Demand from tar sand producers in Canada remains intact despite recent declines in worldwide energy prices. Technology improvements, some provided by Computer Modelling, are keeping costs on a downward sloping curve. Environmental objections are being overcome. And construction of a pipeline to get the oil to world markets is likely to begin fairly soon. The Canadian government would prefer to direct the pipeline to the United States. The U.S. Environmental Protection Agency has raised a wide range of objections to the project, though, which probably won't be resolved before the 2012 election. Whether the Canadians will wait that long remains to be seen. The Chinese government appears willing to fund an alternative project ending at the west coast, the plan being to ship the oil across the Pacific. Either way, production is likely to keep expanding in the Alberta tar sands region.
The "DRMS" offshore software project is nearing completion. Shell and Petrobas provided two thirds of the funding for that effort, even though Computer Modelling will keep 100% ownership of the technology. The two majors will get to use the software first, and they get the right to market it on a commission basis, as well. Shell and Petrobas plan to test the software in their own operations starting in Q3 (December). Commercial sales are expected to begin late next year.
For fiscal 2012 (March), we are raising our earnings estimate by a nickel to $.65 a share (+27%). Excluding any DRMS contribution gains of 15%-20% appear sustainable in subsequent years. If the company makes further inroads in the Middle East substantially faster growth could emerge. The odds of that happening appear favorable. The DRMS line is a wild card, but it too appears to offer terrific potential. Downside risk is muted by the 4% cash dividend.
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