Global Industries, Ltd. Q4 2008 Earnings Call Transcript

Global Industries, Ltd. (GLBL)

Q4 2008 Earnings Call Transcript

February 26, 2009 10:00 am ET

Executives

Jeffery Levos – SVP and CFO

John Clerico – CEO and Director

Peter Atkinson – President

Analysts

James Rollyson – Raymond James

Joe Gibney – Capital One

Joe Agular – Johnson Rice

Bill Dezellem – Tieton Capital Management

Jim Macari [ph] – Neuberger Berman

Brad Handler – Credit Suisse

Karen David-Green – Oppenheimer

Presentation

Operator

Thank you for standing by, and welcome to Global Industries fourth quarter earnings conference call. At this time, all participants are in listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

On the call this morning are John Clerico, Chairman and Chief Executive Officer; Peter Atkinson, President; and Jeffery Levos, Senior Vice President and Chief Financial Officer.

I would now like to turn the meeting over to Mr. John Clerico. Sir, please begin.

Jeffery Levos

Thank you, Sandy. This is Jeff Levos. I'll make the introduction. As in previous calls, I would like to welcome you to our earnings conference call for the fourth quarter 2008. And remind you the call is being recorded and will be available on our Web site. The primary objective of this conference call is to discuss the earnings for the quarter ended December 31, 2008. Certain of our comments and responses to questions may include forward-looking statements. These forward-looking statements are subject to a number of uncertainties, which are discussed in detail on our Form 10-K filing with the SEC.

Now I will turn the call over to Mr. John Clerico. Mr. Clerico?

John Clerico

Thank you and good morning everyone. Welcome to our fourth quarter conference call. Our format today will be that I’ll provide a summary overview of the quarter, Jeff will provide some financial comments, and Peter will provide operational comments. Then we will finish the call with your questions and answers.

As I said in our press release, our recovery plan is well underway at Global. We took action on a number of fronts during the fourth quarter. First and foremost, I'm pleased to report that our execution of the Berri and Qatif project in Saudi Arabia is back on track. We are now confident that we will complete this project within the time and cost estimates we made in October. As a result, our relationship with Saudi Aramco is excellent.

Secondly, we completed cost reduction actions during the quarter which were focused primarily on SG&A costs. Our fourth quarter SG&A expenses at $21.9 million were $3.5 million lower than the third quarter despite the inclusion of some non-recurring expenses in Q4. These costs will be reduced further during the year 2009.

Thirdly, in spite of the slowdown in oil and gas project actively worldwide, we were able to increase our backlog during the fourth quarter by over $100 million to $519 million. Lastly, we took a number of steps to closely control our cash outflows and to maximize our accounts receivable collections. We finished the year with $382 million in cash and we will continue to carefully monitor and manage our cash and working capital for the foreseeable future. Unfortunately, the impact of these positive actions in the fourth quarter were offset by idle vessel costs due to a decline in project business in the Gulf of Mexico, the Middle East and West Africa, as well as some unanticipated extra costs to complete our Camarupim project in Brazil. These project costs resulted from weather and mechanical downtime as well as delays in delivering needed vessel machine equipment.

Thus, we reported an overall pretax operating loss of $0.10 a share for the quarter. Despite the operating loss for the quarter, we were encouraged that the trend of our monthly results improved during the quarter and we generated a pretax profit for the month of December. Additionally, our tax costs of $0.15 a share for the quarter resulted primarily from taxes in deemed profits jurisdictions and certain project losses that couldn’t be tax effected. We don't anticipate that type of adverse impact to continue in 2009. Our CFO, Jeff Levos, will further comment on our tax position.

Now as we look forward into 2009, our focus will be to make sure that our vessel, facility and people costs are in line with our revenue. While our industry environment remains uncertain, we are doing everything we can to be both careful and competitive in our project bids. Clients expect trouble-free execution and competitive pricing, and we are striving to meet these expectations. Our project backlog has been increasing, but we will also be prepared to take further cost reduction actions during the year in the event that project revenues fall below our expectations.

To summarize, we are working hard to restore Global to profitability and growth. And we continue to be confident that we will be successful in doing so.

Now I would like to turn the call over to Jeff Levos for financial comments on the quarter. Jeff?

