Global Industries Ltd. Q2 2008 Earnings Call Transcript

| About: Global Industries (GLBL-OLD)

Global Industries, Ltd. (NASDAQ:GLBL-OLD)

Q2 FY08 Earnings Call

August 5, 2008, 10:00 AM ET

Executives

B. K. Chin - Chairman and CEO

Peter S. Atkinson - President

Analysts

James Rollyson - Raymond James

Joseph Gibney - Capital One Southcoast, Inc.

Joe Agular - Johnson Rice & Company

Bill Dezellem - Tieton Capital Management

Karen David-Green - Oppenheimer & Co.

Victor Marchon - RBC Capital Markets

John Kim - SET Capital

Operator

Welcome to the Global Industries Second 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 this call today are B. K. Chin, Chairman and Chief Executive Officer, Peter Atkinson, President and Jeffrey Levos, Chief Financial Officer.

I would now like to turn the meeting over to Mr. B. K. Chin. Thank you sir, you may 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 the second quarter 2008 earnings conference call. I'm joined here today by Peter Atkinson as well as our new Chief Financial Officer, Jeff Levos.

We'll begin today's call with Peter Atkinson providing a brief overview of our financial results in the second quarter 2008. Then, I will comment on the state of the company and the outlook.

After that, we will respond to any questions that you may have. Peter?

Peter S. Atkinson - President

Thank you B.K. And good morning everyone. As in previous calls, I would like to welcome you to our earnings conference call for the second quarter of 2008, and remind you the call is being recorded and will be available on our website.

The primary objective of this conference call is to discuss the earnings for the quarter ended June 30th, 2008. Certain of my comments and responses to questions may include forward-looking statements. These forward-looking statements are subject to a number of uncertainties which are discussed in detail in our December 2007 Form 10-K filing with the SEC.

During the quarter, we re-designated our Gulf of Mexico offshore construction division and Subsea reportable segment as North America offshore construction division, and North America Subsea. This re-designation of the segments has no impact on the reported financial results, and is intended to reflect the company's broader marketing focus to include the east and west coast of North America, Alaska, Canada and Newfoundland.

All our future discussions will reference in North America segments.

The second quarter of 2008, the consolidated revenues were $300.5 million compared to $248.9 million for the same quarter last year.

Gross profit was $7.8 million in the second quarter of 2008 compared to $74.1 million in the same quarter last year. The 21% increase in revenues in the second quarter of 2008 was primarily attributable to international growth, in particular the Middle East, Latin America and West Africa that more than offset lower revenues generated from North America and Asia-Pacific, India.

Gross profit in the second quarter of 2008, was $7.8 million compared to $74.1 million in the second quarter of 2008. The decline of $66.3 million primarily results from vessel standby costs, attributable to inclement weather, lease scheduling, non-availability of support vessels, port logistics and delays in customer flourished equipment and materials.

Additionally, the Middle East was negatively impacted by the provision of a reserve for disputed accounts receivable on a project completed in 2007. The non-availability of support vessels, including construction vessels undergoing extended dry docking activity also negatively impacted the financial results in the North America and Asia-Pacific segments for the second quarter of 2008.

Selling, general and administrative expenses were $25 million in the second quarter of 2008 compared to $20 million in the quarter ended June 30, 2007. This increase was primarily attributable to higher administrative and infrastructure cost related to the geographical expansion of the business into Brazil and the Middle East.

Interest income decreased by $2.3 million from the second quarter of 2007 to $3.5 million in the second quarter of 2008, due to lower return on investments.

Interest expense increased by $2.2 million to $4.3 million in the second quarter of 2008, due creations of $325 million of convertible debt in July 2007.

Our annualized effective tax rate for the second quarter of 2008 was 25% compared to 30% for the second quarter of 2007. The decreased tax rate was attributable for the change in mix of taxable income in foreign tax jurisdictions.

