLT has approximately $23.9m in cash and no debt. In the past the company has acquired companies which fit in with their product offering and business model. Currently $10-15m is spent to outfit a new vessel for exploration. BOLT gets around 10% of this as most of the money is spent on streamers, recording units and hydrophones. With the amount of cash BOLT has it would make sense for them to acquire businesses that supply the other units. This would mean BOLT could potentially get $100-150m of (new) revenues per year in addition to repeat business. Additional, management has indicated it is looking to acquire companies with proprietary technology used for manufacturing pumps and valves in the seismic drilling business.
26. SWOT Weaknesses Dependence on single customers Technological change, can cause hefty R&D expenditures Inventory obsolescence Market is relatively small.
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28. Industry growth, the fleet of seismic vessels has been growing at a rapid pace. 80% of current vessels are using Bolt’s guns. Before the oil price crash, the number of vessels were increasing by 16% every year. There were even more ambitious plans (30%!) for expansion by fleet operators before the crash. Each vessel can carry up to 96 guns, each gun costs $12-28k.
29. Quarter-century ban on oil drilling off the Atlantic and Pacific coasts was lifted last September. This opens up underwater areas for bidding and eventual drilling estimated to contain 86 billion barrels of oil and 800 billion barrels of oil equivalent in oil shale.
33. Porter’s Five Forces Power of Suppliers Power of Customers Power of Substitutes Power of Suppliers – Very Low All materials are commodity items and hence are readily available from multiple sources at a standardized price. Power of Substitutes – None Power of Customers – High 4 customers account for 45% of revenues.
34. Porter’s Five Forces Industry Rivalry Barrier to Entry Barrier to Entry – High Propriety technologies are protected through patents, common laws and confidentiality procedures. Rivalry – Med Rapid industry growth projected Product is well differentiated Only 2 competitors for guns, 1 for controllers.
36. Revenue Projection BOLT would typically get $1-1.5m new revenues per vessel introduced or upgraded. Additionally, each vessel would require $250k of replacement parts at least once every year. Furthermore, increasing number of (old and new) vessels are being fitted with controller systems at $300k ea The table above highlights the estimated revenue projections for FY2010 and FY2011 based on average selling prices for the three products and the estimated fleet count in those years.
40. Buy (Target Price $13.45 – 22% upside) Major supplier to the oil industry available at 1.5x book, 4x EBITDA and 9.05PE. E&P industry set for major growth as oil supply tightens, demand set to grow from OECD countries. Industry leading products, providing valuable pricing power and facing little competition.
Editor's Notes
Bolt’s management anticipates that 40 new seismic vessels will be delivered by calendar year-end 2010.Given Bolt’s dominance in the air gun, connectors, and cables markets, the company’s products will be ordered for the majority of new vessels delivered. In addition, vessels that were previously taken off the market and used for other purposes are now returning to service. Contractors are likely to upgrade outdated equipment on these vessels, adding to Bolt’s sales volumes.
Vessel construction boom has fuelled rapid growth at BoltThe current exploration cycle began in 2005, coinciding with a sustained rise in oil and natural gas prices, and followingsix years of industry under-investment. Oil and natural gas companies were faced with the difficult task of adequatelysupplying global demand growth while simultaneously replacing depleted reserves, and increasingly turned to seismiccontractors for help. Burgeoning demand for seismic data quickly tightened industry capacity, particularly in the offshoremarket. As project backlogs began to grow, contractors ordered the construction of new marine seismic vessels to offsetcapacity shortages.New vessel construction during the past several years has significantly added to the global marine seismic fleet. Weestimate that there were 155-160 marine seismic vessels in active service by the end of Bolt’s 2008 fiscal year, comparedto 95-100 at the end of fiscal year 2005 Our estimates were derived from a worldwide seismic vesselsurvey found in IHS’s global E&P database.A new vessel costs approximately $150mm to build, and an additional $10-15mm to fully outfit. Most of the money forequipment is spent on the recording unit, streamers, and hydrophones, whereas only a fraction is spent on air guns,controllers, connectors, and cables (we estimate around 10%).The surge in new vessel construction and marine seismic activity since 2005 has had major impact on Bolt’s equipmentsales. Revenues increased to $61.6 million in FY08 from $18.8mm in FY06, an increase of 228% and a 49% CAGR.Earnings per share are up over 617% during the same period, to $1.60 per share in FY08 from $0.22 per share in FY06.Looking forward, Bolt’s management anticipates that 40 new seismic vessels will be delivered by calendar year-end 2010.We are currently projecting 36 vessel deliveries by the end of FY10 (June 30, 2009). Given Bolt’s dominance in the airgun, connectors, and cables markets, we expect that the company’s products will be ordered for the majority of newvessels delivered. In addition, vessels that were previously taken off the market and used for other purposes are nowreturning to service. Contractors are likely to upgrade outdated equipment on these vessels, adding to Bolt’s salesvolumes.
