Houston-based Dril-Quip Inc.’s product bookings in the first quarter reached $99 million, up 11% sequentially and exceeding guidance of $80 million, a positive sign that global offshore activity may be accelerating.
Dril-Quip, which provides drilling and production equipment for use onshore and offshore, included in its 1Q2019 bookings, a previously disclosed order from BP plc to supply subsea wellhead systems valued at $25-35 million. Another order during the quarter is to convert a customer’s inventory of subsea wellhead systems into Dril-Quip’s new BigBore IIeTMwellhead system.
The BP equipment is scheduled to be delivered beginning late this year through the first six months of 2021. The order is placed under a global agreement between BP and Dril-Quip to supply of equipment and services that was established in 2013 and recently extended until 2023.
The BP order “is another positive indicator of an upturn in global offshore activity,” CEO Blake DeBerry said. The extended global agreement “includes optionality for BP to order our new BigBore IIeTM wellhead system, which is part of our new technology efforts to provide structural changes in well operations that allow our customers to reduce equipment and rig time.”
BigBore includes “an integral 2 million pound high-capacity casing hanger lockdown that eliminates the need for drilling/production lockdown equipment and can eliminate up to five trips into the well,” he said.
Dril-Quip’s backlog at the end of the first quarter grew to $304 million, which includes a contract award to supply top tensioned riser systems and related services to develop the Ca Rong Do Project offshore Vietnam, which is operated by Repsol SA.
Dril-Quip recently entered into an amendment with Repsol to extend the award to the end of this year. The company did not include the project in its 2019 revenue guidance provided in its fourth quarter, and it does not expect it to impact its 2019 revenue because of the “continued delays in the project.”
Evercore ISI analysts noted that 4Q2018 nonproject bookings of $87 million “was the company’s strongest in four years,” and it only recently increased the 1Q2019 product bookings guidance to $80 million from $50-70 million.”
“Deepwater operators appear to be restocking their wellhead inventories,” Evercore analysts said. Research and development “is a core competency of Dril-Quip’s, and new products launched since 2017 are expected to contribute substantially to future revenue.
“Up to 15% of bookings could come from new products over time, with the company targeting $100 million in new product revenue by 2021.” Maintenance capital expenditures this year are expected to decline to $20 million from $32 million in 2018, analysts said, “giving the company significant dry power to fund the upturn and key projects, as well as pursue complementary technology tuck-ins.”
Tudor, Pickering, Holt & Co. Inc. analysts called the bookings in 1Q2019 “a sight for sore eyes, as it’s been five to six years since we’ve seen Dril-Quip ink back-to-back quarters of expanding backlog…
“Dril-Quip is known for its engineering prowess and has indicated that some newer products are now making market headway, so it's nice to see the BigBore IIe wellhead system gaining traction. In addition to what looks like a possible burgeoning offshore market recovery, we believe Dril-Quip’s cost cuts are progressing well…”
Rystad Energy earlier this month said global exploration was off to a flying start this year, with the majors claiming massive conventional resource discoveries in the first quarter, particularly in the offshore. Conventional discoveries reached an estimated 3.2 billion boe, with most of the reserves, at around 2.2 billion boe, recorded in February, the best monthly tally on record since August 2015.