During the quarter, we booked approximately $180 million of new work resulted in a backlog of approximately $416 million at June 30, 2008. This booked worked is distributed amongst our reportable segments as follows. The Middle East $130 million, Latin America $98 million, West Africa $25 million, Asia-Pacific $132 million and North America $31 million.

Net cash used by operations in the six month ended June 30, 2008 was $124 million compared to $187 million provided in the same period last year. The decrease primarily reflects higher short-term working capital needs have lower net income.

Investing activity used $119 million net cash during the second quarter of 2008, compared to $87.8 million used during the same quarter last year. Increased capital spending and changes to net sales and purchase marketable securities contributed to this increase during the current quarter.

Capital spending of $177 million for the six months ended June 30, 2008 principally reflects an acquisition of a deepwater Subsea construction vessel and the ongoing expenditures in the construction of two new generation direct combination pipelay vessels at Global 1200 and 1201.

Additionally, $52.1 million in proceeds were received from net sales and marketable securities during the current period compared to $75.8 million net purchased as marketable securities for the six months ended June 30, 2007.

Net cash provided by financing activity was $8.4 million for the six months ended June 30, 2008, a decrease of $5.7 million. And was primarily attributable to proceeds received from stock option exercises. We had no outstanding borrowings on our revolving line of credit at the end of the quarter.

During July and subsequent the period reported, we've collected approximately $160 million in accounts receivable, and our cash from marketable securities totaled $549 million at July 31, 2008.

Bidding activities for the quarter remained strong, and we received new enquiries with an estimated value of $2.5 billion. Bids in house bids outstanding at the end of the quarter totaled $4.8 billion.

Revenues in our North America Offshore Construction segment declined by $8.6 million from $31.2 million in the second quarter of 2007. Lower utilization in the second quarter of 2008, primarily results from extended dry docking of Cherokee adverse weather at the beginning of the quarter and the loss of incremental revenues from the Pioneer which was transferred to the North American Subsea segment in July 2007.

Income before taxes decreased $5.7 million in the second quarter of 2008 reflecting lower revenues and non-recovered vessel cost due to lower vessel utilization.

Revenues in our North American Subsea segment were $35.7 million in the second quarter of 2008, compared to $42.7 million in the same quarter last year, which reflects the reduced demand caused by a competition and adverse whether.

Income before taxes declined by $9.8 million to $6 million in the second quarter of 2008. Lower revenues as well as higher rental fees dive support vessel that replaced the REM Commander unfavorably impacted the financial results in the second quarter of 2008, compared to the prior year quarter.

Revenues in our Latin American segment increased by $22.6 million to $55.6 million in the second quarter of 2008. Income before taxes declined by $26 million to a loss of 14.6 million in the second quarter.

Margins were higher with lower activity in the second quarter of 2007 reflected in the resolution of change orders in the final stages of work on projects in Mexico.

In the second quarter of 2008, increased cost related to extended periods of vessel standby attributable for delays in securing the inward clearances from our vessels into Brazil, the performance of a third party sub contractor, weather downtime and the dry docking a the Titan 2 unfavorably impacted the results for the second quarter of 2008.

Revenues in our West Africa segment were $77.1 million in the second quarter of 2008. The activity level was lower during the second quarter of 2007 when projects were abruptly suspended and vessels were deployed from Nigeria due to security issues. $4.4 million provision for disputed accounts receivable on a project completed in 2007, contributed to the loss before taxes of $7.3 million in the second quarter of 2008.

Revenues in our Middle East segment increased by $32.9 million to $66.9 million in the second quarter of 2008. This increase was driven by higher activity on the very intensive project [ph] during the current quarter.

Income before taxes declined by $22.5 million to a loss of $11.5 million in the second quarter. Inclement weather, extended periods of vessel standby and the non-availability of vessels due to port logistics and lease scheduling resulted in increased project cost in the second quarter of 2008.

Revenues for our Asia-Pacific segment decreased by $17.8 million in the quarter of 2008. The decline is primarily attributable to the extended dry docking a non-availability Commander during the second quarter.

