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  1. 1. 1999 ANNUAL REPORT
  2. 2. Cooper Cameron is a leading international manufacturer of oil and gas pressure control equipment, including valves, wellheads, controls, chokes, blowout preventers and assembled systems for oil and gas drilling, production and transmission used in onshore, offshore and subsea applications. Cooper Cameron is also a leading manufacturer of gas turbines, centrifugal compressors, integral and separable reciprocating engines, compressors and turbochargers. Additional information about the Company is available on Cooper Cameron’s home page on the World Wide Web at
  3. 3. Financial Highlights ($ thousands except per share, number of shares and employees) Years ended December 31: 1999 1998 1997 Revenues $ 1,464,760 $ 1,882,111 $ 1,806,109 Gross margin 398,785 552,589 509,162 Earnings before interest, taxes, depreciation and amortization (EBITDA)1 193,051 322,879 293,831 Net income 43,002 136,156 140,582 Earnings per share Basic 0.81 2.58 2.70 Diluted 0.78 2.48 2.53 Diluted (Excludes nonrecurring/unusual charges (credits)) 1.00 2.76 2.53 Shares utilized in calculation of earnings per share Basic 53,328,000 52,857,000 52,145,000 Diluted 54,848,000 54,902,000 55,606,000 Capital expenditures 64,909 115,469 72,297 Return on average common equity 5.8% 19.1% 24.3% As of December 31: Total assets $ 1,470,719 $ 1,823,603 $ 1,643,230 Total debt 210,332 413,962 376,955 Total debt-to-capitalization 22.8% 34.7% 37.0% Stockholders’ equity 714,078 780,285 642,051 Shares outstanding 50,567,959 53,259,620 52,758,143 Net book value per share 14.12 14.65 12.17 Number of employees 7,200 9,300 9,600 Excludes nonrecurring/unusual charges (credits). 1 TABLE OF CONTENTS Company Profile . . . . . . . . . . . . . . . . . . . . . . . . . 2 Letter to Stockholders . . . . . . . . . . . . . . . . . . . . 4 Cameron . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Cooper Cameron Valves . . . . . . . . . . . . . . . . . . . 14 Cooper Energy Services . . . . . . . . . . . . . . . . . . . 18 Cooper Turbocompressor . . . . . . . . . . . . . . . . . . 22 Management’s Discussion and Analysis . . . . . . . 25 Report of Independent Auditors . . . . . . . . . . . . 34 Consolidated Financial Statements . . . . . . . . . . . 35 Notes to Consolidated Financial Statements . . . 39 Selected Financial Data . . . . . . . . . . . . . . . . . . . 55 Stockholder Information . . . . . . . . . . . . . . . . . . 56 On the cover: Cameron’s SpoolTreeTM Production System 1
  4. 4. Company Profile ® PRODUCTS CUSTOMERS Gate valves, actuators, chokes, Provides pressure control Oil and gas majors, wellheads, surface and subsea equipment for oil and gas independent producers, for- ® ® production systems, blowout drilling and production in eign producers, engineering preventers, drilling and onshore, offshore and subsea and construction companies, ® ® production control systems, applications. drilling contractors, rental drilling and production companies and geothermal riser and aftermarket parts energy producers. and services. ® PRODUCTS CUSTOMERS Gate valves, ball valves, Provides products and Oil and gas majors, butterfly valves, Orbit valves, ® services to the gas and independent producers, rotary process valves, block & liquids pipelines, oil and foreign producers, engineering bleed valves, plug valves, gas production and ® and construction companies, ® actuators, chokes, and after- industrial process markets. pipeline operators, drilling market parts and services. contractors and major ® chemical, petrochemical and refining companies. PRODUCTS CUSTOMERS Engines, integral engine- Oil and gas majors, Provides products and compressors, reciprocating independent producers, services to the oil and gas compressors, turbochargers, gas transmission companies, production, gas transmission, control systems and after- equipment leasing companies process and power  market parts and services. and independent power generation markets. producers. PRODUCTS CUSTOMERS Integrally geared centrifugal Durable goods manufacturers, Manufactures and services ® compressors, compressor sys- basic resource, utility, air centrifugal air compression tems and controls. Complete separation and chemical equipment for manufacturing aftermarket services including process companies. Specific and process applications. spare parts, technical services, focus on textile, electronic, repairs, overhauls and com- food, container, pharmaceutical pressor upgrade engineering. and other companies that require oil-free compressed air. 2
  5. 5. Cooper Cameron Corporation has sales, manufacturing, service and distribution facilities in strategic locations around the world. 3
  6. 6. taking advantage of opportunities in the coming recovery. To the Stockholders of Cooper Cameron Downsizing necessary to respond to market At the beginning of 1999, our employ- This was a difficult year. It began with extremely low oil ment totaled approximately 9,300, down from prices, economic uncertainty in Southeast Asia and concern about a peak of nearly 10,400 in early 1998. Declining revenues, lower utilization and the global market environment. Our orders and backlog had plant consolidations triggered additional begun to decline during the last half of 1998, and the weakness in reductions during the year, and nearly 1,000 our customers’ spending and activity levels continued throughout people moved to Rolls-Royce plc as a result of the sale of our rotating compressor business. 