Oceaneering International's CEO Discusses Q1 2011 Results - Earnings Call Transcript

Oceaneering International (NYSE:OII)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET

Executives

Marvin Migura - Chief Financial Officer and Senior Vice President

T. Collins - Chief Executive Officer, President and Director

M. McEvoy - Chief Operating Officer and Executive Vice President

Jack Jurkoshek - Director of Investor Relations

Analysts

Christopher Gleysteen

Michael Marino - Stephens Inc.

Max Barrett - Tudor, Pickering, Holt & Co. Securities, Inc.

Jonathan Donnel - Howard Weil Incorporated

Brad Handler - Crédit Suisse AG

Tom Curran - Wells Fargo Securities, LLC

James Crandell - Dahlman Rose & Company, LLC

Operator

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2011 Earnings Conference Call. [Operator Instructions] Mr. Jack Jurkoshek, you may begin your conference call.

Jack Jurkoshek

Thank you. Good morning, everybody. We'd like to thank you for joining us on our 2011 first quarter earnings conference call. As usual, a webcast of this event is being made available through the StreetEvents Network service of Thomson Reuters. Joining me today are Jay Collins, our President and Chief Executive Officer, who will be leading the call; Kevin McEvoy, our Executive Vice President and Chief Operating Officer; and Marvin Migura, our Chief Financial Officer.

Just as a reminder, remarks we make during the course of the call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. And I'm now going to turn the call over to Jay.

T. Collins

Thank you, Jack. Good morning, and thanks for joining the call. It's a pleasure to be here with you today to talk about Oceaneering.

Our first quarter EPS of $0.77 was above our guidance of $0.65 to $0.70 as we achieved slightly better-than-anticipated operating-income performance by all our Oilfield business segments, and lowered our estimated annual effective tax rate from 34.5% to 31.5%. Our reduced tax rate reflects our intent to invest in international operations, and therefore, we are no longer providing for U.S. taxes on certain of our foreign earnings. We are well-positioned to participate in the next growth stage of Deepwater activity and our outlook for 2011 remains positive. We now believe, it is highly likely that we will achieve record EPS for the year. We are raising our 2011 EPS guidance from the range of $3.45 to $3.75 to a range of $3.65 to $3.90 to account for our lower estimated annual effective tax rate, first quarter operating results and revised outlooks for Subsea Projects and Subsea Products.

We now forecast Subsea Projects to have lower operating income than previously anticipated. It appears that our previous projection of demand for our services in the Gulf of Mexico to perform installation projects and inspection, maintenance and repair work during the remaining 3 quarters of 2011 was too high. The extent to which this demand actually materializes is a major factor that will influence our 2011 results. At this time, we're not revising our outlook for ROVs as we anticipate strong international demand will offset weak non-drill support demand in the Gulf. We now project Subsea Products to perform better on the strength of higher tooling and IWOCS service sales. As a result, we anticipate Subsea Products operating income will be higher in 2011 than 2010.

The resumption of Deepwater drilling permitting in the Gulf since our last earnings call has been encouraging. 8 drilling permits were issued by the end of the quarter and 3 more have been approved since then. We are still expecting that 20 to 25 Deepwater rigs will be working in the Gulf of Mexico by the end of the year. This compares to 14 as of yesterday, 7 at the end of 2010 and 30 at the end of March 2010.

I'd now like to review our quarterly Subsea Products, ROV and Subsea Project results. Year-over-year, our Subsea Products revenue, operating income and operating margin increased on the strength of higher umbilical plant throughput and an increase on installation, workover and control system service sales. Operating income improved over 75% or $12 million. The IWOCS profit improvement was attributable to a large multi-well completion project off West Africa and an increase in plug and abandonment and workover activity in the Gulf of Mexico. Sequentially, Subsea Products revenue increased on higher umbilical plant throughput. However, operating income declined primarily on a reduction in field development hardware sales. Our Subsea Products backlog at quarter end was $382 million, essentially flat with the end of 2010 and up $44 million from the end of March 2010. Sequentially, backlog for tooling and IWOCS services increased while that of umbilicals declined. Year-over-year, the backlog increase was primarily attributable to umbilicals.

We now anticipate that our Subsea Products operating income for the year 2011 will be higher than 2010 due to improved outlook for tooling, partially due to the NCAA (sic) [NCA] acquisition and IWOCS service sales. Margin is expected to be lower due to a change in product mix.

