Offshore woes could be over
Todd Campbell (Oceaneering International): A whopping 17 out of 22 Wall Street analysts that follow Oceaneering International rate it a hold or worse and given Wall Street’s reluctance to issue negative ratings, that’s a pretty pessimistic view of this offshore energy services company.
You can’t really blame them for being unimpressed by the company. Since peaking near $85 per share in 2014, its shares have plummeted to about $22 because lower oil prices have crimped offshore oil and gas exploration.
However, a turn could be coming in that market and if so, Wall Street could get caught flat-footed and needing to catch up.
Oceaneering International’s financials are driven largely by its remotely operated vehicles (ROV) and subsea products, and demand for those solutions depends on rising — not falling — offshore investment by oil and gas companies.
Offshore projects are historically more expensive than land-based projects, so it’s no surprise that those projects were the first to be moth-balled by exploration and production companies. Crude oil prices are rebounding, though, and advances in technology that are making offshore projects more competitive could spark interest again.
For example, ExxonMobil is spending big money offshore Guyana on a massive 6.6 million acre project and while BP’s capital spending budget isn’t growing yet, it’s also got important projects offshore Egypt, Azerbaijan, and in the North Sea (Clair Ridge). A ramp in offshore activity by BP would be particularly good news for Oceaneering Int’l because BP is its biggest customer, accounting for 12% of revenue in 2017.
Oceaneering Int’l’s sales aren’t reboounding yet, but utilization of its ROV fleet and orders for its subsea products could be bottoming. For the full year, the company’s guiding for fleet utilization to improve from 44% to the low 50% range, and by the end of this year, management thinks the book-to-bill ratio for its subsea products will climb back above one from 0.71 in Q1.
Admittedly, I don’t expect a quick pricing and profit recovery because of these developments, but I do believe this year could be the turning point for the company and if I’m right, then Wall Street’s wrong to be so bearish.
