Cameron Secures Second China Deal

06 June 2012

Oil drilling equipment maker Cameron International Corp (CAM - Analyst Report) has entered into a subsea supply deal with Chinese oil producer CNOOC Ltd (CEO).

Per the terms of the agreement, which is valued at approximately $100 million, Cameron will deliver subsea production systems to CNOOC. These systems will be utilized for the development of the offshore "Panyu 35-1/2" gas field in the South China Sea.

The contract, which will likely be executed in 2013, involves the supply of six subsea production trees, production controls, one manifold, associated subsea equipment, rental tooling and service support. Cameron’s new CAMSERV™ Aftermarket facility in Shekou, China will lend support to the deal.

This is Cameron’s second venture in the China waters, after the Liwan 3-1 project. Cameron management is hopeful that this deal will strengthen its footing in the Chinese oil market and will look forward to further investment opportunities.

Houston, Texas-based Cameron is a leading manufacturer of pressure control equipment used in onshore, offshore, and subsea applications for oil and gas drilling, production, and transmission. The company operates through three segments: Drilling & Production Systems; Valves & Measurement; and Process & Compression Systems.

Cameron currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we maintain our Neutral recommendation on the stock.

We believe that Cameron has a diversified product portfolio, specialty service capabilities and proprietary technological expertise. The company also enjoys a dominant market position and its strong backlog of $6.7 billion offers ample visibility to its earnings growth and cash flow prospects.

Cameron is also well poised to benefit from the improving subsea activity levels through 2012 and beyond. In this regard, the company has signed numerous subsea equipment deals with industry giants like BP plc (BP), Petroleo Brasileiro S.A. or Petrobras (PBR - Analyst Report), Statoil ASA (STO - Analyst Report) and Chevron Corporation (CVX - Analyst Report).

However, shares of the company are fairly valued at current levels, considering the sensitivity of Cameron’s business to gas/oil price volatility, as well as exploration and production spending patterns, costs, geo-political risks, competition and the advent of new technologies.