For the first quarter, our ROV results were slightly better than we anticipated. Operating income decreased 12% year-over-year and 3% sequentially. The year-over-year decline was largely attributable to lower fleet utilization and higher depreciation expense, as we have added 21 new vehicles to our fleet over the past 12 months. The sequential decline was due to lower fleet utilization. Our fleet-utilization rate during the quarter was 71%, down from 75% in the first quarter of 2010 and 73% in the fourth quarter of 2010. The year-over-year decline was attributable to a much lower activity level in the Gulf of Mexico. The sequential decline was due to seasonality and less non-drill support demand in the Gulf. For the balance of 2011, we expect to achieve quarterly fleet utilization in the 75% to 80% range. Operating margin during the quarter was 29%, compared to 34% a year ago, 28% last quarter and 32% on average last year. We continue to anticipate our ROV operating margin for the year 2011 will be slightly lower than that of 2010.

During the quarter, we put 4 new ROVs into service and retired 4. At the end of March, we had 260 systems available for operations, up from 253 a year ago. All 4 new ROVs went to work in drill-support service. Our fleet mix during March was 78% in drill support and 22% in construction and field maintenance, compared to 76/24 split in December and March of 2010.

As of our last earnings call in mid-February, we were receiving full-day rates for 14 ROVs on 11 rigs, partial rates for 7 ROVs and 0 rate for 7 ROVs. As of yesterday, we were on full rate for 20 ROVs on 17 rigs, partial rate for 5 ROVs and 0 rate for 2 ROVs. We believe this is a strong indication of what our customers are thinking about an acceleration of Gulf of Mexico Deepwater new-well permitting in the months ahead.

Since our last call, there have been no addition on the assets of Gulf of Mexico floating rigs relocating to other market areas. There were 27 floaters available for use in this area and at the end of March, compared to 36 a year ago. There has been a recent announcement of 1 floater being brought back to the Gulf from Egypt to drill a well for Statoil and we have the ROV contract on this rig. Additionally, 1 floating drilling rig is still slated to commence drilling operations at the Gulf of Mexico by the end of the year and 2 more are scheduled for 2012.

We anticipate adding 15 to 20 vehicles to our ROV fleet in 2011, 11 to 16 during the remaining 3 quarters, and we presently have contracts for 8 of these. 6 will work on new rigs and 2 on a vessel. Year-over-year and sequentially, the declines in Subsea Projects quarterly operating income was result of lower demand and pricing for our shallow water diving and Deepwater vessel services in the Gulf of Mexico. Sequentially, Subsea Project operating income was substantially lower. This was attributable to seasonality and an unusually strong fourth quarter performance in 2010. During the fourth quarter of 2010, we benefited from performing our own project and an umbilical installation job that we delayed from earlier in the year due to high vessel demand at BP at Macondo.

During the first quarter, the lack of new projects and bad weather resulted in low vessel utilization and poor job profit margins. While we expect an increase in demand for our diving and Deepwater vessel services during the remaining quarters of 2011, our current forecast is for a more challenging market. Consequently, we now anticipate that our Subsea Projects revenue, operating income and margin for the year 2011 will be lower than we had previously anticipated. Our new Ocean Project Dive Support Vessel commenced work on March 12 and worked for 17 days during the month. We retired and sold the previous 37-year old Ocean Project vessel in February at a small gain.

In summary, our first quarter results were above our expectations, and we're looking forward to realizing another year of record EPS performance in 2011. Our focus on providing products and services for Deepwater and Subsea completions positions us to participate in a major secular growth trend in the oilfield services and products industry. We are very pleased with our cash-flow generation capability as demonstrated by $97 million of EBITDA during the quarter. Capital expenditure for the quarter totaled about $109 billion, of which $30 million was invested in ROVs and $56 million was spent on the NCA acquisition. At the end of the quarter, we had $187 million of cash and no debt.

I'd now like to review our future business outlook. As I stated earlier, for 2011, we are raising our EPS guidance range to $3.65 to $3.90. Compared to 2010, our forecast assumptions are that we will achieve operating income growth from our ROV, Subsea Products and Inspection businesses and experience a profit decline from our Subsea Project operation. I believe we are well prepared for the challenges we face in 2011 and have the assets in place to take advantage of growing international markets and resumption of activity in the Gulf of Mexico. For 2011, we anticipate generating an excess of $435 million of EBITDA. Our liquidity and projected cash flow provide us ample resources to invest in Oceaneering's growth. Our CapEx estimate for this year is now $220 million to $250 million, of which approximately $100 million is anticipated to be spent on upgrading or adding vehicles to our ROV fleet. About $40 million is for Subsea Projects, which includes the completion of the Ocean Patriot renovation and adding a third to our system. $56 million is for the acquisition of NCA.

