Oceaneering International, Inc. (OII)

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Oceaneering International (OII)

Q3 2012 Earnings Call

October 30, 2012 11:00 am ET


Jack Jurkoshek - Director of Investor Relations

M. Kevin McEvoy - Chief Executive Officer, President and Director

Marvin J. Migura - Executive Vice President

W. Cardon Gerner - Chief Financial Officer, Chief Accounting Officer and Senior Vice President


Justin Sander - RBC Capital Markets, LLC, Research Division

Michael W. Urban - Deutsche Bank AG, Research Division

Stephen D. Gengaro - Sterne Agee & Leach Inc., Research Division

Jonathan Donnel - Howard Weil Incorporated, Research Division

Ian Macpherson - Simmons & Company International, Research Division

Darren Gacicia - Guggenheim Securities, LLC, Research Division

Brian Uhlmer - Global Hunter Securities, LLC, Research Division

Joseph D. Gibney - Capital One Southcoast, Inc., Research Division

Joe Hill - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Ole H. Slorer - Morgan Stanley, Research Division



Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to Oceaneering International's Third Quarter 2012 Earnings Conference Call. [Operator Instructions] Thank you. Jack Jurkoshek, you may begin your conference.

Jack Jurkoshek

Good morning, everybody. I'd like to thank you for joining us on our 2012 third quarter earnings call. As usual, a webcast of this event is being made available through the StreetEvents Network service by Thomson Reuters.

Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call; Marvin Migura, our Executive Vice President; and Cardon Gerner, our Senior 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 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 to Kevin.

M. Kevin McEvoy

Good morning. First, I'd like to begin by saying that our thoughts and prayers go out to everyone affected by the severe storm named Sandy. We hope all of you and your families are safe and out of harm's way.

Now turning to Oceaneering's quarterly results. We are very pleased with our performance which demonstrates the rising demand we are experiencing for our subsea services and products. Overall, our operations performed within expectations, and we remain on track to achieve record EPS for the year.

Our third quarter results were highlighted by an all-time high operating income from our ROV and Subsea Products segments. Given our performance so far this year and our fourth quarter outlook, we are narrowing our 2012 EPS guidance range to between $2.60 and $2.65, up slightly at the mid point from our previous range of $2.55 to $2.65.

We are well positioned to participate in the growth of deepwater and subsea completion activities that is currently underway, and we are initiating 2013 annual EPS guidance with a range of $3 to $3.25. This is up nearly 20% at the midpoint over our expectation for 2012.

For our services and products, we anticipate continued global demand growth to support deepwater drilling, field development and inspection, maintenance and repair activities. This market outlook is supported by industry observations and assessments that deepwater drilling is increasing, subsea equipment orders are escalating and backlog to perform offshore construction projects is at a record high level.

Specifically, in the U.S. Gulf of Mexico, we are expecting 2013 demand for our service and product lines that support deepwater drilling to surpass the level we experienced before the Macondo incident in April of 2010. We are also projecting Gulf of Mexico demand for our non-drill support service and product lines to improve, but not to the pre-Macondo level.

In our view, this level may not be reached for another few years due to the time lag between drilling and subsequent field development activity. Furthermore, we see this time lag lengthening as major and national oil companies now comprise a larger share of the exploration and development activity in the Gulf.

Compared to independent oil companies, the majors and NOCs tend to have larger projects that require more time to evaluate and plan from discovery to first production.

For 2012 and 2013, we anticipate generating at least $590 million and $670 million of EBITDA, respectively. Our balance sheet and projected cash flow provide us ample resources to invest in Oceaneering's growth, and we intend to continue to do so.

I'll talk more about our 2013 guidance later, but first, I'd like to review our oilfield operations for the third quarter.

Year-over-year and sequentially, ROV operating income increased on higher demand for both drilling and vessel-based support services. The 12% year-over-year improvement in ROV days on hire was on the strength of higher demand in the Gulf of Mexico and North Africa. Sequentially, the 4% increase in days on hire was spread throughout most of the geographic areas in which we operate.

Our fleet utilization rate and operating income margin during the quarter were 81% and 30%, respectively, about the same as a year ago. We continue to expect that our fleet utilization for the full year will be 80% or more compared to 77% in 2011. And that operating margin will approximate the 30% we achieved in 2011.

During the quarter, we put 10 new ROVs into service and retired 5. At the end of September, we had 285 systems in our fleet, up from 262 a year ago. 6 of the new ROVs went into drill support service and 4 went to work on board vessels. Our fleet mix during the quarter was 73% in drill support and 27% on vessel-based work compared to a 75%/25% mix both in the third quarter of 2011 and last quarter.

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