1999. Even though crude oil prices were bolstered earlier in the By the end of 1999, through layoffs, retire- year by a combination of worldwide economic stabilization and ments, attrition and the sale, we had reduced staffing by more than twenty percent. Our agreement between OPEC and non-OPEC energy producers on employment level at year-end–approximately lower production levels, the damage to our customers was done. 7,200–was below that of the end of 1995, our first year as a public company. Most of them have been hesitant, or in some cases fiscally unable, Plant closures address capacity, cost struc- to resume the spending pace of only a couple of years ago. ture—In early 1999, we completed the clos- ing of a Cooper Cameron Valves (CCV) plant In this letter last year, we discussed the need to manage our near Houston, Texas, and moved the opera- costs effectively, so as to ensure that we would comfortably tions to facilities in Oklahoma City. Cameron’s Vienna, Austria plant was closed survive any downturn in our business. We also said we needed to be in the third quarter of 1999, and its manu- mindful of being even better prepared to take advantage facturing load was transferred to other European facilities. We have initiated the of the inevitable recovery when it arrived. We have done both. closing of Cooper Energy Services’ (CES) Grove City, Pennsylvania facility, which should be completed by the second quarter of 2000, and the castings and parts previously Financial performance provided by this facility will be purchased in a trying environment from outside suppliers or produced at other Revenues totaled $1.46 billion in 1999, locations. Certain CES facilities in Mount down about 22 percent from 1998’s $1.88 bil- Vernon, Ohio—separate from those con- lion. Earnings before interest, taxes, depreci- veyed to Rolls-Royce in the sale of the rotat- ation and amortization (EBITDA) fell by 40 ing business—are being closed and their percent, to $193 million compared with last operations will be transferred to Cooper year’s $323 million. Earnings per share, Cameron locations in Oklahoma and Texas. excluding nonrecurring items, totaled $1.00 All of the above actions reflect not only softer for the year, down 64 percent from 1998. The markets and declining orders in these busi- good news? We posted these results in a mar- nesses, but also opportunities to generate ket where many of the companies in our continuing cost savings. industry lost money or struggled to remain Sale of rotating business modestly in the black. This performance provides multiple benefits reflects the benefit of having a backlog of busi- At the end of the third quarter, we closed ness and is a tribute to our employees’ ability on the sale of the CES rotating, or centrifugal, to take decisive action to deal with tough compressor business to our long-time joint issues. We expect to be just as resourceful in 4
  7. 7. venture partner, Rolls-Royce plc, for approx- debt level. At year-end, after using approxi- imately $200 million. Our difficulties in the mately $92 million to repurchase our stock rotating market stemmed from the fact that we under the bank transactions described below, did not control the key technology of the busi- we had only $210 million of debt, with a debt- ness (the engine, which Rolls-Royce provides). to-capitalization ratio at less than 23 percent. We competed in a relatively narrow, highly Beginning in early 1998, two of our banks $1,882 $1,806 competitive market niche and had limited periodically bought Cooper Cameron com- $1,465 opportunity for aftermarket parts and service mon stock in the market under a forward $1,388 as a manufacturer solely of power turbines purchase agreement and held it for us. Under $1,144 and compressor units. We expect that Rolls- the agreement, we had the right to buy the stock Royce will be able to leverage its worldwide from them at the price they paid in the market, exposure and full ownership of these facilities plus a fee. During December 1999, we bought into improved profitability and utilization. from the banks all 3.5 million shares that had They were excellent partners, and we wish been purchased to date and added those to our them well. treasury stock. The shares were acquired at an 95 96 97 98 99 CES’ resources will now be devoted to the average price of about $28, including fees. The Revenues manufacture, sale and servicing of recipro- immediate impact is a reduction in the total ($ millions) cating engines and compressors, which are shares outstanding, and therefore an effective used primarily in natural gas markets. We are increase in the earnings per share that will be encouraged by the impact to date of the cost- reported in subsequent periods. We expect to saving steps that have already been initiated gradually reissue the shares in the future for $323 within the CES organization, the potential internal needs, such as compensation pro- $294 that exists in an improving North American grams, and we also retain the ability to repur- gas market and the opportunity to build on chase shares in the market. Our preference at $193 CES’ role as a supplier to equipment leasing this time is to keep our actual share count very $183 companies. Another benefit is the flexibility near the fifty million shares (adjusted for that the cash proceeds from the sale added to the 1997 split) that were outstanding upon our $81 our financial position. creation in 1995. Our total authorization for CES’ transformation to meaningful prof- repurchase is ten million shares, or nearly itability is by no means complete. There are twenty percent of the shares outstanding. 95 96 97 98 99 still issues related to cost structure, product Acquisitions remain a priority for us. EBITDA lines and aftermarket exposure that we will Although we made only one during 1999— ($ millions) address in the coming months. The ongoing buying out the interest of our joint venture relocation of facilities under the terms of the partner in Venezuela—our assessment process agreement with Rolls-Royce is a significant remains active. At any time, we are likely to be part of that process, but should be completed reviewing two or three candidates for addi- by the end of this year. tion to the Cooper Cameron portfolio. Our criteria remain the same as always: we prefer Financial flexibility, business businesses we already know well; private firms options enhanced We have taken great can usually be acquired without paying the During this market cycle, we have taken pains to ensure that our market premium inherent in buying public great pains to ensure that our balance sheet balance sheet remains companies; regional players usually offer the remains in solid condition. The cash infusion in solid condition. chance to develop or expand a meaningful from the rotating sale further enhances our market share position; and we like the mar- financial flexibility and expands our options gins and long-term nature of aftermarket for improving performance as the industry businesses. Our current financial position recovers. Even as orders and profits declined, will allow us the luxury of considering the cash generation capability of our busi- numerous possibilities that meet all or most nesses has enabled us to achieve a very low of these standards. 5
