Tesco Corp. has a market cap of $510.3 million; its shares were traded at around $13.36 with a P/E ratio of 31.1 and P/S ratio of 1.3.
Highlight of Business Operations:Increased revenue from $93.5 million in the third quarter of 2010 to $127.0 million in the third quarter of 2011 and from $264.9 million to $349.9 million for the nine months ended 2010 and 2011, respectively;
Volatility in the global economy has increased over the past few months as a result of the United States debt downgrade, European debt crisis, reduced consumer demand and slower GDP growth rates in the United States and internationally. Reflecting the growing uncertainties in the global economy, OPEC, in October 2011, lowered its estimate of 2011 world oil demand growth from the initial forecast growth of 1.2% to 1.0%. Furthermore, in order to address negative fiscal situations and initiate deficit reduction measures, many governments are seeking additional revenue sources, including eliminating key federal income tax incentives currently available to oil and natural gas exploration and production companies. Current global macro-economic conditions make any projections difficult and uncertain; however, they could result in oil and gas operators curtailing drilling activity, which would negatively affect our business.
The selling price per unit varies significantly depending on the model, whether the unit was previously operated in our rental fleet and whether a power unit was included in the sale. Revenue related to the sale of used top drive units or consignment units was $2.4 million during the three months ended September 30, 2010 and $2.6 million and $7.1 million for the nine months ended September 30, 2011 and 2010, respectively. There were no sales of used units or consignment units in the three months ended September 30, 2011.
The increase in Tubular Services revenue for the three and nine months ended September 30, 2011 compared to the same periods in 2010 is due to increased demand for tubular services, as shown by the increase in the number of jobs during the respective periods, from customers active in shale gas exploration and production in the United States and Canada. A significant amount of current U.S. drilling activity is in shale formations that require directional and horizontal drilling techniques, which we believe are good applications for our proprietary service offerings. In addition, increased international demand for our tubular services has resulted in new jobs at higher margins. These increases were partially offset by declines in our MCLRS proprietary tubular services of $0.3 million for the nine months ended 2011 compared to the same period in 2010 due to the Deepwater Horizon explosion, the temporary Gulf of Mexico drilling moratorium and the resulting negative impact on the deepwater drilling permitting process as described in Part II, Item 7 “Management Discussion and Analysis of Financial Condition and Results of Operations” in our 2010 Annual Report on Form 10-K.
We routinely assess whether impairment indicators of our long-lived assets are present based on triggering events that include continued declines in the market or not achieving our internal projections in future years. Although we expect slightly improved operating results for CASING DRILLING™ for the remainder of 2011, we have experienced losses in the CASING DRILLING™ segment over the past few years and expect losses to continue in the near term. We therefore conducted a test of recoverability as set forth in current accounting guidance for long-lived assets and determined that our CASING DRILLING™ long-lived assets were not impaired as of December 31, 2010. Our analysis includes significant growth and profitability assumptions beginning in 2012. If the expected market conditions do not occur at the level expected or within the timeframe projected, we may determine in the future that our CASING DRILLING™ long-lived assets are impaired. As of September 30, 2011 our CASING DRILLING™ long-lived assets and inventory had net book values of approximately $13.6 million and $7.4 million, respectively. If, in the future, we determine that an impairment of our CASING DRILLING™ long-lived assets has occurred, the amount of such impairment expense could be material to our results of operations, but we expect that it would not materially impact our cash flows or overall viability.
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