Executives
David Butters – Chairman
Quintin Kneen – CFO, EVP, Treasurer and Secretary
Bruce Streeter – CEO, President and COO
Analysts
James West – Barclays Capital
Luke Lemoine – Capital One Southcoast
Jeff Patel – Madison Williams
Marius Gaard – Carnegie Investment Bank
Matt Beeby – Global Hunter Securities
Gary Stromberg – Barclays Capital
GulfMark Offshore, Inc. (GLF) Q3 2010 Earnings Conference Call October 27, 2010 9:00 AM ET
Operator
Welcome everyone to the GulfMark Offshore Q3 2010 Earnings Conference Call. May name is Lanea and I will be your conference specialist for this presentation. On the call today are David Butters, Chairman; Bruce Streeter, President and Chief Executive Officer; and Quintin Kneen, Chief Financial Officer. (Operator Instructions).
This conference call will include comments which are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties, and other factors. These risks are more fully disclosed in the company’s filings with the SEC. The forward-looking comments on this conference call should not therefore be regarded as representations that the projected outcomes can or will be achieved. Thank you. I would now like to turn the call over to Mr. Butters. Please proceed.
David Butters
Thank you, Lanea, and good morning everyone. And thank you for participating this morning on our Q3 earnings conference call. Except for some questions that might arise from the Macondo incident and its post-effects, our conference call today should be pretty straightforward. And so I think we can begin right away with some comments from Quintin Kneen who will cover the financial performance of the last three months, and then as usual Bruce will cover the current operating status and outlook, and finally we’ll have the Q&A period following that. So Quintin, why don’t you review the financials for the Q3?
Quintin Kneen
Thank you, David. As always Bruce and I will speak for about 15 to 20 minutes and then we will open it up for questions. As David mentioned a relatively straightforward quarter in terms of profitability and balance sheet movements. On a sequential quarter basis, revenue was up 2% and operating income was up 12%. This is the second sequential quarter that we have seen combined consolidated revenue and operating income growth since September, 2008, and although this income growth is consistent with a gradual recovery in the (inaudible) sector, I expect that we will see a pause in this recovery in Q4 and early 2011 as the Gulf of Mexico comes back online; followed, I believe, by another leg up in the cycle.
On a sequential quarter basis, average data rates were up in all three operating regions, although utilization was lower across the board. Revenue in the North Sea was up just over $1 million. Strong day rates drove the increase and were fostered by a strong North Sea spot market in the first months of Q3. The North Sea had 62 dry dock days in the quarter, up from 34 dry dock days in the Q2 and more than we had indicated on the last call. I will give an update on dry dock activity for the remainder of 2010 shortly, but we have just shifted some dry docks originally scheduled for Q4 this year up into Q3.
Revenue in the Americas was down nominally but essentially flat. Average day rate for the quarter was up over the previous quarter and equalization was down, reflecting the continued demand for spill response during most of the quarter offset by a sharp decline in late September as spill response activities began to wind down. Utilization was also impacted by the dry docking of four US-based vessels before they left for Brazil.
Revenue from our Southeast Asia operations increased by approximately $1 million over the prior quarter. Average day rate was up slightly. Utilization in Southeast Asia was 85%, which is down from the prior quarter but which relates to the addition of the two new vessels that were delivered in early Q3 that have yet to find surface.
Consolidated direct operating expenses were lower during the Q3, but principally due to deferring 1.4 million of mobilization costs associated with the four vessels going on contract in Brazil. Absent to capitalization of those costs, direct operating expenses in Q3 were in line with our anticipated annual run rate for the current fleet of approximately $43 million to $44 million quarterly run rate.
On the last call, we guided dry dock expense to be $5.5 million for the Q3, with some cautionary commentary that they might be higher depending on the actual timing of dry docks scheduled for the last half of 2010. Dry dock expenses for Q3 were $7.2 million, which was in fact higher due to moving forward in the year certain dry docks in the North Sea. We expect that dry dock expense for Q4 will be approximately $2.5 million, which results in a dry dock expenditure expectation for all of 2010 of $23 million, consistent but slightly higher than our original guidance for the year of $22 million.
