Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Oceaneering International, Inc. (NYSE:OII)

Q1 2009 Earnings Call

April 30, 2009 11:00 AM ET

Executives

Jack Jurkoshek - Director, Investor Relations

T. Jay Collins - President and Chief Executive Officer

Marvin J. Migura - Senior Vice President and Chief Financial Officer

Analysts

Neal Dingmann - Wunderlich Securities

Stephen Gengaro - Jefferies and Company

Joe Gibney - Capital One Southcoast

Brad Handler - Credit Suisse

Joe Agular - Johnson Rice and Company

Victor Marchon - RBCCM

Operator

Good morning. My name is Marlene and I will be your conference operator today. At this time I would like to welcome everyone to the First Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

Mr. Jurkoshek, you may begin your conference.

Jack Jurkoshek

Good morning everybody. I would like you thank you for joining us on our 2009, first quarter earnings conference call. As usual the webcast of 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 be leading 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 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 turn the call over to Jay.

T. Jay Collins

Thank you, Jack. Good morning and thanks for joining the call. It is a pleasure to be here with you today.

A record first quarter EPS of $0.80 were above guidance range we gave last quarter and better than last year's first quarter result. This is attributed to our business focus on deepwater and Subsea completion activity and our expertise in underwater platform and pipeline repair.

This performance was particularly gratifying, given the sharp downturn in market demand many companies in the oil field service industry are experiencing. We raised the bottom of our previous 2009 EPS guidance range by $0.10 to account for our excellent performance in the first quarter, resulting in the range of $3.10 to $3.60.

Much uncertainty remains in predicting the rate of Subsea field development order flow for the balance of this year. This includes demand for ROV construction support services, the timing of Subsea hardware orders and requirements for our deepwater vessel exploration services.

Given our first quarter performance and outlook for the rest of the year, we're now anticipating that our EPS in 2009 will not follow our historical quarterly pattern. Instead of our Q1 being in the 17 to 21% range as it has been for several years, we expect it will be in the range of 22 to 26% of our 2009 results.

As is customary in determining our earnings guidance, we consider many factors including the reduced market demand for many of our services and products with a notable exceptional now, as the requirements for ROVs and pricing pressure we're experiencing from our customers and competitors.

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 economical.

While work on most authorized deepwater projects has and is likely to continue, the urgency to start new projects remains in question. In fact, there've already been announcements of planned deepwater project has being cancelled or delayed beyond 2011. While project delays are generally not good news, the scenario unfolding may actually prove to be beneficial to us longer term as our customers are reportedly changing the Field Architect (ph) on several of the delayed deepwater projects from standalone developments to Subsea tie backs.

Our record first quarter EPS of $0.80 was attributable to achieving ROV and Subsea projects operating income performances that surpassed our expectations. ROV results were better on exceptional execution, which resulted in lower than anticipated operating expenses.

Subsea projects exceeded our projection as a result of performing more deepwater installation work and shallow water diving projects on hurricane damaged facilities.

Year-over-year ROV operating income increased 18%. This was accomplished by improving our average operating income per day on hire by 10%, due to better operational execution that resulted in a decrease in cost per day on hire and growing our days on hire by 7%.

Sequentially, ROV revenue and operating income declined due to a customary seasonal reduction in demand for construction support services. Operating income margin during the quarter was 31%, compared to 29% a year ago, 33%, last quarter and 30% on average last year. There is no trend story here as our quarterly results for ROVs do fluctuate for a variety of reasons, as much as 4% at any given year. We're still anticipating a flat to down ROV margin performance for the year 2009, compared to 2008.

Our fleet utilization rate during the quarter was 80%, unchanged from the first quarter 2008, which in both years was attributable to a slow start to the construction season. For the balance of 2009, we expect to achieve quarterly fleet utilization in the low to mid 80% range.

During the quarter we added six systems to our fleet and as at the end of March had 233 systems available for operation, up from 212 a year ago. Our fleet mix during March was 70% in drill support and 30% in construction and field maintenance, about the same as in December 2008, when compared to a 65-35 mix in March of 2008.

