Cameron International Goes Deep For Oil And Profits

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Cameron International ( CAM ) may not be an under-the-radar firm in the oil and gas industry, but its below-the-surface expertise has resulted in consistent profits in recent quarters.

The movement of oil exploration into deeper waters fits right into Cameron's strength. And with demand growing in emerging markets, oil and gas firms are scrambling to increase production.

The company makes subsea, pressure control, drilling, and compression equipment for the oil and gas industry. It operates in three segments: Drilling and Production Systems; Valves & Measurement and Process & Compression.

While volatility in oil prices can impact business at some oil and gas firms, this is not the case with Cameron. "Short-term fluctuations in oil prices do not necessarily impact companies that provide services and equipment in deep-water environments," said Trey Stolz, lead oilfield services analyst at Iberia Capital Partners. "These projects tend to be several years in length and are less susceptible to temporary price weakness."

Growth prospects are solid for Cameron this year and next. Full-year profit is seen rising 24% in 2013 and 30% in 2014. "Growth will be driven by future subsea equipment awards," Stolz said.

Cameron reported fourth-quarter results in late January. Profit growth accelerated for the second straight quarter, rising 23% from a year ago to $0.95 a share. Sales rose 19% to just over $2.4 billion. Revenue at its drilling and production systems segment rose 17% to $1.4 billion; revenue at valves and measurement increased 22% to $560 million and revenue at process and compression rose 35% to $475 million.

Perhaps nowhere is demand for Cameron's products and services more apparent than in its backlog for 2012. Cameron's backlog was a record $8.6 billion, up 43% from 2011. Average backlog from 2008-11 was $5.4 billion. Backlog is a potential indicator of future revenue.

Cash flow from operations totaled $544.7 million in the quarter, up 66% from a year ago.

Cameron is well positioned for more subsea awards. According to a recent report by Bank of America/Merrill Lynch, Cameron is in the running for several $100 million-plus awards over the next 15 from the likes ofBP ( BP ),Petrobras ( PBR ) andExxon Mobil ( XOM ).

Subsea trees are an important part of Cameron's business. In the same report, Bank of America/Merrill Lynch said the company booked about 15 subsea trees in the fourth quarter, bringing the full-year total to 92. For 2013, it expects Cameron to book 190 trees.

Used in offshore oil and gas fields, subsea trees monitor and control the production of a subsea well. Fixed to the wellhead of a completed well, subsea trees can also manage fluids or gas injected into the well.

Deal flow has been busy in recent months. Earlier this month, Cameron received a $600 million order from Petrobras for the supply of 47 subsea trees and associated equipment for the Pre-Salt and Post-Salt areas in offshore Brazil. Delivery will commence in 2014.

In February, Cameron signed an agreement with ESSO Exploration and Production Nigeria Ltd. (EEPNL), an Exxon Mobil affiliate, for the supply of subsea production systems to the Erha North Phase 2 development in Nigeria. Terms weren't disclosed, but Cameron will supply five subsea production trees, two water injection trees, three manifolds, production and topside controls and associated equipment.

In the fourth quarter, the company record $3.4 billion in awards, up 80% from a year ago. The awards did not include a major partnership withSchlumberger ( SLB ) announced in November. Dubbed OneSubsea, the joint venture will make products, systems and services for the subsea oil and gas market. Cameron will contribute its existing subsea division to the project and receive $600 million from Schlumberger.

"Once OneSubsea is up and running this year, (Cameron) should be well positioned to offer an increased portfolio of products for deep-water activity," said Stolz.

Also in November, Cameron received an order from STX Offshore & Shipbuilding for $275 million, to supply a complete drilling equipment package for a 12,000 foot ultradeepwater drillship. The order is Cameron's first complete rig package for a new-build drillship.

BP's Deep Water Horizon oil spill in 2010 was a black eye for the industry, but new regulation and oversight could be good news for Cameron. According to Stolz, Cameron booked 21 deep-water blowout preventers in the fourth quarter, including eight fromTransocean (RIG). Cameron also cited a growing relationship withRowan Companies (RDC), a company with four new-build drillships on order, each with dual BOPs.

Blowout preventers are used to seal, control and monitor oil and gas wells. They were first developed to combat erratic pressure and uncontrolled flow seen in well reservoirs during drilling.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: BP , CAM , PBR , SLB , XOM

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