Income before taxes declined by $10.5 million non-recovered vessel standby cost incurred during the second quarter of 2008 negatively impacted the results.

Net loss of $13.5 million was experienced in the second quarter of 2008, which represents $0.12 per diluted share compared to the net income of $41.1 million or $0.35 per diluted share in the second quarter of 2007.

With that, I'll turn the conference over to, Mr. Chin.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Peter. For the second quarter 2008, we continued to achieve success in growing the business partially due to our geographical expansion program which as you may remember is one of our main strategic initiatives.

Unfortunately for the quarter, we had challenging issues such as inclement weather port clearances, dry docking and the review of support vessels which affected profitably the... and I will elaborate on those issues later on.

In regards to the market situation itself, E&P spending particularly internationally continues to be robust providing strong market conditions and a good outlook for the future activity.

In the second quarter, we continue our best in class performance in safety. We completed quarter 2 with only one last time incident. This means that since January our 5000 employees have worked nearly 6 million man hours with only one lost time incident. This safely success of course translate into improved productivity and repeat business with our customers.

In North America, after a slow first quarter and early second quarter, activity picked up significantly in both Construction and Subsea segments after May 15.

In construction besides new pipeline work, we were successful in securing contracts for salvage work on 18 offshore platforms.

In Subsea and Diving segment, we were able to execute our schedule work with a short-term lease of the VSV Condo replacing the REM Commander which is now in Brazil.

Additionally, we were successful in the purchase of the DP-2 MSV Orion which is now busily working in the Gulf. The Orion has similar features and capabilities to both our REM Fortress and REM Commander vessels. The Cherokee has been in expended dry dock since February, and it's now almost ready to go back to work to execute the long awaited backlog of salvage work.

The Titan 2 after completing is dry dock this week will be kept in a Gulf of Mexico to help catch up on the backlog as well before mobilizing back to Mexico for anticipated work there.

We remain optimistic for the North America region in the next quarter based both on the high level activity and the addition of the Global Orion and the return of the Cherokee to the fleet.

Our Latin American segment after performing so well in the last two year, encountered a difficult second quarter.

In Mexico we completed the Hexa project, and we are currently actively pursuing bids. As a result, we are in the in between project phase. I was in Mexico three weeks ago, visiting PEMEX and the community leaders there.

The outcome of these meetings was very positive, with the government making good progress in the energy reform debate and PEMEX aggressive program for E&P spending to achieve 100% oil reserve replacement by year 2012.

In Brazil, the Camarupim project is progressing with the Iroquois and REM Commander vessels. The offshore work started off encountering problems with weather and expensive delays in securing clearance of our vessels for entry in Brazil.

We have implemented a recovery plan for the project achieved completion by quarter four of this year.

I was in Brazil two weeks ago, visiting Petrobras and other IOC's. The energy industry there is vibrant and encouraging with the recent discovery of oil and gas activities there.

In West Africa, we had an unfavorable second quarter primarily new due to the recognition of a prior year impact and the Chevron PIP second season project. It is good that we have now completed this better challenging project.

On a positive note, in the bond, the Boris project for vessel went very well with the Hercules and the completion of that project took place last week for the full satisfaction of our customers.

As a measure to turnaround our business in West Africa, we are putting aggressive plans in place to negotiate better contractual terms and conditions with our clients there and also to reduce cost in West Africa with a goal of achieving profitability in the regions cyclic.

Into Middle East and Mediterranean regions, we completed the ELF cup [ph] project development project with all the pipelines and fix projected installed.

As we mentioned last quarter, we are perusing change orders and claims which we hope will achieve success in the future. Barge 264 was mobilized to Qatar for our first construction project for Qatar Petroleum which consisted, the instillation of two platforms and was completed to the satisfaction of our customers.

The disappointing performance for quarter two was primarily due to the Aramco, Berri and Qatif project. The project was negatively impacted as mentioned by Peter by the inclement weather, unavailability of support vessels such as tugboats and the delays in customer supply equipment and materials leading to overruns in both cost and schedules.