General and administrative expenses for the quarter were down again, this quarter by approximately $1.2 million to be $10.2 million for the quarter. The average run rate for recurring G&A costs should be approximately $11 million per quarter, and accordingly I expect that G&A will be slightly higher in Q4 and that full year 2010 will reflect that quarterly average of approximately $11 million. Consolidated depreciation increased approximately $500,000, in line with the increase expected from the recent delivery of the last two vessels.
Operating income in the North Sea before the gain on the sale of The Traveler was $8.4 million, a decrease from the prior quarter but simply due to the increased dry dock expense. But even with the additional dry dock expense we still had an operating income margin for the region of 22%. Southeast Asia continues to perform very well. For the quarter, operating income was $11 million, an operating income margin of 62%. Operating income in the Americas was $7.2 million, up $1.9 million sequentially and resulting in an operating income margin of 19%. As a result, consolidated operating income for the Q3 before special items was $20.8 million, reflecting an operating income margin for the consolidated group of 22%, up 12% from the prior quarter.
Interest expense increased by approximately $750,000 from the prior quarter, which is the result of no longer capitalizing interest associated with the recently completed construction program. No additional cash is being spent on interest, just the treatment of the cost. Our effective tax rate for the quarter was approximately 5%. Before the gain on the sale of the Traveler, which has no dollar tax impact, the rate was approximately 7%. Looking forward to Q4 I expect that the effective tax rate for the Q4 will be higher, in the 10% to 15% range.
Cash flow from operations for the quarter was $18 million, which is a relatively low quarterly operating cash flow for us. Working capital required approximately $9 million during the quarter. Accounts receivable increased approximately $4.5 million, reflecting an increase in days of sales outstanding from 74 to 79, along with the semi-annual payment of accrued interest on the senior notes. I’m optimistic that we will not need to make any investments in the working capital during Q4.
Capital expenditures for the quarter were approximately $2.3 million, and proceeds from the sale of The Traveler were $18.5 million. Cash on hand at quarter end was $87.9 million, and I expect this number to continue to grow through the remainder of 2010. All totaled, total debt less cash, was $256.8 million on September 30. That is a decrease of approximately $36.5 million since June 30th. The $36.5 million decrease is generally the sum of the $18 million of cash flows from operations plus the $18.5 million of proceeds from the sale of The Traveler. I expect net debt to continue to decrease in Q4, and I expect net debt to be between $230 million and $240 million by the end of the year, depending on how sharp of a decline we experience in Q4 for the US Gulf of Mexico operations.
So to recap, at quarter end senior notes represented $159.7 million of our outstanding indebtedness. There was $10 million outstanding under our $175 million revolving credit facility, and the outstanding balance on the term loan facility is now $175 million. Total outstanding indebtedness is therefore $344.7 million and net of cash, the balance at quarter end was $256.8 million. The $10 million drawn on the revolver was done to support domestic working capital needs. Repatriating cash from our international operations results in a significant non-cash charge for taxes, so although we have plenty of cash liquidity the best economic answer for our transient cash flow needs in the US is to utilize our domestic revolver. Our intention is to repay that amount during Q4 depending on how US operations perform.
Contract cover for the remainder of 2010 stands currently at 73%. Consolidated contracted revenue for the remainder of 2010 is $76 million, that’s revenue dollars. The $76 million of revenue dollars for the remainder of 2010 breaks out as follows: $33 million for the North Sea; $12 million for Southeast Asia; and $31 million for the Americas. The total value of contract cover, not just the remaining amount of 2010 that I just mentioned, the total backlog is $673 million and the average day rate in backlog is $16,806. Total backlog reflects the current US dollar value of revenue under all existing contracts. Currently, the schedule goes out to 2018 but a significant majority relates to the period before the end of 2012. Forward contract cover for 2011 stands currently at 50%, and with that I will transfer the call over to Bruce to give more detail on our (inaudible) and more perspective on 2010.