  8. 8. Incentives for innovation world, the actions described above have kept 17.2% 16.3% our revenue-generating capacity at least at the For years, Cooper Cameron’s businesses levels we saw in the robust markets of late 1997. 13.2% 13.2% have been among the leaders in developing We believe we have seen the trough in the new products and processes for their indus- recent cycle; now, we are anxious to see how tries. Since Cooper Cameron’s formation in 7.1% much better we can do when given the chance 1995, we have placed greater emphasis on the to again perform in a strengthening market. translation of ideas into patents. As a result, intellectual property activity has increased Management changes significantly, both in alliances with other com- A couple of changes in our management panies and through internal programs. Our 95 96 97 98 99 team deserve mention. employees can earn incentive awards for the EBITDA William C. Lemmer joined us in July as (as a Percent of Revenues) successful development of patentable concepts vice president, general counsel and secretary that contribute to revenues and profitability, 80 of Cooper Cameron Corporation, responsible or that can be licensed to the industry. The for all legal matters with respect to Cooper number of Cooper Cameron patent applica- Cameron and its subsidiaries. Bill previously tions has increased significantly since 1995-96; held similar positions with Oryx Energy filings during 1999 were more than double Company and with Sunoco, Inc. His diverse those of recent years. 31 experience in the energy business makes him 24 26 Protecting the intellectual property assets a valuable addition to our senior management inherent in many of our proprietary core tech- 14 team. Bill replaced Franklin Myers, who con- nologies and business methods is important to tinued to serve as corporate general counsel improving competitive position and product even after he was named president of our 95 96 97 98 99 margins. The SpoolTreeTM Production System Cooper Energy Services division in August Patent Applications Filed is one example of an innovative solution that 1998. Franklin’s full attention is now devoted became a Cameron patent and is now an $115 to managing the day-to-day CES operations. accepted application for subsea completions. E. Fred Minter has announced his retire- Licensing revenues from such technical ment from Cooper Turbocompressor (CTC) innovations are expected to increase in after 42 years with CTC and its predecessors. $72 coming years. $65 Under Fred’s leadership as president, CTC has Prepared for the recovery been a top performer in the industry and in $40 $37 the Cooper Cameron family. His successor, In the rising markets of 1997-98, we began Robert J. Rajeski, became president of CTC in allocating capital to upgrade manufacturing August, and Fred has served in an advisory and plants to accommodate customers’ needs for consulting role since then. His forthright quicker delivery. We followed through with 95 96 97 98 99 manner and steady hand will be missed; we are those plans, even as orders and backlog were Capital Expenditures grateful for his exemplary service and we wish declining. Over the past three years, two-thirds ($ millions) him a long and rewarding retirement. of our spending has been directed toward improving Cameron’s facilities. Newer, faster, Entering the next cycle We anticipate that this more efficient machines have lowered our costs new equipment will give Like us, our customers have taken signif- in the downturn of the business cycle. More us greater manufacturing icant steps to deal with adversity and prepare importantly, we anticipate that this new equip- capacity at lower cost for recovery. Most of them have struggled ment will give us greater manufacturing capac- through this latest down cycle in our busi- when activity recovers. ity at lower cost when activity recovers. That ness, and are at least as eager as we for times That should translate into should translate into higher profit margins, to improve. Once their cash flows have stabi- higher profit margins, better on-time delivery performance, and lized and their project economics justify rein- better on-time delivery greater customer satisfaction. vestment, increased activity and spending will performance, and greater The bottom line? While we’ve closed or drive improving returns for those of us in the customer satisfaction. consolidated several facilities around the 6
  9. 9. $1,894 $1,843 $1,497 $1,303 $1,260 95 96 97 98 99 Orders ($ millions) $790 $786 $728 $588 $513 service and equipment businesses. We’ve done again dealing with the challenges of finding our best to maintain our relationships with and adding more top performers, as opposed customers during difficult periods. I think to the difficult task of reducing the workforce 95 96 97 98 99 those relationships will be a huge part of our because a lack of activity demands it. success over the next couple of years. Let’s hope that the current environment Backlog (at year-end, $ millions) Much of that success will be driven by develops into the wealth of opportunity that the apparent growth in worldwide deepwater forecasters are touting, and that we can cap- development. Significant opportunities exist ture the opportunity—and distribute the for our subsea business to rebuild backlog as resulting financial rewards—among all of our new orders are placed for production equip- constituencies. We’ve done our best to ment on large-scale offshore projects in areas maintain our relationships like West Africa, Brazil and the Gulf of Mexico. Plaudits about the importance of people with customers during to our business bear little credibility with those difficult periods. I think Sincerely, who have been downsized, outsourced or oth- those relationships will erwise released from their jobs. But the harsh be a huge part of our reality is that energy markets are inherently success over the next cyclical, and no company can avoid the need couple of years. to constantly adjust employment—up or Sheldon R. Erikson down—as the market dictates. The people Chairman of the Board, who work for Cooper Cameron are among President and Chief Executive Officer the best in their fields; we look forward to 7
  10. 10. The Cameron SpoolTreeTM Production System is one of the most widely used subsea trees in the world and offers many time- and cost-saving advantages over conventional tree systems. 8