We have been preparing change orders and claims, and have also developed a recovery plan to improve our current position. The recovery plan includes the reorganization of the Middle East operations and the mobilization of barge 264 to join barge 332 and the REM Fortress.

Bid activities remain very strong in Saudi Arabia, Qatar and the UAE. And after the completion of three projects within the last 15 months, we have now created a strong presence and image in this region which will help us to increase our market share going forward.

In our Asia-Pacific, India regions, we had reasonably good quarter with the successful completion of our Indian projects and the ongoing work with Seminole in Malaysia.

The Comanche... the Barge Comanche has completed dry dock and... has been mobilized to start work on the JCPC project in Vietnam. Upon completion of that project, you will proceed to another project in Vietnam before executing the Mumbai High SOFT project in India during October.

As most of our assets are committed in this region, we have reasonably... a reasonable backlog situation we are able to focus on long-term prospects planned for 2009 and beyond.

All in all, we had a challenging and disappointing quarter due primarily to abnormally high weather downtime extended dry dock periods for the Cherokee, Titan 2 and the Comanche. And some was difficult issues in clearing our vessels for entry into Brazil and the Middle East.

Though our backlog has decreased, I remain optimistic with the increasing E&P spending as illustrated by the significant increase in bidding activities. In fact, we are in the midst of negotiating several contracts amounting to over $200 million which hopefully will convert to backlogs in the coming months.

As a company, we are continuing to make good progress in the implementation of our growth strategy, which includes and consists of further geographical expansion, increased business segmentations we're focusing the areas of performing deepwater, Subsea, surf work, IRM integrated projects and decommissioning P&A work. And also fleet upgrade and investing in our people and the state of the our technology.

The DP-2 MSV Challenger with the state-of-art ROVs and other deepwater equipments, is getting ready for its maiden voyage to the Gulf the next week from Norway, which is Global another remarkable Subsea asset.

We have just purchased another saturation diving unit which will be installed on one of our newly acquired vessels. It is our intent to continue investing to grow our business. As you are aware, our cash balance remains strong and we believe it is time for us to implement a share repurchase program to buyback up to $100 million of the outstanding shares as favorable price level opportunistically to demonstrate our confidence in our future.

In conclusion, though we may have a hiccup in our earnings this quarter due to extraordinary events. Our business model is robust and we are all confident that with a project recovery plans and the further implementation of our strategic initiatives and the straying in activity of the oil and gas industry, we are well positioned for a very bright future.

That concludes our prepared remarks. Peter, Jeff and I would now be happy to address any question that you may have.

Question And Answer

Operator

Okay. [Operator Instructions] We do have our first question from Jim Rollyson. You may ask you your question and please state your company name.

James Rollyson - Raymond James

Raymond James. Good morning.

Unidentified Company Representative

Good morning, Jim.

James Rollyson - Raymond James

You... backlog this quarter slipped a little bit obviously and you kind of talked about just I didn't just pick up that much in terms of bids and it seems like the bidding size of amount has gone up from $4.4 billion as I recall last quarter up to $4.8 billion. Is this mainly an issue of delays and projects awards, I mean have you guys lost many bids or is just kind of a timing issue of getting bids awarded?

B. K. Chin - Chairman and Chief Executive Officer

I think it's both those factors. We lost a couple of them that we will actually in good position to secure to original players. And there were some delays in awards as you know whenever you position yourself to pursue large projects around the world particular with NOC, they tend to provide extension in submission date and extension in award. So we have those two in place, coupled with the fact that I mentioned that there were several jobs that we have been negotiating for a while, and it's just trying to bring to closure one way or other, it's just taken time to make that happen. So, definitely the active level activities has not slowed down as been reflected, but it's just bringing to closure on some of this outstanding bids.

