Computer Modelling Group (CMG.to $20.00) appears on track to report excellent on target Q2 (September) results. Energy prices remain at elevated levels, providing the cash flow to support new development. And most of the reserves that are being identified these days are difficult to extract. Computer Modelling is the leading provider of simulation software used by energy companies to maximize production of tar sands, heavy oil, shale, and other challenging targets.Competition is provided by Schlumberger and Halliburton. Those companies have a large installed base of customers who use their software for so-called "black oil" deposits, which are relatively straightforward to extract. Both also offer high end solutions. Those products are less powerful and comprehensive than Computer Modelling's. As a result, users often spend enormous sums on consultants to muscle the work through. A growing number of oil and gas developers are switching to Computer Modelling while maintaining their other business relationships with Schlumberger and Halliburton.
At a recent trade show Schlumberger and Halliburton didn't advertise their high end simulators. Both products remain on the market. The two giants are becoming resigned to working with Computer Modelling in high end applications, though. That trend promises to boost financial performance in upcoming periods, particularly in international markets where large national oil companies typically have relied on the majors for one stop shopping.
Our estimates are unchanged. Future growth could be amplified by a next generation system that is slated for commercial release in late 2013. Shell and Petrobas are sharing the development cost. Those companies will obtain first crack at the technology. But Computer Modelling will retain 100% of the marketing rights with no obligation to pay royalties or any other reimbursement.
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