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Oceaneering International, Inc. (OII)

Q4 2008 Earnings Call Transcript

February 19, 2009 11:00 am ET

Executives

Jack Jurkoshek – Director, IR

Jay Collins – President & CEO

Marvin Migura – SVP & CFO

Bob Mingoia – VP & Treasurer

Analysts

Jim Crandell – Barclays

Kevin Pollard – J.P. Morgan

Chris Lasine [ph] – Simmons & Co.

Joe Gibney – Capital One

Victor Marchon – RBC Capital

Joe Agular – Johnson Rice

Operator

Good morning, my name is Abigail and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. (Operator instructions) Thank you.

Mr. Jurkoshek, you may begin your conference.

Jack Jurkoshek

Thank you. Good morning everybody. We would like to thank you for joining in on our fourth quarter call. As usual, a webcast to this event is being made available through the StreetEvents Network Service by Thomson Reuters.

Joining me this morning is Jay Collins, our President and Chief Executive Officer, who will lead the call; Marvin Migura, our Chief Financial Officer; and Bob Mingoia, our Treasurer.

Just as a reminder, before we start, remarks we make during the course of the call regarding our 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 turn the call over to Jay.

Jay Collins

Good morning and thanks for joining the call. It is a pleasure to be here with you today. We achieved record earnings for the fifth consecutive year in 2008, up more than 10% over last year’s results. This was attributable to best ever performances by our ROV, Subsea Products, and Inspection business segments.

Compared to 2007, ROV operating income growth was accomplished by expanding our fleet, and increasing average revenue per day on hire for our services. Subsea Products profits grew on the strength of increased ROV tooling sales and higher throughput at our umbilical plants. Inspection results rose as we secured additional work associated with offshore production platforms, LNG, and petrochemical facilities and pipelines of higher margins. We succeeded in improving inspection profits in each of the major geographic markets we serve. As of the impairment charge we recorded on our investment in the Ocean Pensador, we finished the year stronger than we had anticipated at the time of our last call, largely due to better fourth quarter performance by our Subsea Projects business.

As you are aware, we are facing a deteriorating macroeconomic environment that threatens a prolonged worldwide recession, oil prices not seen since 2004, and an exceptionally tight credit market. These conditions are having a negative impact on oil and gas exploration and development spending plans, and consequently, our earnings prospects for 2009. Our current EPS guidance range for 2009 is $3 to $3.60. This reflects our assessment of first, reduced market demand for many of our services and products, with the notable exception of requirements for our ROVs, pricing pressure that we expect to face during the year, and for our inspection business, an unfavorable currency impact of the stronger US dollar relative to the British pound.

Despite these headwinds, Oceaneering is positioned to prosper in 2009. Although not immune to the slowdown of industry activity, we believe the deepwater markets we serve will be among the least vulnerable to our customers’ exploration and development spending cuts. Our belief is based on the inherent size and long-term nature of deepwater projects and our expectation that oil prices will inevitably rebound to a level that will make these projects more economical. While the work on most authorized deepwater projects is likely to continue, the urgency to start new projects is in question.

Our fourth quarter EPS of $0.93 was 15% better than the fourth quarter of 2007 due to an increase in profit contributions from ROVs. Our ROV business had an all-time high quarterly operating income performance of nearly $53 million. We achieved a record number of 16,900 days on hire for our fleet and a record operating income per day on hire of over $3100.

Compared to 2007, operating income increased more than 30%. During the quarter, we put five vehicles into service and retired one older system. At year end, we had 227 vehicles in our fleet. Our fleet mix usage during December was 59% in drill support and 31% in construction and field maintenance versus a 66-34 mix a year ago.

Our Subsea Projects business had a stronger fourth quarter performance than we had anticipated for three reasons. First, we did more Hurricane Ike-related work than expected and achieved a higher use for a third-party short-term chartered vessel. Second, we achieved higher utilization for one of our saturation diving systems on a pipeline installation. And third, we received more diving work orders related to the use of the performer offshore Angola.