  11. 11. 19 S TAT I S T I C A L / O P E R AT I N G 99 HIGHLIGHTS ($ millions) 1999 1998 1997 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $811.2 $1,021.1 $874.7 EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139.3 215.0 160.5 1 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.8 82.0 47.1 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619.5 1,074.9 1,033.9 Backlog (as of year-end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367.0 592.6 515.9 Excludes nonrecurring/unusual charges. 1 Cameron is one of the world's leading providers of equipment used to control pressures and direct flows of oil and gas wells. Products include wellheads, Christmas trees, controls, chokes, blowout preventers and assembled systems, employed in a wide variety of operating environments—basic onshore fields, highly complex onshore and offshore environments, deepwater subsea applications and ultra-high temperature geothermal operations. $1,021 $1,075 $593 $1,034 $215 $516 $875 $811 $161 $139 $367 $620 97 98 99 97 98 99 97 98 99 97 98 99 Orders EBITDA Revenues Backlog ($ millions) ($ millions) ($ millions) (at year-end, $ millions) 9
  12. 12. Financial overview Drilling tinuing through 1999, a backlog of orders linked to rig upgrades and new- Cameron’s revenues declined to Cameron provides surface and build construction drove continued $811.2 million in 1999, down 21 percent subsea blowout preventer (BOP) increases in Cameron’s drilling-related from $1.0 billion in 1998. EBITDA stacks, drilling riser, drilling valves and revenues. Cameron completed 18 large (excluding nonrecurring charges) was choke and kill manifolds, as well as bore 18 3/4″ subsea BOP stacks in 1999, 35 percent below year-ago levels, falling hydraulic and multiplexed electro- an all-time high for annual shipments to $139.3 million from 1998’s $215.0 hydraulic control systems used to oper- and revenue for this product segment. million. EBITDA as a percent of rev- ate BOP stacks, to multiple customers Cameron’s focus on being a pri- enues was 17.2 percent, down from in the drilling business worldwide. mary supplier to new offshore drilling 21.1 percent. While revenues declined Cameron also provides complete after- units built during the latest cycle, begin- sequentially throughout the year, market services under the CAM- ning in 1996, resulted in the completion Cameron’s incoming orders appeared SERVE™ name and replacement parts of 35 BOP stacks and 27 control systems to bottom in the second and third for drilling equipment, including elas- (excluding upgrades) for the new fleet of quarters, and recovered modestly in the tomer products specifically designed jackups, semisubmersibles, and drill- fourth quarter of 1999. for drilling applications and manufac- ships. As a result, Cameron holds a lead- tured at Cameron’s state-of-the-art New vice president and ing market share position in the delivery Elastomer Technology facility. general manager named of BOPs and control systems and Although the drilling and explo- recently established a world record with In July 1999, Jack B. Moore joined ration market experienced reduced an installation in 9,000 feet of water. the Company as vice president and orders, consistent with the completion Revenues for the drilling business general manager, Western Hemisphere of the current new-rig building cycle will decline in 2000, reflecting comple- for Cameron. Moore previously spent during the latter part of 1998 and con- 23 years with Baker Hughes, where he held numerous marketing and manu- facturing management positions dur- Cameron Subsea BOP Stack Systems incorporate ing his tenure there. the newest technology required by the demands R&D, innovation fuel of deepwater and ultra-deepwater drilling. technology leadership Cameron engineers have tackled the tough challenges of Cameron’s reputation as a tech- deepwater by suc- nology leader in the oil and gas indus- cessfully evaluating try reflects a longstanding commitment deepwater criteria. to research and development efforts, often as a result of ideas generated while looking for new solutions to customers’ problems. Cameron’s research and develop- ment staff just completed its first full year in its new 53,000-square foot Research Center in Houston, Texas. This facility—unmatched in the indus- try—houses a state-of-the-art test lab with a wide variety of testing and sim- ulation capabilities and serves as the base for the Company’s ongoing engi- neering and design efforts. Each of Cameron’s product line groups has a dedicated R&D staff responsible for keeping pace with industry and market developments. 10
  13. 13. CSW saves customers money tion of the current building cycle, and During the past year, Cameron customers in the Asia Pacific and are expected to be well below the record Middle East (APME) region were looking for ways to reduce drilling and levels experienced in 1999. Still, there completion costs. Several of these customers were introduced to Cameron’s are four subsea BOP stacks in the year- Conductor Sharing Wellhead (CSW™) system, which allows two or more end backlog scheduled for delivery in wells to be completed within a single conductor (the large-diameter 2000, and it appears that customers may place orders for several more of these casing at the top of a wellbore). systems during the year. Cameron will This departure from the conventional standard of one well per continue its emphasis on providing the conductor offers numerous benefits. In addition to cutting the number of best value drilling systems available, and conductors by at least half, installation time is lessened, platform size (on maintaining its core competencies in this market, while taking steps to reduce offshore locations) is reduced and the customer is able to maximize the use costs in line with revenues. of existing slots. Meanwhile, drilling and completion activity on the wells The impact of several new prod- within the conductor are independent of each other, so operational flexi- ucts and product enhancements intro- bility is maintained. duced in 1999 will continue in 2000. Cameron’s Freestanding Drilling Riser, While the CSW system has been successfully installed in a number of 1999 winner of the Petroleum Engineer locations around the world, acceptance and application in the APME region International Special Meritorious was particularly