Global Industries Ltd. Q1 2008 Earnings Call Transcript

Global Industries Ltd. (GLBL)

Q1 FY08 Earnings Call

May 8, 2008, 10:00 AM ET

Executives

Peter S. Atkinson - President and CFO

B. K. Chin - Chairman and CEO

Analysts

James Rollyson - Raymond James

Joseph Gibney - Capital One Southcoast

Karen David-Green - Oppenheimer

Bill Dessellum - Titan Capital Management

Gilbert Goldstein - Private Investor

Presentation

Operator

Welcome to Global Industries first quarter earnings conference call. At this time all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions]. Today's conference is being recorded, if you have any objections, you may disconnect at this time. On the call this morning are B. K. Chin, Chairman and Chief Executive Officer and Peter Atkinson, President and Chief Financial Officer.

I would now like to turn the meeting over to Mr. B. K. Chin. Sir, please begin.

B. K. Chin - Chairman and Chief Executive Officer

Thank you and good morning to all of you. I would like to welcome you to our first quarter 2008 earnings conference call. I'm joined here today by Peter Atkinson and Byron Baker.

We'll begin today's call with Peter providing a brief overview of our financial results in the first quarter of 2008. Then I will comment on the state of the company and our outlook. After that we will respond to any questions that you may have. Peter?

Peter S. Atkinson - President and Chief Financial Officer

Thank you, B.K. Good morning everyone, and I'd like to just remind you that the call is being recorded and will be available on our website. The object of the conference call this morning is to discuss the earnings for the first quarter ended March 31, 2008.

Certain of my comments and responses to questions may include forward-looking statements. These forward-looking statements are subject for a number of uncertainties which are discussed in detail in our December 2007 Form 10-K filing with the SEC.

For the first quarter, the consolidated revenues increased 8.8% to $301.5 million compared to $277 million for the same quarter last year. This increase in revenues during the first quarter of 2008 was attributable to a significant increase in activity in the Middle East that more than offset more revenues generated from Gulf of Mexico, Latin America and West Africa.

During the first quarter of 2008, revenues in the Gulf of Mexico were reduced by the impact of adverse weather and the non-availability of vessels. Revenues in West Africa were reduced by the impact of delays resulting from security and logistical issues in Nigeria.

Gross profit was $54.3 million in the first quarter of 2008 compared to $93.5 million in the same quarter last year. Gross profit in the first quarter of 2008 does not include the higher margin work experienced during the first quarter of 2007 from post-hurricane projects in the Gulf of Mexico, and from Pemex projects in Latin America.

During the first quarter of 2008, gross profits in the Gulf of Mexico, West Africa and Asia Pacific/India were also reduced by approximately $11.3 million of non-recovered vessel costs incurred during the drydocking of several vessels. During the quarter, we recorded a $2.2 million gain on the sale of the dive support vessel in the Middle East.

Selling, general and administrative expenses were $23 million compared to $18.1 million reported during the quarter ended March 31, 2007. This increase was primarily attributable to legal fees incurred of our ongoing internal West Africa investigation, and higher salary and administrative expenses.

We incurred higher administrative expenses to support our expanding operations in Brazil and the Middle East. Interest expense increased $1.4 million to $4.1 million for the quarter ended March 31, 2008, primarily due to the issuance of $325 million of convertible debt in July 2007.

Other net income for the quarter improved by $2.7 million, primarily attributable to interest income generated from significantly higher balances of cash and short-term investments and gains on forward exchange contracts.

The annualized effective tax rate for the first quarter of 2008 declined to 27% as compared to 31% at first quarter of 2007. This 4% decrease in the effective annual tax rate was attributable to improved earnings in foreign jurisdictions with low statutory tax rates.

During the first quarter, we booked approximately $125 million of new work resulting in a backlog of approximately $537 million at March 31, 2008. This booked work is distributed among our reportable segments as follows, the Middle East, a $193 million; Latin America, $148 million; West Africa, $100 million; Asia Pacific/India, $60 million and the Gulf of Mexico, $35 million.

Subsequent to the end of the quarter, we also announced the booking of approximately $110 million in additional new work in the Asia Pacific region. Net cash used by operations in the first quarter of 2008 was $69.2 million compared to $78.7 million provided from operations in the same quarter last year. The change primarily reflects lower net income and higher working capital needs during the first quarter.

