Oceaneering International, Inc. (OII)

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Oceaneering International (OII)

Q4 2010 Earnings Call

February 17, 2011 11:00 am ET


T. Collins - Chief Executive Officer, President and Director

Jack Jurkoshek - Director of Investor Relations


Michael Marino - Stephens Inc.

Daniel Burke - Johnson Rice & Company, L.L.C.

Brad Handler - Crédit Suisse AG

Joseph Gibney - Capital One Southcoast, Inc.

Michael Urban - Deutsche Bank AG



Good morning, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2010 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Jack Jurkoshek. You may begin your conference.

Jack Jurkoshek

Good morning, everybody. We'd like to thank you for joining us on our 2010 Fourth Quarter and Year End Earnings Conference Call. As usual, a webcast of this event is being made available to the StreetEvents network service 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 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.

T. Collins

Thank you, Jack. Good morning, and thanks for joining a call. It's a pleasure to be here with you today. Our 2010 earnings of over $200 million and EPS [earnings per share] of $3.65 were the highest in Oceaneering's history. These were remarkable accomplishments as most oilfield service companies are reporting 2010 results substantially below their peak earnings. For example, the EPS of the other 10 OFS companies that have reported 2010 results as of Tuesday this week were down on an average, more than 40% from their recent highs. Our performance in this environment was largely attributable to our business focus on deepwater activity and our successful efforts to control expenses. These enabled us to maintain the 16% operating income margin we attained in 2009 and 2008.

Our 2010 EBITDA of $464 million was also a record high. Our EPS guidance range for 2011 of $3.45 to $3.75, with a possibility of another record year, is unchanged from our last conference call. For our services and products, we anticipate international demand growth may more than offset lower demand in the Gulf of Mexico. Our assessment is that deepwater drilling and field development and production activity will increase, particularly in West Africa and Asia. The major uncertainties we face in 2011 are when, at what pace and what level permits for the Gulf of Mexico deepwater drilling project will rebound in light of additional environmental and safety regulations that have been implemented by the U.S. Department of Interior as a result of the Macondo well incident.

We are experiencing a slow start but still expect 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 the Gulf of Mexico permitting is significantly lower than we expect, we believe more floating rigs will be moved to other geographic areas, that our ROV systems will stay onboard and work at their new drilling locations. I'll provide the details of our current ROV status on the rigs in the Gulf of Mexico later in my opening remarks.

Our overall fourth quarter EPS result was slightly above the range we gave last quarter, on the strength of higher than forecast demand for our deepwater vessel services for IRM [Inspection, Repair and Maintenance], work and excellent execution on a lump sum umbilical installation project. EPS of $0.88 for the fourth quarter of 2010 was above that of the fourth quarter of 2009, due to an improvement in Subsea Products operating income. This was attributable to higher umbilical plant throughput, increased demand for field development hardware, ROV tooling and IWOCS services. During the quarter we also secured two large umbilical contracts with combined revenue value of approximately $95 million. Year-over-year, we experienced fourth quarter ROV and Subsea Projects operating profit declines. ROV operating income decreased as expected due to the drilling moratorium in the Gulf of Mexico. During the quarter we put 10 vehicles into service and retired two. Our fleet mix usage during December was 76% in drill support and 24% in construction and field maintenance. The situation in the Gulf of Mexico deepwater remains dynamic while we wait for the first new well drilling permit to be issued. At the end of December we had ROVs onboard 26 Gulf of Mexico floating drilling rigs, and we were receiving full-day rates for ROVs on 11 rigs. Partial rates on six rigs and zero day rate on nine. This is better than at the end of September when we were receiving full rates for ROVs on only seven rigs. Of the 11 rigs with customers paying us full-day rate, seven were working, five on completions and two on water injection wells. Three were on standby, waiting for orders, and one was in the shipyard preparing to mobilize to drill a water injection well. None of the full rate increase, from seven to 11 rigs, was due to new rigs coming into the Gulf of Mexico. It was all due to status changes on existing rigs. As of yesterday we were on partial rate on one additional rig.

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