For the second quarter of 2011, we are projecting EPS in the range of $0.90 to $1. Sequentially, we anticipate quarterly operating income improvements from all of our Oilfield business segments. ROVs, due to an increase in fleet, based on higher [ph], we expect a benefit from a seasonal pickup in demand for construction work and growth in both domestic and international demand for drill-support services, Subsea Products, on the strength of higher tooling sales and Subsea Project and inspection due to seasonal demand increases.

Looking forward to 2012 and beyond, we are convinced that our strategy to focus on providing services and products to facilitate Deepwater exploration and production remains sound. We believe the oil and gas industry will continue to invest in Deepwater as it remains 1 of the best frontiers for adding large hydrocarbon reserves for higher production floor rates. Others must share this belief. At the end of the quarter, there were 70 new floating rigs on order and 5 more have been ordered since then. 60 of these are planned to be available by the end of 2013, 36 have been contracted long-term, for an average of over 7 years. With all of these rigs on order, or placed into service, the global floating rig fleet size, will go grow nearly 30% to 338 rigs, the high-spec fleet consisting of 5th and 6th generation and semis and dynamically positioned drillships, which currently totals 89 rigs, will grow by almost 85%. We have the ROV drill support market share of over 80% on the existing high-spec rigs.

As the use of floating rigs grow, so will demand for ROVs to support drilling. We believe it is inevitable that demand for ROVs to support vessel-related construction work and field maintenance activities will follow. We also believe the use of these additional floating rigs will eventually drive orders for subsea hardware to levels not previously experienced.

Furthermore, renewed industry and regulatory emphasis on safe and reliable operations is providing us additional opportunity to demonstrate our capabilities. With our existing assets, we are well-positioned to supply a wide range of the services and product required to support the safe Deepwater efforts of our customers. We believe Oceaneering's business prospects for the long term remain promising. Our commanding competitive position, technology leadership and strong balance sheet and cash flow enable us to continue to grow the company and we intend to do so.

In summary, our results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well on both the short-term and long term. We like our competitive position in the 2011 oilfield services market. Our technology gives us the ability to prosper in challenging times. We are leveraged to what we believe will be an inevitable resumption in the growth of Deepwater and subsea completion activity. The longer-term market outlook for our Deepwater and subsea service and product offerings remains favorable. The renewed industry and regulatory emphasis on reliable equipment and redundant safety features of Deepwater operations has caused our customers to be even more focused on risk reduction. This elevates the importance of the utility and reliability of our ROV services and related product line offerings, reinforces the benefit of our value sell. In 2011 we are now anticipating our EPS performance will likely be higher than 2010, and that we will achieve -- and that we will achieve another record year. We think this distinguishes Oceaneering from many other oilfield service companies.

Before turning the call over for questions, I would like to say farewell, as this will be the last earnings call that I lead. Kevin McEvoy, whom I've worked with since I joined Oceaneering over 17 years ago, has been designated to succeed me upon my retirement, following our annual shareholders meeting on May 6. I'm confident that the organization will continue to prosper and grow under his leadership. It's been a pleasure meeting many of you during my tenure as President and CEO this past 5 years. I plan to continue my affiliation with the company as a member of the Board of Directors. And now we'd -- I appreciate everyone's interest in Oceaneering and will be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brad Handler from Crédit Suisse.

Brad Handler - Crédit Suisse AG

If you could go over the ROVs -- rigs that have been ordered, those with contract, those remaining, that'll help me start the process. Sorry to make you go over that again.

T. Collins

Sure. Well, let me do it this way. There are 70 rigs on order. 36 of those have a contract with the oil company. 17 of those have signed an ROV contract. So there's 56 opportunities available -- no I'm sorry, 53 opportunities available for us going forward. Does that help you?

Brad Handler - Crédit Suisse AG

That's actually very helpful, right now. Very good. Were there awards in Q1 for ROV contracts?

T. Collins

2 jobs were awarded in Q1. We won 1 job with Statoil, and there was a Russian rig that was awarded that came out, who needs -- I'm not sure what happened with that. We didn't get it.

Brad Handler - Crédit Suisse AG

Okay. And what's your sense -- I'm sure this slips to the right like everything else, but what's your sense as to what gets awarded in 2011? How many ROVs might get awarded this year?