Bruce Streeter
Thanks, Quintin. Over the last couple of weeks I’ve noted that analysts have come out with a variety of comments which have covered the waterfront I would say. And I’ve seen things that say that we are one of the companies most likely to underperform in the quarter. I’ve seen comments that said we were probably going to have had a very strong quarter; others that said that looking forward, there were negative impacts looking ahead in the Q4 and the Q1 of next year related to the Gulf of Mexico. All of this I think is indicative of the fact that there are a lot of moving pieces these days and there’s a lot of uncertainty, specifically as it relates to specific markets.
Overall I would say we had a great quarter. I was very pleased with how each of the areas reacted and how they met our expectations as far as controlling costs in a difficult environment, and at the same time obtaining charters and moving vessels effectively to improve the forward outlook. And it’s always that forward outlook that’s of most concern to us. Quintin has highlighted the fact that utilization was down in each area, but that almost exclusively comes from the fact that we increased dry dock expenditures in this particular quarter in order to facilitate contract needs and requirements; and that the result of that is that we will have a very small dry dock impact in the Q4. In fact, for instance in the North Sea, the last vessel that we have for a scheduled dry dock in that region is actually in dock now and we’re doing that now instead of December for positive reasons, and we’ll see how we’re able to report that.
Moving forward, I think most of the interest and most of the focus is on the Gulf of Mexico, but you have to realize that the strength of this company comes from the diversity of the types of equipment, locations that we work, and the strengths that we have in a number of areas that tend often to offset weaknesses in other regions. And I think that’s clearly the case in Q3 and I think it’s also the case going forward.
We have, as mentioned in past calls, made a number of changes and movements in order to respond to the weakness in the Gulf that was anticipated when the pollution response aspect with the Macondo incident concluded. Part of that, and the largest part, was the movement of four PSVs from the Gulf of Mexico to Brazil. In anticipation of long-term contract requirements in Brazil, we went ahead and moved up and did the dry dockings of all four of those vessels. Under the Petrobras contract, you build your mobilization and demobilization costs into the day rate, and so therefore we did not generate any revenue during the period in which the boats prepared and mobilized to Brazil. And at the same time, in the utilization we lost all of those days.
As some of you have heard from other conference calls in the past and in the press, there has been some difficulties in getting vessels on hire in Brazil related to some certain interactions between Petrobras and governmental organizations, loosely defined as the REPETRO Concern. Some ships have sat in Brazil for long periods of time, in fact sometimes months before they’ve been able to go on hire with Petrobras. And we’re quite pleased to say that the first two of the four that we sent to Brazil are on contract with Petrobras, and the second two are very far along in that process and I would expect to go on hire shortly. Potentially there is even the possibility that one of them will go on hire later today. The other movements that we have expressed and identified in the past are largely over. The one change is we’re going to add a sixth vessel in Trinidad. It’s one of the FSVs and it’s actually en route today for a near-term startup.
I think probably there will be questions so we’ll cover more of it in the Q&A portion. Obviously as long as nobody knows the real timing and impact of when permits will be identified in the Gulf of Mexico there is a certain amount or a great amount of uncertainty in that region. But I think one also has to look forward and realize that in essence, the Gulf of Mexico, because of the Jones Act, is a pond. It’s a closed entity where the number of vessels can only change by the number that people know are under construction, so we’re able to do a fair amount of forward predicting. Now, there’s a lot of talk about changes from the safety rules, how that will impact the number and types of rigs, drilling, whether or not there’ll be a requirement for standby vessels, changes in the character or expectation of oil spill response vessels; and more, and probably more important to us, the concept of additional P&A activity related to those facilities that have not produced in five years or more.