Looking back over the entire year, our 2008 annual earnings growth was attributable to achieving profit records from our ROV, Subsea Products and Inspection businesses. Our ROV operating income rose by 32% or $46 million over 2007 results to an all-time high of $190 million. Average ROV revenue per day on hire improved in 2008 to over $9600, 14% more than 2007. We also increased our ROV days on hire to over 65,000 days as we expanded our fleet. Operating income margin was a record high of 30%. During the year, we grew our fleet size to 227 vehicles, up from 210 at the beginning of the year. We added 21 new vehicles and disposed of four older systems as it is our strategy to operate a modern work-class ROV fleet. About half of the new vehicles initially went to work in drill support service and the others were used for construction or maintenance on the growing number of deepwater fields under development or production. In 2008, seven new floating drilling rigs were placed in service and we had ROVs on all of them, with two on one rig for a total of eight vehicles. At year end, we estimate that we continue to be the largest ROV owner with 35% of the industry’s work class vehicles, over twice the size of the next largest ROV fleet. We remain the primary provider of ROV drill support service with an estimated market share approaching 60%, three times that of the second-largest supplier. By our count, we also continue to be the largest global provider of construction and field maintenance ROV services.

During 2008, our Subsea Products achieved a record operating income on higher ROV tooling sales and increased throughput at our umbilical manufacturing plants. Our year end Subsea Products backlog of $298 million declined 12% from $338 million at the end of 2007, as our OIE backlog growth was offset by a decline in multiflex backlog. Based on preliminary data from Quest Offshore, 2008 market demand for umbilicals was about 1100 kilometers or 685 miles. While our 2008 award market share was 30%, up from 21% in 2007, total industry demand for umbilicals dropped about 10% compared to 2007.

We achieved a record Inspection operating income by improving profits in all the major geographic markets we serve. Operating income increased over 35% on a 13% increase in revenue as we improved margins due to our success in selling more value-added services and realized higher profits in each of the major geographic markets we serve.

I'm now going to turn the call over to Marvin to discuss our annual unallocated expenses, cash flow, CapEx, and year-end balance sheet.

Marvin Migura

Good morning, everyone. Thank you, Jay.

Unallocated expenses were basically flat with 2007, as an increase in information technology related costs to support the company's growth was offset by lower incentive compensation plan expenses and corporate overhead.

Moving on to cash flow, we add depreciation and the impairment charge back to our net income. We generated a record $314 million in cash flow for the year, $40 million or 15% more than we did in 2007. If you add depreciation and the impairment charge back to our operating income, you have $433 million, which is up 13% over 2007 results. Any way you want to measure our 2008 record cash generation, you will find a meaningful increase over last year's results.

During 2008, we continued to find organic growth and acquisition opportunities. Our capital expenditures totaled $252 million and included ROV fleet growth and upgrades, the acquisition of GTO Subsea AS, a Norwegian rental provider of specialized subsea dredging and excavation equipment, and expansion of our subsea products manufacturing capabilities. Nearly 90% of our CapEx was spent on our ROV and Subsea Products businesses. These investments demonstrate our focus on providing services and products to support deepwater and subsea completion activities and position Oceaneering for increased earnings in the years ahead.

Our balance sheet remains in excellent condition. At year-end, we had total debt of $229 million and equity of $968 million. Our debt-to-cap percentage was 19%.

Now I'm turning the call back over to Jay. Thank you.

Jay Collins

Thank you, Marvin. In summary, we believe our record annual 2008 earnings performance and cash generation were significant. We achieved increased profit contributions from three of our oil fields business operations and set records in each of them. Our focus on providing service and products for deepwater and subsea completions positions us to participate in a major sector of growth trend in oil fields service and products industry.

As I stated earlier, for 2009, we are forecasting EPS in the range of $3 to $3.60 on an estimated average of 55.2 million shares outstanding. Compared to 2008, our forecast assumptions are that we will achieve profit growth from our ROV business with similar profit contribution from Subsea Products and declines in operating income from our Subsea Projects, Inspection and MOPs operations. Further delays in offshore development projects would of course dampen our expectation for Subsea Products profit in 2009. We anticipate flat to down margin percentages from all of our business segments. Our ROV business earned 47% of our total operating income in 2008 and we expect it contribute even a larger percentage in 2009.

The annual 2009 versus 2008 budget segment changes we envision are as follows. ROV operating income will grow primarily due to increased drill support activity on new floating rigs as they are put into service. We expect to add between 24 and 30 vehicles to our fleet in 2009. These are anticipated to be added fairly evenly during the year, placed on their projected timing of new rig deliveries. We have already secured contract commitments for 22 of our anticipated 2009 ROV additions. This reflects the growing market demand for ROV services and our status as the premier supplier. We currently expect to put 18 of our 2009 vehicles additions into drill support service. We do have some exposure to some ROV downtime on existing rigs having contract expirations during the year, the possibility of lower demand for construction work and pricing pressure from our customers and competitors.

