Cameron International Corporation (NYSE: CAM) is an oilfield equipment manufacturer and one of the world's leading suppliers of subsea valves and fittings. This equipment controls the flow of fluids from an oil well and prevents their release to the environment. The movement of oil exploration into deeper waters is a trend that requires new equipment to be built and old rigs to be refurbished. Subsea equipment is in high demand, and given that the average age of a drilling rig anywhere in the world today is 25 years, the market is ripe for companies that provide the equipment needed for upgrades. Both these trends could potentially benefit Cameron, as the company is a major manufacturer of rig hardware.
The company's focus on large, expensive orders, however, means that it is not protected against volatility in any of its markets, like compression or subsea technology. This is a problem when competitors outbid Cameron for new contracts.
In 2009, Cameron acquired NATCO Group Inc., the largest transaction in Cameron's history. NATCO manufactures oil and gas production equipment and separation systems. Additionally, Cameron has maintained its position as one of the top players in the oilfield services industry.
Houston, Texas-based Cameron International Corporation (CAM), previously known as Cooper Cameron Corporation, is a leading manufacturer of pressure control equipment used in applications for oil and gas drilling, production, and transmission.
|Drilling & Production Systems||3,718.3||3,406.1||3,736.7||2,887.1||2,113.1|
|Valves and Measurements||1,273.3||1,194.7||1,473.2||1,273.7||1,177.9|
|Drilling & Production Systems||3,195.9||4,364.1||4,416.8||3,203.0||2,661.3|
|Valves and Measurements||833.8||547.1||749.2||685.2||620.8|
Cameron's products are employed in a variety of operating environments, including basic onshore fields, onshore and offshore environments, deepwater subsea applications and ultra-high temperature geothermal operations. The Drilling & Production Systems (DPS) products include surface and subsea production systems, blowout preventers, drilling and production control systems, oil and gas separation equipment, gate valves, actuators, chokes, wellheads, drilling riser and aftermarket parts and services. DPS also manufactures elastomers, which are used in pressure and flow control equipment and other petroleum industry applications, as well as in the petroleum, petrochemical, rubber molding and plastics industries.
NATCO, acquired by Cameron in 2009, designs, manufactures and markets oil and gas production equipment and separation systems. NATCO products and services have been used onshore and offshore, upstream and downstream, in most major oil and gas producing regions worldwide.
V&M’s products include gate valves, ball valves, butterfly valves, Orbit valves, double block & bleed valves, plug valves, globe valves, check valves, actuators, chokes and aftermarket parts and services. V&M’s Distributed Valves group manufactures valves used in the exploration, production and transportation of oil and gas, and which are sold through a network of wholesalers and distributors, primarily in North America.
Reciprocating compression equipment is used throughout the energy industry by gas transmission companies, compression leasing companies, oil and gas producers and independent power producers. Centrifugal compressors are used by customers worldwide in a variety of industries, including air separation, petrochemical and chemical. CS’s products include integral engine-compressors, separable compressors, turbochargers, integrally geared centrifugal compressors, compressor systems and controls. Its aftermarket services include spare parts, technical services, repairs, overhauls and upgrades.
After the BP (BP) Deepwater Horizon oil spill in May 2010, the Obama administration has instituted stringent regulations on drilling rig safety. These regulations, some of which are still being developed by the U.S. Department of the Interior, govern blowout preventers, subsea equipment, and redundant safety systems on rigs.
The government is likely to continue to implement stringent safety regulations for the offshore drilling industry. Cameron International Corporation is one of the world's top producers of blowout preventers and the company would benefit from any regulations that require drilling contractors to upgrade equipment or replace it more frequently. Cameron would also benefit if contractors have blowout preventer manufacturers perform routine maintenance on the equipment to ensure quality control.
Cameron's drilling and production systems business segment, which constitutes 65% of its revenue, focuses on products used to control underground pressures and the flow of oil or gas from wells. Examples of these products include surface and subsea wellheads, risers used to transport oil and gas from subsea wells to the surface, and blowout preventers. This business segment is expected to benefit immensely from new drilling rig safety regulations.
With global demand for oil rising as emerging markets like China and India enter the world economy, oil prices are rising and oil and gas companies are scrambling to increase production and take advantage of potential windfalls. However, the average drilling rig found anywhere in the world is about 25 years old; the technology of 25 years ago may have been appropriate for extracting the easy-access oil that was right below the surface, but as these reserves dry up, companies are looking to deeper water and more complicated geology. Rig contractors and exploration companies worldwide are beginning to invest in building new rigs or upgrading old ones, taking advantage of the huge margins caused by the current price level to spend on expensive technology. Cameron, which manufactures rig equipment, is poised to benefit.
As the oilfield services sector heats up, demand for new equipment has caused competitive pressure to increase. FMC Technologies (FTI) and National-Oilwell Varco (NOV) are Cameron's two main competitors, and recently they have been taking major equipment deals that could potentially have gone to Cameron. For example, at the same time as Cameron made its $190 million deal with PDVSA, FMC Technologies made a $980 million deal to supply 49 deepwater tree systems to TotalFinaElf, S.A. (TOT). Cameron makes big money by selling a few, extremely expensive systems (like subsea trees); the company is not nearly as diversified as larger equipment companies like National-Oilwell Varco, making the implications of the loss of any major customer or potential customer more significant. For this reason, Cameron must spend more on designing and marketing highly competitive products.
Whether it’s because of climate change fears, the rising price of oil, or the desire to separate energy needs from terrorist regimes, people are slowly becoming disillusioned by the world's dependence on oil and gas. Many developed, politically-progressive regions like Europe are beginning to transition away from these sources of energy, and towards renewable energy. In emerging markets like China and India, however, the drive for economic growth supersedes environmental concerns, and oil, despite being about $100/bbl, is still less expensive than most renewables. Since emerging markets are where many of the future opportunities in the global economy lay, oilfield services companies like Cameron, who are intimately tied to the overall success of the oil and gas industry, could continue to grow in conjunction with a growing renewables industry.
|2009 Revenue (millions)||% Change in Revenue, 2009/2008||2009 Net Income (millions)||% Change in Net Income, 2009/2008|
|National Oilwell Varco||12,710||-12.4%||1,470||-12.1%|
|Baker Hughes (BHI)||9,660||-18.54%||421||-68.41%|
|Smith International (SII)||8,220||-23.7%||148.7||-80.43%|
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