I would say that we’re discovering that the PSV’s that we have are particularly well suited to support P&A activity; and that P&A activity may be some of the first part of the recovery, and as such, those that are able to get moving on doing it probably will do it at a lower cost. And so therefore you may see some improvement in the marketplace related to the movement in direction in that market. We do continue to tender for opportunities outside the Gulf of Mexico, but we need to balance our Gulf of Mexico fleet and position, and the opportunities against a strong recovery that we anticipate. And we don’t want to underutilize the Gulf of Mexico in a recovery and a stronger marketplace.
If I switch to the North Sea I think that the year has worked out probably in many ways better than we expected. There was a lot of predictions of a very weak year overall, and then the marketplace surprised everybody with growing strength through the spring and into the summer. From our perspective we had early in the year sent vessels out of the North Sea to a variety of locations to try to take advantage of and reduce our exposure to what was deemed to be a weak market. But as it strengthened we rapidly improved and increased our contract coverage position in that region, signed a number of contracts primarily in the Q2 and early parts of the Q3 to carry us well forward and limit our exposure to the spot market. So even if there is weakness now we largely avoid that, and hopefully are taking actions that will reduce our exposure further. We’ll see what the next couple of weeks brings but we’re positive in that regard.
We only have two vessels that have contract end points in this Q4 in the North Sea. One of those vessels was in lay up last year, so obviously the fact that it’s still working is a gain, an improvement. And clearly if you compare a year ago to where we are today we’re quite comfortable and very pleased with how the North Sea has and will develop for us going forward.
Southeast Asia is an area that we’ve seen a lot of concern and comment throughout the year about the variety and availability of vessels throughout the region. And so far we’ve been able to say that it’s had little or no impact on us, and that’s largely because of the reliability and the confidence that existing charters have in the equipment that we have in the region. The addition of the two new vessels has shown us how difficult the market can be. It’s been very easy for us to find additional charters for the vessels that are there, but the vessels that have not performed before don’t have a reputation and are a little bit harder. But today we have one of those two vessels moving to a location where we expect it to start its first job, and they will break into the marketplace – it’s just going to take a little longer than it might in a strong market.
Overall around the world we’ve anticipated and expected that there will be a flight to quality and that that will benefit us, not only in the very specific regions but as the oil companies expand to more varied operations, as (inaudible) saw in this year. We had vessels earlier in the year in the Falklands and Greenland, a variety of locations where we normally don’t work, and that’s a reflection on the quality of the equipment and the support that we’re able to provide.
In the Southeast Asia market, I think in the Q3 for the first time in quite a while, we lost a renewal tender against a vessel of somewhat lower specification and considerably lower price. However, we are currently working for that client inasmuch as on the first run, that other vessel managed to hit the rig with a fairly significant amount of force. And I think that’s indicative of the fact that even though there are a lot of vessels in the marketplace, many of them would fall into a category that I would describe as the “great unwashed” – vessels that have no experience, limited operatorship, crews that are inexperienced, technical difficulties. So even though there’s a large volume of vessels I think that the marketplace reflects, and recent charter fixtures reflect that the superior quality vessels are going to be the ones that are going to work; and that the impact we have seen this year, which has been a reduction in rates generated, but as you can see from the return that Quintin identified, it’s still a very strong area for us and will continue to be so.
Overall, given the contracts obtained this year, the projects we are working on and our ability to ship vessels and respond to the rapidly changing markets, I am very pleased with where we are today. Since the end of the Q3 I understand that there have been 11 rigs ordered. Several contractors have opted for high-end jack up orders; virtually all of the orders are in fact intended to provide additional equipment for deepwater and/or harsh environment drilling areas. Now, there’s been a lot of focus in the last few months about oversupplying the jack up market and mid-water semi market, but in fact the focus in the industry continues to be on those sections of the market that we’re most interested in. The demand and the addition of new construction drilling units today, and this appears to be the start of the new operation, is clearly positive, and these are all signs for expansion of operation and future demand for our supply vessels.