Marvin Migura

I don't know. I mean, [indiscernible].

Brad Handler - Crédit Suisse AG

I'm sure, it's hard, yes.

Marvin Migura

Yes, it really is. I mean, because we don't know how many of those are contracted.

M. McEvoy

We've got contracts in hand right now for 8 additional systems, right, the remainder for vehicles.

Marvin Migura

Those have already been awarded.

M. McEvoy

Right.

Brad Handler - Crédit Suisse AG

That's helpful too, yes.

M. McEvoy

And we're chasing -- 3 to 8 is what we've got a contract over the rest of the year in order to meet our guidance in '11, 15 to 20 for the year. And we're confident that we're going to be able to do that.

Brad Handler - Crédit Suisse AG

Understood. Will you actually build -- do you -- will you build or will you order long-lead items on ROVs that are not under contract?

T. Collins

We got a long supply chain. We always have components coming in, so that we have the ability to move our booked programs up and down depending on the demand that we see. So we're always looking at -- we're really modifying that on a quarterly basis.

Brad Handler - Crédit Suisse AG

Got you. Yes, and I figured as much. Okay. I guess, just a sort of a non-operating follow-up for me. I just happened to notice that the D&A line has drifted down the last couple of quarters. Can you comment on that a little bit Marvin and then give us your D&A outlook for 2011, please?

Marvin Migura

Yes, and I look [indiscernible] and, so it was a little bit below what is expected in the quarter. And it was [indiscernible] including corporate. I think we've [indiscernible]. Did he say, G&A?

Brad Handler - Crédit Suisse AG

[Technical Difficulty]

Marvin Migura

Did you say D&A or G&A?

Brad Handler - Crédit Suisse AG

Depreciation and amortization.

Marvin Migura

Okay. I think if you look what [indiscernible] had in Q1 last year, we had a $5 million impairment charge. And right now we are thinking of depreciation and amortization running -- we haven't change that between $145 million and $150 million for the year.

Brad Handler - Crédit Suisse AG

$125 million to $150 million...

Marvin Migura

$145 million to $150 million.

Brad Handler - Crédit Suisse AG

$145 million. Got it. Okay. That's a pretty tight range. Okay. Very Good. All right, guys. I'll turn it back.

T. Collins

Brad, what we expect [indiscernible] on new contracts, [indiscernible] we've talked about, were placed in service in 2011, because, I think, there might have been -- just as much to your interest here. If you take the 27 rigs will be placed in service during 2011, 5 were placed in service during the first quarter. We have an ROV on 1 of those. Of the 22 that are remaining, will be on a contract for 6 more. 6 of those, competitors have 6. That leads to opportunities. 3 of those are going to places, where we probably are not going to like to do work. So we're pursuing the other 7. So I hope that gives you some breakdown.

Brad Handler - Crédit Suisse AG

It did. [Technical Difficulty]. Could I ask you to do that again, just because it sounded a little choppy for some reason. [Technical Difficulty].

T. Collins

Okay. 27 rigs will be placed in service during 2011. 5 were put in service the first quarter. We had an ROV on 1 of those. The remaining 22 rigs we have contracts for 6, our competitors have contracts for 6. So at least 10 opportunities. 3 of those, we don't think fit us. And we're pursuing the other 7.

Brad Handler - Crédit Suisse AG

Got it.

M. McEvoy

And Brad, the 3 that don't fit us just for information, they're rigs are most likely going to Russia or China or Cuba, where we can't work.

Brad Handler - Crédit Suisse AG

Got it. Okay. That is really helpful.

Operator

Your next question comes from the line of Jim Crandell from Dahlman Rose.

James Crandell - Dahlman Rose & Company, LLC

Jay, with the demand outlook for ROV looking like it's improving, what is the outlook for pricing in ROVs and what are your thoughts about margins in that business going forward?

T. Collins

Well, you know, margins are depressed a little bit right now, because of the Gulf of Mexico situation. I think, the last 2 years, we had excellent margins. So I would think our outlook is to, this year, we will not get quite where we were before and hopefully by 2012, we will be coming back to those historical margins. I don't see improving those margins immediately in the near term. I think they're excellent margins and being able to pass price increases along to our customers would be a good objective for us. So I think we still have pricing, some pricing counter to pass along and all these talk increases that will be happening. I think getting back to those excellent margins that we had 2009 before pre-Macondo would be our expectation.

