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Picks and Shovels for the Energy Patch


You know the story. It wasn't the gold miners that made the big money; it was the people that sold them picks and shovels, and that's the role of this company in the dynamic global energy exploration and production sector.

Investors may also be turned off by key operational risk factors inherent in its businesses, such as weather-related disruptions and commodity price fluctuations (which impact production activity by customers and demand for TTI's products and services).

We recognize that the unpredictable nature of these risk factors is an ongoing concern. However, the company has made several key acquisitions that should help minimize the expected underperformance in its Offshore Services segment and result in accelerated earnings growth in the year ahead.

Last March, TTI acquired Optima Solutions, a provider of rig cooling services and associated products that suppress heat generated by high-rate flaring during well test operations. Based in Scotland, Optima enables TTI's Production Testing segment to provide customers with a broader range of testing services, and expands its presence in many significant global markets.

With the acquisitions of Eastern Reservoir Services (ERS) from Patterson-UTI Energy in April and Greywolf Production Systems in July, the company expanded its well testing and after-frac flow back operations to serve oil and gas operators in the Appalachian basins, the Rocky Mountains (including the Niobrara Shale formation), the Williston Basin located in the Midwest, and western Canada.

Not only do these acquisitions expand TTI's portfolio of services, they also broaden its geographic footprint, and make the company less reliant on business from the Gulf of Mexico.

The integration of Optima and ERS has proceeded smoothly, with initial returns on these investments exceeding expectations. Due to the complementary nature of Greywolf, we expect its integration to also be relatively quick.

With the stock's most recent dip, shares now hover near their lowest levels in more than three years and are currently trading at less than ten times the low-end of TTI's revised full-year earnings guidance.

Editor's Note: This article was written by Taesik Yoon of MoneyShow.

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No positions in stocks mentioned.
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