Jeffery Levos

Thank you, John, and good morning again everyone. For the fourth quarter of 2008, consolidated revenues were $250.4 million compared to $263 million for the same quarter last year. Gross profit was $13.1 million in the fourth quarter of 2008 compared to $48.3 million in the 2007 fourth quarter. Net loss was $27.9 million or $0.25 per diluted share for the fourth quarter of 2008 compared to net income of $33.2 million or $0.28 per diluted share in the fourth quarter of 2007. The 5% decline in revenues between comparable quarters was primarily driven by lower activity in our Middle East, West Africa and North America OCD segments, partially offset by increased revenue in our Asia Pacific/India, Latin America, and North America Subsea units.

As John mentioned, we made progress in the fourth quarter in the selling, general, administrative expenses area. The $21.9 million spent for the fourth quarter of 2008 decreased by $600,000 over the same quarter last year due to our companywide cost control activities that are underway. Importantly, that's also down sequentially from the 2008 third quarter total of $25.4 million. Interest income of $1.8 million for the fourth quarter of 2008 decreased by $6.9 million over the same quarter last year primarily due to lower interest rates and decreased cash balances invested. The provision of $17.2 million income tax expense on the loss before taxes of $10.7 million for the 2008 fourth quarter was primarily due to losses that could not be tax-effected and lower margins in tax jurisdictions with a deemed profit tax regime where tax is calculated as a percentage of revenue. The provision of $300,000 in income tax expense on the $33.2 million of pretax income for the 2007 fourth quarter was primarily due to favorable settlements and a 5% decrease in the annual effective rate to 25.2% for that year resulting in a cumulative catch up during the 2007 fourth quarter. During the fourth quarter of 2008, we booked $372.9 million of net new work, resulting in a backlog of $519.6 million as of December 31, 2008. This booked work is distributed among our reportable segment as follows. Latin America, $181 million; Asia-Pacific/India, $146 million; West Africa, $102 million; Middle East, $61 million; and North America, $30 million.

Turning to cash flows for the year. Net cash used by operations in 2008 was $119.2 million compared to $267.7 million cash provided in the same period last year. This decrease primarily reflects lower net income and higher short-term working capital needs. Investing activity used $297.3 million net cash during 2008, compared to $156 million used for 2007. Increased capital spending in addition to restricted cash were the primary contributors to the increased usage for 2008. Capital spending of $268 million for 2008, principally reflects acquisition of a deep water subsea construction vessel and ongoing expenditures for the construction of our two new generation derrick/pipelay vessels, the Global 1200 and the 1201. Additions to restricted cash of $93.4 million for 2008 is due to the November 07, 2008 amendment to our revolving credit facility.

Net cash used by financing activities was $19.3 million for 2008 compared to $259.6 million cash provided for 2007. Use of cash in 2008 in this category primarily results from the repurchase of common stock through our share repurchase program as we purchased approximately 3.1 million shares at an average price of approximately $8.23 per share. Cash provided in 2007 primarily results from the net proceeds from our $325 million debenture offering. This all results in net cash outflows of $435.8 million for 2008 and an ending unrestricted cash balance of $287.7 million.

With that I will turn the conference over to Mr. Atkinson. Thank you.

Peter Atkinson

Thank you Jeff. Good morning everyone. I'll be briefly discussing a few operational highlights for the quarter ended December 31, 2008. Income before taxes in our Middle East segment declined $17.7 million in the fourth quarter of 2008 to a net loss before taxes of $3.2 million. Revenues declined $51.9 million to $49.4 million. The Berri, Qatif project in Saudi Arabia progressed as planned within the revised estimate. A new additional project deterioration occurred during the fourth quarter of 2008. We now expect this project will be completed within the second quarter of 2009.

The $3.2 million segment loss before taxes reported in fourth quarter was principally attributable to undercover indirect overhead and SG&A expenses. Fourth quarter revenues in our Latin America segment increased $29 million, reflecting increased activity in Brazil. During the 2008 fourth quarter, the Iroquois and REM Commander worked on both the Camarupim project and Mexilhao projects with Petrobras in Brazil, and we recorded an additional $8.6 million loss provision due to weather delays, third party mechanical downtime and estimated future expenses attributable to the anticipated additional schedule delays.