James Crandell - Dahlman Rose & Company, LLC

Okay. And Jay, with all the new offshore rig water announcements here, could you review with me if you would, your capacity to build ROVs at the current time?

T. Collins

We've been building in the, 20s, going 25 a year. We could easily build 40. We can expand that almost on a quarterly basis. So I think we are very flexible. We can move it up or down. We can do more retrofits of old systems or we can expand more numerous systems almost on a quarterly or a 6-month basis. So we're pretty flexible on that. I think our supply chain has got parts available to it, and a relatively small amount of labor to assemble an ROV in our Morgan City facility.

Marvin Migura

Jim, we can keep up with demand, whether it comes from vessels or from new rigs we can deliver. That capacity to add is not going to be a problem.

James Crandell - Dahlman Rose & Company, LLC

Okay. And Jay, if you would, maybe add -- try to take me through this. If we look since October 1, I think, there has been 31 new floaters ordered, at least according to ODS-Petrodata, when would we expect on average, to see the ROV contracts given for these batch of floaters that's been ordered from over the last 6, 7 months?

T. Collins

I'd say, that really is an interesting question. We see some customers working -- major oil companies tend to move further in advance. When they shut down one of these rigs maybe a year or two in advance they might very well come to us, and we might make a deal on the ROV. Other companies wait until the very last minute, so we don't really have a pattern other than some could be as far as 2 years in advance and others could be 6 months, 90 days, even, for some people.

Marvin Migura

Some wait till after the rig is delivered. And I think the key date for all these new rig orders, Jim is going to be when are they going to get contracts. When is there going to be an operator identified that we can go chase.

James Crandell - Dahlman Rose & Company, LLC

Right. Okay.

T. Collins

Usually, when that happens, there's somebody we can deal with and you would expect their order should be placed a year ahead of time. But not always.

James Crandell - Dahlman Rose & Company, LLC

Okay. Got it.

Operator

Your next question comes from the line of Jon Donnel from Howard Weil.

Jonathan Donnel - Howard Weil Incorporated

I had a question regarding the products. It sounds like the IWOCS results for the quarter as well as the build in the backlog for that group was a lot better than previous expectations. I was wondering if you could talk a little bit about where the demand is coming from that, if that's better with the Gulf of Mexico and expected if that's more of an international focus.

T. Collins

Yes that has been predominantly, the Gulf of Mexico business. And so I think, as all companies have been -- they haven't had permits to drill new wells, they have focused on completing some of the wells that they've had. So I think that has helped our Gulf of Mexico IWOCS business. But we are in the process of expanding that business internationally. But I think the movement that we saw this quarter is really due to, mostly to the Gulf of Mexico business.

Marvin Migura

We had a large West Africa job that was in product this quarter in IWOCS and it kind of shifted. This quarter was a mix, where there was a lot of IWOCS rentals related to plug and abandonment activity in the Gulf of Mexico. So for a time, we went through this period, where rigs couldn't drill, they were doing completions. And that was like Q4, the early part of Q1, where there was really good utilization of IWOCS. And then the latter part have shifted to being plug and abandonment. But there was a large multi-well completion project off West Africa in Q1.

Jonathan Donnel - Howard Weil Incorporated

Okay.

That's helpful. And then I guess, that kind of maybe ties in a little bit about the tax rate question. As you do more international investment, with the tax rate coming down in first quarter, is that indicative already of that Norse acquisition? Or is that just a different emphasis on where you reinvest the earnings from international operations?

Marvin Migura

No Jon. I think it has nothing to do with NCA, but -- it has something to do with NCA. But I mean, what we've noticed is we've been tax effecting all of our foreign earnings as if they were going to be brought home, initially, it was to pay back debt. And then it was to grow the business. And then it's been obvious to us that most acquisitions have been made in international. So it's more tax efficient to keep some of that cash overseas and don't tax it to bring it home. We don't usually bring it home until we actually need it. But we have been providing taxes as if we would ultimately repatriate it. So I think with the emphasis of growth in international water and a significant amount of cash flows, we can now leave some cash in our foreign subsidiaries and grow there and not have to grow through the U.S. parent company. So it really is a change in tax-accounting treatment that says, the money that we're going to reinvest from foreign earnings, we could just leave over there and not tax effect in the U.S.

Jonathan Donnel - Howard Weil Incorporated

Okay. So that sounds like it pays more on what you've done in the past. Is there any, I guess, incremental acquisitions internationally that is sort of baked in to get into the 31% number? Or I guess, another would ask, that is, if we see more international acquisitions, could that tax rate come down even further as we go into 2012, maybe?