Our Subsea Products segment revenue and operating income were lower than the first and fourth quarters of last year. Operating income margin was comparable in all periods. Year-over-year and sequentially the revenue declines were largely attributable to a lower umbilical plant throughput. The operating income decline was largely due to a change in OIE product mix.

To a lesser extent umbilical operating income also declined, but not commensurate with the reduction in revenue. Compared to 2008, we benefited from reducing our labor force at our Scotland and U.S. plants and did a better job of controlling costs and executing the jobs we did perform.

We've adopted lean manufacturing practices which focus on reducing cost by intently scrutinizing our operating efficiency. Examples included reduced manning requirements, shorter job startup times and better link measurement to lower material scarp costs.

At the end of the quarter our product's backlog was $282 million, down from $298 million at the end of 2008, primarily due to lower umbilical backlog. Discussions with our customers indicate, we should see an improved order flow rate for the balance of 2009 and perhaps beyond. Costing (ph) however is expected to remain very competitive until a substantial amount of industry wide umbilical manufacturing capacity is utilized. Predicated on our well suited (ph) to timely secure additional orders, we are hopeful that we will achieve substantially improved results for umbilical operations in second half of 2009.

As expected and discussed at our last earnings conference call, our Subsea Project's quarterly operating income performance improved year-over-year. This was attributable to higher demand for our shallow water vessels and diving services, which was mostly a result of platform and pipeline damage caused by Hurricane Ike, increased requirements for our deepwater vessel utilization services and lower vessels drydock expense.

During the first quarter of '08, four our vessels were drydocked out for part of the period compared to one in first quarter this year. Sequentially, Subsea Project's operating income declined due to normal seasonal decline in demand following an exceptionally good performance in the fourth quarter of 2008.

Year-over-year inspection service and operating income declined due to a stronger U.S. dollar relative to the British pound and lower service demand in the North Sea. Operating income margin improved slightly due to a favorable change in service mix on work performed in West Africa.

Sequentially Inspection's revenue declined due to a stronger dollar relative to the pound and lower service demand in the U.S. Gulf of Mexico on facilities exposed to hurricanes Gustav and Ike. Operating income margin improved due to a favorable change in service mix on West African work and our ability to reduce our overhead expense in this geographic area.

Absent the $5.7 million impairment charge we recorded in the fourth quarter of 2008, our MOPs operating income during the quarter was basically flat with the first fourth quarters of last year.

In summary, we achieved record first quarter results and are looking forward to realizing another year of substantial earnings performance in 2009. Our focus on providing products and services for deepwater and Subsea completions positions us to participate in a major sector (ph) of growth trend in the oilfield services and products industry.

We're pleased with our cash flow generation capability as demonstrated by our 98 million of EBITDA during the quarter. Our liquidity situation remains strong and actually improved as we prepaid a portion of our 2009 debt maturities. Our balance sheet remains in great shape. As I stated earlier for 2009, we are forecasting EPS in the range of $3.10 to $3.60. Compared to 2008 our forecast assumptions are that we will achieve profit growth from our ROV business and experience declines in operating income from the rest of our oilfield service operations.

While we are achieving efficiency gains in our Subsea products manufacturing processes, these will likely not offset the anticipated 2009 demand declines for our product lines. We anticipate flat to down margin percentages from all our business segments.

Our ROV business earned 53% of our operating income in Q1, compared to 48% in Q1 of last year and 47% for all of 2008. This is consistent with our expectation that ROVs for the year 2009 will contribute a larger percentage of operating income than in 2008.

We still anticipate adding 24 to 30 vehicles to our ROV fleet in 2009, 18 to 24 during the remaining three quarters and we have contracts for 22 of these.

I believe we are well prepared for the challenges we face in 2009. We are focused on cash flow generation and cost control and have already taken actions to right size our workforce where needed. We're intensifying efforts to improve business processes and effectiveness of how we work.

Looking forward, we see specific signs of a healthy deepwater and Subsea market that will drive demand on a concurrent or delayed basis for our products and services. As of the end of March, over 95% of existing 220 floating rigs in the world were under contract. Over 85% of these are contracted through 2009 and more than 60% are contracted through 2010.

91 floating rigs were on order and scheduled to be delivered through 2012 and 63 of these have been contracted longer term for an average term of over six years. Petrobras also announced earlier this month, their intention to tender for 28 additional new built floating rigs for deliveries commencing in 2013.

