To be able to be competitive in the industry, it needs to analyze the existing processes and identify the best production method for harnessing oil and gas, and adjusting it manufacturing operations towards the identified need. The Company made significant investments in improving its services and products over the years. During 2004 to 2005, the company has acquired Petreco International and Dresser Flow Control Businesses.
Also, Recently CAM paid approximately $44 million to acquire DES Operations Limited, a Scotland-based supplier of production-enhancement technology, which will enhance the subsea operations within the Drilling and Production Systems segment (value line). Subsea operations is the new direction to which the company is heading. In fact, the company is currently working on more than 15 major subsea projects using motors and other equipment made by an aerospace-industry contractor (Factiva Wall Street Journal).
These projects will require a longer time, a large increase in financial scope, a need in substantial engineering, and it will also involve the application of existing technology to new environments or new technology (CAM 10K 2006 p. 7). Because this new operations are larger and more complex than traditional operations, the Company may not be prepared for meeting the expertise and technical requirements of the projects. Failure to meet clients expectations does not only lead to loss in revenue, but also to loss of the significant financial investments committed by the company towards this innovation.
The company has had both success and failures in this new endeavor. Subsea operations account for eight percent (8%) of the companys revenue in 2006 (CAM 10K 2006 p. 7). According to Fortune magazine, the company has raised earnings by producing an array of subsea valves, wellheads and blowout protectors which are currently on high demand. The result is expected to make Camerons profits to climb thirty-nine percent (39%) this year. On the other hand the company experienced backlogs on the projects, amounting to as much as four hundred eight million dollars ($408 millions).
Based on these figures, it is clear that the new operations of the Company can be lucrative and risky. As mentioned above, the new operations involve the following risks: not meeting clients expectations, incurring delay, loss of revenue, loss of opportunity and loss of capital. Environmental Litigation The Company has a strong policy on environment sustainability and has implemented measures to ensure the quality, safety and reliability of its products. It utilizes an all electric sub-sea production system which is designed to reduce environmental contamination risks.
It line of compression products offer greater efficiency and reduced emission levels. (Annual report 2006 p. 9) The company has conducted oil risk spills analysis through the OSRA models originally developed by Smith and company, which has been enhanced over the years and uses realistic data fields of winds and ocean currents in the GOM (OCS Report 2007). However, it may be noted that with Camerons policy to pursue an electric sub-sea production system, the risk of oil spills is reduced and the likelihood of it being involved in a major oil spill is reduced.
In addition to this, the company has exerted efforts towards managing environmental risks involved in subsea operations by contributing in the development of a shut-off device called Environmental Safe Guard. This device has been proven successful in operation under 2000-m water (Simondin, et. al. 2005). Competition Risk Cameron International has maintained a track of growth in the oil industry, from 1833 up to the present. It currently manufactures 50 different brands of drilling and production systems.
Growth can be expected to continue. As pointed out in the Companys annual report (2006), sales of equipment like compression systems has registered a steady increase with the greatest share of revenues accruing from sales outside the United States. The Company has maintained an excellent revenue growth rate at thirty-nine point sixty-seven percent (39. 67%). It also has a net income growth rate of eighty-one point eighty-eight percent (81. 98%), while maintaining a good debt to equity ratio of forty-three point fifty-two percent (43. 2%). Debt to equity ratio is good compared to the industry average of 63% (Corn 2007).
A comparison of the companys ratios with others in the fields provides a clearer picture of its performance in the industry. The companys touted revenue growth rate is ranked fifteenth (15th) in the industry and is extremely small compared to the leading company. Its long term growth rate is assessed as twenty-one percent (21%), also fifteenth in the industry.
These ratios show us that the companys performance is not the leading company in its industry but it does perform respectably compared with the other players. In its 10K, the company claims that it has a growing global market (CAM 10K p. 7). Some financial analysts agree with this statement. The CEO of Clear Indexes LLC and Clear Asset Management LLC claims that there is an increasing demand for oil in China and India and the Company is ideally placed in supplying the demand for increased production (Corn).
However, because of the ties of Corns own company with CAM, this statement should not be taken at its face value. In the 30 April 2007 issue of Fortune, the company is only seventh in the industry with Halliburton ranking first. On a positive note, the company did climb up the Forbes 500 list with a present ranking of five hundred fifty-third (553rd) from last years six hundred eighty-fifth (685th). (Fortune 500 annual ranking) Based on the analysis above, the companys performance is acceptable but not stellar.
The changes made by the company towards subsea operations may be the wave of the future, providing not only a significant portion of the companys revenues but also lowering environmental liability risks that are necessarily included in the companys operations. The move, however, is not without its disadvantages. Subsea operations requires the commitment of large amounts of capital and expertise, expertise that the company has not fully mastered. The failure of the company in this endeavor will adversely affect the companys growth for years to come.