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Keeping Offshore Drilling Clean

Tuesday, 24 Jun 2008 | 6:09 PM ET

There’s been a lot of talk about offshore oil drilling lately. The knee-jerk reaction of most environmentalists has been to decry the practice. These eco-defenders fear massive oil spillages and other accidents that would harm the underwater landscape and wildlife, pointing to events in the past to prove their point.

Offshore Banking?
Drilling for oil without hurting Mother Earth, with Mad Money host Jim Cramer.

But times have changed.

As Cramer’s been saying, most of these fears are unfounded. Thanks to technological advances in oil drilling, the problems that caused a spill in 1969 just don’t factor in anymore. So we needn’t worry about them. To prove his point, Cramer’s highlighting those tech innovations, and the companies that make them, all week.

Yesterday, Cramer discussed Compagnie General de Geophysique-Veritas and its 4-D seismic mapping. For Tuesday’s show, he focused his attention on Oceaneering International , the market leader in remotely operated vehicles.

These ROVs – unmanned, joystick-controlled machines – inspect deepwater pipelines, repair leaks, assist in drilling and remove waste material left behind by that drillings. Demand for ROVs is up, and of the 22 contracts out for bidding at the end of the first quarter, OII won 21 of them.

Even if Oceaneering ends up yielding some contracts to competitors, the company’s subsea hydraulic and electro-hydraulic ROV umbilicals business is growing at a healthy clip on its own. In fact, it doubled to 42% of the market in 2006 from 21% in 2004. The umbilicals business on the whole is expected to grow at a compound annual rate of 25% from 2006 through 2011.

Overall the offshore drilling complex should continue to grow, putting OII in the sweet spot. For investors, the good news is that this stock is cheap – trading at about 18 times next year’s consensus estimates despite expected earnings growth of 19% in 2009. The best part? A pullback in the oil sector Tuesday just made OII cheaper.





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