Oceaneering (NYSE:OII) is heavily leveraged to the exploration and development of the deepwater area, both in the United States and in the international arena, and will benefit from the increased industry activity here over the next decade.
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Despite the short term regulatory problems with developing the deepwater in the United States, the company believes that much future development will occur here as the energy industry tries to find oil and gas to meet growing demand from the developing world.
There are 230 deepwater fields that are currently producing, and another 502 being evaluated or under development by the industry. There are 64 rigs under construction that are capable of drilling in the deepwater as of September 30, 2010, and 41 of these rigs are under contract with various companies. Oceaneering expects 30 new deepwater rigs to be delivered in 2011.
Oceaneering also has a strong balance sheet to handle the volatility of the businesses with which the company is involved. Oceaneering has no debt, and $148 million in cash as of September 30, 2010. The company also has access to a $300 million credit facility if it is needed.
Remotely Operated Vehicles (ROV)
The ROV business is Oceaneering's largest business segment, and represented 35% of revenue during the first nine months of 2010. The company has 252 ROV's in its fleet currently, and the fleet had average utilization of 75% during the first nine months of 2010. This fleet is spread across all geographies, with the highest concentration in the Gulf of Mexico, where 68 are located. Another 51 ROV's operate in the waters off Africa.
Sub Sea Systems and Products
Oceaneering second largest segment is Subsea Products, which comprised 28% of revenue during the first nine months of 2010. Products here include umbilicals and blowout preventer control systems. The company reported a backlog of $308 million at September 30, 2010. The company was recently awarded several contracts to supply umbilicals to major offshore projects, and was awarded a contract with Royal Dutch Shell (NYSE:RDS.A) for a project located offshore Brazil. Oceaneering also signed a deal to supply BHP Billiton (NYSE:BHP) for subsea equipment to be used for a natural gas project located offshore Australia.
Other companies are expanding business in the subsea market due to higher growth rates here. General Electric (NYSE:GE) just announced the purchase of Wellstream Holdings, an English oil services company that is active in the subsea area.
The Bottom Line
Oceaneering recently raised its guidance for earnings for 2010. The company now expects to earn between $3.57 and $3.62 per share in 2010, up from the previous guidance of $3.20 to $3.40 per share. Oceaneering also initiated earnings guidance for 2011 at between $3.45 and $3.75 per share.
Investors that believe in the growth of deepwater exploration and development should take a look at Oceaneering as the company has a diverse line of businesses and products that are levered to this segment of the energy industry. (To learn more about guidance, see Can Earnings Guidance Accurately Predict The Future?)
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