impressive during 1999, with approximately 40 CSW Award for Engineering Innovation, will wellhead systems sold to a number of Cameron’s customers. be a featured product along with sev- eral other new system approaches that allow safer, more cost-effective drilling in deep and ultra-deep waters. ture, Cavensa, from the Sivensa Group well subsea development. First oil from in November. Cavensa is the largest this North Sea field is planned for the Surface supplier of surface valves to PDVSA, fourth quarter of 2000. The equipment Surface equipment represents the the Venezuelan national oil company. design is being guided by the largest component of Cameron’s rev- MOSAIC™ system, Cameron’s field- enue base, and includes wellheads, Subsea proven building block approach for Christmas trees and chokes used on land Subsea equipment includes prod- subsea equipment. or installed on offshore platforms. ucts and services associated with Another significant milestone for Cameron holds the leading market posi- underwater drilling and production Cameron is the Shell Malampaya tion in supplying this type of equipment. applications, including subsea well- Natural Gas Project, an offshore devel- While oil prices posted an impres- heads, modular Christmas trees, opment in the Philippines that will fuel sive recovery during the year, the mar- chokes, manifolds, flow bases, control three land-based power stations pro- ket for surface products remained systems, and pipeline connection sys- viding more than a third of the country’s depressed through the end of 1999. tems. The subsea market is another power requirements. Cameron’s scope Major operators curtailed drilling and area in which Cameron holds a leading of supply includes subsea wellheads, production spending, especially on oil- share of the installed base worldwide modular SpoolTrees, chokes, manifolds, related prospects, and independents and is one of the primary providers to flow bases, control systems, and pipeline were slow to reinstate their activity, the industry. connection systems. Selected compo- partly due to the financial constraints Highlights of Cameron’s business nents have already been delivered, with created by low oil and gas prices. in this market during 1999 included the balance to follow during 2000. Assuming energy prices remain at or the award and commencement of the Cameron’s production controls near recent levels, surface well comple- Texaco Captain subsea development. system,CAMTROLTM, has passed initial tions should increase markedly during Cameron’s scope of work includes the testing and will be integrated with the 2000, resulting in a recovery in pro- unitized template manifold (U.T.M) in remainder of the subsea equipment at duction equipment spending. a joint venture with Brown & Root, Cameron’s Singapore plant. Cameron’s Cameron expanded its market Christmas trees, wellheads and multi- work, consistent with the project as a presence in South America with the plex production controls for this 15- whole, is on time and on budget. acquisition of its Venezuelan joint ven- 11
  14. 14. Shell Expro Shearwater provides “large-scale” evidence of Cameron’s capabilities Cameron’s new CAMTROL production Shell Expro’s Shearwater field in the North Sea is a high-pressure, control system and increased penetration high-temperature (HP/HT) development, estimated to contain 160 million of evolving ultra-deepwater markets, barrels of condensate and 850 billion cubic feet of gas. Total development especially in West Africa. costs are expected to approach $1.4 billion, and the facilities are designed Cameron Controls to handle peak daily production rates of 82,000 barrels of condensate and Although Cameron Controls was 425 million cubic feet of gas. organized as a separate business unit Production is scheduled to begin in June. While the field life is expected only three years ago, Cameron has been to be 12 years, the production facilities will serve as the base for future in the controls business since the late 1970s. Drawing on a long history of additions to capacity and are slated to operate for the next 30 years. research and field experience, the Cameron was selected to design and build the world’s first 63/8″, 15,000 Cameron Controls organization was psi surface Christmas trees for the six initial wells at Shearwater. Cameron formed to design, manufacture and is also providing the associated wellhead and casing support systems. service drilling and production control By September 1999, all of the Cameron equipment had been success- systems worldwide. Its early growth was fueled by fully installed, with no material installation or operating problems. In orders for multiplexed (MUX) subsea addition, the overall project was ahead of schedule and under budget. drilling controls, combining Cameron’s Cameron’s performance in the design, testing and installation of these reliable hydraulics with electronic tech- critical components was recognized with three of Shell Expro’s prestigious nology to provide the rapid actuation needed for BOPs in deepwater drilling “Gold” awards. Cameron is proud to have played such a major role in the applications. Entry into the subsea continuing success of one of its major customers. production controls market with the state-of-the-art CAMTROL system was a logical extension of Cameron’s drilling controls success. Other contractors in the Asia- subsea components such as Christmas Cameron Controls’ role as a Pacific region are jointly developing trees and wellheads declined significantly world-class supplier is confirmed by its the infrastructure needed to sustain in 1999, owing to the effects of low oil current position as the leading supplier similar projects. The regional outlook prices in 1998. Both Gulf of Mexico and of MUX control systems to the drilling for subsea projects in the future is North Sea shipments declined compared market. Also, delivery has begun on encouraging, and Cameron’s local to 1998 in line with reduced expenditures Cameron Controls’ first MUX produc- capability will be a key factor in cap- by key customers in the United Kingdom tion control systems in the North Sea on turing future business. and the United States. Deliveries will the Captain project, to be followed later During 1999, Cameron’s techno- increase in 2000, however, with the recov- in 2000 by the installation of similar logical leadership in offshore