Dril-Quip Unit Wins Supply Contract

Dril-Quip Asia Pacific Pte Ltd – a wholly owned affiliate of U.S. equipment supplier Dril-Quip Inc ( DRQ - Analyst Report ) – has clinched a supply contract from Sabah Shell Petroleum Company Limited – a business wing of integrated energy firm Royal Dutch Shell plc ( RDS.A - Analyst Report ) .The contract entails Dril-Quip to provide drilling and production tools and related services for the development of Shell Malikai tension-leg platform (TLP) project, situated off the cost of Malaysia.

Per the deal, Dril-Quip will supply subsea wellheads, tensioner systems, risers, production trees, injection trees, and tieback connectors. Dril-Quip expects the deliveries to commence in 2014.

The Shell Malikai TLP development will process roughly 60,000 barrels of liquids per day and compress 50 million cubic feet of gas per day.

The tension-leg offshore platform will be connected to the sea bed with tendons − long steel tubular structures – that will provide stability in spite of the sea waves.

Houston, Texas-based Dril-Quip manufactures highly engineered offshore drilling and production equipment for deepwater severe-service applications and harsh environmental conditions. Dril-Quip designs and manufactures subsea and surface wellheads, subsea and surface production trees, mudline hanger systems, specialty connectors, and associated pipe, drilling and production riser systems, wellhead connectors and diverters, which are used on offshore rig equipment.

Dril-Quip enjoys a favorable position given its solid backlog and a debt-free balance sheet. This gives it the financial flexibility to take advantage of new growth opportunities while returning capital to shareholders. We expect large orders in 2013 from the Gulf of Mexico (GoM) and Brazil, with rising demand and activity level in these regions.

However, in the subsea capital equipment area, Dril-Quip’s competitive position is fairly weak in the more lucrative large and complex deepwater segment. Despite its strenuous efforts over the last couple of years, it has made little headway in gaining market share from larger competitors.

Dril-Quip currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

In the energy sector, Helmerich & Payne Inc ( HP - Analyst Report ) and Range Resources Corporation ( RRC - Analyst Report ) display better fundamentals and currently carry a Zacks Rank #1 (Strong Buy).