For Subsea Products, operating income could be about the same as efficiency gains we plan to achieve in our manufacturing processes may be offset by a decline in demand for some of our product lines. Further development project delays would impact our profit outlook for both OIE and multiflex. Given the uncertainty of when our umbilical order flow rate will increase, we have implemented steps to reduce costs and improve our manufacturing efficiencies. This is included reductions in workforce at our UK and Panama City umbilical plants. This rightsizing is not expected to diminish our ability to respond to our customers needs in 2009. It has been apparent for some time that industry subsea umbilical manufacturing capacity exceeds current market demand. We believe a more efficient manufacturing operation will make us more competitive and serve us well on the intermediate and long term.

Subsea Projects operating income is expected to be lower. We foresee a continuation of declining demand for our shallow water services and reduced demand for our deepwater boats due to an increase in industry vessel availability.

We expect Inspection operating income to decline due to the unfavorable currency impact of the stronger US dollar relative to the British pound and lower demand for our services.

Our MOPs segment income is expected to decrease as there is a highly likely here that Ocean Producer will be idle for an extended period of time after it completes its seven-year contract off the coast of Angola early in the year.

In addition to these segment outlooks, we are planning to have modest growth in our SG&A expenses. Depreciation and amortization expense, excluding the impairment charge, is expected to be about $20 million higher and we anticipate our tax rate to be about 35%.

During 2009, we anticipate generating $290 million to $325 million of cash flow, simply defined as net income plus depreciation. This projected cash flow and our existing revolving debt availability of $196 million at the end of 2008 should give us approximately $500 million of cash resources available to fund our estimated $175 million of capital expenditures and repay our $105 million of debt obligation scheduled to mature during the year. The majority of our planned capital projects are to support growth of our ROV fleet to meet firm demand.

I believe we are well prepared for the challenges we face in 2009. We are focused on cash flow generation, cost control, and have already taken actions to right size our workforce where needed. We are intensifying efforts to improve business processes and the effectiveness of how we work. Market conditions may change, but our commitment to deliver results to our shareholders remains the same. We have a seasoned management team in place that has experienced serious oil field service down cycles before and we are confident in our ability to quickly adjust our business plan and take advantage of the opportunities that may be dictated by the market.

Looking forward, we see specific signs of a healthy deepwater and subsea market that will drive demand and growth on a concurrent or delayed basis for our services and products. At the end of December, over 95% of existing 211 floating rigs in the world were under contract. Over 80% of these are contracted through 2009 and nearly 60% are contracted through 2010. 98 additional floating rigs were on order and scheduled to be delivered through 2012 and 70 of these have been contracted for long-term for an average period of over six years. ROV contracts have been laid on 23 of the 98 rigs on order and we have won 18 of them to provide 21 ROVs.

In 2009, according to ODS Petrodata, 31 new rigs are scheduled for delivery. We currently estimate that 21 of these rigs actually will be placed in service during the year. We have the ROV contracts on 14 of these rigs to provide 17 vehicles. A competitor has the ROV contracts on two of these rigs. We are pursuing the remaining five 2009 ROV contracts yet to be awarded. Four of these rigs are going to work for Petrobras, three in Brazil and one in West Africa; and the remaining rig is going to work for Reliance in India.

Given the recent deterioration of the global credit markets, the decline in the price of oil, and the threat of a global recession, it is quite possible that some of these new rigs currently on order may not be built. In fact, construction has not started on 33 of the 98 rigs on order as of the end of December. Assuming that 20 of these rigs will either be delayed beyond 2012 or cancelled, we are still talking about 78 rigs to be added to the current floating rig fleet of 211, a growth of over 35%. And growth of 180% in the high-spec fleet, which currently totals 43 rigs. This is the ROV service market we dominate and we believe are in the pole position to seize this growth opportunity. Moreover, the delays or cancellations being envisioned should not affect 2009 or our projected ROV drill support growth this year. In addition to the current rigs being built, an international ship broker reports that about 210 subsea support vessels are under construction with an anticipated delivery date by the end of 2011. Of these, we estimate that a minimum of 145 will likely require at least one ROV.