Marvin Migura

I think, we've looked at that tax rate and the answer is, it could come down a little bit more. But it just really depends upon how successful we're going to be. I mean, just to be clear when -- from a tax purpose, reinvesting it means just not bringing it home. If it's put in cash in a foreign bank account and it would be "reinvested" in international operations. So it's not going to be tied to acquisitions that we make. However, as more and more of our cash is generated internationally, it could slightly impact our day rate. And as more and more ROVs shift from the Gulf of Mexico to international, I mean, our cash flows are significant internationally, and we just thought it was about time that we stopped tax effecting all of our earnings to bring it home.

Jonathan Donnel - Howard Weil Incorporated

Okay. Great. That's helpful.

Operator

Your next question comes from the line of Max Barrett from Tudor Pickering.

Max Barrett - Tudor, Pickering, Holt & Co. Securities, Inc.

I want to start with Subsea Projects. I'm curious if you could give us a sense as to the vessel utilization you saw in Q1 versus Q4, and now also, could you tell us how many boats are performing work today?

T. Collins

We really don't give out those kind of quarterly numbers. But it was lower, definitely lower in Q1 than it was in Q4. And I really don't know how many of our boats are working today. It's coming to go out. It's a call-out kind of business, so we're in and out on jobs so frequently that I just don't happen to know that they're all -- all of our vessels are active going out and doing work and then -- and coming back to the dock.

Marvin Migura

And Max, I think, Jay did address it in the opening comments about Q4 was unusually strong in projects, because of umbilical installation, and the pent-up demand for so many vessels being involved in BP Macondo. And now, that's gone away. The Q1 was a bad weather from offshore as everybody's reporting onshore, and there are more vessels competing for work. And it is a very competitive market out there, but we don't give out utilization of our vessel fleets. Innovative status reports.

Max Barrett - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. So for Q2 in that segment, as we kind of think about top line improvement, kind of single digits?

T. Collins

Again, we're just not forecasting those kind of details. We're rather on seasonal increase, but I guess, part of the visibility that we see in this market, it's just lower than we had thought there would be a quarter ago, so we -- as Marvin mentioned, it's a competitive market, and it's also a volatile market. This is one of the things where rates swing up and down. They can go up quickly, they can come down quickly. So we have the double whammy of lower utilization and lower rates, and we thought it would be -- we knew that the first quarter would be tough. We thought it would be -- we'd see a better visibility than we do right now. But right now, it looks like it's going to continue. We'll have some seasonal improvement, but still tough.

Marvin Migura

I think from the tone of our answers, you can tell that where we had earlier reported the biggest swing factor for 2011 was going to be the resumption of drilling activity in the Gulf of Mexico with the permitting and having as many ROVs on full-day rate as we do now. We hope that will continue and then the big swing factor becomes how much does vessel activity in the Gulf of Mexico pick up. And that's what we tried to articulate in the press release and these call notes.

Max Barrett - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. Fair enough. And switching to Subsea Products, could you give us an update on the sort of outlook for near-term umbilical awards, and then also maybe give us a sense as to the current margin differential between umbilicals and the segment average?

T. Collins

Yes, really the Umbilical business is pretty much what we -- have worked plain out, pretty much as we anticipated, and really, not much change from a quarter ago. I think the market is oversupplied with capacity. It looks like Brazil might be the first market to come into balance if Petrobras continues to grow their demand as they have forecast. There is quite a bit of quoting activity going on in the North Sea at the moment. But some of those awards are still pending out there. But in the U.S. it's the lowest -- by far, the slowest market right now. Our U.S. plant is pretty much living off of jobs that are in sort of West Africa and Brazil. We think that market continues to be the same, and we have hopes that it will continue to improve over time. For us 2011 is better in the Umbilical business than it was in 2010. And I think, next year will likely be better. But no real change in that market, and we just don't give out, as I've said, information on margins.

Operator

Your next question comes from the line of Michael Marino from Stephens.

Michael Marino - Stephens Inc.

Question on the Products business, how much of that is outside the Gulf of Mexico?

Marvin Migura

I think, we just can't answer that. Don't have that, I mean -- maybe...

T. Collins

No in the Umbilical business, we have three factories, 1 is in the U.S. and 2 are outside the U.S.

Marvin Migura

But the 1 in the U.S. is doing West Africa and Brazil. The subsea field development in Houston is working no the Tucson and West Africa projects. IWOCS is split mostly Gulf of Mexico, but some international. So we don't track it that way.

