Feb 22 Computer Modelling Group Ltd, a
small oilfield modeling software company that hitched its wagon
to the Canadian shale oil bonanza, is grabbing market share from
bigger rivals as it takes them on in the United States.
Calgary-based CMG, which supplies reservoir-simulation
software to 525 firms in 55 countries, is betting that its
specialization in unconventional reservoirs will help it win
over some clients from industry behemoths such as Schlumberger
Ltd, the top oilfield services provider.
With the advent of new drilling methods such as hydraulic
fracturing, U.S. companies are buying land in shale fields
instead of hunting for oil and gas in riskier offshore regions.
Both CMG and Schlumberger build models that predict oil and
gas flow and CMG, with around 170 employees, is estimated to
command about a quarter of the market, which T. Rowe Price
investment analyst Shinwoo Kim said is about $200 million. The
fund holds a 0.75 percent stake in CMG.
Schlumberger's market share is estimated at up to 60
percent, and CMG Chief Executive Kenneth Dedeluk told Reuters in
an interview he is looking to swing some of that his way.
"We've converted some of Schlumberger's customers to our
products over the last 3 to 4 years..." Dedeluk said. "We're
making more inroads with their customers than they are with
ours, I can assure you that."
He said Schlumberger remains CMG's main competitor as
competing products from Halliburton Co, the other major
oilfield services company, "have fallen out of favor with at
least our customers around the world".
Schlumberger's dominance is in large conventional black-oil
offshore fields, whereas CMG is focused on shale fields - where
oil and gas is trapped in smaller pockets that require a
different form of modeling.
"We're dominant in a growing space where as they
(Schlumberger) are dominant in a diminishing space," said
Dedeluk, who has held the top job at CMG for more than a decade.
CMG has a near monopoly in unconventional reservoir modeling
in Canada, and the company is now looking to boost its presence
in the United States, the Middle East and Asia.
Schlumberger declined to comment on its rival but analyst
Shinwoo Kim pointed out that the bigger firm was focused on
Schlumberger is chasing a $5 billion oilfield services
market and CMG was competing in a much smaller part of that, he
CMG's shares have risen 35 percent over the past year,
closing at C$21.85 on the Toronto Stock Exchange on Thursday.
Schlumberger's shares have fallen marginally during the period.
"I would buy CMG's stock (on expectations) that it would
continue to grow its market share," said Charles Jenkins, senior
vice president of Standard Life Investments Inc, which has a
0.96 percent stake in CMG.
The intrinsic value of the CMG stock is C$16.40, according
to Thomson Reuters StarMine. The model is a measure of how much
a stock should be worth currently when considering expected
growth rates over the next 15 years.
"It's not a cheap company if you look at the multiples it is
trading at," acknowledges Andrey Omelchak, a portfolio manager
at Montrusco Bolton Investments Inc, which holds a 1.73 percent
stake in CMG.
However, he still saw it as attractive and picked it to
reach as high as $24 by the end of the year.
CMG CEO Dedeluk said the majority of the company's new
employees are fresh out of university. The company installs its
software at colleges to make students familiar with it, which
helps in retaining new joiners.
Unable to match the marketing spend of its rivals, it
deploys engineers to sell directly to reservoir engineers at oil
and gas companies.
"We can't compete against a Schlumberger when it comes to
advertising or events or shows," Dedeluk said, acknowledging
that the competition is fierce.
"We've seen my competitors discount their product by as much
as 90 percent trying to gain entry into a market where we are
dominant," he said.
Schlumberger has an advantage too in that it is a
one-stop-shop, helping oil and gas companies do everything from
finding hydrocarbon deposits to drilling and positioning wells
to supporting production.
CMG also faces increasing competition from in-house
simulation software being developed by big oil and gas companies
such as Royal Dutch Shell Plc, Exxon Mobil Corp
(Additional reporting by Braden Reddall in San Francisco;
Editing by Rodney Joyce and Sriraj Kalluvila)