During the quarter, we received $35.2 million in net proceeds from the sale of marketable securities, $4.4 million in net proceeds from the sale of assets, and invested $18.6 million in additions to property, plant and equipment.

Cash in short-term marketable securities totaled $703 million, and we had no outstanding borrowings on our revolving line of credit at the end of the quarter. Bidding activity for the quarter remained strong, and we received new enquiries with an estimated value of $3.6 billion. Bids in-house and outstanding at end of the quarter totaled $4.4 billion.

Revenues in our Gulf of Mexico offshore construction segment declined by $9.9 million between comparable first quarters of 2008 and 2007 to $6.9 million. This decline was primarily attributable to reduced activity compared to the higher post-hurricane repair levels experienced in the first quarter of 2007.

In addition, activity during the first quarter of 2008 was unfavorably impacted by adverse weather. The drydocking of the Cherokee and the transfer of the Pioneer to the subsea segment.

Revenues in our Gulf of Mexico subsea segment were $24 million during the first quarter of 2008 compared to $29.4 million in the same quarter last year. Income before taxes declined by $12.2 million to a loss of $1.6 million for the first quarter of 2008.

Profitability during the first quarter of 2008 was negatively impacted by lower activity resulting from weather delays, drydocking of the dive support vessels, and the rescheduling of vessels to allow the REM Commander to be deployed to meet our Brazilian commitment.

Revenues in our Latin America segment declined by $31.7 million to $70.2 million in the first quarter of 2008. This decrease reflects lower activity in pricing. Income before taxes declined by $35.5 million to $17.8 million in the first quarter of 2008. Higher gross profit margins were achieved in 2007 as a result of favorable resolutions to change orders on the completion of the projects in Mexico.

Our West Africa segment reported revenues of $40.6 million compared to $51.3 million in the same quarter last year. Project delays were experienced during the first quarter of 2008 due to security and logistical issues in Nigeria.

Income before taxes decreased $6.7 million from the year quarter to a loss of $6.2 million. This loss reflects more revenues and non-recovered vessel costs resulting from security and logistical issues in Nigeria and drydocking of the Hercules.

Revenues in our Middle East segment increased by $76.1 million to $85.5 million in the first quarter of 2008. The growth was driven by strengthening demand for our services in this region. Income before taxes increased by $16.5 million to $18 million in the first quarter of 2008. Contributing to this increase was a $2.2 million gain on the sale of the dive support vessel.

Revenues for our Asia Pacific/India segment increased by $1.8 million to $82 million for the first quarter of 2008. Income before taxes increased to $12.6 million in the first quarter of 2008. Favorable resolution of change orders on the British Gas project in India contributed to improved earnings. The improved profitability during the first quarter of 2008 was reduced by non-recovered vessel costs on the command shape [ph], which was into -- and being drydocking during the entire quarter.

Net income for the first quarter of 2008 was $26.8 million or $0.23 per diluted share for the first quarter of 2008, compared to $54.4 million or $0.046 per diluted share for the first quarter of 2007.

With that, I will turn the conference to Mr. Chin. Thank you.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Peter. I am pleased to announce that in the first quarter of 2008, we achieved increased revenue growth as a result of our successful geographical expansion particularly in the Middle East and Brazil. World oil prices remain high and EMP spending continues to robust levels, providing us with a strong market condition and great visibility for a solid future.

In the first quarter, we continue our best-in- class performance in safety. After completing 2007, with a record breaking safety performance that was the best in our company's history, we continue into 2008 by completing quarter one with zero-loss time incidents. That means our 5,000 plus employees worked nearly 3 million man hours with no loss time incidence during the entire quarter. This safety success, of course, translates into improved productivity and repeat business with our customers.

In the U.S. -- Gulf of Mexico, it was a surprisingly slow quarter with low level activity in both construction and subsea, due primarily to an extended period of inclement weather, when customers are not willing to have worked on or pay for weather standby.

Also affecting the gov during the first quarter was the demobilization of the REM Commander up to Brazil, thereby leaving us unable to use it for another any other work. Recognizing the need for a vessel such as this in the Gulf of Mexico, we charted a DP-DSV in March for six months to execute the remaining work left from Commander.

As we are progressing into better weather season and just in the last 30 days, we experienced a normally high level of bidding activities in the Gulf of Mexico, which we resulted in us being successful in getting awarded reasonable amount of work totaling about $20 million most of that starting in May. These job includes P&A, decommissioning work, pipelay and IRM jobs. We remained optimistic that these improved level of activity will continue in the Gulf of Mexico and offset a poor first quarter.