A scope of work on both the Camarupim and Mexilhao projects is expected to be completed in the second quarter of 2009. The Titan II returned to Mexico in the fourth quarter along with the Shawnee commenced work on PEMEX’s 12 km, 24 inch Ixtal pipeline project. Revenues and margins on our Mexican projects were higher in the fourth quarter of 2007 due in part to the finalization of certain changeovers and claims in that prior period. Work on PEMEX’s Ku-Maloob project is expected to commence in March of 2009.

Revenues in our Asia Pacific/India segment increased $26.9 million in 2008 fourth quarter. Income before taxes improved $23.4 million to $9.7 million in 2008. During the quarter, the DLB 264 and Subtec I commenced work on ONGC’s MHSRD project in India. The DLB Dementia successfully completed the installation and commissioning of an XPN [ph], IOCL of the East Coast of India and the Seminole completed 150 day charter in Malaysia before returning to our base in Batam, Indonesia. Overall, increased utilization and good project execution in this segment drove the better results.

Revenues in our West Africa segment were down $18.6 million, and we recorded a loss before taxes of $16.3 million for the 2008 fourth quarter. This decrease in revenues and increased loss were entirely due to lower activity and idle vessel expenses. The Hercules and Sea Constructor completed their relocation to the US, Gulf of Mexico on December 31, 2008. And the Cheyenne, our only construction vessel remained in this region was idle for the entire quarter and only commenced pre-mobilization activities for emergency pipeline repair in late December. This repair and replacement of the 17 km, 24 inch pipeline for which we mobilized in January is expected to be completed by the end of April.

In our North America Subsea segment, revenues increased $10.3 million in the 2008 fourth quarter. Income before taxes, however, decreased $8.1 million to $3.4 million. This decrease in profitability was due in part to loss in salvage expenses associated with the recovery of the Sea Lion, one of our DSVs, which grounded in an incident in November; the cost of additional vessels assigned to this segment; and increased pricing pressure.

Revenues in our North America Offshore Construction segment decreased $3.7 million and we sustained a loss before taxes of $3.8 million in the fourth quarter compared to income before taxes of $3.5 million in the same quarter in 2007. These declines were principally attributable to slowing project activity in the Gulf of Mexico. However, as noted earlier, we have brought the Hercules back to the US, Gulf of Mexico and have already secured at least 45 days of work for the vessel commencing in April 2009.

One other item of note is that while we expect the costs of dry docking our vessels in 2009 to be significantly lower than we incurred in 2008, one vessel, the Chickasaw, is currently in dry dock and we have two additional vessels, the DLB 264 and DLB 332 with a schedule to be taken out of service for dry docking during the next four months. Thank you.

With that I will turn the call back to Mr. Clerico, and open the conference up to questions.

John Clerico

Thank you. We are happy to take your questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from James Rollyson of Raymond James. Your line is open.

James Rollyson – Raymond James

Hi, good morning guys.

John Clerico

Good morning, Jim.

James Rollyson – Raymond James

Nice to see some improvement this quarter. If I might actually, John, you talked about the progression through the quarter and I think you said December was actually pretax positive earnings.

John Clerico

I may not have said it very elegantly. What I meant to say was each month in the quarter was progressively better than the prior month. And the month of December was actually a pretax profit, yes.

James Rollyson – Raymond James

Do you suspect that trend will continue given what you know and see on new projects, particularly the two projects that have been hurt you, it will go into first quarter and first half of the year?

John Clerico

Yes.

James Rollyson – Raymond James

Can I ask a follow up of that? Do you think you will be earnings positive as you go into the first half of 2009 with what you know?

John Clerico

That's our expectation.

James Rollyson – Raymond James

Okay, that's great news. Gulf of Mexico, your business and I realize a part of it sounds like it came from some idle vessel time and things (inaudible) cost there. But it seems like most of the guys in your competitive arena this quarter have had pretty strong operations, thanks to the hurricane work, some of that is more diving related. But just kind of curious why the difference between what you seemed to experience and maybe what some of your competitors did this quarter, any thoughts?