The Gulf of Mexico will come back. Recent success in drilling in East Africa suggests that is an area of greater potential in the future. Drilling activity is increasing in the Black Sea and potentially the Caspian. Drilling that occurred in the Falklands has already generated further drilling plans, and I understand that the same may be the case in Greenland.
For us it’s been an interesting year. Later this week we complete twenty years as a company, twenty good, strong years and we are expecting and predicting many more to come. We will see the benefit from activity in the Q4 or early next year that may be somewhat limited in scope but will add to and build towards a positive future, which I think from where I sit, is very bright. And with that I will turn it over for questions.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. (Operator Instructions.) The first question is from James West of Barclays Capital. Please go ahead.
James West – Barclays Capital
Hey, good morning, guys. Bruce, you alluded to this a little bit in your comments about the “great unwashed,” but I want to ask kind of a big picture question here. We’ve seen in the rig markets pretty significant bifurcation between the new high-spec units, both jack ups and floaters, and the more commodity and standard equipment. And it’s only been exacerbated I think by the Macondo incident, and the disconnect is growing in here. Is the same type of pattern occurring in the vessel business right now? That’s an area where I think we have more limited visibility. But do you see that occurring? Has it started?
Bruce Streeter
I actually expected that it would have started almost immediately after some people started looking at the costs related to Macondo. I think it’s been slower to develop than what we would have expected, but I think that it’s coming. I know from the roundtable discussions that we’ve sort of had after the incident that I described in Southeast Asia that we’ve seen a number of tenders that now specify DP2 and have much more depth as far as the questions that are asked within the tender as far as qualifications go. So I think it’s a trend that’s got to be there. It’s logical. I’m not sure that the small difference in day rates in supply vessels has a very great impact in the broader scheme, but the loss of drilling activity and drilling days related to poor performance of supply boats can have a pretty dramatic effect on people. So I think it’s coming but I can’t give you specific examples of it yet.
James West – Barclays Capital
Okay. Bruce, do you have a sense of what percentage of the overall fleet would be DP2 or greater at this point?
Bruce Streeter
The world fleet?
James West – Barclays Capital
I know all of your fleet is, but yeah, the world fleet on (inaudible).
Bruce Streeter
It’s still probably a pretty small, small part. It’s very extensive in areas such as the North Sea and the Gulf of Mexico, but in Southeast Asia there’s still a very large number of 5000 horsepower and 3500 horsepower vessels. And you’re also finding that the glass society requirements in many cases are more difficult to attain DP2 than they were previously. So I don’t see that it’s a significant part of the world fleet yet but I don’t have any numbers.
James West – Barclays Capital
Okay. And then with respect to the Gulf of Mexico, how many vessels do you have in the domestic Gulf currently? And how does that compare to your pre-Macondo fleet size?
Bruce Streeter
Well, I think that we have today twelve of the vessels that are US flag that are out of the Gulf of Mexico, so effectively you’re looking at, we’re probably marketing 15 to 16 in the Gulf of Mexico.
James West – Barclays Capital
And as the Gulf goes through this period of weakness here, from a strategic standpoint do you fight for utilization? Do you try to maintain pricing? How are you guys thinking about the next few quarters?
Bruce Streeter
Well, I’m actually only primarily focusing on the next quarter from the utilization perspective. I think that at some point in time they will start issuing permits, probably only when the political pressure is appropriate. And that will probably release a number of rigs at the same time. And so I’m worried about the Q4 but I’m not going to commit a whole lot through the Q1 at lower rates, because it could be that three months from now we’re looking at a stronger Q1 and we certainly could be looking at a stronger Q2. It’s anybody’s guess at this point.
James West – Barclays Capital
And Bruce, I know in the past you’ve said that they probably wouldn’t change the requirements in the Gulf to have a standby vessel with rigs, but we’ve heard recently that some government entities are talking about that. Where do you stand with respect to that right now?
Bruce Streeter
Well, we read the same things that you do. There was a lot of talk when the second round of safety instructions regulations, whatever you want to call them were issued, that that would be included and it wasn’t. I know there’s a lot of talk about it, but when it happens I think all of us are going to have to react and see how and when it changes the marketplace. But once again, as of yet I don’t think there’s any clarity.