applications ery in drilling and production activity and systems on the Malampaya project. was confirmed through its introduction with the completion of large subsea orders Cameron Controls’ two primary of two more leading-edge applications entered into in 1998 and 1999 such as manufacturing, assembly and testing for ultra-deep water and high-pressure Shell Malampaya and Texaco Captain. facilities,in Celle,Germany and Houston, installations. Cameron delivered the During 1999, Cameron increased Texas,saw their first full year of operation world’s first 2,500-meter depth subsea its capability to engineer system solu- in 1999. As expected, the new facilities tree for use offshore Brazil, and the tions for subsea developments, leverag- have reduced lead times, increased on- world’s first 15,000-psi working pressure ing earlier development of modular time deliveries and improved the effective subsea tree was successfully deployed in elements for subsea systems (MOSAIC). manufacturing capacity, while the loca- the Gyrfalcon field in the Gulf of Mexico. Under this initiative, common elements tions of the two facilities allow Cameron Subsea equipment typically involves of subsea systems have been pre-engi- Controls to conveniently serve and sup- a longer lead time between order place- neered to permit ready reconfiguration port markets worldwide, including West ment and order completion and equip- to meet specific field needs. Africa,the North Sea,South America and ment installation than surface equipment. Subsea initiatives in 2000 will focus the Gulf of Mexico. Accordingly, Cameron’s deliveries of key on broadening of the customer base for 12
  15. 15. Cameron Controls expects to fits have been realized in raw materials share of Cameron’s revenues to more exploit opportunities in the controls purchases, inventory reduction and than one-third. market in three primary areas during overall operating expenses, and Cameron took steps to enhance its 2000. Continued product development Longford now accounts for half of the market presence in several locations in subsea production controls, bol- Cameron Willis shipments. worldwide. In addition to buying out stered by the successful installation of Gate valve actuator product the Company’s joint venture partner in the projects described above, will rationalization and manufacturing Venezuela, consolidating Cameron’s strengthen and expand the Company’s consolidation, a process completed presence in that country, a new joint market position and product offerings. during 1999, will result in lower man- venture facility in Saudi Arabia was The drilling controls focus will be on ufacturing costs in 2000. Other oppor- announced. Construction of the Saudi maintaining Cameron’s leading mar- tunities include the marketing of facility will be completed by the end of ket position, attained as a result of pro- Surface Safety Systems that control sur- 2000 and will expand Cameron’s after- viding reliable, cost-effective systems face actuated gate valves and Christmas market capabilities in the Middle East. for the BOP market, and on enhancing trees supplied by Cameron. Efforts will continue to grow the after- that position by further improving the Cameron Willis will continue to market business through acquisitions, product selection. As a logical exten- serve the offshore markets as projects increased penetration of existing mar- sion of the above, aftermarket capabil- continue to be developed in deeper kets and identification of new markets ities will be expanded in order to water, and benefit from an ever- that can be served by Cameron’s extensive support the growing number of con- increasing aftermarket business for worldwide facilities. trols systems installations worldwide. these products. As surface and subsea Cameron’s CAMSERV initiatives The mid-1998 acquisition of Brisco production activity improves in the are designed to provide flexible, cost- Engineering’s aftermarket operations wake of higher oil and gas prices, sub- effective solutions to customer after- added to the Company’s controls serv- stantial opportunities for new orders market needs throughout the world. ice capabilities. Cameron Controls’ should develop during 2000. CAMSERV combines traditional customer support and response effort aftermarket services and products, Aftermarket will benefit from the related CAMSERV such as equipment maintenance and Although the aftermarket business efforts and Cameron’s extensive net- reconditioning, with Cameron’s infor- experienced a decline as a result of work of service facilities. mation technology toolset, including depressed oil and gas prices for much SAP™ and CAMWARE™. CAMWARE Cameron Willis of 1999, the decline was less severe than is a proprietary customer asset man- Cameron Willis’ product portfolio for new product sales. As pressures agement software which tracks equip- includes Cameron and Willis brand increased on customers to reduce costs, ment throughout its life, whether in drilling choke systems, and Cameron the CAMSERV program was initiated storage, undergoing repair or mainte- and Willis brand chokes and choke in order to provide them with cost- nance, or on a well. Several CAMSERV actuators for the surface and subsea effective solutions. alliance agreements, which utilize production markets. Cameron Willis Aftermarket revenues, which have CAMWARE to reduce cost over the was created in order to take advantage consistently produced attractive profit complete life cycle of the equipment, of opportunities for manufacturing margins (as a result of our customers’ are now in place with customers. As consolidation, technology improve- willingness to share the life cycle cost operators continue to look for ways to ment and product cost reductions. reductions achieved through the appli- reduce drilling, completion and pro- While 1999 orders for chokes and cation of CAMSERV), continued to duction costs, additional opportunities actuators were below the record levels of increase as a percent of total revenue, to forge CAMSERV alliance agreements 1998, sales from existing backlog were albeit partly because of a decline in new with customers will develop. relatively strong during the year. As a product sales. Meanwhile, Cameron’s result, Cameron Willis has clearly estab- worldwide market share increased sig- lished its position as the worldwide nificantly, particularly in the drilling market share leader in subsea chokes. business. The increased exploration The consolidation of primary choke and production activity expected in manufacturing in the Longford, Ireland 2000 should particularly affect the facility began in 1998. Significant bene- aftermarket arena, likely increasing its 13
