Redline Communications pioneering the “digital oilfield”

Digital connections to an oil field allows a company to remotely manage and monitor it in real time.

MONTREAL – Redline Communications is aiming to be a pioneer in the “digital oilfield.”

The company provides oil and gas producers with a secure, high-capacity wireless communication network to monitor their operations in harsh or remote areas.

“The digital oilfield is a brand new industry, a nascent industry, that we’ve really taken a hold of and we’re growing very well,” says Redline CEO Eric Melka. “So we have an opportunity to be able to do more.”

Last year, half of Redline’s US$50 million in revenues came from the oil and gas industry.

Melka says a digital connection to an oil field allows a company to remotely monitor and manage it in real time.

For example, Redline can build a network in an oilfield that can handle phone calls between staff, transfer files and share data as well as monitor drilling and production and do video surveillance.

Melka, who has been restructuring and refocusing Redline over the past three years, notes that oil fields are too big and remote to monitor by cellphone or a short-range WiFi network.

“So the networks with our customers are growing,” Melka said.

Redline Communications Group Inc. had its contract expanded last year for the Shell Oil joint venture petroleum development project in Oman. That project is wirelessly connecting thousands of oilfields, eliminating the need for workers to drive from well to well to collect information.

The company hasn’t been without problems. It deployed a network technology in recent years that didn’t take off. Accounting irregularities led to a cease trade order on the Toronto Stock Exchange and the settlement of a class action lawsuit.

The management team was replaced and Melka came on board to turn things around for the 150-employee company, which has its head office in Markham, Ont., north of Toronto.

One of Melka’s main areas of growth has been energy, which he calls recession proof.

Redline’s energy customers include BP, Chevron, Encana. But it has military customers such as the US Marines and US Navy and telecom customers such as Toronto’s TeraGo Networks and France’s Orange.

Technology analyst Noel Atkinson of Loewen, Ondaatje, McCutcheon USA Ltd. noted that Redline has strong demand from the oil and gas industry.

“We believe Redline is the early leader worldwide in this segment, which could represent a market opportunity in excess of $3 billion,” Atkinson said in a recent note.

But Atkinson said Redline’s radios last for years and, while their reliability wins orders, this has also limited the revenue stream to replace them.

Stifel Nicolaus analyst Blair Abernethy said Redline’s small size relative to competitors could make it a takeover target.

“Longer term, given Redline’s relatively small size, advanced and flexible core technology and market focus, we see the company as a potential take-out candidate for larger communications equipment and oilfield technology providers,” Abernethy said in a research note.

Redline recently posted a fourth-quarter net loss of US$5.6 million, which it says was due to a non-cash loss of $6.4 million relating to a fair market value adjustment on a debenture.

Excluding the non-cash expense, net income was $900,000. That compares with a profit of $1.1 million, or 20 cents per share in the fourth quarter of 2011.

Revenues were US$10.4 million for the quarter, down 8% from $11.3 million year-over-year.

©The Canadian Press