New vessels may have to be built and outfitted specifically for work off the U.S. Atlantic and Pacific coasts. Inour view, evidence of new seismic surveys off the coasts could be a catalyst for BOLT shares.Much of the world’s easily accessible oil has already been discovered. In order to find new or overlooked reservoirs,operators are increasingly demanding higher quality data from seismic contractors. Convincing evidence of the demandfor better data can be found in the Gulf of Mexico and North Sea, two markets that remain active despite decades ofcontinuous surveying. Technological advancements in 3-D seismic imaging have prompted producers to re-examinesubsea acreage where, in the past, they may have previously shot 2-D or early-generation 3-D seismic surveys. Thisongoing shift in demand from basic 2-D surveys to more highly detailed 3-D surveys necessitates more equipment togather the additional data points. Most new marine seismic vessels are being outfitted to allow for these greater densitysurveys. We believe this trend should drive Bolt’s sales per vessel higher.Increased adoption of new seismic survey techniques like 4-D (which provides time lapse views of the reservoir) and wideazimuth (which improves image quality) could also boost Bolt’s equipment sales. Both techniques are expanding thescope of seismic services, demonstrating that seismic can now be used as a reservoir development, management andproduction tool, as well as an exploration tool. The equipment requirements for these techniques are substantially greaterthan for 2-D, or even 3-D.4-D seismic involves repeated survey shoots in the same location, enabling operators to monitor how a reservoir changesover time. Wide azimuth also requires repeated shoots to gain greater image clarity. In a marine setting, operators facesignificant challenges to obtaining replicable seismic data, due to varying ocean conditions like wave height. Toovercome this obstacle, some operators are permanently embedding hydrophones in the ocean floor. BP ran tests withembedded hydrophones in the North Sea Valhall field last year, and the initial results were promising. New 4-D and wideazimuth projects are slated for the Gulf of Mexico and the Caspian Sea.Planting hydrophones in the ocean floor frees operators from the substantial costs of contracting a fully-loaded seismicvessel. Since streamers are no longer required, operators can simply attach air guns to the back of an offshore supplyvessel and outfit it as a seismic source. (Offshore supply vessels are used to ferry equipment from the productionplatform to the shore, and are much less expensive to hire than seismic vessels.) By using an offshore supply vessel as amakeshift seismic source, operators could shoot surveys repeatedly. Bolt’s APG guns are particularly well-suited for thisconfiguration, because they are easier to mount and dismount than the Long-Life guns.
Vessel construction boom has fuelled rapid growth at BoltThe current exploration cycle began in 2005, coinciding with a sustained rise in oil and natural gas prices, and followingsix years of industry under-investment. Oil and natural gas companies were faced with the difficult task of adequatelysupplying global demand growth while simultaneously replacing depleted reserves, and increasingly turned to seismiccontractors for help. Burgeoning demand for seismic data quickly tightened industry capacity, particularly in the offshoremarket. As project backlogs began to grow, contractors ordered the construction of new marine seismic vessels to offsetcapacity shortages.New vessel construction during the past several years has significantly added to the global marine seismic fleet. Weestimate that there were 155-160 marine seismic vessels in active service by the end of Bolt’s 2008 fiscal year, comparedto 95-100 at the end of fiscal year 2005 Our estimates were derived from a worldwide seismic vesselsurvey found in IHS’s global E&P database.A new vessel costs approximately $150mm to build, and an additional $10-15mm to fully outfit. Most of the money forequipment is spent on the recording unit, streamers, and hydrophones, whereas only a fraction is spent on air guns,controllers, connectors, and cables (we estimate around 10%).The surge in new vessel construction and marine seismic activity since 2005 has had major impact on Bolt’s equipmentsales. Revenues increased to $61.6 million in FY08 from $18.8mm in FY06, an increase of 228% and a 49% CAGR.Earnings per share are up over 617% during the same period, to $1.60 per share in FY08 from $0.22 per share in FY06.Looking forward, Bolt’s management anticipates that 40 new seismic vessels will be delivered by calendar year-end 2010.We are currently projecting 36 vessel deliveries by the end of FY10 (June 30, 2009). Given Bolt’s dominance in the airgun, connectors, and cables markets, we expect that the company’s products will be ordered for the majority of newvessels delivered. In addition, vessels that were previously taken off the market and used for other purposes are nowreturning to service. Contractors are likely to upgrade outdated equipment on these vessels, adding to Bolt’s salesvolumes.