Our Latin America sector has a good first quarter, though not as impressive as a year ago, but was better than we expected. In Mexico, the Shawnee is still working on the PEMEX external repairs. Titan 2 will be undergoing regulatory drydock for the entire second quarter.

The bidding activity in Mexico is gradually picking up and we believe we are well positioned to be successful with some of these bids. In Brazil the Camarupim project is progressing as planned with both the vessels Iroquois and REM Commander now already in Brazil as we speak.

Offshore work is scheduled to begin in above 10 days time. We continue to be very optimistic about work prospects in Brazil. In West Africa, as we mentioned in our last call in mid-February, whereby we started laying pipelines for Chevron TIP second season work. As such, we did not have a full quarter of work due to a late mobilization which explains the lower revenues and losses due to the under-recovery of costs. The Chevron TIP is now progressing further revised plan and our team is working diligently to complete the project by the second quarter and also managing costs.

The Hercules is out of drydock and is being told to the bond for the Ebouri project was doubtful. All-in-all, the prospects for new work in West Africa continue to be high. Certainly we are in the process of reviewing additional work to be done this year with our customers in the region.

In the Middle East and Mediterranean region, our projects are being executed reasonably well. We are completing the CarbG [ph] fuel development project with all the pipelines installed and with a lot of the six jackets to be installed very shortly.

Upon completion, the barge 264 will be mobilized to Qatar for our first construction project for Qatar petroleum with the installation of two platforms as we announced during quarter one.

These projects keeps our strategy of geographical expansion and give us an opportunity for entry into Qatar. Following that project, the barge 264 will return to Saudi to execute a project which involves the installation of seven jackets for Saudi Aramco in the Manifa field.

Bid activity in the region is very strong and we should be well positioned to increase our market share in the Middle East. Over the past few up months, we have been able to grow our presence greatly in the largest oil and gas producing region in the world, including Saudi Arabia, the UAE, and Qatar.

In our Asia Pacific/India region, it was a very good quarter. We have the successful completion of the PRP Phase 1 third season for ONGC. We make a significant recovery effort from quarter four when there were concerns about timely completion of the project. As it turns out, we completed the project ahead of schedule, much to the great satisfaction of ONGC.

As we announced two weeks ago, we want two projects in India and inspection, repair, and maintenance project for ONGC for a one year term. And a significant part of the Mumbai High South Re-development (Phase II) Project. These jobs will keep us busy in India for the reminder of 2008.

E&P activities are high in India which in turns leads to a high bidding activity due to the tremendous industrial growth there. We will also award a pipelay project in Asia Pacific with work starting in next few months. The barge Comanche, which is completing drydock will mobilize to the JVPC project in Vietnam before heading to the new job.

Unlike in 2007, we are now more satisfied with our backlog situation in Asia Pacific, and we have a better visibility of the future in that area.

Finally in that region, I am proud to say that Global was the recipient of the best Contract Partner Award from BG India for our excellent safety performance on our recently completed Indian project. Special thanks to the vessel crews for the outstanding performance under extremely challenging environmental conditions.

In summary, the Latin America, Middle East and Asia Pacific/India regions did well. While the Gulf of Mexico had weather related challenges, and West Africa faced delayed mobilization due to the previous security and logistical issues.

Though our backlog has declined from quarter-to-quarter due to the lumpiness of the GDMC business, remained very optimistic as the market trends are excellent. And with a significant increase in bidding activities, it gives me comfort that 2008 will be a robust year for Global Industries.

On a longer term basis, we continue to make good progress in the implementation of our growth strategy which consists of further geographical expansion, increased business segments with focus into areas of performing deepwater/subsea/SURF work, IRM integrate projects, and decommissioning T&A work. And then, fleet upgrade and investing in our people and update of the art's technology.

Just last month, we announced a approval of the construction of a second $250 million new generation DP, Derrick/Pipelay Vessel for it's worldwide up shortly. The new vessel designated the Global 1201 is scheduled for delivery in April 2011, just 12 months after delivery of the Global 1200 it's sister ship.

With the expansion of our work in the Middle East, Latin America, Asia Pac/India, and West Africa, the Global 1201 together with Global 1200, the REM Commander, REM Fortress, Olympic Challenger and others give us a new asset base which is efficient, high tech and can be easily deployed to all areas in an expeditious manner.

