Despite litigation, Pason Systems still a Buy, says Steve Li

Industrial Alliance Securities analyst Steve Li characterizes the impact of the National Oilwell Varco infringement suit on Pason Systems as “slightly negative”.On Friday, Pason Systems (TSX:PSI) announced it will be heading back to court in a dispute over its AutoDriller product.

National Oilwell Varco (NYSE:NOV), says Pason, has initiated another lawsuit for infringement of U.S. Patent #5,474,142, the patent that covers the AutoDriller in the United States.

Court dates are nothing new for the rivals; litigation between the pair regarding the AutoDriller, a system that automatically monitors and adjusts multiple drilling parameters, has been ongoing since 2003. National Oilwell Varco’s efforts haven’t been without success; in June of this year, the company was awarded post-verdict damages totaling (US) $19.4-million.

Industrial Alliance Securities analyst Steve Li characterizes the impact of the whole matter as “slightly negative”. He says the worst case scenario is that Pason will be hit with a charge of $60-million. Given that the judge who oversaw the original case has stated on record that Pason’s current AutoDriller does not infringe the asserted patent, he says, the probability of NOV winning a second time around is significantly lower.

Regardless, says the Industrial Alliance Securities analyst, with $140-million in cash and no debt, Pason is strong enough to absorb the worst blow. In a research update to clients today, Li reiterated his BUY rating and $18.25 target on the stock.

Calgary’s Pason Systems, which provides complex instrumentation systems to offshore drillers, has both benefited from and led a trend towards increased use of data in the oil and gas sector. The company’s core offering, Pason EDR, links the rig manager and rig crew on a data network with others onsite and off.

Li says it is important to note that NOV is not seeking an injunction on Pason’s AutoDrillers and therefore this suit will not affect future revenue potential. Also, he points out, the patent is expiring next April.

Shares of Pason Systems closed today up 1.3% to $17.64.

_________________