John Clerico

This is John. I’ll make some couple of general comments and let Peter amplify to whatever extent he would like to. With regard, really to the entire quarter, but specifically for the Gulf of Mexico, I see the fourth quarter sort of a transitional quarter in which we’ve, as I tried to convey in my remarks in the press release, focused on the things that we can control. One of the things we can control is our costs. The Gulf of Mexico was largely driven, as we've said, by idle vessel costs. And what we are trying to do is match all of our costs, including vessels to the amount of available work. And the fourth quarter was fairly light for us in the availability. That's expected to probably continue in the first quarter. So we are doing everything we can to match up that lower revenue with lower costs. I will let Peter amplify on that also.

Peter Atkinson

Jim, one of the contributing factors there that I mentioned was that the loss at the Sea Lion, one of our DSVs, which has been very active for us for several years. We did have work booked on that that we lost a potential revenue from that particular vessel. Thus we sustained additional cost of salvaging the vessel. But quite frankly, we were strived [ph] a little bit by the slowing down of our activity in the fourth quarter. It started off looking pretty well in the beginning of October, but it did slow down pretty rapidly in the fourth quarter towards the end.

James Rollyson – Raymond James

Got you. And then finally I guess, you picked up some least amount of backlog in West Africa, and I know historically probably more often than not that’s not been your best market and you’ve had some issues as recently as early part of last year. Kind of maybe talk about what you're seeing and maybe what's changed to make you continue to take on work there and starts going forward?

John Clerico

I will do same thing we did last question. I will start with a couple of general comments and then Peter can add to it. The first thing I would say is in this environment no one has the luxury of being overly picky and choosy about where he decides to take on work. And as we've looked at the West Africa market, we’ve concluded that there is no reason aside from our own execution why we shouldn’t be able to perform well there and make money in the region. And certainly in area where there are going to be opportunities going forward, and we just have to be prepared to go in and do the work well and execute for our customers.

Peter Atkinson

Jim, as we’ve mentioned in two of our prior calls, we have been pursuing work in West Africa. We have been – there is some practice emergency pipeline project that we were award towards the end of the fourth quarter. They have been pursuing in discussions with the client for several months. And we stated clearly that we wouldn’t pursue any of our work – under take any of the work unless we could stringent foundations appropriate to the risk and situation that we were experiencing doing that again. That I think is still the view of the company that the fleet can’t be compensated for the type of rest that they are taking. We will continue to look at those opportunities, but we are going to be very selective on it.

James Rollyson – Raymond James

Very well. Thanks for that and nice improvement.

Peter Atkinson

Sandy, do we have another question?

Operator

Thank you. Our next question is from Joe Gibney [ph] of Capital One.

Joe Gibney – Capital One

Thank you, good morning everybody. Peter or John, just wanted to follow-up relative to your commentary on the Middle East, Berri and Qatif is on track, looking like it’s ramping up maybe a little bit ahead of our expectations. You mentioned still a constructively positive relationship with Aramco, I assume that’s the case certainly in Brazil as well. Just curious about bidding activity in those markets, is it a little bit of a push to the right into back half of the year? Just general thoughts on Middle East and Brazil going forward given the wrapping up of some of these projects here in 2Q.

John Clerico

Yes, I will give you some comments on that. I just returned as a matter of fact from three days in Saudi Arabia, and the Middle East couple of weeks ago. And I can personally attest to the fact our relationship with Saudi Aramco is good. Their senior project people spend a lot of time with us. We went offshore to our two vessels, witness the work, celebrated an almost unprecedented 3 million man-hours without a lost time accident performance. And they told us very openly that the turnaround that we’ve made on that project has improved our standing with them significantly. We are hoping to correlate that into some additional work in the Middle East. As I speak to you now, I have nothing to report. But there are ongoing discussions and we are hopeful we will have some new work to undertake in the Middle East. I’ll let Peter talk about the project progress. But our project team has just done a terrific job and we’ve gone from being way behind and way over budget to a much improved position. As far as Brazil and Petrobras are concerned, that relationship is also good. We are working to make it as strong as we can. Again, that’s an area of strategic focus for us. We are going to be doing everything we can to win additional work there. Unfortunately, the extra costs that we incurred on the Camarupim project for the quarter were not entirely within our control. Some of it was and we are working hard to fix that. But I can’t say that our relationship is good and hopefully we can continue to work to keep it that way. Peter, you want to add to that?