Michael Marino - Stephens Inc.

Well, how does that -- just kind of help me understand, how it's -- I guess, because I look at 2011 and you'll do probably about the same top line you did in 2008. But I would assume that '11 is going to be a better international year versus '08, and the Gulf of Mexico is still kind of relatively depressed, because of Macondo. Is that correct?

Marvin Migura

Well, I'll make sure we understand the question. Are you comparing this to '08?

Michael Marino - Stephens Inc.

I guess, top line in the Products division. I mean, you're already kind of at that run rate.

Marvin Migura

Give me a clue. What was our Products revenue in 2008? Mike, tell me what it was.

Michael Marino - Stephens Inc.

$650 million.

Marvin Migura

How much?

Michael Marino - Stephens Inc.

$650 million.

T. Collins

The Umbilical business had a pretty big year, I think. But umbilicals are certainly growing.

Marvin Migura

But I think it's definite to say that international is stronger relative to domestic in 2011 than it was in 2010, because domestic products in '10 is seriously depressed. I mean, there is no completion activity going on. There's no installation activity. It's all related to the construction. So we are, as Jay said, pretty much living off of the international market when it comes to product. We know with the exception of the stuff we do in plug and abandonment, but even vessel activity and installation, repair -- I'm sorry, Inspection, Repair and Maintenance activities is all kind of down, so -- tooling is down in the Gulf. So most of this is international.

T. Collins

I think your perception is correct.

Michael Marino - Stephens Inc.

Okay. Well get in that. And just as a follow-up to that, how long does the work in West Africa last? Will that go into 2012? Or is it...

Marvin Migura

We're not going to try to [indiscernible]. I think it goes on. I mean...

T. Collins

Our Cameroon, now, they've been through a whole business -- their whole story is West African project. So Cameroon is a big customer. And I think, they've got these projects stretching out for years.

Marvin Migura

I would add [indiscernible] as well.

Michael Marino - Stephens Inc.

Okay. So it's not something you like have to replace in 2012? I mean, the market will be there for it?

Marvin Migura

I think jobs, specific jobs that we have will have to be replaced.

T. Collins

But I think that outlook for that business is excellent. It's been one of the fastest-growing pieces of our -- of the Product sector is the field development business, and I think its outlook for 2012 is excellent.

Michael Marino - Stephens Inc.

Okay. Great.

Operator

And your next question comes from the line of Chris Gleysteen from Simmons & Company.

Christopher Gleysteen

Quickly on Subsea Products, your NCA, that flows through in the Products segment going forward?

T. Collins

Yes, correct.

Christopher Gleysteen

And how much of your revised outlook for Products is reflective of that acquisition versus organic improvement of IWOCS and tooling?

Marvin Migura

I mean, let's make sure -- well, yes. Some of it, it is. There is some of it in there. But in relative terms -- what did we say, in our press release, that it had revenues of $50-some-odd million.

Christopher Gleysteen

$56 million.

Marvin Migura

That's what we paid for. Did we have $56 million of revenues? But anyway, $50 something million of revenues, Chris, and so we can have for a whole year. So it is when you look at it in the scope of our products, what we did $550 million last year, I mean, it's not for 3 quarters, it's going to be 10% of our top line numbers, because all the other ones are organically growing, particularly on the top line with all that much higher umbilical throughput.

T. Collins

I think it's a piece, but not the largest piece.

Marvin Migura

It's a small piece.

Christopher Gleysteen

And do you perchance, can you provide us with either the EBITDA on NCA or the general profitability on that compared to the segment?

Marvin Migura

No.

Christopher Gleysteen

Okay. Turning to Subsea Projects, understanding that seasonality, you get an increase in the second quarter, but when you think about Q1 as a seasonal low in terms of activity, vessel additions coming into your fleet, between the Patriot, the Project, is it reasonable to assume that Q1 would mark the low point of the year, understanding that for the year, the assumptions have come down as a whole, but from a progression standpoint, that Q1 would probably be the low point?

T. Collins

I would assume that. I think that's a reasonable assumption.

Christopher Gleysteen

Okay. And that's helpful. One last one. What portion of your fleet is on Midwater semis? So 1st through 3rd generation semis, ROV fleet.

Marvin Migura

We don't track that, but we do know something about that.

T. Collins

We do have that for the rigs that have contracts expiring in the rest of this year.

Christopher Gleysteen

Yes, that will be helpful.