James West – Barclays Capital
Okay. Thanks, Bruce.
Operator
The next question is from Luke Lemoine of Capital One Southcoast. Please go ahead.
Luke Lemoine – Capital One Southcoast
Hi, good morning. Bruce, I just want to dig into the Gulf of Mexico fleet a bit more. You said you had 15 or 16 vessels that were marketed, I believe about 12 of those are PSVs if my math is correct. Can you give us a sense of how many of these are currently working and what the contract coverage is for 2011?
Bruce Streeter
Let’s see if Quintin has the contract coverage. My belief is that this morning we have four vessels off hire. Yeah, I think we have four off hire and one of those is an FSV.
Luke Lemoine – Capital One Southcoast
Okay. Do you have contract coverage for 2011?
Quintin Kneen
I think what you’re asking is the contract coverage for 2011 in the US Gulf of Mexico is (inaudible), correct?
Luke Lemoine – Capital One Southcoast
Yeah, it’s close to the Americas?
Quintin Kneen
Yeah, I actually don’t have it for the Americas. Actually, I don’t want to give that one out in particular, but let me tell you that the US fleet in general, I’ll give you that, which is about 54%.
Luke Lemoine – Capital One Southcoast
Okay, alright. That’s it for me, thanks.
Operator
The next question is from Jeff Patel of Madison Williams. Please go ahead.
Jeff Patel – Madison Williams
Hey, good morning, guys. With regard to the North Sea, I think as of last quarter you had three larger PSVs operating in the spot market. I’m assuming you’re referring to the contract rollovers in Q4 pertain to two out of three of those vessels. Can you give us a sense of what the opportunities look like both in the term and in the spot market and how you evaluate those?
Bruce Streeter
No, what we had in the spot market is the three large anchor handlers. I mean anchor handlers generally are spot market vessels. The contract rollovers that I’m talking about are PSVs. So you know, we are actively working on potential contracts such that we expect that our actual exposure to the spot market will be less in the Q4 than in the Q3, at least certainly in the last two months of the Q4. Typically the winter months, you have less activity related to construction and so you have more vessels available in the spot market, but you have companies that require what they call winter cover to accommodate larger demand because of lost days for weather. So you would expect that the stronger spot market as far as activity goes in the Q4; you generally will not see a lot of term demand until you pass December 31st. A lot of the rollovers are in the early part of the first quarter.
Jeff Patel – Madison Williams
Okay. And then switching over to the Gulf, I guess looking at the brighter side of things, the NTL related idle iron, how quickly do you think you could start to see an acceleration of P&A work, you know, understanding you don’t necessarily have a crystal ball and there’s a lot of uncertainty there. But maybe some help with regard to body language from customers and how you see that playing out.
Bruce Streeter
Well, I think if I’m not mistaken, I think we have two vessels out doing it right now. So those that have the opportunity to do it without traditional approvals, etc., are probably taking advantage of the fact that they’re going to do it cheaper this year than they are next year. So we would think that you’ll see more of that.
Jeff Patel – Madison Williams
Okay, thanks. That’s all I have.
Operator
The next question is from Marius Gaard of Carnegie. Please go ahead.
Marius Gaard – Carnegie Investment Bank
Alright, good morning. (Inaudible). I think my data says that around 50% of your working fleet has DP1, 2, or 3. But that’s my best guess. I have a few questions on the output for Q4. Q3 was affected by the dry docking modifications and the (inaudible) was quite down from Q2, so can you give a bit of help in what you mean by a soft Q4?
Bruce Streeter
I’m sorry? A soft Q4 in the North Sea?
Marius Gaard – Carnegie Investment Bank
You say in the statements that you expect Q4 to be soft and (inaudible) to be soft.