Peter Atkinson

Yes, John. As John mentioned, the performance on the Berri and Qatif project during the past four months has been very satisfactory. We have got that project back on track. (inaudible) factor as we measure performance there, it’s well within our expectations. We have been downsizing our footprint there. We’ve been looking at better ways of executing the project. And we do believe at this point in time, we may complete that project a little ahead of where we thought we were going to be at the end of October. So, it is very positive the way the direction of that project is going at the moment. Camarupim has been a greater risk and we have been exposed to some equipment failures from third party situation. And as John mentioned earlier, there is some critical machine equipment that we expected to be delivered before completion of that project in February of this year. And we now – became apparent that that will not happen and we’ve incurred and accrued additional costs for delays in that schedule that will take us through April.

Joe Gibney – Capital One

And Peter, I missed it there. What was the DSV repair that you provided (inaudible) as you indicated the Sea Lion. What was that color? I missed that, I apologize.

Peter Atkinson

The Sea Lion had a grounding on the 11th of November in the Gulf of Mexico. We had our work booked for that vessel. We had to salvage the vessel and we incurred cost in salvaging the vessel and we lost the revenue that was associated with it. We are currently evaluating whether we will repair that (inaudible) or whether we will knock it over.

Joe Gibney – Capital One

Okay. I understood. And Jeff, just one for you, CapEx expectations next year, I apologize if you went through that, I missed on the call, and kind of where we are now on the buyback?

Jeffrey Levos

I did not. Capital expenditure expectations for 2009, we will disclose in the 10-K when we file, the range about $200 million to $220 million, about $160 million is related to the 1200 and 1201. And again, as I think we demonstrated in the fourth quarter, again we are committed to the 1200 and 1201, but there is good elasticity in the rest of the CapEx, such that when we need to purchase the cash preservation we can ratchet that down, also for 2009, $12.2 million is our current expectation. For dry dock Peter mentioned in his commentary that that was going to be the number that was significantly less than our 2008. Stock buyback under the fourth amendment to the revolver we’re not in a position nor do we anticipate once we come out of the cash collateralization position that we would be looking to buy back a significant number of shares.

Joe Gibney – Capital One

Understood. Thanks guys, I appreciate it. I will turn it back.

Operator

Thank you. Our next question is from Joe Agular of Johnson Rice.

Joe Agular – Johnson Rice

Thank you. Good morning. I have a few questions. First of all, the Middle East project you all mentioned, I guess, the Q2 completion now, that’s obviously sooner than you expected on the last call, correct?

Peter Atkinson

That is correct.

Joe Agular – Johnson Rice

How many, would it be maybe two or three months ahead of schedule?

Peter Atkinson

That is possible. But we are saying that at this moment. But –

Joe Agular – Johnson Rice

Yes, I don’t mean to try to pin you down. I just know it be moved from Q3 to Q2.

Peter Atkinson

That’s correct.

Joe Agular – Johnson Rice

Okay. Peter or anyone, in the Latin America segment, I think you all mentioned you had – did I hear correctly, the Brazil cost overruns was around $8.6 million in Q4?

Peter Atkinson

We recorded an additional loss provision of $8.6 million.

Joe Agular – Johnson Rice

Right. Okay so, obviously the work to date in Mexico, is there anything else in that segment besides the Mexico and Brazil right now, and obviously that would have been about the profitability that you reached in Mexico, is that a fair statement?

Peter Atkinson

We have one project that’s currently underway, the Ixtal project in Mexico, the PEMEX and we have two projects in Brazil, Mexilhao and Camarupim. Both of which that we have minimum an amount still to complete, relating to the Petrobras to complete the HDV [ph] shortly.

Joe Agular – Johnson Rice

Okay, what I was trying to get at was Mexico was nicely profitable in the fourth quarter?

John Clerico

Mexico was nicely profitable in the fourth quarter.

Joe Agular – Johnson Rice

And do you sequentially, will you not derive more revenues out of Mexico in Q1 than you did in Q4?