In addition, the acquisition of the DP-2 too, DSV Orion as announced on May 7th, that is yesterday, will give Global another remarkable subsea SURF asset. I continue to be excited with the progress made by the company on all fronts particularly, our growth and investment made, and would like to thank all of our employees for their extraordinary effort and contributions.

That concludes our prepared remarks. Peter and I would now be happy to address any questions that you may have. Diane?

Question-and-Answer

Operator

Thank you. [Operator Instructions]. Jim Rollyson of Raymond James, you may ask your question.

James Rollyson - Raymond James

Hey, good morning guys.

B. K. Chin - Chairman and Chief Executive Officer

Good morning, Jim.

Peter S. Atkinson - President and Chief Financial Officer

Good morning, Jim

James Rollyson - Raymond James

Peter, B.K, you guys have talked for the last few months about looking at other vessels out there for the REM Commander, and Fortress and the Olympic Challenger. And I think Peter, your comment had been that the asking prices, whether it was a purchase deal or a charter, were a little bit higher than what you were kind of shooting for. So I'm guessing that the Olympic Orion came in more in line with what you were hoping to achieve, any thoughts on or any details on may be purchase price and that kind of stuff?

B. K. Chin - Chairman and Chief Executive Officer

Just -- and I'll respond to that, Jim. Yes, the prices out there, in fact those types of vessels are just not available for sale. We've been looking in the market now for over 9 months to find a suitable vessel; there is a high demand for them, we can -- our clients want them in the Gulf of Mexico. Since we had the REM Commander in the Gulf of Mexico, we've got over 97% utilization and we started to build a reputation here for that type of vessel. When we announced we were taking the vessel out of the Gulf of Mexico and taking it down to Brazil to satisfy our commitments there, we got quite a lot of push back from our clients that we would take that sort of high quality asset out of the Gulf of Mexico.

Coincidentally, with that an opportunity arose. It was a unique opportunity to acquire a vessel on a very short time frame, and we moved ahead and fixed that transaction just last week. But the charter rates for those vessels have doubled in the last six to nine months, and you just cannot find a vessel of that caliber to sale in the market at the moment. We can't -- we are not going to disclose the purchase price because of buyer confidentiality agreement on them.

James Rollyson - Raymond James

Understood.

B. K. Chin - Chairman and Chief Executive Officer

I would just add that Jim, we -- of course we are very prudent in making sure that we have the right price, and this is the most reasonable price that -- and we are very satisfied with this acquisition.

James Rollyson - Raymond James

So, that sounds good. You guys still looking at additional vessels? I guess you've got now four, ones the Challenger arrives, plus the two new builds. Thoughts on where your position is versus where it like to be over the next couple of years?

B. K. Chin - Chairman and Chief Executive Officer

We are open minded Jim. As you know, we have a strategy, we are very serious in growing the business and we are well positioned around the world. So we will manage the growth, in fact the investment in such a manner that it will support the growth that we have. So we are just going, we are not going to comment at this point in time. But we are going to be watching very closely with regards to where our business is going to be expanding into, and what are the additional needs that we are going to have to support the growth.

James Rollyson - Raymond James

Got you. Peter you gave us a breakdown of your backlog geographically, any, just kind of rough thoughts on the breakdown of, just kind of geographically of the $4.4 billion in bids outstanding, just kind of update us there?

Peter S. Atkinson - President and Chief Financial Officer

I think generally it's consistent with what I mentioned in the last quarter, whereby, the highest is in the Latin America area, followed very closely with the Middle East, and then West Africa, then Asia Pac, and lastly, Gulf of Mexico which is always not visible in terms of backlog. But in those other areas, we are talking about in the range of close to $1 billion, some areas are higher than that.

James Rollyson - Raymond James

Perfect. And then just last question. You talked last quarter about the sizeable job you're bidding in Brazil, can you give us an update on the status of that?

B. K. Chin - Chairman and Chief Executive Officer

We are bidding several sizeable job in Brazil, so depending on which one you're referring to but I guess, the one that everyone was talking about is the Uruguay Michelin [ph] project that I was using as an example that we're assuming. And the media had it that we were the lower bid out of two bidders and unfortunately, it was -- the customer looked at it and decided to change the scope of work. So now it's back out for re-bid. So we are in contention for the re-bid. So that is as far as I can share because it's being re-bid. So that project did not go away, but the customer decided to change it's scope of work.