Quest’s latest forecast for Subsea trees is for an annual demand increase of over 40% in 2009 versus 2008 and a five-year demand increase of more than 80% in the 2009 to 2013 period compared to the previous five years. Preorders are the primary demand driver for our Subsea Product line offerings. Umbilical demand is forecast to increase 18% in 2009 and 65% in the five-year period.

While our ROV business represents our single largest near-term growth opportunity, we lack opposition in subsea products as well as our other business segments. With our existing assets, we are well positioned to supply a wide range of the services and products required to support the deepwater exploration, development and production efforts of our customers. We believe Oceaneering's business prospects longer term remain promising. We have the financial resources to continue our growth and intend to do so, albeit on a tempered basis until we have better clarity as to how 2009 unfolds.

Our first quarter 2009 EPS guidance range is $0.60 to $0.70. This is consistent with our historical quarterly earnings percentage distribution and the fact that our first quarter earnings are usually lower than the fourth quarter of the previous year. Our Q1 2009 guidance is down from the first quarter of last year, as we expect declines in operating income from Inspection, Subsea Products and MOPs operations. These declines are forecast to more than offset the higher profit contribution from our ROV and Subsea Project segments.

In summary, our record results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well over both the short and long term. We like our competitive position in the 2009 oil field service market. Our technology gives us the ability to prosper in what we believe will be a challenging year. We are leveraged to what we believe will be an inevitable resumption in the growth of the deepwater and subsea completion activities. The longer-term market outlook for our deepwater and subsea service and product offerings remains promising. We continue to believe are in one of the sweet spots of this secular up cycle. 2008 was our best year ever. We are well-positioned to have another year of substantial earnings performance in 2009.

We appreciate your interest in Oceaneering and will be happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) your first question comes from Jim Crandell with Barclays. Your line is open.

Jim Crandell – Barclays

Hey, thank you. Good morning. Jay, I sense you have altered your views on the market, not just over the last quarter, but over the last month. Have you become more cautious on the earnings outlook for all five of your business segments over the past month, and I guess how would you characterize your thinking on how your view has changed toward the likely profit outlook for your businesses recently?

Jay Collins

I don't know necessarily over the last month, Jim but it does seem like almost in the last every month the oil prices continue to slide lower that the outlook gets a little bit worse. We are now seeing I guess a few mid water floater or two that doesn't have a job, which we didn't see a month or so ago. So I wouldn't say it is drastically different, but it just seems to me that there hasn't been really any good news in the last 90 days and it just continues to slide a little bit south all the time, although not drastically different than what we have been thinking.

Marvin Migura

I think yes we are a little bit more cautious because, as Jay said, we really haven't seen any good news, Jim, it just seems like it has all been – and we do read what the analysts write and it seems to be very cautionary. So I think it is prudent.

Jay Collins

It is amazing that three or four months ago, we thought our outlook was a reasonable basis to make a forecast and clearly that has changed dramatically since then.

Jim Crandell – Barclays

Reading what the analysts write, that is why you are probably confused on the –.

Jay Collins

Let me share with you a story, Jim, when we asked one of our operating guys what scares him the most, his answer has been talking to you guys because we don't see it in the operating markets that are existing today what you are wondering and worrying about. So–

Marvin Migura

You guys are scaring us too.

Jay Collins

Yes, but we are a little about more cautious.

Jim Crandell – Barclays

Okay, I just had a couple of specific questions. On the ROV side, it appears you are seeing more of tools and service and the implication is lower utilization and lower average pricing, at least in the quarter. Is there any sort of reading into this, and I asked the question because you did allude to possible pricing pressure in the ROV market, Jay.

Jay Collins

I think that pricing difference really relates to currency issues. You know, we have a big operation in Norway and a smaller operation in (inaudible) and that currency change has resulted in lower prices in those sectors. We – it is not the result of any lowering prices in 2008.

Marvin Migura

And I think there has been a slight change in mix to where we have had more increased drilling days in the fourth quarter as relative to – I mean, our mix right now is 69-31. We had slightly more construction work and that always reduces the day rate. I mean, as you noted also, the operating income margin was unusually high because of good cost control as they indicated.

Jim Crandell – Barclays

Okay, but on a go-forward basis would you expect pressure on ROV rates from rigs sitting idle in a more competitive situation?