Peter Atkinson

We are expecting more revenues. We have a second project in Mexico, Ku-Maloob. But Ku-Maloob probably won’t start until the second quarter of 2009.

Joe Agular – Johnson Rice

Okay. In West Africa the job that you all are starting, I guess in your press release a month ago or so was expected to start in March. Is that still – can you update us on when that start well be?

Peter Atkinson

We press released it once we mobilize, because of the uncertainties and the issues that was experienced in prior years, in mobilizing equipment and getting the clearances and the permits, we wait for them to react, and mobilize that project before we press released it. So, we actually mobilized in the second week of January. We expected to be completed in April.

Joe Agular – Johnson Rice

Okay, so the work is underway right now?

Peter Atkinson

That is correct.

Joe Agular – Johnson Rice

Okay, so obviously incrementally that’s a big positive in the first quarter. Then just one last question, kind of on general overall picture of the cost reduction efforts that you mentioned. I know your focusing on the SG&A line, quite nicely there. But and also just touched on the new deals that you’re committed to. Has there been any thought of retiring any of your older construction vessels?

John Clerico

As we look at our – let me try to answer that by first of all giving a little bit with revenue, because our challenge and our focus has been on matching all of our costs to our revenue. So we try to take a realistic approach related to revenue opportunities in 2009. So every dollar of revenue in our plan is a known project that’s either underway one or a project that we think we have a good probability in winning. So, there is an absence of speculation in our revenue forecasts. So, following from that then we need to make sure that we have the right vessels in our fleet, the right amount of vessels in our fleet to match up with revenues. And we have done some planning on retiring older vessels in order to streamline the fleet, reduce our future dry dock costs and match up with our revenues.

Joe Agular – Johnson Rice

Okay, thank you very much.

Operator

Thank you. Our next question is from Bill Dezellem of Tieton Capital Management.

Bill Dezellem – Tieton Capital Management

Hi, thank you. A group of questions. First of all, what were your bids outstanding at the end of the quarter or as of today?

John Clerico

I can’t give you a precise answer. But the last I saw, it was around $4 billion.

Bill Dezellem – Tieton Capital Management

And so that number sounds like has not dropped dramatically with the decline in drilling activity in oil and gas prices?

John Clerico

It’s dropped some, but not dramatically. I think you said it well.

Bill Dezellem – Tieton Capital Management

And with that in mind, would you qualitatively share how you view the mood of your customers? And we appreciate you are in a different point in the cycle than the drillers who are in that arena. But what’s the mindset if you would please?

John Cleric

I would say, speaking generally, projects that are underway, but previously budget approved are proceeding ahead. The last numbers I saw were for about a 12% decline across the entire group of international oil companies as well as national oil companies. The national oil companies I would say are incrementally a little more committed to bringing development projects to fruition including our segment of making that happen. So, we haven’t seen a dramatic decline, but there will be a decline that will eventually flow through from the drop off we are seeing on the front end with rigs and exploration.

Bill Dezellem – Tieton Capital Management

And kind of taking that a step further, specific to PEMEX, a couple of year ago they had their elections, which put in a large pause in place. We’ve seen a number of data points to suggest that their declining rates are problematic and they were supposed to pick up for you. Given all of the puts and takes, what’s your view of PEMEX over the coming 12 to 18 months?

John Cleric

I think they are going to be, it’s unfolded a little more gradually than we had hoped and expected, maybe a couple of months ago. But I also was there not very long ago and the person in charge of the offshore development for PEMEX told me that they were committed to moving ahead on virtually all of their major projects, which as you pointed out they need to offset a decline in the production curve. And I think also they anticipate some deeper water projects later on in that 12 to 18 month time frame, more like the 18 month time frame. But everything that was expressed to me reflected not much in the way of slowdown.

Bill Dezellem – Tieton Capital Management

Thank you. And then a couple of just very quick data point items. You had mentioned that your operating loss, you stated as a minus $0.10, are you basically taking out your extra tax provision to get there or is there something else?

John Cleric

Yes, that’s – if I didn’t say it very elegantly, what I should have said was pretax income.

Bill Dezellem – Tieton Capital Management

All right, thank you. And then we actually heard dry dock costs were going to be up in 2009, but then later in the call, we heard the dry dock costs were going to be down in 2009, which one was correct?