T. Collins

We can take a look at that, and let me see if I can find my notes here. So for the rest of the year, we have 25 ROVs on 57 rigs that have contract expirations. And of those 57 rigs that have contracts that are expiring...

Marvin Migura

No 25.

T. Collins

25 that are expiring, 3 are 2nd generation and 7 are 3rd generation and 8 are 4rth generation, so hopefully that gives you some...

Marvin Migura

I will look at it another way. You got 15 of the 25 on 4rth and 5th generation semis for drillships. So if you go looking at 2nd and 3rd, the answer is 10.

Christopher Gleysteen

Okay. All right. That's very helpful.

Operator

And your next question comes from the line of Tom Curran from Wells Fargo.

Tom Curran - Wells Fargo Securities, LLC

I'm curious, on Subsea Products as -- well, what percentage of your revenues outside of multiflex at this point are derived from rental-based services?

Marvin Migura

No. I think, I don't -- we don't know. And mostly, I mean, we go through the lines, the things that we rent are in ROV tooling and IWOCS. And then we got service on that side.

T. Collins

IWOCS is really a service. Really, it's the DTS part. DTS is 1 of 5 businesses in that business, and part of it business is tooling, so...

Marvin Migura

But we don't rent umbilicals. We don't rent subsea development hardware. We don't rent in Greyloc. We don't rent in rotator. So most of these things are -- I mean, it's an exception in the Tooling business and in IWOCS, where it's a more of a service and rental business than as they say, IWOCS is really, a service. So I hope that gives you an answer without -- or give you a flavor without giving you a number, because we don't have a number.

T. Collins

It might be a low double-digit number. But there's probably not a single digit, but it's probably not much more than a low double-digit number.

Marvin Migura

So I had to guess. I wouldn't even -- I wouldn't -- I have no idea.

T. Collins

So anyway, we just don't track it that way.

Tom Curran - Wells Fargo Securities, LLC

Okay. So it sounds as if we should still expect the vast majority of your new demand to surface in orders, to show up in orders from quarter to quarter?

T. Collins

I would say, the mix will be the same as it has been. Even in the area where we are renting equipment, like in our Subsea ROV Tooling business, that is one of the area, where we're renting new equipment that's come about as of Macondo. So that business is growing as well. So I would say, that the mix is likely to continue to be what it has been.

Marvin Migura

Tom, if you're looking for kind of a back-of-the-envelope book-to-bill, I mean, if you look, we had, whatever it was, $157 million of revenue, a lot of that goes in and out of backlog within the quarter. So it's not the visibility of such is really in umbilicals and Subsea field developments, where our backlog is mainly, and we've got it in all the other places. But some of our throughput is booked and build within the same quarter. So they're short-term turnover.

Tom Curran - Wells Fargo Securities, LLC

Right. Yes, that's -- essentially, what I meant is that, that mixture isn't meaningfully changing.

T. Collins

Correct.

Marvin Migura

Correct.

Tom Curran - Wells Fargo Securities, LLC

Okay. That's helpful. And then on inspection, it often doesn't get as much attention. And I guess historically, there's been good reason for that. But my impression is it is expected to perform nicely this year, internationally. Could you share some color on why? Where exactly do you expect to see growth?

T. Collins

You're right, that's a nice, steady growing business for us.

Marvin Migura

And it doesn't get much attention, because usually, it's overshadowed by projects. This year, it really is going to be very much more relevant.

T. Collins

I think the U.K., the largest areas for that business are the U.K. and then the new contract we have with BP in the middle of the Caspian area. So I think, that area -- most of those areas have been growing nicely for us.

Marvin Migura

U.S. shipyard -- I mean, yard activity, where we do some Inspection. The U.S. is picking up on fabrication work. I think the outlook is for a broad base improvement. Most of it will be coming from international. But the U.S. will be improving as well.

Tom Curran - Wells Fargo Securities, LLC

Is there anything about the trends that are driving that improvement that would -- that might potentially make you interested in investing and expanding that business including for acquisitions?

T. Collins

Well, we continue to look for small, and what we find throughout the world, generally small inspection companies, and we continue to look for those. I mean, we bought 1 in Australia late last year. So we will continue looking and continue to expect to find small acquisitions that we add to our business in that area. Yes, we hope so.

Tom Curran - Wells Fargo Securities, LLC

Okay. That's all I have.

Operator

There are no further questions.

T. Collins

All right. thank you very much.

Marvin Migura

Take care, guys. Goodbye.

Operator

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

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