Jay Collins

Well, one of the things on the rigs going idle that the rigs – with regard to pricing in general, we do have customers asking for discounts, we do have – we are asking for increases in many cases, the personnel prices have gone up and some of these new rigs, new equipment is going out and in some cases higher prices than older equipment were. So it is a complete mix. We are in discussions with clients about their requests for rate reductions and in some cases, we are asking for rate increases. So there is full discussions going on, but we really don't foresee oversupplied ROV market in the near future.

Jim Crandell – Barclays

My last question, Jay, and then I will – ask these questions together about the subsea products and if you could address them. There is – could you discuss whether you think there is any change in the way the umbilical business is done. To what extent are you seeing the bundling of umbilicals with trees, what this means for Oceaneering, and can you also comment on whether you think you have your share of the market in 2008 and what the magnitude of the price competition is to win some of the umbilical jobs that are out there.

Jay Collins

Yes, Jim. With regard to bundling, I don't think that has changed. We always are up against some competitors that do bundle and so I think that has not changed, that is part of the market that we face all the time.

With regard to market share, the Quest information shows that we increased our market share from 20%, these are awards made during the year from 20% in 2007 to 31% in 2008. So I think we did gain some on that basis.

And with regard to pricing pressure, there certainly is some, the umbilical market is very competitive right now and so you are quite accurate. That is true.

Jim Crandell – Barclays

And can you give us some sense, Jay, is the magnitude of the pricing pressure on some of the bigger jobs in terms of a range in percentages on what you’re having to discount to win the job?

Jay Collins

No, I really would rather not comment on that, Jim. Sorry.

Jim Crandell – Barclays

Okay, thank you very much.

Operator

Your next question comes from Kevin Pollard with J.P. Morgan. Your line is open.

Kevin Pollard – J.P. Morgan

Thanks, good morning. I wanted to ask you a little bit more about the product side of the business. Your guidance is for flat operating income, but it sounds like you are kind of expecting the revenue to actually decline and the cost cutting to offset that. Is that a fair interpretation of your comments?

Jay Collins

Well, that is true. We are saying we are trying to achieve flat results. Clearly if revenue goes down, then margins need to come up a little bit. If we can keep revenue up, then we can make it with flat margins. So some combination of revenue and margins what our expectation is for flat results. So we are doing a lot of things to reduce costs and increase efficiency, which should lead to higher margins, which should protect us against some revenue declines, but we are working both sides of it. But somewhere in there, I guess our expectation is for at least flat results.

Kevin Pollard – J.P. Morgan

Your guidance range is pretty wide, which I think is understandable given the current environment. Would you say that the big swing factor in that wide range in your guidance comes from the most part from that product side of the business and how that unfolds as the year progresses?

Jay Collins

I think that certainly is an area that has the most swing possibility. And I guess also our Gulf of Mexico project business certainly has the possibility of wider swings as well. Marvin would know what pricing might turn out to be in that industry.

Marvin Migura

Given the lack of visibility, Kevin, into the second half, I think – I just want to underscore exactly what Jay said. Because of the size of products, we had that sentence in there that further delays would dampen our expectation and that causes us to be prudent and give a lighter range. And I think the other is exactly as Jay said, Gulf of Mexico project work in the second half.

Kevin Pollard – J.P. Morgan

And last question, have you been – I know you have been cutting your costs very aggressively on the umbilical side of the business and products, have you been doing it on the OIE side either?

Jay Collins

Only minor adjustments as each one of those business segments is different, but in some cases we have not good backlogs and we're trying to make sure that each business just (inaudible) to the business that we actually do have. So we have not seen the need for significant changes in that, although we have done some smaller changes.

Kevin Pollard – J.P. Morgan

And Marvin, just give me that CapEx figure for 2009 again. I'm sorry I missed that.

Marvin Migura

$175 million.

Kevin Pollard – J.P. Morgan

Thanks a lot, guys.

Operator

Your next question comes from Chris Lasine [ph] with Simmons & Co. Your line is open.

Chris Lasine – Simmons & Co.

Thanks, good morning, guys. First question is, where do we stand today in terms of Gulf of Mexico Hurricane repair work, in terms of how much is left do you think and how much opportunity is still there today for the first six months of this year?