ROV contracts have been laid on 25, there's 91 rigs on order and we won 15 of them to provide 16 ROVs. We currently estimate that 24 rigs will be placed in service during the year, of which two went to work in the first quarter and we had ROV systems on both of them. Of the remaining 22 rigs, we have ROV contracts on16 of these rigs to provide 17 vehicles.

Given the current macro economic environment, it's still quite possible that some of the new rigs currently on order may not be built. In fact, construction has not yet started on 34 of the 91 rigs on order as of the end of March. Assuming that 20 of these rigs will either be delayed beyond 2012 or cancelled, we're still talking about 71 rigs to be added to the current floating fleet of 220, representing growth of over 30% and growth of 160% in the high specification fleet, which currently totals 44.

This is the ROV service market we are dominating, currently believe we are in the pole position to see the majority of this growth opportunity. In addition to the current rigs being built, an international ship broker reports that about 210 subsea support vessels are under construction with anticipated delivery dates by the end of 2011.

Of these we estimate that a minimum of 145 will likely require at least one ROV each. While our ROV business represents our single largest near term growth opportunity, we like our position 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 for the 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 a better clarity of how 2009 unfolds.

For the second quarter of 2009, we're projecting EPS in the range of $0.75 to $0.85 down from last year second quarter results and flat with our first quarter 2009. Year-over-year we anticipate our ROV operation will achieve higher operating income, but not enough to offset expected lower profit contributions from our other oilfield business segments.

Sequentially, we anticipate quarterly operating income improvements from ROV and Subsea Products. ROVs due to an increase in fleet days on hire as we benefit from a seasonal pickup in demand for construction work and from new vehicles being put in service, and Subsea Product on this strength of higher sales of OIE specialty products.

Sequentially we expect flat-to-down profit performances by Subsea Projects, Inspections and MOPs as that is anticipated to be up.

In summary, our 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 term and long-term. We like our competitive position in the '09 oilfield service market. Our technology gives us the ability to prosper in what is a challenging year.

We are leveraged to what we believe will an inevitable resumption in the growth of deepwater and subsea completion activity. The longer term market outlook for deepwater and Subsea service and product offerings remain promising. We continue to believe we are in one of the sweet spot of this secular up cycle.

2008 was our best year ever and we are well positioned to have another year of substantial earnings performance in 2009. We appreciate your interest in Oceaneering and now we will be happy to take your questions.

Jack Jurkoshek

Marlene, we're ready for the Q&A now.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Eric Hoffman (ph). Your line is open.

Unidentified Analyst

Hey, guys. Great quarter.

T. Jay Collins

Thank you. Good morning.

Unidentified Analyst

Morning. Couple of quick questions for you on Subsea Products. First, I was hoping that you could give us a just a rough breakdown of order intake in 1Q in products between Multiflex and ROV.

T. Jay Collins

No, I'm sorry we just don't give that breakdown. As you can see, our backlog was down about 5% over in total. So I think we'll just leave it at that.

Unidentified Analyst

Okay. That's fair. So we're also hearing that their -- a lot of about these upcoming Petrobras tenders for Subsea trees and manifolds, I guess some time in May, can you talk about the potential near term umbilical orders may be associated with these tenders and then more generally about the opportunity for Subsea products in Brazil?

T. Jay Collins

We see Brazil as an excellent market going forward, probably the fastest growing place in the next five years. And we think the demand from umbilicals there will be very strong. We're working with Petrobras on potential orders and we have plant that's in Brazil, basically designed to work for Petrobras. So they are our primary customer and we think they will have significant demand later in this year and for the next several years.

Unidentified Analyst

Okay. Thanks so much.

Operator

Your next question comes from the line of Chris Lasine (ph). Your line is open.

Unidentified Analyst

Thanks. Good morning.

T. Jay Collins

Good morning, Chris.

Unidentified Analyst

First question is, I was wondering if you could give us a little color on looking at product backlog and order intake. Do you have a general figure as to what you expect in yearly order flow?