Bruce Streeter
Well, all of that’s related to the Gulf of Mexico. I mean we don’t expect, from our perspective if there is any softness in the North Sea market I don’t see that that’s going to affect us at all. I expect that we’re going to have a reasonably good Q4 in the North Sea and obviously we expect that we’ll have higher utilization in the North Sea. And maybe there’ll be some mobilization days in there, but apart from that I expect that you’ve done the dry docks in the Q3 so I’m expecting strength in the Q4.
Marius Gaard – Carnegie Investment Bank
Okay, alright. And then in Southeast Asian markets and the North Sea, both of those markets will probably be impacted by new supply coming into the market. So do you think day rates in these regions are flat or up or down the next six to nine months?
Bruce Streeter
Inasmuch as we have the benefit of some positive rollovers, I would say that from our perspective, I would say that the North Sea is positive. On a larger scale I think that the impact of new entrants into the market will affect certain classes of vessels but not others, and so overall you may have a weak period in the spot market, primarily because of the number of anchor handlers in the marketplace. But looking ahead the anchor handling numbers in the North Sea look to be pretty much in balance; i.e., the number leaving and the number delivering is such that you have about the same number of anchor handlers at the end of the year as you do now.
Southeast Asia, I don’t really see any further impact from new construction because there’s plenty of vessels that are there, that have been there for a long period of time, have not found work. And you’ve seen, you’ve had one show up in the North Sea, you have a few that show up in other locations. I think that the impact on rates could be, there could be a little bit of impact but we’re actually not seeing much change in rate fixtures from where we were in the Q2 of this year. And so I’m not really anticipating a great amount of change.
Marius Gaard – Carnegie Investment Bank
Right. And then finally, I’ve asked this a couple of times before but I mean it seems to be you have no further CAPEX left and you have pretty good coverage for 2011, so you are probably going to have a solid cash flow next year and you’ll probably have more cash on hand than you’ve ever had before. So (inaudible) how you plan to utilize the cash and to the extent we can expect you to embark upon a dividend program.
Bruce Streeter
Yeah, we’ve decided to give major bonuses to management. We figure that’s the only safe way to distribute the money. It’s an interesting question. I think that you’re developing definition in the marketplace that allows one to selectively identify opportunities that are most appropriate; that the negativity that relates to Macondo and other things are passing us and we all should be looking forward to the fact that the recent drilling rig orders, etc., indicate that those people who spend the big money are expecting to spend a lot more in the future, and that they’re very much oriented toward it. And we need to adjust our fleet to respond to that. The consistency of cash flow allows the capacity to do dividends, to do stock buybacks, to do the full spectrum without impacting our ability to do it. It’ll be nice to develop and see that cash flow next year, and as we develop that, then we’ll make those decisions.
Marius Gaard – Carnegie Investment Bank
Alright, thank you.
Operator
(Operator instructions.) The next question is from Matt Beeby of Global Hunter Securities. Please go ahead.
Matt Beeby – Global Hunter Securities
Thank you, good morning.
Bruce Streeter
Good morning.
Matt Beeby – Global Hunter Securities
My question’s kind of a follow-up to the previous question about cash usage. It seems that you’re fairly aggressively paying down some debt and you’re going to do more of that in Q4. Is that a priority more than maybe returning cash to shareholders?
Quintin Kneen
No, it’s not a priority. The first priority for the utilization of cash is truly to maximize return. I don’t like to have cash on the balance sheet. I think we’re appropriately levered at this point in the cycle. We’re looking for the right vessel opportunities and the right reinvestment in the business, and when we find those opportunities that meet our return requirements we’ll move forward on those. I think if we go any distance and don’t have those opportunities then we need to consider returning that to shareholders in one form or another.
Bruce Streeter
But the aggressive repayment process involves the fact that we’d like to restrict and reduce US-based debt. And as we are able to do it it’s logical to reduce that debt.
Matt Beeby – Global Hunter Securities
Okay. When you all look at the competitive landscape and potential for new vessels coming into the market, how do you think about that? You mentioned demand picking up but are we to the point where you see the demand supply fairly balanced looking out into the next quarter or next year?