John Cleric

Our dry dock costs are going to be down in 2009, fairly significantly.

Bill Dezellem – Tieton Capital Management

And by what dollar amount?

Jeffrey Levos

Again, Bill, we are looking at about $12 million for 2009.

Bill Dezellem – Tieton Capital Management

$12,000 total or a $12,000 decline.

Jeffrey Levos

$12 million total expenditure for 2009.

Bill Dezellem – Tieton Capital Management

Excellent. Thank you again very much.

Jeffrey Levos

You are welcome.

Operator

Thank you. Our next question is from Jim Macari [ph] of Neuberger Berman.

Jim Macari – Neuberger Berman

Good morning, gentlemen. Wanted to walk through some of the ’09 cash metrics if we could. If we could get a projection on D&A, and I think we talked about CapEx, I’m not sure if I got the number. And say restructuring charges and broken out cash, non-cash and then how you envision working capital developing through the year?

Jeffrey Levos

Sure, Jim. Let me run you through it quickly. Our 2009 cash flow projection goal is as follows, essentially we want to preserve and protect our existing cash position, while continuing to build the 1200 and 1201. What we therefore looking at for 2009 is, as I mentioned, approximately $200 million to $220 million in capital expenditures total, of which a $160 million will be dedicated to the 1200 and 1201 build. Also, about $12 million in dry dock expenses. We also anticipate with our budget for 2009 getting back out of the cash collateralization position that we are in and freeing up that cash available to us and remaining relatively natural on working capital. No significant net use or net provision from working capital. And with that all – that all get you to a place where you need to produce about $100 million to $120 million worth of cash flow from operations in order to achieve on that.

Jim Macari – Neuberger Berman

Okay. And I’m sorry, is D&A expected to be around $60 million?

Jeffrey Levos

Yes sir.

Jim Macari – Neuberger Berman

Okay. Thank you. Good job, guys, a tough environment but keep that cash flow. And can we get a status on the new builds? How are they progressing?

John Clerico

Peter was there two or three weeks ago. He can give you a first hand report.

Jim Macari – Neuberger Berman

Okay. Thank you.

Peter Atkinson

The 1200 is doing exceptionally well. It is on schedule. It is on budget and it’s starting to be coming together in the capital bell [ph] shipyard there, and it’s quite an impressive vessel and we do expect it to be launched and commissioned on schedule for the first quarter of 2010, and it is currently within budget.

Jim Macari – Neuberger Berman

Good. And the other one?

Peter Atkinson

The other one, we just started cutting steel on it.

Jim Macari – Neuberger Berman

Okay.

Peter Atkinson

Starting the preliminary stages.

Jim Macari – Neuberger Berman

All right, thanks gentlemen.

Operator

(Operator instructions) Your next question comes from Brad Handler of Credit Suisse.

Brad Handler – Credit Suisse

Thanks, good morning.

John Clerico

Good morning, Brad.

Brad Handler – Credit Suisse

Could I ask you guys to speak to – I guess to speak to 2010, as early as we are in 2009. I guess, you’ve mentioned a couple of thoughts about expectation of the NOCs and the RFCs will progress with your current development activity, I guess, base outstanding has not fallen off that much was not necessarily a downward outlook, but I’d be interested in some of your perspective on it.

John Clerico

This is John Clerico. I would say, it’s obviously a little bit early; and right now, the people you’re talking to are focusing on 2009 and getting through that period but we see a lot of project activity available during the 2010 period. Right now, a need for us in that regard is a window early in the year 2010 and we’re currently working on a potential bids on a couple of projects to fill that window, but if we can do that, I think – I’m not expecting a dramatically different year in 2010 than we have in 2009, frankly.

Brad Handler – Credit Suisse

Okay, that’s interesting. Thanks. Thanks for – I know. I recognized that we’re early on this. Still talking at a higher level, how are you – what are you all seeing in terms of assets moving into areas such as Brazil and Mexico, perhaps, still the Middle East, I don’t know; in other words, sort of the competitive landscape. How that might be changing or maybe getting harder through the course of ’09?