James Rollyson - Raymond James

Understood. It sounds like your lease with that kind of your revenue visibility should be pretty reasonable. Can you talk a little bit, B.K., about the profitability side? Obviously you had a lot of things going on this quarter, but may be how you approach that going forward in terms of what margins look like on newer bids, what you can do the mitigate some of these things from happening? Obviously, whether is beyond your control, but just general how your... general how you are looking at profitability as you go forward and may be how you think about your opportunities for profits in the second half of next year relative to lets say the first half?

B. K. Chin - Chairman and Chief Executive Officer

Before I answer that overall loaded question, let me just use the Aramco, Berri and Qatif projects as an example. We have recognized deterioration for the quarter, but I just want firstly first impression is that you all may think that is project that we are loosing money. Actually that project is too profitable, it's just that... we went in with very high profit margin, in fact one of the highest that we bid mainly because we were expecting entering the new country, you're going to have some level of contingencies and unfortunately it's just painful when you have to eat up your contingency and some of the profits.

So, there is a dilution in that profitably for that particular job. At this point in time, that project is still profitable, but is not at a level that we are expecting it to be.

Now, I would say that all in all, around the world, I would say that the margins and the bidding margins that we are submitting for all those bids are still intact, of course, with the exception of the Gulf of Mexico. Gulf of Mexico particularly in the construction part, we see high level of competition, beside owners delaying the award of contracts waiting on queue after May the 15th. So what you're seeing in the Gulf of Mexico is more so a reflection of owner delaying the award until there is no weather issues. So that it will have the parent bay weather downturn.

Now as a result of that, that creates a squeeze on the pricing. We are from Subsea North America... Subsea standpoint we see a slight erosion of profitability, its not the high level that we have been seeing we for the last after the Hurricane Rita of the levels of 40%, and that has come down somewhat. But it is still at a reasonable level as we are seeing it.

And with our new vessels, we would believe that we can provide representation in the marketplace because of the value that we can provide with higher productivity deepwater type vessels and we can differentiate ourselves that way.

As it relates to Brazil, Brazil in the long-term, I think profitability will look good short-term wise because of the significant recoveries... discoveries there. I think its going to attract a lot of... initially a lot of competition to that area, because certainly there is an increase in market visibility as opposed to one or two competitions in Brazil that you saw many years ago, and now your are probably going to see a four or five players.

So initially, you may see squeeze increased competitions on pricing, because everyone is trying to jockey for position.

On a long haul, I think it will probably improve. I think Mexico is coming back and I hope that things are looking up there, and I hope that I better news to report in future quarters. It looks like things may be moving in Mexico. Middle East I think profitably these are expected to be in the... at the level that we have been seeing.

I think the key thing for us is making sure that we all do a better job managing, maneuvering of around the weather situation. Of course, we don't have total control, but also do a better job in anticipating the logistical part and the permitting part of get vessels cleared in new regions. And I guess we pay a little bit of price there for Brazil and Middle East learning to walk the ropes there, and hopefully with a better understanding of how to clear vessels in those two places may help us to mitigate that part of it.

And so Jim that is the long way of answering that question, I don't know whether I have given you a good flavor of what the situation is.

James Rollyson - Raymond James

Yes, I very much appreciate it, and just last little minor question. Peter, I think you've mentioned a higher cost chartered vessel in the second quarter in the Gulf of Mexico having some impacts on profitability versus first quarter. Can you maybe characterize, how you guys feel about the Orion in terms of the cost and margins, relative to just the last couple of quarters?

Peter S. Atkinson - President

Unquestionably the Orion has a low cost structure than... with the one that we charted to replace the REM Commander. Had we had the Orion available to us immediately, we may not have needed to charter that vessel. But, we had commitments in the Gulf of Mexico that when we announced, that we were taking the Commander down to Brazil. We've had several clients and several commitments that we have to fulfill. So, we took out a short-term chart another DSV to complete those commitments. But, the old vessels have a lot lower cost structure than the chartered vessel.

James Rollyson - Raymond James

Understood. Thank you.