Bruce Streeter
I think that’s a difficult question to answer. Certainly it depends on where you’re talking about and classes of ships. There are those that are oversupplied and that’s largely smaller low-end type equipment, commodity-type, coastal support, West Africa, Middle East, etc. But where you see the strength in the marketplace, the focus is on places such as Brazil and deepwater locations around the world, and then some of the more restricted operating regions, if you will. I mean it’s easy to worry about the equipment sitting in Singapore when you’re looking at charters in Indonesia in mild weather conditions, but as you look at places such as the Black Sea, the Falklands, Greenland, East Africa – areas where there’s limited or no infrastructure and where high-end rigs are going to be utilized – then you’re clearly going to see higher quality, higher end vessels used. And in those expectations I see limited competition, so I see strength and improving potential there.
Matt Beeby – Global Hunter Securities
Okay, good, and one more if I may. You mentioned that the two idle vessels in Southeast Asia, one is going to be working relatively quickly. Any thoughts for the second one? Is that, you think, a Q4 event?
Bruce Streeter
Yeah. I mean I think in some ways we tried to- You know, they haven’t been there that long and I think we probably tried to hit a homerun, trying to get a long-term contract out of the gate. And we’ll probably do some two work and some rig moves and some short-term stuff, just to establish that customers get comfortable with them. I won’t call it a probable charter but we have been looking at something that is long term and starts right after the first of the year for one of them. So it’s not unusual for it to take a while for a new vessel to get into the marketplace, and I don’t think that given the Southeast Asia market that it’s particularly unusual that these two vessels, and I do expect that they’ll do quite well.
Matt Beeby – Global Hunter Securities
Okay, thank you.
Operator
The next question is from Gary Stromberg of Barclays Capital. Please go ahead.
Gary Stromberg – Barclays Capital
Hi, good morning. I think in your comments you talked about potentially repaying US debt. How would you go about that? Would that be the RBS facility or the bonds, or a combination of both?
Quintin Kneen
No, we were referring to the question about the rapid repayment of debt, and the fact is that we have been paying down the RBS debt.
Gary Stromberg – Barclays Capital
Okay. And then just as a follow on, the bonds that are outstanding have restricted payment limitations. Do you have a sense for what that restricted payments basket is in order to make dividends in the future or repurchase stock?
Quintin Kneen
Yeah, I have an absolute feel for what it is but there’s, it’s quite sufficient – several hundred million dollars range.
Gary Stromberg – Barclays Capital
Several hundred million? Okay, thank you. That’s all I have.
Operator
And gentlemen, I have no other questions in the queue so that will conclude today’s question-and-answer session. I would like to turn the conference back over to Mr. Streeter for any closing remarks.
Bruce Streeter
David?
David Butters
No, I would just like to wrap it up and thank everyone for coming. And just a side comment about the several questions relating to the cash flow, speaking on behalf of the rest of the board, we are keenly focused very focused on that issue. We have strong cash position now, we expect that cash position to grow significantly. We’re trying to make the most intelligent use out of that cash. We know with some degree of angst and frustration that our stock price is significantly below what we believe is the asset value of the company. We want to improve that, we want to close that gap. We’re in a position to do it.
So the board is focusing on that issue and we’ll make an intelligent decision, hopefully it’s intelligent, over the next period of time. Our G&A is something that is conservative so we’re not going to do anything crazy, but I suspect that aside from the strategic work that Bruce and his team are doing and successfully positioning ourselves to compete worldwide, not only now but in the future as things change, we the board are focused very keenly on how to improve the stock value or the stock price and close that gap. And we have the wherewithal now to do that in terms of cash and cash flow.
So hopefully that answer develops over the next twelve months and we can succeed in doing that. And I hope to talk more about it at our next meeting. Thank you all for joining us.
Operator
A telephone replay of this event will be available starting at noon eastern today. Instructions for accessing the replay were provided in the press release. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your line.
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!
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!