James Rollyson - Raymond James

Understood, thanks guys.

B. K. Chin - Chairman and Chief Executive Officer

Yeah, fine. Thanks Jim.

Operator

Joe Gibney of Capital One Southcoast, you may ask your question.

Joseph Gibney - Capital One Southcoast

Good morning, everybody.

B. K. Chin - Chairman and Chief Executive Officer

Good morning, Joe.

Joseph Gibney - Capital One Southcoast

B.K, you mentioned with the new release here, discussions about the Nigeria operating environment, maybe attempting to mitigate some of your risks there and looking for a little bit better contract terms. I was wondering if you could give a little bit of clarity about that going forward?

B. K. Chin - Chairman and Chief Executive Officer

Yeah, when I refer to contractual terms it is that, basically, if you look at the issues that I have been mentioning for the last one year, it relates to logistical issues, it relates to security issues. So, and the new contractual terms, what we are negotiating with our customer on is to make sure that they work with us under the issues, and security will be cost to increase the -- security support level will be reimbursable by customers. So, that's one that you will mitigate it. Second area is logistical issues that relates to permitting, and other areas that are beyond our control, customer clearance and on and on. But those we are discussing with customers to make sure that they reimburse us for standby time at the result of waiting for that to happen. So, those are the areas that we are taking a very firm position with our customers to make sure that those fees are been mitigated as we see that.

Joseph Gibney - Capital One Southcoast

Okay, thanks helpful. Peter, I just want to touch base on the drydock side. You ran through a whole host of vessels here that came during the quarter. Just kind of curious, what are expectations I guess for number of vessels left here in 2008? And how can you start to think about drydocking cost for the rest of the year?

Peter S. Atkinson - President and Chief Financial Officer

And we basically have three major construction vessels in drydock during the entire first quarter. The Hercules will come out and is coming out this month. The Comanche should be coming out at the end of this month. But as we mentioned earlier, the Titan has come into drydock, and will be in drydock for the entire period. So, we've been looking at a similar sort of level of activity during the second quarter.

Joseph Gibney - Capital One Southcoast

Okay, that's helpful. And B.K., I missed your comment on the US Gulf of Mexico, you mentioned that increasing have normally high bidding activity, you mentioned a number I didn't quite catch. Could you repeat that?

B. K. Chin - Chairman and Chief Executive Officer

Yeah, just -- thank you for asking that question, and there are probably need to know the additional clarification. So the slowness in the first quarter is just beyond our prediction, I mean, it's just so low that -- and then, of course, if you look at the backlog, the backlog is $35 million, $36 million as Peter has mentioned early on. That is not -- that's untraditional, normally you don't see backlog in the Gulf of Mexico being that high. So that actually reflected work that were expected to be done in the first quarter but could not get done because of bad weather and that goes into the second quarter backlog. That's why you see a higher than normal backlog going into the second quarter. So that is number one.

Now as a result of the customers holding back on spending on weather down time, now certainly you would see that a strong, from almost all customers in terms of the bidding activities, wanting their job to be done and so and so forth. So, right now as we speak, our estimating department is so busy trying to get all the bids out and everyone is trying to commit. So as a result of that, we have in, just in April, it probably picked up between the $8 million of backlog and there are some more that we are still in negotiation stage. So, there is probably more to come in the next few weeks. So the slowness in Q1 is now being reflected in Q2 in terms of the pickup in high level activities.

Joseph Gibney - Capital One Southcoast

That's helpful and last one if I may, just a cute smiling housekeeping question. Just, could you update us on CapEx expectations for the rest of this year given all your new build initiatives since we are moving forward with the 1201 and, from the other vessel acquisitions? I appreciate it.

B. K. Chin - Chairman and Chief Executive Officer

Thanks, Joe. The -- we announced the Global 1200, but very little about expenditure will actually take place in 2008. However, with the addition of the Orion that we just announced yesterday, we're probably looking around $300 million for expenditures on the 1200 expenditures on our existing assets and expenditure on the Orion.

Joseph Gibney - Capital One Southcoast

Thanks, guys. I'll turn it back. I appreciate it.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Joe.

Operator

[Operator Instructions]. Karen Green of Oppenheimer. You may ask your question.