Jay Collins

I would say we are involved in some of that repair work in the first quarter, but then we see it trailing off throughout the rest of the year. But then some of it is longer term. It will take in through the summer and so forth to work on some of that work. So I would say, first quarter trailing off into the second quarter, we should get the most of it done. There is still (inaudible) of work to be done from previous hurricanes in prior years though. Some of these things are short term but there are some longer-term projects.

Chris Lasine – Simmons & Co.

Okay, and then switching to ROVs. Do you anticipate, given with what AMP companies are doing budget wise, do you anticipate a greater shift towards drilling from here or maintenance and construction at this point?

Jay Collins

You know, it looks like our growth is now more predicted to be on the drilling side as we see these new rigs coming out and so far I don't see the number of bulk jobs increasing quite in proportion to the number of rigs for 2009 and early 2010. On the other hand, the vessels are all harder to predict and that tends to be shorter term as well. So sometimes vessel jobs show up without much warning, whereas rig job you can see two or three years in advance. But I would say, as you saw this quarter, the mix moved toward drilling and I would expect that to probably go a little bit further over the next couple of quarters.

Marvin Migura

And I think as Jay said, Chris, in the opening remarks that we secured 22 contract commitments for our 2009 anticipated ROV additions and those are expected to be in drill support service. So they are actually where we see it right now, but as Jay said, vessels are a little harder to forecast.

Chris Lasine – Simmons & Co.

Okay, that is helpful. One final, if I may. Have you begun to think about 2010 in your preparations for unit additions on the ROV side?

Jay Collins

Sure. We are looking out at least two years on the ROV build program and we are trying to win those jobs and plan for those – that utilization trying to look to what is going to roll off of other jobs, but – so we are doing that essentially on a monthly basis looking two years ahead. We are quite involved in that.

Chris Lasine – Simmons & Co.

Okay, thank you very much.

Operator

Your next question comes from Joe Gibney with Capital One. Your line is open.

Joe Gibney – Capital One

Thanks, good morning everybody. Just wanted to circle on a little bit on the products side, I was curious would you give us an update on where we stand in some of the BOP control systems and what development costs run through there at those systems, and shift to kind of what the status is there?

Jay Collins

You know, our first two systems are on rigs, the rigs haven't quite got to work yet. So that is the status on the first two jobs. We are working on two other jobs that will both be delivered this year. I think we're pretty much through the – we are through with the development costs that really hurt us last year and moving towards a product that is designed and we are looking for other jobs that we can sell. Now we have developed what we think is a really great product. It cost us more money to develop, took us longer, but we think it is a great product and we are on the market trying to sell it right now.

Joe Gibney – Capital One

Okay, and just a little clarity on the first quarter guidance, on the MOP side and in particular, when does the Producer roll off or has it rolled off, I think you had previously characterized this as roughly $10 million year over year change in MOPs on the operating income side and with this Producer rolling in, is that still a fairly accurate way to look at it?

Jay Collins

Yes, that is correct. We are confident that will work through March, which is not very long from now of course, but could continue to work a few more months after that. Once it just finishes that job, there will be some fail on that for (inaudible) and field clean up, but then it will be stacked I believe and while we are looking for some other jobs, I wouldn’t think that it would work in 2009, it would be 2010 before it can go back to work, if we find another job for it.

Joe Gibney – Capital One

Okay, that is helpful. And Marvin this one is for you just relative to some of the debt maturities this year, how should we be thinking about those roughly $105 million that you got scheduled to mature this year in terms of the timing of the payback more front half weighted or tail half expectation there?

Marvin Migura

It is all due, Joe, in September. We have the ability to prepay the $85 million under the 364 day facility and it is got a little higher for interest rate associated with it, a little higher spread over LIBOR, it is LIBOR based, short term, so it is pretty low interest rates right now. But that is what we will be doing with our cash and sure enough our balance sheet, reducing our leverage and waiting to see how the year unfolds. But the maturities come in September in the third quarter, and as Jay said right now, we have got $105 million coming up in maturities, we have got $196 million available, and we should have $300 million of cash. So if you take the $500 million, if you add the $196 million plus the $300 million, and you subtract from it $175 million CapEx and $105 million from debt maturities, you see that we just do not have a liquidity issue.

Jay Collins

That revolver is due in 2012, and there is a good likelihood that the banks will be willing to extend the 364 day facility but we really just don't see the need for it right now.

Joe Gibney – Capital One

Appreciate it, guys. I will turn it back.

Operator

Your next question comes from Victor Marchon with RBC Capital. Your line is open.