Operator

Joe Gibney, you may ask your question. And please state your company name.

Joseph Gibney - Capital One Southcoast, Inc.

Good morning, guys. Joseph Gibney Capital One Southcoast.

Unidentified Company Representative

Good morning, Joe.

Joseph Gibney - Capital One Southcoast, Inc.

First, I just wanted to follow-up here, on the project recovery plans. Just try and understand directionally kind of, on the margin front. Are you indicating that there is potential for recoupment of costs, first in the case of some of these delays on customers, equipment et cetera. Just trying to a get sense from, West Africa, Middle East are the reimbursements here you guys are working to try to stay on track, relative to project timing. But, also potential recoupment in costs that could be incremental recoupment, I guess, as we look to back half of this year, into '09. Just a little clarity there will be helpful. Thanks.

B. K. Chin - Chairman and Chief Executive Officer

Let me start with Middle East. Middle East definitely, areas that is due weather, some weather of course we can't recoup summer weather it's, if later the customer is delay had delayed the supply of materials and that push us in the weather window. Then, that could be subject to a change order of claim. But any time that the customer is delay... is late in supplying the material, it affects our ability to install those material in a timely manner.

So, definitely we're putting together change orders as I mentioned in my presentation to the customer. But, until we are successful in collecting the change orders, we can recognize it to offset the cost at this point in time. So, hopefully we... while firstly we have to look on the changed orders, convince the customers, and get it approved when it is being, as they get approved, we will recognized them. If the similar situation that we went through in Mexico, but of course, results don't... I mean results may vary with the reasonableness of the... of the change orders. So, we are hopeful that we would achieve some level of success in the Middle East, on that particular project.

As far as West Africa is concerned, like what I said, the Chevron TIP project is complete. I don't expect a whole lot of resolution or change order outstanding for that particular project. But, I think the good thing on West Africa is that customers recognize the issues on a going forward basis. We are going to start the new contracts, when we're successful on that. We have a more aggressive requirement in terms of a better contractible terms and conditions. Learning from our lessons learnt, with logistical issues and handling situations over there. And our new contracts when we sign them, are going to have better terms and better pricing. And better contractual philosophies included in that. So, and of course, Brazil even though you did not mention Brazil, Brazil we are submitting change orders and claims too.

Joseph Gibney - Capital One Southcoast, Inc.

All right, its helpful, just a circle on a little bit on the outlook for incremental work. I understand that you're dragging on the NOC front, certainly a factor, relative to project to work push out. You mentioned smaller regional players whose carrier here is a smaller, less established players with new equipment kind of entering the market in certain areas. Just creating a little bit bidding pressure, new term pricing pressure I guess, and get your sense are you having to change how you approach of the bidding process and newer projects. Just a sense there relative to incremental equipment and smaller regional players potentially getting little bit more active maybe they know they were they were a year ago?

B. K. Chin - Chairman and Chief Executive Officer

Yes, for example the Aramco project that we were pursuing. That recently was awarded to regional player called Valentine. I think they have made their press release. And their pricing is like 20%, 30% lower than anybody else. We are not going to price our self to compete against those type of pricing. It's just not prudent to do so, and it's not sustainable. So, I am not going to allow that to happen, and I am not going to just compete for the sake of getting a project, and then paying a price later on. So, there are going to be some of those fair plays, but regional players definitely have different type of equipment. And there's going to be some of those in play in the business. And I've seen that being in play for the last 34 years. They come and go.

For a company like us, we want to continue growing from strength-to-strength, and we have certain bidding philosophy, and we need to stay the costs even though on a short-term basis, we maybe under some pressure. But, I think we just need to have a good model, so that we run a sustainable and good business on the long haul.

Joseph Gibney - Capital One Southcoast, Inc.

Okay. Thanks, one last one, and then I'll turn it back. Just, if you could comment about the Challenger or making voyage run out the U.S. Gulf, just curious about it'll work with the particular unit going forward. Thanks guys.