T. Jay Collins

No, I am sorry we really don't keep up with that number. We did sort of keep up with backlog, but we don't really project order flow as such. I think, we did say that we anticipate backlog improving throughout the year but I don't have a number for you.

Unidentified Analyst

Okay. And along with similar lines, revenue out of backlog, how do you expect that, I guess to progress over the year or just for the year in general?

Jack Jurkoshek

We only do that analysis which you are talking about Chris, once a year.

Unidentified Analyst

Yeah.

Jack Jurkoshek

And we don't do it at year end and I have to go back and double check but I think the number was 90%

Unidentified Analyst

90%. That year-end backlog was expected to be booked in 2009.

Unidentified Analyst

Okay. And then switching to ROVs, was the sequential decline in implied day rate, was that a factor primarily of foreign exchange?

Jack Jurkoshek

And job mix.

Unidentified Analyst

And job mix? And would you expect that as you see some of these new units come on over the course of the year? Will they -- are they coming on higher pricing then what we are seeing now?

Jack Jurkoshek

I don't think we really want to go and poke. We've said all the year that our outlook for the ROV business for the year is predicated on increase in days on hire.

T. Jay Collins

We really don't comment on specific contracts, whether they are for new build rigs or for existing work?

Unidentified Analyst

I would say it certainly is generally true that the newer contracts have fairly newer bigger hire spect equipment, which would have higher day rates. And then also just make the point about, we do get higher revenue per day on construction jobs, which were down in the first quarter, compared to maybe the second or third. And so that does affect the mix. Hope that answers your question.

Unidentified Analyst

Yeah, thank you very much.

Operator

Your next question comes from line of Neal Dingmann. Your line is open.

Neal Dingmann - Wunderlich Securities

Good morning guys.

T. Jay Collins

Good morning Neal.

Neal Dingmann - Wunderlich Securities

Say, Jack I was wondering on the guidance that's out there, I mean is most of that just already in reined (ph) as far as backlog and sort of contracts that you have already seen or just sort to getting the sense of -- you have given pretty good colors as far as what you expect on the ROVs products, projects et cetera, just wonder how much sort of assumptions you based on that if that's possible?

Jack Jurkoshek

Well I can't really give you it's sort of risk adjusted really, what you are looking for, Neal and I would say that a lot of our work is booked and build as we go along, a lot of service work is a call-out basis. By no means is anything given. We got a lot of jobs to do during -- for the remaining part of the quarter and so I would say it's not anymore than our normal risk, but I certainly wouldn't tell you that, hey the second quarters in the bag. So I think we have a lot of work to book and execute.

So we are not just stamping those widgets. We have lots of interesting things happening and a lot of jobs to book and bill for the remaining quarter. But this is the normal way that we operate.

Neal Dingmann - Wunderlich Securities

Got it and then a follow-up on the projects. What did you say or have you said as far as drydock going forward for the remainder of the year. Have you already announced your work. What does that look like on the...

T. Jay Collins

We only have the one drydock this year. There is nothing else, no other drydocks happening in this year.

Neal Dingmann - Wunderlich Securities

Okay. Perfect, thanks guy's great quarter.

T. Jay Collins

You bet.

Operator

Your next question comes from the line of Steven Gengaro. Your line is open.

Stephen Gengaro - Jefferies and Company

Thanks. Good morning gentlemen.

T. Jay Collins

Morning Steven.

Stephen Gengaro - Jefferies and Company

A couple of quick things. The first, when you're -- talking about Petrobras and the umbilical side, do they on the umbilical side, do they have the same constraints and local content as they do with Subsea trees, I think they do, is that correct?

T. Jay Collins

I'm pretty sure that the tree market, Petrobras, there are several umbilical manufactures in Brazil and they provide backlog. There's large majority of umbilicals that are sold to Petrobras, but not all of them. So Petrobras has the ability to buy outside the country whenever they want.

Stephen Gengaro - Jefferies and Company

Okay, that's helpful. And then, I think you mentioned in your prepared remarks that you have won contracts on 15 of 25 rigs, which have been less (ph) so far, is that right?

Unidentified Analyst

On the remaining new billed rigs that have not yet been delivered.

T. Jay Collins

On the remaining 22 rigs that haven't been delivered this year, we've contracts on 16 of those rigs and we'll provide 17 vehicles on those 16 rigs. That's correct.