  16. 16. Cameron® welded-body ball valves are renowned worldwide for utilization in onshore, offshore and subsea pipeline applications. 14
  17. 17. 19 STATISTICAL/OPERATING 99 HIGHLIGHTS ($ millions) 1999 1998 1997 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $231.7 $309.0 $244.9 EBITDA1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.4 60.9 47.2 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 5.6 4.3 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209.8 279.5 248.6 Backlog (as of year-end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.4 54.4 61.0 Excludes nonrecurring/unusual charges. 1 Cooper is a leading provider of valves and related systems primarily used to control pressures and direct oil and gas as they are moved from Cameron individual wellheads through flow lines, gathering lines and transmis- Valves sion systems to refineries, petrochemical plants and industrial centers (CCV) for processing. Equipment used in these environments is generally required to meet demanding API 6D and American National Standards Institute (ANSI) standards. $309 $280 $61 $61 $249 $54 $245 $232 $210 $47 $33 $32 97 98 99 97 98 99 97 98 99 97 98 99 Revenues Orders EBITDA Backlog ($ millions) ($ millions) ($ millions) (at year-end, $ millions) 15
  18. 18. Financial overview of schedule and below budget; manu- 1999, valves were supplied for projects facturing operations in Europe were in the North Sea, Philippines and the CCV’s revenues declined to $231.7 restructured to allow greater flexibility Gulf of Mexico in water depths as great million for the year, down 25 percent in responding to future shifts and cycles as 5,000 feet. Development is contin- from 1998’s $309.0 million, as markets in the market; and the Orbit Valve sales uing on a range of valves capable of for all of CCV’s valve products were offices were consolidated to reap the performing at pressures of 10,000 psi weaker. EBITDA (excluding nonrecur- benefits of integrated sales forces. and in water depths of 10,000 feet. ring charges) fell to $33.4 million, down CCV is coordinating its efforts with 45 percent from $60.9 million a year Focus on subsea product those of Cameron’s R&D staff to meet ago. EBITDA as a percent of revenues development the requirements of ultra-deep water was 14.4 percent, down from 1998’s 19.7 Maintaining its position as an projects offshore West Africa. percent. CCV’s orders remained soft industry technology leader, CCV is CCV is also contributing its expert- throughout the year, despite strength- applying its 30 years of experience in ise to a consortium of industry leaders ening energy prices during the second subsea pipeline applications to the involved in developing a hot tapping half of 1999. In response to the market development of ball valve designs and system, allowing operators to tap into weakness, CCV restructured operations accessories to meet the challenges of existing pipelines in water depths of up and reduced working capital employed deep water and high pressure. During in the business by 44 percent. Operations restructured In the face of the lingering down- turn in activity, CCV undertook signif- icant restructuring efforts at several of its facilities. The previously announced closure of the Missouri City, Texas facil- ity and the consolidation of those oper- ations into the Oklahoma City, Orbit’s® unique Oklahoma plant were completed ahead block valve technology provides valves with Web access to aid customer purchasing unmatched durability, safety and long-term performance that are In early 2000, CCV will launch ideal for use where a “Valve Advisor” on the Internet to frequent cycling and facilitate the purchase of engineered positive shutoff products over the web. Customers are required. and distributors will have ready access to product information, including detailed technical draw- ings, product availability and pric- ing. In addition to making the purchasing process easier and more efficient for current customers, this service will allow CCV to tap into markets that are not covered via existing distribution channels. Information on this new tool will be provided to users as soon as it becomes functional. 16
  19. 19. to 10,000 feet. This technology will save opportunities for aftermarket growth, the eventual—and inevitable—return of the industry millions of dollars by through additional enhancement of activity in its primary markets. Cost avoiding the need to add new pipelines current facilities or through acquisitions reduction efforts, restructuring and orga- for every offshore field development. of similar service-based companies. nizational realignment will help CCV respond more efficiently to changes in the 2000 Outlook Cost reduction and value market. Current product offerings are engineering Although a relatively slow recovery is being consolidated and rationalized, new CCV’s engineering, manufactur- anticipated across CCV’s business lines product development continues and after- ing and purchasing organizations during 2000, CCV remains prepared for market growth initiatives will continue. undertook a combined effort to imple- ment a variety of best practices and make significant cost reductions during Foster® D-Seal gate valves 1999. Value engineering, productivity feature the unique D-Seal improvements, inventory reductions, technology, which virtually period cost reductions and aggressive doubles the anticipated time sourcing were among the steps taken in between major gate and response to price competition during a seat repair. Its simple, challenging year. These actions will accessible design and in-line help CCV continue to provide com- repairability make it ideal petitive products without compromis- for a variety of applications. ing the superior technology and quality that its customers expect. Customer relationships lead to new markets CCV has developed long-term alliances with a variety of its customers, providing them with the stability and support that comes from a relationship with an industry leader. Such alliances also provide CCV with opportunities for expanding into new markets. In 1999, CCV’s alliance relationships led to placement of valves in subsea appli- cations in the Gulf of Mexico and in the Asia-Pacific region, in power plants and gas utility applications in the north- eastern U.S., in coalbed methane recov- ery efforts in the Rocky Mountain region and in significant refinery proj- ects in Mexico. Focus on aftermarket Throughout 1999, CCV made aftermarket growth a priority. Key ini- tiatives included the integration of CCV and Orbit aftermarket personnel into one organization, greater emphasis on aftermarket center operations and the conversion of the Odessa, Texas service center to a full-service aftermarket facility. CCV will continue to consider 17