John Clerico

I don’t know that I have any great revelations for you in that regard. I would just say that every project that we’d bid on since I’ve been here have been quite competitive, and we’ve had to focus in such having a press release on my comments. Both on being careful to make sure that we can execute within our bid, but also meet pretty aggressive competitor’s bids, so I would say, every piece of business wherever it is in the world is likely to be pretty, heavily competed for. At least that’s what I see.

Brad Handler – Credit Suisse

That makes sense. Okay, I guess – listen, maybe turning internally, that’s my last one. I think some of the initiatives on their way as you stepped into the role related to making sure that’s not just on a cost basis but just on a resource base as you’re adequately staff. I remember, perhaps, some questions with respect to having – you have the right people in the Middle East, for example. Please correct me if you think I’m wrong there but can you comment on that process? Is there still an internal staffing, not just from a cost perspective but from getting the right resource perspective that’s underway? And so, can you give us a little color on where that might be happening?

John Clerico

Sure. You mentioned Saudi Arabia so let me say something about that. We definitely have the right people working on our project there. If I had to express a concern about that, I’d like very much to keep that group together. It’s working well. So winning some additional business there to keep that very efficient group of people working and working productively as our first priority there; elsewhere, I feel better now than I did at the last conference call. We haven’t talked about organization or alignment or any of those things, but we’re hard at work on that as well. Just making sure that as we look forward to our opportunities in 2009 and beyond, we have both the assets and the people resources to deliver on our targeted projects and our global functions like vessel management and diving, and project planning and economics. We’ve done some beefing up in that area. We’re working hard on developing a world class, business development customer relationship, management functions and have moved one of our senior executives into that role. He’s very well qualified. So we’re making progress building the organization and strengthening the performance culture of the company. I won’t portray that we’re finish with that. We still have work to do but we’re making progress.

Brad Handler – Credit Suisse

Well, that’s it. That’s helpful color. I’m glad I asked. All right, I’ll turn it back. Thanks.

Operator

Thank you. Our next question is from Karen David-Green of Oppenheimer.

Karen David-Green – Oppenheimer

Thanks. I just wanted to touch on the 1200, the new build. Can you just give us an idea of when you would be bidding that vessel and possibly into which market you think you have the best opportunity?

Peter Atkinson

Karen, good morning. We’ve been bidding in that vessel now for probably six months of work now. We are targeting projects in most regions of the world as you know it’s designed to be a very mobile asset, and we’ve take projects that are very suitable top vessel and we’re currently bidding them. Most of those projects of 2010 will be on, obviously, because the vessel will come in to service in the first quarter 2010.

John Clerico

Just to make a qualitative comment on that. Being a new build and being a world scale, world class vessel, we’re anxious to have a successful early track record with that vessel, so targeting projects which we have a high degree of confidence that we can execute with a minimum of startup problems and that thing is our strategy for the first couple of projects.

Karen David-Green – Oppenheimer

And how about crewing the vessel, can you give us an idea of your thoughts on that?

John Clerico

We have – as a matter of fact, we’re meeting on that the next couple of days. We’re putting together a staffing and crewing strategy for the vessel, as well as a marketing plan, as well as an operational plan. So, that is ongoing, but I think it’s pretty well in hand.

Karen David-Green – Oppenheimer

All right. Thank you, gentlemen.

Operator

Our next question is from Joe Agular of Johnson Rice.

Joe Agular – Johnson Rice

Yes. I was – if you said it, I missed it, but did you give an amount of the costs that were charged in Q4 for the mobilization of the two vessels?

Peter Atkinson

We didn’t give out number, Joel.

Joe Agular – Johnson Rice

Would you mind giving it?

Peter Atkinson

I think incrementally, it was about $2.5 million.

Joe Agular – Johnson Rice

Okay. And you did say, I think, the Hercules does have some work lined up here in the Gulf?

Peter Atkinson

That is correct, yes.

Joe Agular – Johnson Rice

Okay. Very good. Thank you very much.

Peter Atkinson

Thank you, Jo.

Cindy, do we have any more callers?

Operator

Still waiting. No further questions in the queue.

Peter Atkinson

Okay. Well, that concludes today’s call as there are no more callers. We’d like to thank you all for joining us today and your interest in Global Industries. Thank you very much.

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