Stephen Gengaro - Jefferies and Company

Okay. And then on the contracts, you said, I think you said you have 22 contracts on your lease. Is that for the full year or is that of the 18 to 24 that are going to work through the next three quarters?

T. Jay Collins

Ask that again? Steve, I'm sorry.

Stephen Gengaro - Jefferies and Company

You had said that you had 24 to 30 ROVs that are being delivered this year into your fleet. 18 to 24 over the next three quarters, but then you mentioned you have 22 contracts, is that for the next nine months or is that a full year '09 number?

Jack Jurkoshek

That's on the next nine months.

Stephen Gengaro - Jefferies and Company

Oh great. Okay, I just wanted to clarify.

T. Jay Collins

And Steven, you were correct that we did say and it is true that the 25 rigs that out of the 91 that have ROV contracts left, we won 15 of those to provide 16 ROV.

Stephen Gengaro - Jefferies and Company

Great, okay. And actually my question was going to be around that point and that is, is the trend negative, I mean it sounded like you were way ahead of the game and then that number seems to be more reasonably down from your traditional market share. I think we're getting more competitive on prices, or shall I read anything into that or just ahead of sort of normal reaction of market share?

T. Jay Collins

I think the key thing to know is that four of these jobs were in Brazil, where we have traditionally had about a third of the market share. And we won about half of jobs in Brazil for new rigs as opposed to the high percent that we had in the rest of the world. So our cumulative, I gave you the other number on cumulative total of all the new builds since we started in 2007, we've won 30 out of 40 or 75%. And in Brazil, we won half of the work in Brazil.

Stephen Gengaro - Jefferies and Company

Good, that helps clarify. Thank you.

Jack Jurkoshek

I will just add to that and we've won 80% of the rest.

Unidentified Analyst

I think Steven that is exactly correct, it is part of pricing pressure and it is normalization of market share. When you start out batting a thousand you really don't expect to end the season that way, right.

Stephen Gengaro - Jefferies and Company

Right, and that makes sense, I was just wanted to understand.

Unidentified Analyst

And particularly in Brazil, price matters most.

Stephen Gengaro - Jefferies and Company

Very good. Now that does help. Thank you.

T. Jay Collins

Good.

Operator

Your next question comes from the line of Joe Gibney. Your line is open.

Joe Gibney - Capital One Southcoast

Good morning everybody.

T. Jay Collins

Good morning Joe.

Unidentified Analyst

Morning.

Joe Gibney - Capital One Southcoast

I just wanted to follow-up a little bit on the lack of seasonality, your comments their about the little bit of shift from your typical seasonality in particular on the project side, I think you intimated that it will be down a little bit in the second quarter. Usually see a little bit of the seasonal uptick in terms of utilization in the Gulf. Just curious what is the shift, I guess this year versus your typical seasonal pattern, that has changed?

T. Jay Collins

I think the main thing is just extraordinarily good first quarter, we did have hurricane carry over work and we had almost 80% vessel utilization in the project business, which is a very high number for the first quarter. So I would say we, we just had extraordinarily good first quarter and some of that related of course to the carry over hurricane work.

Joe Gibney - Capital One Southcoast

Okay.

Jack Jurkoshek

And in respect to ROVs, we don't count on having always lower than anticipated daily operating cost. So, we think the exceptional performance by, the exceptional execution by the ROV group, additional hurricane work and high utilization of our Gulf of Mexico vessels as well as I mean we just had a very quiet and very good quarter and we don't expect to be able to maintain that consistently. It was above the average performance in Q1.

Joe Gibney - Capital One Southcoast

Okay. That's fair, I appreciate. Anything new on the MOP side relative to the roll off well, and what was the timing specifically of that, and any incremental outlook for what they are in the back half of the year?

T. Jay Collins

No, nothing to comment there, we are clearly coming to the end of that contract.

Joe Gibney - Capital One Southcoast

Okay.

T. Jay Collins

And nothing to report about future work.

Joe Gibney - Capital One Southcoast

Okay.

Jack Jurkoshek

It's highly unlikely that it would roll over from one contract that has been on for seven years and go to another contract without serious retrofit.

