Oceaneering International, Inc. (OII)

OII 
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Industry: Energy
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Oceaneering International (OII)

Q2 2011 Earnings Call

July 28, 2011 11:00 am ET

Executives

Marvin Migura - Chief Financial Officer and Executive Vice President

M. McEvoy - Chief Executive Officer, President and Director

Jack Jurkoshek - Director of Investor Relations

Analysts

Victor Marchon - RBC Capital Markets, LLC

Edward Muztafago - Societe Generale Cross Asset Research

Jonathan Donnel - Howard Weil Incorporated

Brad Handler - Crédit Suisse AG

Tom Curran - Wells Fargo Securities, LLC

James Crandell - Dahlman Rose & Company, LLC

Andrea Sharkey - Gabelli & Company, Inc.

John Lawrence - Tudor, Pickering, Holt & Co. Securities, Inc.

Michael Urban - Deutsche Bank AG

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 second quarter 2011 earnings conference call. [Operator Instructions] Mr. Jack Jurkoshek, you may begin your conference call.

Jack Jurkoshek

Thank you, Mike. Good morning, everybody. We'd like to thank you for joining us on our 2011 second quarter earnings call.

As usual, a webcast of the event is being made available through the StreetEvents network service of Thomson Reuters. Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call; and Marvin Migura, our Executive Vice President and 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 the 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 Kevin.

M. McEvoy

Good morning, everyone. It's a pleasure to be here with you today and to lead my first Oceaneering earnings conference call. Our second quarter EPS of $0.52 was above our guidance range of $0.45 to $0.50 and the street consensus estimate of $0.48. As expected, we achieved higher sequential quarterly operating results from our ROV, Subsea Products and Inspection businesses. Each of these operations achieved record quarterly operating income. We are well positioned to participate in the next growth stage of the quarter activity, and our outlook for 2011 remains positive. We now believe we will achieve record EPS for the year and are raising our 2011 EPS guidance range to $1.90 to $1.98 from our previous guidance of $1.83 to $1.95.

Relative to the first half, we anticipate our ROV, Subsea Projects, Inspection and Advanced Technologies business operations will achieve higher operating income results during the second half of 2011. Compared to 2010, for 2011, we forecast increased operating income from ROV, Subsea Products and Inspection. For 2011, we anticipate generating in excess of $450 million of EBITDA. Our liquidity and projected cash flow provide us ample resources to invest in Oceaneering's growth. Our CapEx estimate for this year is $250 million to $275 million, of which approximately $100 million is anticipated to be spent on upgrading and adding vehicles to our ROV fleet. About $55 million is for Subsea Projects, which includes the completion of the Ocean Patriot renovation and adding a third SAT system. $56 million is for the acquisition of NCA, which we completed at the end of the first quarter.

I'd now like to review our quarterly oilfield segment results starting with ROVs. We achieved record quarterly ROV operating income during the second quarter because our days on hire surpassed 18,000, an all-time high. Year-over-year, operating income increased on an increase in days on hire as we added 13 new vehicles to our fleet in the past 12 months. Establishing a new quarterly operating income record for ROVs is particularly gratifying as demand in the U.S. Gulf of Mexico was constrained by government regulations. In addition, last year's results included $3.5 million related to an insurance gain for a lost system.

Sequentially, operating income improved 23% or $10.7 million on the strength of improved worldwide demand for vessel-based construction and field maintenance services. This was led by activity increases in Norway and the Gulf of Mexico.

Our fleet utilization rate during the quarter was 76%, down from 78% in the second quarter of 2010 and up from 71% in the first quarter of 2011. The year-over-year decline was attributable to lower activity level in the Gulf of Mexico. The sequential improvement was largely due to seasonality and an improvement in permitting by the BOEMRE in the Gulf. For the balance of 2011, we expect to achieve quarterly fleet utilization in the 78% to 80% range.

During the quarter, we put 4 new ROVs into service, retired 1 and transferred 1 to Advanced Technologies for non-oilfield use. At the end of June, we had 262 systems available for operation, up from 249 a year ago. Three of the new ROVs went to work in drill support service.

Our fleet mix during June was 73% in drill support and 27% in construction and field maintenance. This compares to a 72-28 split a year ago and a 78-22 split in March of 2011.

At the time of our last earnings call, in the U.S. Gulf of Mexico, we were receiving full rates for 20 ROVs on 17 rigs, partial rates for 5 ROVs and 0 rate for 2 ROVs. As of yesterday, we were on full rate for 26 ROVs on 23 rigs, partial rates for 1 ROV and 0 rate for 1 ROV. There are presently 29 floating rigs available for use in the U.S. Gulf of Mexico, and we have ROVs on 25 of them.

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