Oceaneering International, Inc. (OII)

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Oceaneering International, Inc. (OII)

Q4 2009 Earnings Call

February 18, 2010 11:00 am ET

Executives

Jack Jurkoshek - IR

Jay Collins - President and CEO

Marvin Migura - SVP and CFO

Analysts

Neil Dingmann

Max Barrett

Chris Glaseem

Stephen Gengaro

Victor Marchon

Joe Gibney

John Donald

Andrea Sharkey

Michael Marino

Daniel Burke

Steve Helms

Eric Gordon

Philip Dodge

Presentation

Operator

Good morning my name is Christi and I will be your conference operator today. At this time, I would like to welcome everyone to 2009 Fourth Quarter Annual Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

Thank you. Mr. Jack Jurkoshek you may begin your conference.

Jack Jurkoshek

Good morning everybody. I'd like to thank you for joining us on our fourth quarter and annual 2009 Earnings Conference Call. As usual our webcast to this event is being made available through the StreetEvents Network Services by Thomson Reuters. Joining me today are Jay Collins, our President and Chief Executive Officer, who will be leading the call and Marvin Migura, our Chief Financial Officer.

Just as a reminder, remarks we make during the course of the call regarding our business strategy, plans for future operations and industry conditions are forward-looking statements being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

And I'm now going to turn the call over to Jay.

Jay Collins

Thank you, Jack. Good morning, and thanks for joining our call. It's a pleasure for me to be here with you today to talk about Oceaneering. Our 2009 earnings were the second highest in Oceaneering's history and EPS of $3.40 was only 4% below last year's record result.

This was a remarkable accomplishment and particularly gratifying during a time of global economic recession, tight credit markets and decline in oil consumption. These conditions led to a reduction in oil industry exploration and production spending and we see substantially lower demand from many oil field services and products.

However the deepwater market we serve was less vulnerable to these E&P spending cuts. Our performance in this environment was largely attributable to increased demand for ROV drill support services and the success of our efforts to control expenses which enabled us to maintain the operating income margin we realized in 2008.

We achieved record ROV operating income performance for the sixth consecutive year. Our 2009 cash flow simply defined as net income plus depreciation and amortization of $311 million was less than 1% below our record high of $314 million for 2008. Compared to 2008, our 2009 performance declined as a result of lower operating income contributions from Subsea products, Subsea projects and inspection.

Our EPS guidance range for 2010 of $3.25 to $3.55 is unchanged from our last conference call. This reflects our assessment that some deepwater construction projects will continue to be deferred until there is a meaningful recovery in hydrocarbon demand and I believe that deepwater drilling activity will keep growing in 2010 as rigs currently under construction are added to the worldwide fleet.

The major determinant of the spread in our EPS guidance range is to the extent to which deepwater construction activity may or may not pick up over the course of 2010. This will impact demand for our ROV construction support services, Subsea products and our deepwater vessel services in the Gulf of Mexico. Our overall fourth quarter EPS results exceeded the high end of the EPS range we gave last quarter and included a $1.9 million gain we realized on the sale of the ocean producer.

EPS of $0.83 for the fourth quarter of 2009 was below that of the fourth quarter of 2008 due to declines in operating profit from Subsea projects, Subsea products and inspection. Subsea projects declined on reduction in Gulf of Mexico work associated with 2008 hurricanes and a softer market for our deepwater vessel services due to a lower demand and an increase in vessel, the industry vessel availability.

Utilization of our vessels in saturation diving systems declined year-over-year and the rates we received in the fourth quarter of 2009 were lower than those in 2008. The Subsea products decline was attributable to lower umbilical plant throughput and lower demand for our specialty Subsea products.

Inspection declined due to our lower demand for our services in several areas where we operate particularly in the Gulf of Mexico. This decline was largely related to work performed in 2008 during the aftermath of hurricanes Gustav and Ike and lower off shore pipeline insulation inspection demand.

Our ROV business had an all time high quarterly operating income performance of over $55 million as we achieved a record number of 17,700 days on hire for our fleet. During the quarter we put seven vehicles into service and retired two older systems. At year end we had 248 vehicles in our fleet. Our fleet mix utilization during December was 73% in drill support and 27% in construction and field maintenance versus a 69%-33% mix a year ago.

A 2009 annual EPS decline of 4% was attributable to lower operating income from our Subsea products, Subsea projects and inspection businesses. Year-over-year our Subsea products operating income declined due to decreased demand for specialty Subsea products lower, through put for both the manufacturing plants and unanticipated cost re-incurred on two BOP control systems.

Our year-over-year Subsea products back log of $321 million was up 8% from $298 million at the end of 2008, primarily due to two large umbilical orders we secured in the second quarter. Based on preliminary data from Quest Offshore 2009 and umbilical market demand was 9% below that of 2008.

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