Joe Gibney - Capital One Southcoast

Sure, understood. Last one, Marvin for you, just thinking about the remaining debt pay down here. You said you prepaid 25 million in the quarter? Well, how should we think about, I guess the incremental debt pay down to your 105 (ph) million scheduled to mature this year and rateably through out the year, does that create the pressure?

Marvin Migura

It really is, yeah we expect with our cash flows to be able to pay that down. We are not going to wait till September and hold cash until that debt is due. We didn't see any increase in our cash balances from 12/31, but I mean I expect we are going to play a conservative and look at over cash flow forecast and pay down debt when we think that makes the most sense, hold cash when see the liquidity issues. I mean like bills coming up. So we think that our debt is going to rateably go down during the year.

Joe Gibney - Capital One Southcoast

Okay. Thanks guys, I appreciate it.

Operator

Your next question comes from line Brad Handler. Your line is open.

Brad Handler - Credit Suisse

Thanks. Good morning.

T. Jay Collins

Morning Brad.

Brad Handler - Credit Suisse

Could you guys just speak please more to, I guess the Gulf of Mexico and the hurricane recovery. What's -- the Q1 may have -- it sounds like Q1 may have been a little bit stronger than you thought it would be three months ago or four months ago. What -- tell us a little bit about what's happening now in the field?

T. Jay Collins

I would say we have competing forces, on the one hand we have more vessels competing and it is a highly competitive market. But we do have hurricane repair work and salvage work that is still left over from the last hurricanes. I think that will continue throughout this year and into 2010. So we have a tail of the hurricane work, but we also have a generally increasingly very competitive market.

Brad Handler - Credit Suisse

And that's helpful. So it does sound like may be there is, ultimately there is more work on the repair side then you were thinking a while ago with that, is that fair?

T. Jay Collins

I think that's probably we ought to be we certainly were busier than we thought, it's kind of hard to judge. You see how much, you know that lot of platforms get damaged, but it's not quite sure when it will play out and when we'll do it and how concentrated it will be. But it certainly produced higher utilization for us in that. Certainly there are some major projects out there that we are talking to clients about they will go on for some period of time.

Jack Jurkoshek

And I think we captured the lions of year of the work because of our ability to do these under water specialty jobs. So, we had a better first quarter and as Jay said it, it is going to be tougher to repeat in Q2 because of competing forces and the work is declining as we complete it.

Brad Handler - Credit Suisse

Okay. So, it is rolling of and there is more vessels working and so that as this ratchets down the rest of the...

T. Jay Collins

Right, you got it.

Brad Handler - Credit Suisse

I guess is an unrelated follow-up, and switching gears to your activities in West Africa. I guess you mentioned favorable mix on the inspection side. But, can you just fill in the little bit what do you see there, how visible is work through the balance of '09 there and maybe the amount of learning about this in the process moving to.

T. Jay Collins

Our West Africa business seems to be pretty steady at the moment. There is some growth continuing there. But I would say is not booming like Brazil is at the moment. The inspection change was we exited a man power related business that was relatively low margin and we're able to eliminate some overhead. And so that was just a better product mix for us. So that's what was happening there. Otherwise, I would say it's good strong market but not a boom at the moment.

Brad Handler - Credit Suisse

Okay, that's helpful. Thanks guys.

Operator

Your next question comes from the line of Joe Agular. Your line is open.

Joe Agular - Johnson Rice and Company

Good morning.

T. Jay Collins

Good morning Joe.

Joe Agular - Johnson Rice and Company

I was just wondering Jay that they orders I know you don't want to get into numbers necessarily, but could you maybe discuss the orders in 2009, relative to 2008 overall. Are you expecting flat down, up,

Jack Jurkoshek

For what, Joe this is Jack?

Joe Agular - Johnson Rice and Company

Subsea products.

Jack Jurkoshek

Well fair, okay. I think our call on right now would be lower.

Joe Agular - Johnson Rice and Company

Okay. And then just remind again sort of the lead time in terms of between orders turning into revenues?

