http://www.businessweek.com/news/2010-05-19/rig-gear-supplier-cameron-may-prove-oil-spill-winner-update1-.htmlBy David Wethe
May 19 (Bloomberg) -- Cameron International Corp., whose stock plunged after a safety device it supplied became a focus of investigations into the Gulf of Mexico oil spill, may find its fortunes boosted by the disaster.
Cameron and other manufacturers of drilling gear, including National Oilwell Varco Inc., may benefit should the April 20 rig explosion that triggered the Gulf spill lead to stricter regulations, said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston. Rules to improve safety would lead to a jump in sales of equipment to meet new standards, he said.
“The likes of Cameron could see a 180-degree turn in impact from this event within a short period of time,” said Scott Gruber, an analyst at Sanford C. Bernstein & Co. in New York. “It could happen very quickly.”
Cameron made the so-called blowout preventer on the Deepwater Horizon drilling rig that was designed to contain a surge in pressure like the one that killed 11 workers in an April 20 explosion and fire that set off the oil spill. The blast occurred while BP Plc, which leased the rig from Transocean Ltd., was drilling a well in 5,000 feet (1,524 meters) of water.
Cameron, which has been named as a defendant in lawsuits related to the incident, dropped to a seven-month low of $34.65 on April 29. The shares rose 35 cents to $37.10 at 9:53 a.m. on the New York Stock Exchange. It will climb 41 percent in the next 12 months, according to the average analyst price target.
Closer scrutiny of offshore drilling already is underway. The U.S. Interior Department halted drilling permits for new wells pending findings of a government study into the incident.
President Barack Obama plans to create a commission to investigate the drilling accident, following presidential probes in prior decades of the Three Mile Island nuclear accident and the Space Shuttle Challenger disaster, an administration official said on condition of anonymity.
The commission will be established by executive order, possibly this week, and will have no current government officials among its members, the official said.
Blowout preventers, known as BOPs, are among the most important pieces of safety equipment on an offshore drilling rig -- and also one of the most expensive. A system costs about $40 million, or roughly 10 percent of the total cost of the vessel, according to Quest Offshore Resources Inc.
The top three BOP makers, based on sales, for deep-water rigs are Cameron, National Oilwell Varco and General Electric Co.’s GE Oil & Gas unit, said Paul Hillegeist, president of Quest Offshore. Fewer than 10 companies around the world make the devices for deep-water drillers, he said.
A BOP consists of a series of valves installed at the wellhead that close to prevent the escape of pressurized fluids from the petroleum reservoir below ground.
The devices can be up to six stories tall, according to Houston-based National Oilwell Varco, which ranks ahead of Cameron as the biggest U.S. maker of oilfield equipment. On offshore rigs, the systems typically are installed underwater at the seafloor by remote-operated robots.
“This stuff is rocket science,” National Oilwell Varco Chief Executive Officer Pete Miller said Sept. 10 at the Barclays Capital CEO Conference in New York.
Katina Hargett, a spokeswoman for National Oilwell Varco, didn’t respond to telephone messages seeking comment for this story. Rhonda Barnat, a spokeswoman for Houston-based Cameron, declined to comment. Nigel O’Connor, a spokesman for GE Oil & Gas, said he couldn’t immediately comment.
Steve Krablin, CEO at T-3 Energy Services Inc., which also provides services and parts for the safety device, said increased regulations could mean “big opportunities” for his Houston-based company. More companies will buy backups for safety equipment, including BOPs, he said.
“There’s already a redundancy in the industry, but that doesn’t mean there can’t be more redundancy when you become very cautious about the effects of a tragedy like this,” Krablin told investors on an April 30 conference call. “For us, most of the things that you could speculate that could come from this would have the result of increasing our revenue, not decreasing it.”
Most offshore rigs are equipped with two BOPs, one of them a backup unit, said Leslie Cook, senior research analyst at Quest. There are currently 239 floating rigs under contract or available for work around the world, as well as 80 more that are under development, she said.
The biggest equipment makers will probably benefit most as the oil spill passes and drillers move to meet new safety standards, said Uhlmer of Pritchard Capital.
“Anything in the Gulf of Mexico is coming under pressure, but in the long term, their business should actually improve,” he said.
--With assistance from Nicholas Johnston in Washington. Editors: Susan Warren, Tony Cox.
To contact the reporter on this story: David Wethe in Houston at email@example.com.
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