While onshore oil and gas drillers have gotten most of the
attention in recent years -- especially those that operate in
U.S. shale formations -- there's still plenty of action out there
in the deep blue sea.
For proof, look no further than recent results atOceaneering
), a supplier of services and equipment to the offshore oil and
On Monday Oceaneering delivered record sales and earnings for
the third quarter, amid heavy demand for its deepwater drilling
gear. The company has now rung up eight straight quarters of
double-digit revenue and earnings growth.
It is expected to maintain a robust growth pace well into the
foreseeable future as oil and gas drillers increase their
offshore production in key markets such as the Gulf of Mexico and
On a conference call with analysts after Oceaneering's Q3
earnings report, CEO Kevin McEvoy pointed out that subsea
equipment orders continue to grow, and that the backlog for this
gear is at "a record high" level.
"We anticipate continued global demand growth for our services
and products to support deepwater drilling, field development and
inspection, maintenance and repair activity," McEvoy said.
Oceaneering offers a variety of products and services, though
it is probably best known for remotely operated vehicles, or
ROVs. These are large, unmanned robots that are tethered to a
ship and controlled by personnel onboard. The ROVs can be used to
take images or move and place items as deep as two miles below
the ocean surface.
Revved By Robots
The company's product lineup also includes subsea umbilical
systems and ROV tools. Its services include diving and vessel
support, subsea well interventions, engineering, and project
management and inspection services.
But ROVs are the main growth driver.
According to a recent report from Douglas-Westwood, a
U.K.-based market research firm, offshore oil drillers are
expected to increase their spending on ROVs by about 80% between
2013 and 2017 vs. the previous five years. Nearly $10 billion is
expected to be spent on ROVs through 2017.
"As the use of floating rigs grows, we believe it is
inevitable that discoveries will eventually drive orders for
subsea hardware to levels not previously experienced," McEvoy
said. "Demand for ROVs to support vessel-based activities should
Oceaneering had 302 ROVs in its fleet at the end of September.
That was up from 285 the previous year. The company expects to
add 30 to 35 new vehicles next year and improve its fleet
utilization rate to 85% in 2014 from 84% this year.
Oceaneering has established itself as the global leader in
ROVs for the oil and gas market.
In a recent report, analyst Jeff Spittel of Clarkson Capital
Markets noted that Oceaneering won 17 of 20 contracts on 70 new
floating rigs being built.
"If Oceaneering were to secure a market share of about 60% on
the remaining 50 floaters yet to order ROVs, we expect
Oceaneering's drilling support fleet would grow by approximately
50 vehicles," Spittel said. "Oceaneering's leading ROV business
should benefit from a multifaceted opportunity related to rig and
Oceaneering's ROVs are used for both deepwater drilling
support and vessel-based work. During the third quarter, the
company's fleet mix was 73% drill support and 27% vessel-based
work. That was the same percentage as the prior year.
Oceaneering posted Q3 earnings of 96 cents a share, up 23%
from a year earlier and 3 cents above consensus estimates.
Revenue gained 16% to $853.3 million, in line with views.
ROVs accounted for about 30% of total revenue during the
quarter. Subsea products contributed the biggest percentage, at
However, ROVs generated the most gross profit -- $85.2 million
vs. $80.1 million for subsea products.
The company raised its full-year 2013 EPS projection to a
range of $3.35 to $3.40 vs. prior guidance of $3.20 to $3.35.
Analysts expect annual profit to increase 27% this year and 19%
"Oceaneering remains very well positioned to grow earnings and
generate strong free cash flow over the next several years,
fueled by rising global deepwater activity," said Stephen
Gengaro, analyst at Sterne Agee.
Meanwhile, Clarkson's Spittel notes that subsea equipment
orders and completions have been trending higher in recent
"Historically, these are reliable leading indicators for
Oceaneering's subsea products and projects businesses," Spittel
said. "(Oil well equipment) requires associated subsea hardware
such as umbilicals, and somebody has to install the equipment.
Both of these are Oceaneering specialties."
Heavy demand for Oceaneering's gear and services has not gone
unnoticed on Wall Street.
Oceaneering stock touched a record high of 87.62 on Oct. 21
and again on Wednesday. Trading near 87 on Thursday afternoon,
the company's shares are up about 61% since the beginning of the
That compares favorably with the oil services sector as a
whole. The 39 stocks in IBD's Oil & Gas-Field Services group
touched a more than five-year high on Wednesday and are up about
42% since the beginning of the year.
Other companies in the group that provide offshore services
),Oil States International (
) andFrank's International (