T. Jay Collins

I think in thermal plastic (ph) umbilical, we could start on the thermal plastic umbilical in probably 90 days from when we receive orders. Steel tube would not be longer if we have to order the steel tubes. Clearly on our OEI type product, we could start probably even smaller jobs, even building, making even similar and of course some of our stuff is -- we can begin work almost immediately. So, I'll say the longer lead time will be the steel tube jobs, which is probably get to 3-4-5-6 months on some cases and other things that are 90 days down since to start work pretty quickly.

Joe Agular - Johnson Rice and Company

Okay, I was just trying to understand it just because if you get towards the back half of this year, you are entering to 2010, what potentially if some orders do start to shake lose, how soon they could impact your numbers?

Marvin Migura

Hey Joe, I am going to here again and clarify what Jack said. We expect revenues to be down year-over-year from 2009. 2009 will be lower in products revenue than 2008. Our order flow I think we have a different view on, we do what Jay said in his opening comments is that based on discussions with customers we are hopeful that we will see improved order flow and operating results in the second half of 2009.

So, it is something that we are monitoring very closely, because we know it can impact us reasonably quickly. Our book-to-bills, since on the big jobs we do percentage of completion, it is as soon as we get -- there's a time lag A, after you get the order and B, when you get the instructions that they are allowing you to commence production until the final design is -- specifications are satisfied.

So, I'm going to say that we are hopeful that we're going to see an increase in order flow and we know and you know that we don't predict backlog anymore because it's seems like there's been inexplicable delays in it. But I think we are more hopeful looking forward than we have been in the last two quarters.

Joe Agular - Johnson Rice and Company

Oh, that's interesting. Thank you, Marvin. One other question if I could? I don't know if you've mentioned this, but do you have you mentioned of number of ROV startups that you expect to have in 2010 from the new rig contracts?

T. Jay Collins

No, we haven't. We won't predict that number for a while.

Joe Agular - Johnson Rice and Company

Okay. Thank you.

T. Jay Collins

You bet.

Jack Jurkoshek

Any more questions? Are you still alive?

Operator

Your next question comes from the line of Joe Agular. Your line is open.

T. Jay Collins

Hey Joe, you went blank on me there.

Jack Jurkoshek

Hey, Marlene.

Operator

Yes, I'm here. Can you hear me?

Jack Jurkoshek

Yeah, we just talk to Joe Agular.

T. Jay Collins

May be another question. Joe, do you have another question.

Operator

Your next question comes from the line, sorry, he must have still have been in queue. Your next question comes from the line of Brad Handler. Your line is open.

Brad Handler - Credit Suisse

Thanks, I got back in queue.

T. Jay Collins

Good morning Brad.

Brad Handler - Credit Suisse

Hi, again. Maybe I could just ask you to follow-up on that last comment. You did say it and we didn't really follow-up in our Q&A. But would you say that the discussions that are leading you to be more hopeful, to the extent that your visibility on the projects, I guess, is this a little bit of some of the logical catch up on the umbilical side, relative to the trees that we've talked about so much or rather is that some optimism about projects pursue -- some new projects coming down the pipe that would be may be countered to the pessimism in the marketplace.

T. Jay Collins

I don't think we're breaking any new ground on new project starting up. I think this is just the lag of lack of orders in the past and the fact that the first quarter was particularly poor and then booking in bulk orders. So I think there is some momentum building, some backlog of orders to be placed and while we've been discussing some of these orders with clients, we haven't got them to the finish line yet. So we can change it and look at our year in advance and say about the same number of orders out there that we have for the 18 months, may be even two years. So when we have particularly low booking quarter like we had in the first quarter, we do think that the second -- rest of the year will be better than that. But I think we are not trying to break any new ground here.

Marvin Migura

And we are not trying to signal anything other than, we are hopeful. And we said we qualified that we could get better results, predicated on timely securing these additional orders. So it's still an end, James was very clear on how competitive the pricing is until a lot more of this over capacity in the industry gets utilized. But I think it is fair to say that we are optimistic.

Jack Jurkoshek

Marlene, are you still there?

Marlene?

Operator

Your next question comes from the line of John Donald. Your line is open.

Unidentified Analyst

Morning guys.

T. Jay Collins

Hey John.

