Oceaneering International, Inc. (OII)

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Oceaneering International, Inc. (OII)

Q3 2010 Earnings Conference Call

October 27, 2010 11 AM ET


Jack Jurkoshek - IR

Jay Collins - President and CEO

Marvin Migura - SVP and CFO


Jim Crandall

Jason Wangler

Brad Handler

Michael Marino

Tom Curran (ph)

Chris Blascene (ph)

Jeff Spittel

John Donald

Stephen Gengaro

Joe Gibney

Daniel Burke

Waqar Syed

Victor Marchon



Good morning. My name is Michelle and I will be your conference operator today. At this time I would like to welcome everyone to the Q3, 2010 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. Jurkoshek you may begin your conference.

Jack Jurkoshek

Good morning everybody. We’d like to thank you for joining us on our 2010 third quarter earnings conference call. As usual, a webcast of this event is being made available to the Street Events Network Service by Thompson Reuters.

Joining me today is 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 this call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements 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 the call. It’s a pleasure to be here with you today.

A record quarterly EPS performance of $1.09 exceeded our guidance range and a first call consensus estimate. This result is especially noteworthy in light of the low level of U.S. Gulf of Mexico deep water activity.

Given our third quarter results and an improved fourth quarter outlook, we now expect that our annual 2010 EPS performance will likely be the best in Oceaneering’s history and are raising our guidance range to $3.57 to $3.62 from the $3.20 to $3.40. All things being considered, that will be quite an accomplishment.

For the fourth quarter 2010, we are forecasting EPS of $0.80 to $0.85. Our improved fourth quarter outlook since our last earnings call is based on our current forecast of additional product through put at our umbilical plants, additional IWOCS completion and work over service activity, and additional installation inspection and repair maintenance work for our deep water vessels.

The increased demand for deep water vessel services is primarily attributable to work that was postponed while the BP Macondo project was underway.

We are initiating 2011 annual EPS guidance with a range of $3.45 to $3.75 with the possibility of another record year. Our assessment of international demand is that deep water drilling and construction activity will increase particularly West Africa and Brazil. For our services and products, we anticipate that this demand growth may more than offset lower demand in the Gulf of Mexico.

The major uncertainties we face heading into 2011 are when, at what pace and what level permit the Gulf of Mexico deep water projects will rebound. We are anticipating a slow start and a strong finish. Compared to 2010, in 2011, we are forecasting a lower profit contribution from our ROV services in the Gulf.

In the event Gulf of Mexico permitting is significantly lower than we expect, we expect more floating rigs will be mobilized to other geographic areas and that our ROV systems will stay onboard and work at their new drilling locations. I’ll talk more about our 2011 guidance later.

Now I will review our operations for the third quarter. As we had anticipated, our ROV days on hire, fleet utilization rate and operating margin declined during the quarter due to the drilling moratorium in the Gulf of Mexico.

Segment operating income declined sequentially and year over year. During the quarter, we added four systems to our fleet and retired one. At the end of September we had 252 systems available for operation, up nine from September a year ago. We continue to anticipate adding 18 new systems to our fleet this year, six in the fourth quarter.

Our fleet mix utilization during September was 73 percent in drill support and 27 percent in construction and field maintenance. The situation in the Gulf of Mexico deep water remains dynamic. At the end of September, we had ROV’s onboard 23 Gulf of Mexico floating drilling rigs, and we were receiving full day rates for ROV’s on seven rigs, partial rates on six rigs and zero day rates on ten.

As of yesterday there had been no change in our Gulf ROV drill support contract status from rigs at the end of September.

Of the seven rigs with customers paying us full day rate, two are on standby awaiting dispersement decontamination work following work at the Macondo well site. Four are working in the Gulf doing abandonment and completion and one is warm stacked.

Since our last call, drilling contractors have announced that three more Gulf of Mexico floating rigs are being re-located to other market areas; Nigeria, Egypt and Greenland. We have ROV’s onboard all of these rigs and have contracts to keep our vehicles working at the new locations.

During the third quarter we achieved record Subsea Products operating income. Operating margin remained at a very high level. Year over year, the increase in operating income was primarily attributable to higher demand for eye ways services and field development hardware and our successful efforts to lower manufacturing costs.

Sequentially, operating income improved on the strength of higher demand for IWOCS services and field development hardware. At the end of the quarter, our product backlog was $308 million compared with the $347 million at the end of June, and $328 million one year ago.

In mid-October, we secured a significant umbilical contract and anticipate our year end 2010 products backlog will be higher than at the end of 2009.

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