Victor Marchon – RBC Capital

Thank you. Good morning. First question I had, I apologize as I missed this. You guys had said how many of your 2009 ROV adds already have contracts. What was that number?

Jay Collins

We said 22 have commitments and we expect to add some more between 24 and 30 during the year and of the 22, 18 are going on drilling rigs, in drill support.

Victor Marchon – RBC Capital

Thank you for that. Secondly, I was just on projects. I just wanted to see – because you guys can talk potentially additional international opportunities, known that you have the performer in West Africa and your comments regarding the market this year in the Gulf of Mexico. I wanted to see if there are opportunities to move additional assets out of the Gulf if there were any opportunities.

Jay Collins

I would say at the moment we're planning to keep the fleet we have in the Gulf for the rest of the year. We do look around for other opportunities, but I am not anticipating that we will move any of our equipment out of the Gulf this year and while we say we think there is more competition and it will become more competitive in the Gulf, we think we will achieve you reasonable utilization this year and have another good year, although not as good as last year. So – we like the Gulf of Mexico market for our services.

Victor Marchon – RBC Capital

And the last one, just Marvin on the CapEx question, how much of that is maintenance versus growth, do you guys put that out?

Marvin Migura

Yes, we do. Notionally we expect to spend, in the $175 million, we would expect to spend $30 million of maintenance CapEx. And that really depends. I mean maintenance CapEx really depends a lot upon the market and the utilization of our assets. So in a good market, we will spend $30 million or so and in a tighter market, we will be able to reduce that amount, because if you got equipment that is being stacked, you don't spend a lot of money maintaining it unless you have an opportunity to put it back to work.

Victor Marchon – RBC Capital

Great. That's all I had. Thank you, guys.

Operator

The next question comes from Joe Agular with Johnson Rice. Your line is open.

Joe Agular – Johnson Rice

Thank you, good morning. I want to ask you a question on your guidance for 2009 of $3 to $3.60 and specifically, the comment that you all make on the Subsea Products and the potential development delays. Is that what would – if there are delays would push it more towards $3 or I guess what I'm trying to get, is some of your thinking of which top and bottom end of that range?

Jay Collins

Well, I think as we have said, if we get more delays in projects particularly I guess in the (inaudible) smaller independent push it smaller jobs and those umbilicals don't get ordered, that could certainly reduce our outlook. General delays of Gulf of Mexico type projects where we sell OIE, we rent and sell products and services for deepwater Gulf of Mexico. Those things can get more delay than we see at the moment. So I think that creates some of the downside and as we mentioned earlier, the second half of the year, Gulf of Mexico project market, we don't really – that is not the business that has long term backlogs. So a few months ahead is about as far as we usually can see and so if that market were to slow down more than we forecast to be more competitive. So that is the kind of thing that could happen; we're chasing some big orders in multiflex. If those big orders were to be delayed, that could have an impact on us as well.

Joe Agular – Johnson Rice

Okay, but those are the things that would push you towards that $3 number?

Marvin Migura

What we said, is that ROVs are going to be up. Inspection is going to be down primarily because of currency. MOPs is going to be down because of the Ocean Producer contracts going away. But all that is sort of small compared to the variability of products and in the second half of projects.

Joe Agular – Johnson Rice

Right I wanted to make sure I was not misreading something there that could change the $3 to $3.60 range, but what you are saying is that that sort of the low-end down the –

Jay Collins

That is what moves us along that range and that is why the range is a little bit larger but I mean if you look at the midpoint, which a lot of you have the tendency to do, then it really is 10% up or down.

Joe Agular – Johnson Rice

Correct, okay. Another question, may be a little bit minor I guess but in the ROV side, do you have any number of ROVs going into production facilities this year?

Joy Collins

Like on a spar?

Joe Agular – Johnson Rice

Don't you sometimes get contracts?

Jay Collins

I think I can think of one that we have gone on to a spar, it could be another one also but absolutely, we do that and yes, at least one I can think of, yes.

Joe Agular – Johnson Rice

Okay, that's it for me. Thank you very much.

Operator

There are no further questions in the queue at this time.

Jay Collins

Thank you very much. We appreciate everyone's participation.

Operator

This concludes your conference call for today. You may now disconnect.

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Source: Oceaneering International, Inc. Q4 2008 Earnings Call Transcript
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