  20. 20. CES’ newest engine introduction, the gas-fueled Superior® HG engine, is designed for high-end gas compression and power generation markets. 21 18
  21. 21. 19 STATISTICAL/OPERATING 99 HIGHLIGHTS ($ millions) 1999 1998 1997 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $317.1 $417.7 $527.3 EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 24.7 54.5 1 Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.9 20.7 9.2 Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378.7 380.8 464.5 Backlog (as of year-end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74.3 93.4 129.9 Excludes nonrecurring/unusual charges (credits). 1 (Note: Through September 1999, CES’ results included the rotating compressor business that was sold to Rolls-Royce.) Cooper is a leading provider of reciprocating power and compression equip- ment and customer integrated services, including aftermarket parts Energy and services, for the oil and gas production and independent power industries. Customers include major oil and gas companies, large Services independent oil and gas producers, gas transmission companies and (CES) equipment leasing companies. CES’ products include natural gas fueled combustion engines, recipro- cating compressors, turbochargers, control systems, replacement parts and services marketed under the Ajax®, Superior®, Cooper-Bessemer® (Reciprocating Products), CB Turbocharger®, Penn™, Enterprise™ and Texcentric® brand names. CES utilizes manufacturing facilities in the U.S. and sales and service offices around the world to sell and deliver its products and services. $465 $130 $527 $55 $381 $379 $418 $93 $317 $74 $25 $10 97 98 99 97 98 99 97 98 99 97 98 99 Revenues Orders Backlog EBITDA ($ millions) ($ millions) (at year-end, $ millions) ($ millions) 19 22
  22. 22. Financial overview the sale of its rotating business to Rolls- gas re-injection, transmission, storage Royce for approximately $200 million. and withdrawal and gas processing CES’ revenues were down approx- As part of the transaction, Roll-Royce applications. Additionally, CES sells imately 24 percent for 1999, due largely acquired several CES manufacturing Superior natural gas driven engines for to the Rotating business, which was and service locations, including the high-speed compression and power sold as of the end of the third quarter. Mount Vernon, Ohio facilities. generation projects. Revenues totaled $317.1 million, down Cooper Cameron decided to The reciprocating group achieved from 1998’s $417.7 million. EBITDA divest this product line because it did significant gains in the 100 to 800 (excluding nonrecurring charges/credits) not control the key technology, the horsepower market segment with reli- was 60 percent below year-ago levels at engine, and had limited aftermarket able, low operating cost Ajax integral $9.9 million, compared with $24.7 opportunities. units and the new line of CES rotary million in 1998. EBITDA as a percent screw packages introduced in 1998. In of revenues was 3.1 percent, compared Compression products addition, work was initiated to add a with 5.9 percent during 1998. enhanced proprietary 1,150 psi high-pressure Reciprocating compression sys- rotary screw system to the offering, as Rotating business sold tems include Superior high-speed sep- well as continued development and For more than twenty years, CES arable compressors, Ajax integral extension of the high-speed Superior marketed rotating (centrifugal) com- engine-compressors and Cooper reciprocating compressor line. The pression and power packages through Energy Services rotary screw com- WG compressor has been introduced Cooper Rolls, a joint venture between pressors powered by natural gas in 2000 to provide large-project com- CES and Rolls-Royce plc. CES pro- engines and electric motor drives. pression on applications up to 9,000 vided rotating compressors, power tur- These compression systems cover horsepower. bines and controls, while Rolls-Royce requirements in a wide range of horse- Superior’s established line of nat- provided the gas generators. On power needs for gas gathering, gas-lift, ural gas engines is used in both the gas September 30, Cooper Cameron closed compression and power generation markets. During the year, the high- speed Superior 2400G engines, available in six, eight, twelve or sixteen-cylinder New engine, compressor add to product offerings configurations, were enhanced with the addition of more user-friendly controls, detonation-sensing technol- In response to customer needs, CES has introduced the new, higher- ogy and low-compression power pis- horsepower, Superior HG engine. This natural gas-fueled engine is rated tons. Development of a new line of high-horsepower engines for the at 5,000 HP (550 HP higher than the nearest competition) and will serve compression markets was also initi- high-end gas compression and power generation markets worldwide. ated during the year. In addition, several distributor agreements were As a complement to the HG engine, CES has also introduced the established to extend Superior’s posi- Superior WG compressor series. These high-speed separable compressor tion in the power generation mar- ket, as well as in other mechanical units can be matched with either natural gas engine drivers (like the HG drive applications. engine) or electric motors for upstream production, mid-stream processing and gas transmission markets. The speed, power and versa- tility of the WG series provide a significant installed cost advantage over competitive equipment in the same power range. CES’ first sale of the new unit was for an electric motor-driven fuel gas boosting application, and is to be installed in the third quarter of 2000. 20