B. K. Chin - Chairman and Chief Executive Officer

We have a lot of customers, Joe, very interested in that vessel. We are trying to make sure that we get the best out of it. As of today, we have not signed anything yet, but we have a lot of interested customers that have actually traveled to Norway, looking a at in the last several months, and we are just trying to position it, on a long-term versus short-term basis. On a short-term basis, we can always get that vessel permitted. But, we're just making sure that we just doing simply commit it on the first thing that comes along. So, we're working hard and making sure that of we get it permitted to the extent that we would like to. So that we have a longer term commitment.

Joseph Gibney - Capital One Southcoast, Inc.

Thanks guys, I'll turn it back.

Operator

Joe Agular, you may ask your question. And please state your company name.

Joe Agular - Johnson Rice & Company

Joe Agular with Johnson Rice. My question is, you all are, I guess, almost half way into the third quarter, could you may be tell us what you think third quarter will look like, are you going to make money in the third quarter?

B. K. Chin - Chairman and Chief Executive Officer

I'd definitely hope so. Yes, it's our intension to be profitable.

Joe Agular - Johnson Rice & Company

Do you think it'll look something more like the first and fourth quarters, or is it potentially better than that. Fourth quarter, last year that is?

B. K. Chin - Chairman and Chief Executive Officer

Joe, as you know, we don't give guidance here. Definitely it's our intension to plan to be more profitable, and then what you see in the first two quarters.

Joe Agular - Johnson Rice & Company

Okay. I just... I think the issue that people are trying grapple with is, the confidence, and in terms of the contract margins that you have in your backlog and which are going to be working off. And I know, obviously, there is some issues like whether that affects you, but just a general underlying contracts that you do have, the prices you have, and so forth. Whether or not, this is something that... going forward will not happen again, like it did in the second quarter?

B. K. Chin - Chairman and Chief Executive Officer

Yes, I think as far as the weather part of it... that's something that we don't have total control over, and Middle East basically have... concerned different reports. That is, it's going through one of the worst in the last 34 years. So, it's a historical high level activities in the ocean over there. That part we will make sure that on a going forward basis, we have to re-look at our contingencies for weather over there, to make sure that we... whether we have provided enough for that or not. And making sure that, we evolve our schedule toward the extent possible, making sure that we work in periods that are not so susceptible to weather.

Now, on the port clearance, so I would say that that part, all of the competitors will be exposed to the same... to the same extent. On the port clearance, I think we have learned lessons. We will... we've put in place with regards to certain mitigate shipment factors. And, also looking at, the relationship that we have to develop and understand the logistical impact and ensure that we understand the departments to be aware of them. And, I would say that on a going forward basis, a lot of debt part will the removed. Especially, when you've been going to the new locations and new locations that marine department have not seen those vessels before. Now that, they have seen the vessels, they have seen the crew and next time around it will be much, much easier.

And I would say that a lot of those each and for some I'll say that the a lot of those issues that we have encountered are being mitigated of in the recovery plans. With a team that we have going forward, so that we would not have some of these hiccups going forward. And you can never remove all the hiccups, or all the issues, and we are in dealing in E&C market that the lumpiness and the impact due to customers and suppliers. And, in times like this sub-contractors and suppliers are all having the supply chain issue. So, our job is to make sure that we have a strong project management team to manage all the interfaces going, on a going forward basis.

Joe Agular - Johnson Rice & Company

Okay. That's it, I'll jump back in later with the follow-up. Thank you.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Joe.

Operator

Our next question is from Bill Dezellem. You may ask your question, and please state your company name.

B. K. Chin - Chairman and Chief Executive Officer

Good morning, Bill.

Bill Dezellem - Tieton Capital Management

Good morning, thank you. It's Tieton Capital Management, and we had a couple of questions here. First of all, relative to the weather costs, you certainly highlighted your cost of that. But, did your customers also share in those weather costs, and you're just highlighting your portion, or did you fully absorb those costs?