Karen David-Green - Oppenheimer

Thank you. I just had a question on West Africa you'll had a lot's in the quarter, it was not quite as great as your loss in the fourth quarter. But when do you kind of, see that market turning around in terms of profitability? I know you addressed some of the issues on security and logistics but in terms of kind a bottom-line, can you give us some color on that?

B. K. Chin - Chairman and Chief Executive Officer

We are working on those, and we are expecting positive results by closing the entire year.

Karen David-Green - Oppenheimer

Okay. So at half-end Q, as we go throughout the year, progressed Q2, Q3, Q4 or that we should show improvement?

B. K. Chin - Chairman and Chief Executive Officer

Yes --

Karen David-Green - Oppenheimer

Each quarter sequentially?

B. K. Chin - Chairman and Chief Executive Officer

Yes. Firstly, our business is that you have to work off whatever you have and you add new work. So the plan as you transition into new projects than the next year, we'll have to improve the overall performance of the region.

Karen David-Green - Oppenheimer

Okay. And --

B. K. Chin - Chairman and Chief Executive Officer

It's coming on the VAALCO project, so that it will be at this project to add-on and we are looking at some other work from other customers that will come into our backlog for Q3, Q4. So while we look on the issues, we add better quality projects onto it and it is how we go about improving the performance of that region.

Karen David-Green - Oppenheimer

Do you expect to have the Hercules up and running in any time now so we can get on this halfway quarter contribution for net asset in Q2?

B. K. Chin - Chairman and Chief Executive Officer

That one I mentioned a while ago. Hercules is on its way to the bonds, so as soon they arise, we will start working. As you know, when we start mobilizing vessel for a project that is when we it starts contributing revenue.

Karen David-Green - Oppenheimer

Okay. So you don't anticipate any kind of security legislatives [ph] permit any kind of delays like that?

B. K. Chin - Chairman and Chief Executive Officer

Not, because that directly is going to the bond.

Karen David-Green - Oppenheimer

Okay. And then on the new vessel that you just announced yesterday, does that have the same kind of revenue potential as the REM Commander in the US Gulf of Mexico market?

B. K. Chin - Chairman and Chief Executive Officer

We hope so and we expect it because it is a very good vessel, and in fact it is a REM Commander plus.

Karen David-Green - Oppenheimer

Okay. And do you still see the Gulf of Mexico at this point being, let's say $250 million to $300 million market a year or do you think has your idea changed in terms of the base level of business for that market?

B. K. Chin - Chairman and Chief Executive Officer

There is nothing fundamentally that cause me say that Gulf of Mexico is going to be a $300 million plus or a $200 million less. So, I think that band of $200 million to $300 million is a good band for a mature market, albeit that's going to be more, deepwater business is picking up. So in a long run you're going to see like what we all have been mentioning, you're going to see more deepwater stuff, you're going to see more PNA stuff and those are the two areas that we are capitalizing on with our strategic model. So, I think $200 million to $300 million band is a good band.

Now, of course this is coming out of a very slow first quarter, so our scope and our expectation for the sets, for… probably later part of the set, the cut-off part for good weather season is May 15. So, hopefully from May 15 onwards everyone, particularly our staff is going to be so busy because of work that has been accumulated and not done. All right, so we are very hopeful based on the indication that we are seeing in the last several weeks. So, at this point in time I would, Karen I would say that, I'm not ready to reforecast that.

Karen David-Green - Oppenheimer

All right. And then lastly, backlog was strong, but certainly bidding activity is at record levels. In terms of the timeline of converting some of that bidding activity and backlog, can you give us just the possible visibility on that?

B. K. Chin - Chairman and Chief Executive Officer

I hope that before the quarter end, we pickup some more, and then we pick up more work for the third quarter and on and on. So that over the year, we will continue to raise our backlog level, raise our bidding activities as we start seeing the true success of our implementation of our strategies by geographical expansion and increasing our business recommendation and with the enlargement of our fleet, and on and on, those are going to bear fruits you are going to see them overtime, that we are going to be showing the growth that we are expecting to.

Karen David-Green - Oppenheimer

All right, that's all I have. Thank you.

Karen David-Green - Oppenheimer

Thank you, Karen.

Operator

Bill Dessellum [ph] of Titan Capital Management. You may ask your question.