Unidentified Analyst

Just want to circle back on the guidance update here, given the better than expected results in first quarter and the prospects for potential better results in both the products and ROVs going forward, it kind of suggested there might be some -- in order to get to the down side of this guidance I feel some pretty steep declines in the other product lines and segments.

What environment macro wise do you see that we take to have that happen, I mean, I know originally that your $4 guidance was based on $70 per barrel of oil and you are cutting it down the rate from last conference call, oil is more in the $40 range, do you see that to be a big retrenchment in oil prices or is there something else that you are seeing that would potentially have some risk at the down side of this guidance range.

Unidentified Analyst

John I want to try that. I mean one of the things that we started in our opening remarks about how much uncertainty remains in predicting the subsea field development, order flow rate for the balance of the year. And that includes as Jay articulated ROV construction support, the timing of hardware, subsidy hardware orders and the requirements for our deep water vessel installation services. I think our range is very achievable, I mean in any kind of normal market. We don't go ahead and tie our range to oil prices specifically like, that one day when we say it was predicated on $70 oil, we make $4.

We're not doing that now and we're not looking at it. I don't think, if all it takes is a few project delays and Jay said we don't bring these Subsea hardware orders to the finish line. And you can see the lower end of it. We think we'll find it and we think either end is possible at this time.

Unidentified Analyst

Okay, great. Thanks guys.

Unidentified Analyst

You bet.

Operator

Your next question comes from the line of Stephen Gengaro. Your line is open.

Stephen Gengaro - Jefferies and Company

Thank you, just a quick follow-up and its back to the umbilical question. Obviously the last two years were disappointing, right from the order flow perspective. Have you seen and have you guys been able to explain it maybe better than you could have, because I know that's something we struggle with and where these trees are being ordered and by now your market share was real good last year. I'm just to get sense of internally, you've kind of come up with maybe an answer?

T. Jay Collins

I'm sorry we don't have any better thoughts then we've had in the past. I think it does seem clear to us that as long as these steel architectures keep changing at all, the umbilical deal, wasn't the last things ordered. But now as we have people delaying and being very cautious on the start-up for this project we've added that into the mix as well. But sorry we don't any new great insights for you there.

Stephen Gengaro - Jefferies and Company

But there still all local that with umbilical, we now that right?

Jack Jurkoshek

Yeah, that's right.

T. Jay Collins

Right, we got several umbilical.

Stephen Gengaro - Jefferies and Company

Okay, thank you

Operator

Your next question from line of Victor Marchon. Your line is open.

Victor Marchon - RBCCM

Thanks, good morning everyone.

T. Jay Collins

Good morning Victor.

Unidentified Analyst

Morning.

Victor Marchon - RBCCM

Just a question on the back half, want to see what you guys have to say just from an OIE perspective. You talked a lot about the Multiflex business. I just want to get a sense as you progressed through the year, how do you see the OIE order flow. It's going to be more steady than Multiflex, or is it a similar type of outlook where it's more likely a second half than we start to see things pick up?

T. Jay Collins

I would say that has been a steadier backlog overall. We have several businesses that all contribute to that backlog. So I would say it tends to be steadier, but certainly not without risk. But now with opportunities as well. So while there is uncertainty there, it has much variation than we see on umbilical side.

Jack Jurkoshek

And usually it is shorter term, book-to-bill. So if the order flow rate does have a hick-up, you'll see it quicker in the revenue recognition than in the umbilicals we see longer term.

Victor Marchon - RBCCM

All right. Okay. Thank you for that. And the other one I had was just on the Producer. Does that contract end in the second quarter?

Jack Jurkoshek

Most likely. I mean, it ends when the field runs out of oil. It's kind of on a day to day, month to month sort of rolling thing and so we really don't know. We just give the call one day and say, it's over.

Victor Marchon - RBCCM

Okay.

Jack Jurkoshek

We've got it in our forecast ending here in the second quarter.

Victor Marchon - RBCCM

All right. Good deal. Thank you guys. That's all I had.

T. Jay Collins

Good.

Operator

There are no further questions at this time.

T. Jay Collins

All right. Well, thank you very much.

Jack Jurkoshek

Take care, guys.

Operator

This concludes today's conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Oceaneering International Q1 2009 Call Transcript
This Transcript
All Transcripts