Oceaneering International, Inc. (OII)

OII 
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Oceaneering International (OII)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET

Executives

Marvin Migura - Chief Financial Officer and Senior Vice President

T. Collins - Chief Executive Officer, President and Director

M. McEvoy - Chief Operating Officer and Executive Vice President

Jack Jurkoshek - Director of Investor Relations

Analysts

Christopher Gleysteen

Michael Marino - Stephens Inc.

Max Barrett - Tudor, Pickering, Holt & Co. Securities, Inc.

Jonathan Donnel - Howard Weil Incorporated

Brad Handler - Crédit Suisse AG

Tom Curran - Wells Fargo Securities, LLC

James Crandell - Dahlman Rose & Company, LLC

Presentation

Operator

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2011 Earnings Conference Call. [Operator Instructions] Mr. Jack Jurkoshek, you may begin your conference call.

Jack Jurkoshek

Thank you. Good morning, everybody. We'd like to thank you for joining us on our 2011 first quarter earnings conference call. As usual, a webcast of this event is being made available through the StreetEvents Network service of Thomson Reuters. Joining me today are Jay Collins, our President and Chief Executive Officer, who will be leading the call; Kevin McEvoy, our Executive Vice President and Chief Operating Officer; and Marvin Migura, our Chief Financial Officer.

Just as a reminder, remarks we make during the course of the call regarding our earnings guidance, 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.

T. Collins

Thank you, Jack. Good morning, and thanks for joining the call. It's a pleasure to be here with you today to talk about Oceaneering.

Our first quarter EPS of $0.77 was above our guidance of $0.65 to $0.70 as we achieved slightly better-than-anticipated operating-income performance by all our Oilfield business segments, and lowered our estimated annual effective tax rate from 34.5% to 31.5%. Our reduced tax rate reflects our intent to invest in international operations, and therefore, we are no longer providing for U.S. taxes on certain of our foreign earnings. We are well-positioned to participate in the next growth stage of Deepwater activity and our outlook for 2011 remains positive. We now believe, it is highly likely that we will achieve record EPS for the year. We are raising our 2011 EPS guidance from the range of $3.45 to $3.75 to a range of $3.65 to $3.90 to account for our lower estimated annual effective tax rate, first quarter operating results and revised outlooks for Subsea Projects and Subsea Products.

We now forecast Subsea Projects to have lower operating income than previously anticipated. It appears that our previous projection of demand for our services in the Gulf of Mexico to perform installation projects and inspection, maintenance and repair work during the remaining 3 quarters of 2011 was too high. The extent to which this demand actually materializes is a major factor that will influence our 2011 results. At this time, we're not revising our outlook for ROVs as we anticipate strong international demand will offset weak non-drill support demand in the Gulf. We now project Subsea Products to perform better on the strength of higher tooling and IWOCS service sales. As a result, we anticipate Subsea Products operating income will be higher in 2011 than 2010.

The resumption of Deepwater drilling permitting in the Gulf since our last earnings call has been encouraging. 8 drilling permits were issued by the end of the quarter and 3 more have been approved since then. We are still expecting that 20 to 25 Deepwater rigs will be working in the Gulf of Mexico by the end of the year. This compares to 14 as of yesterday, 7 at the end of 2010 and 30 at the end of March 2010.

I'd now like to review our quarterly Subsea Products, ROV and Subsea Project results. Year-over-year, our Subsea Products revenue, operating income and operating margin increased on the strength of higher umbilical plant throughput and an increase on installation, workover and control system service sales. Operating income improved over 75% or $12 million. The IWOCS profit improvement was attributable to a large multi-well completion project off West Africa and an increase in plug and abandonment and workover activity in the Gulf of Mexico. Sequentially, Subsea Products revenue increased on higher umbilical plant throughput. However, operating income declined primarily on a reduction in field development hardware sales. Our Subsea Products backlog at quarter end was $382 million, essentially flat with the end of 2010 and up $44 million from the end of March 2010. Sequentially, backlog for tooling and IWOCS services increased while that of umbilicals declined. Year-over-year, the backlog increase was primarily attributable to umbilicals.

We now anticipate that our Subsea Products operating income for the year 2011 will be higher than 2010 due to improved outlook for tooling, partially due to the NCAA (sic) [NCA] acquisition and IWOCS service sales. Margin is expected to be lower due to a change in product mix.

For the first quarter, our ROV results were slightly better than we anticipated. Operating income decreased 12% year-over-year and 3% sequentially. The year-over-year decline was largely attributable to lower fleet utilization and higher depreciation expense, as we have added 21 new vehicles to our fleet over the past 12 months. The sequential decline was due to lower fleet utilization. Our fleet-utilization rate during the quarter was 71%, down from 75% in the first quarter of 2010 and 73% in the fourth quarter of 2010. The year-over-year decline was attributable to a much lower activity level in the Gulf of Mexico. The sequential decline was due to seasonality and less non-drill support demand in the Gulf. For the balance of 2011, we expect to achieve quarterly fleet utilization in the 75% to 80% range. Operating margin during the quarter was 29%, compared to 34% a year ago, 28% last quarter and 32% on average last year. We continue to anticipate our ROV operating margin for the year 2011 will be slightly lower than that of 2010.

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