Bill Dessellum - Titan Capital Management

Thank you, couple of questions. The first one, relative to your gross margin, would you anticipate that the first quarter to be the low point for the 2008 calendar year?

B. K. Chin - Chairman and Chief Executive Officer

If you, Peter is going to dig into some of the numbers but let me give you a statement in general, Bill. If you look at the first quarter, first quarter we were negatively affected by the Gulf of Mexico, lack off, you know for any business, for any regions you need some minimum revenue in order to recover your cost base. We did not have that in the Gulf of Mexico. So once the Gulf of Mexico picks up, that is, instead of the negative margin we are going to have our traditional margins. So that will help the overall margin for the company.

In West Africa, West Africa as we mentioned, we have only half a quarter in Q1. You can make enough -- you can't do enough work in half a quarter, so that is been impacted. So, gross margin is impacted from that standpoint because of under recovery of over hedge. So those two areas, we are working hard to turnaround, so with those two areas improving, then one would expect that our overall gross margin should be at -- Peter you want to add to that?

Peter S. Atkinson - President and Chief Financial Officer

Yes, Bill. As B.K. just mentioned, it's not the big margins but we have an issue, whether it's a volume issue, the unrecovered vessel cost in the first quarter diluted the gross margins on the projects, and our expectation is that those margins will revert to more historical levels going forward.

Bill Dessellum - Titan Capital Management

And then that should continue, not only in Q2 and Q3, but you would anticipate what you know today that Q4 would also have higher level of gross margin as a result of the higher level of work activity?

B. K. Chin - Chairman and Chief Executive Officer

That's our expectation and as you know, it varies region by region because historically, in the Gulf of Mexico, pre-hurricanes, the first and fourth quarters are the weakest quarters, but as we diversify and we offset some of that cyclicality we hope to spread even those margins out throughout the year.

Bill Dessellum - Titan Capital Management

That's helpful. And then, as you look out over 2008, the full year relative to Mexico or Pemex, would you expect the full year revenues in 2008 to be greater than the full year revenues in 2007 specifically for that customer?

B. K. Chin - Chairman and Chief Executive Officer

Well Pemex out for Latin America.

Bill Dessellum - Titan Capital Management

Pemex?

B. K. Chin - Chairman and Chief Executive Officer

Yes.

Bill Dessellum - Titan Capital Management

Understood. Lets look at some of the numbers here before I answer the question for Pemex. In 2007 what -- do we have as --

Peter S. Atkinson - President and Chief Financial Officer

I don't have the Pemex numbers currently, but, because of the increased activity in Brazil what our expectation was there was that as the slow activity, relatively slow activity for Pemex being offset by increased activity with Petrobras as we entered the Brazilian market.

B. K. Chin - Chairman and Chief Executive Officer

So in total, Latin America, I think we can say that the Latin America is going to be higher than 2007 in terms of revenue.

Bill Dessellum - Titan Capital Management

And I guess where I was going and maybe instead of quantitatively answering maybe provide some qualitative perspective. I think in the opening prepared remarks, you had mentioned that gradually the bidding activity in/at Pemex is beginning to pick up a bit? And from a qualitative perspective, given what you see and feel today there with that customer, would you anticipate that you do end up seeing them higher or are we still dealing with some of the low activity from last year, driving into this year and so that will be a difficult hurdle?

B. K. Chin - Chairman and Chief Executive Officer

Yeah, I think our general expectation Bill is, at this point in time, we feel and we believe that it will be more than 2007, a revenue for Mexico because of -- like what I said, the gradual increase in the bidding activity, so, if they make a decision fast enough in terms of their lot then we have enough months in the remaining year to do the work.

Bill Dessellum - Titan Capital Management

Thank you, both.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Bill.

Operator

[Operator Instructions]. Gilbert Goldstein [ph], private investor. You may ask your question.

Gilbert Goldstein - Private Investor

My question was just answered, it was regarding Pemex. Thank you.

B. K. Chin - Chairman and Chief Executive Officer

Gilbert, thanks.

Operator

At this time you have no further questions, sir.

Peter S. Atkinson - President and Chief Financial Officer

Okay, thank you very much, for everyone for joining in the call and if there are no further questions, well we'll conclude it all. And look forward to updating you again on our second quarter earnings conference call. Thank you very much.

B. K. Chin - Chairman and Chief Executive Officer

Thank you.

Operator

Thank you for your participation. Your call has concluded. You may disconnect at this time.

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