5 Reasons This Oilfield Services Company Looks Solid

One of the most powerful trends in the oil and gas industry is the fundamental shift into unconventional and ultra-deepwater drilling. Exploration and production companies are spending more to access once forbidden reserves with the help of newer and more sophisticated technology. This is a trend that energy investors can't afford to ignore anymore.

Why you can't ignore oilfield services
The era of obtaining easy oil is as good as over. Therefore, it's no surprise that oil and gas companies will be spending an unprecedented $678 billion in 2013, according to Barclays' global E&P spending update. In addition, emerging countries are slated to drive global energy consumption in the next couple of decades.

To this end, E&P companies have already started boosting oil and gas production through technologically advanced drilling methods. And this is why Foolish investors must watch the oilfield services industry closely.

Some solid performance
Oilfield services companies have been performing quite well and I believe will continue to do so. Halliburton (NYSE: HAL  ) has been up 23% in the past 12 months. The company's drilling and evaluation and well completion services have seen sustained demand thanks to the various complexities involved in shale oil drilling. National Oilwell Varco (NYSE: NOV  ) , on the other hand, is the industry leader when it comes to offshore drilling equipment. This company is a seasoned player in the industry and through its three divisions -- rig technology, petroleum services and supplies, and distribution and transmission. In short, National is a one-stop shop for all oilfield-related services.

However, Houston-based Cameron International (NYSE: CAM  ) , a competitor of National Oilwell Varco, seems to hold a lot of promise. The company provides flow equipment systems and services to operators globally. Its stock has risen 50% in the past 12 months.

Here, then, are five reasons you must take a look at Cameron International.

1. It was absolved of charges in the Gulf of Mexico spill
Cameron was named as one of the defendants in the Macondo oil spill. The blowout preventer, or BOP, that failed to stop the oil surge was manufactured by Cameron and delivered to BP in 2001. However, it emerged that it was BP and Transocean, the rig owner, that had failed to do a major overhaul of the blowout preventer. As of April, Cameron was virtually absolved of all pending charges.

2. The blowout preventer market is expanding
Since the Macondo well blowout, demand for BOPs have surged. Additionally, the American Petroleum Institute has redrawn blowout preventer standards and is also considering dual BOP designs as a part of increasing safety features. Cameron has been leveraging the growing demand by opening BOP manufacturing facilities in the United Kingdom, Brazil, and other Asian locations. The higher safety standards also mean higher after-sales revenue opportunity. Each BOP stack needs a lead time of 18 to 24 months before delivery. Not many companies have the expertise to manufacture these 300-ton devices, which cost millions.

3. A steady progress in offshore rig construction
Taking a page out of National Oilwell Varco's accretive acquisition-based growth strategy, Cameron acquired LeTourneau Technologies Drilling Systems from Joy Global, and TTS Energy Division from Norway's TTS Group. These acquisitions, in late 2011 and mid-2012, respectively, have enabled the Cameron to provide complete offshore rig packages.

For the first quarter, Drilling and Production Systems -- Cameron's largest segment -- recorded a $227 million, or 22%, increase in revenue. In the same period, this segment bagged orders worth $2.7 billion as opposed to $1.7 billion during the first quarter of 2012. Total backlog as of March 31 has shot up to $8 billion from $4.4 billion a year before -- a massive 78% growth.

Additionally, safety issues have prompted substantial aftermarket activity levels. This, I believe, will be a sustained phenomenon in all of Cameron's business segments.

4. Ambitious plans for subsea systems
Last November, Cameron and Schlumberger (NYSE: SLB  ) floated a joint venture to manufacture and develop products, systems and services for the subsea oil and gas market. While Cameron retains a 60% ownership, Schlumberger will contribute with its flow assurance, power and control systems. Clearly, these companies anticipated a solid growth in subsea systems market that is currently National Oilwell Varco's fiefdom.

In March, Cameron was awarded a $600 million contract by Petrobras to supply 47 subsea trees and associated equipment for use in the pre- and post-salt basins offshore Brazil. Cameron should see more of such orders in the near future.

5. A solid balance sheet 
With a cash balance of $1.6 billion and debt to equity of 37.5%, Cameron is well positioned to pursue other investment opportunities or return cash to shareholders through share repurchases. But one thing that I'm not too happy is that Cameron doesn't pay dividends. Not too shareholder-friendly at that. However, with a positive free cash flow of around $450 million in the past 12 months, Cameron looks financially solid.

The Foolish bottom line
One can't put enough emphasis on the fundamental shift in the dynamics of the oil and gas industry, with technological advancements in unconventional as well as deepwater drilling, which only oilfield services companies can provide.

Cameron has also made inroads in the shale drilling segment with some of its game changing flowback systems and gate valve operations. While National Oilwell Varco is definitely the runaway leader in the oil equipment and services segment, investors should realize that there's huge potential in the deepwater drilling space. This industry is still young, with a lot of potential technological innovations ahead.

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