B. K. Chin - Chairman and Chief Executive Officer

Bill, it depends on the contract, some contracts the customer take weather. Some contracts we take weather, if the customer take weather then we don't provide contingency for that. If we take weather, we typically, what we do is as look at weather patterns over the years, and price into our bit of weather. And, if we exceed the weather contingencies, then we take the hit. And, if we don't exceed it, it drops to the bottom-line. So, it depends on the contract. Now, there's a first part. The second part if that if the customers delayed the project by issuing material to us late, and then we can claim weather because they have push us into a weather window that is not favorable to do the work. So, there is weather change other than claims company to play with.

Bill Dezellem - Tieton Capital Management

And relative to the second quarter, and the cost that you incurred, were you sharing weather costs or were you fully absorbing at this particular quarter?

Peter S. Atkinson - President

Bill, this is Peter Atkinson, the impact that we reported in the earnings release, was our share about weather.

Bill Dezellem - Tieton Capital Management

So, your customers did have some portfolio.

Peter S. Atkinson - President

That was the additional weather, open above about which we reported and it is compensated by the client.

Bill Dezellem - Tieton Capital Management

That's helpful. And then, kind of a bigger picture question, relative to this quarter, and your longer term strategy what is... does this quarter change the view of your longer term strategy, and in anyway, shape or form?

B. K. Chin - Chairman and Chief Executive Officer

From a overall strategy in terms of delivering the four things that we talk above geographical expansion, the business segmentation as it relates to deepwater surf work investing in new fleet of vessels, and investing in our people to do those new segments and geographical areas and technology, absolutely no. Because, our future is so important for the company. Like I said, this is just a hiccup, and projects do go through period of hiccups, as long as we have more good things and bad things than we would do well. So, we should not because of a hiccup in a quarter, destroy our future. But, the key thing is that we have to learn from our issues from this quarter, otherwise our future will be affected too. So, it is essential for the management team and executive, and the entire organization to look at. Lessons learnt put in place, quick recovery plans, work those iron those things, just built the issues out very quickly. And, implement it strongly on current projects and the future.

Bill Dezellem - Tieton Capital Management

Thank you. And then really rather radical question. You had mentioned that there were some cases where you were really well positioned, I think was your term, B.K. to win some work. But, your contracts had gone a different way. And, given the kind of implies that you're... you missed on price on there are just competitors that are consistently willing to bid at prices lower than you are. Does this imply at some point if competitors continue to be willing to bid at lower rates, than you're that you should consider selling the company?

B. K. Chin - Chairman and Chief Executive Officer

No, the answer for the last one is no. But, going back to there are always going to be competitors at price. Now, that is not what I was referring to Bill, when someone wins on price. What I was referring to when a regional player wins, it's a regional player that would not be qualified in the first place technically to do the job, because the company is so small, has no equipment to do the job.

So, from a technical standpoint you would not award such a job to that company because they don't have a people, they don't have the assets, don't have the experience to do the job. So, and for a lot of this NOCs bid process is that you have a technical submission and you have a commercial submission there. Sometimes they are submitted at a same time.

Now, to get into the pricing bug, you have to satisfy all of the technical requirements. And unfortunately, some of those regional players they manage to get through the technical, which in the first place they should not be. Now, once you get into the technical, everything is open from the standpoint who has the lowest price, will get the job, because they are technically able to do the job. But, what I'm... I was saying early on is that one of two of those in the first place has no reason to meet the technical requirement.

Going back to your last question about selling the company, I mean, the company is on moving in the right direction. We have a lot of cash, and we have invested in new, six new vessels in last two years. And, we're transforming the company into a higher value, added segment deepwater subsea, and all those important things having communicated the strategy. So, it's now our job is to deliver those, and create shareholder value to all the investors that we have outdated efforts, a lot of confidence in the company.

Bill Dezellem - Tieton Capital Management

Great. Thank you.

Operator

Eric Stevenson [ph]. You may ask your question and please state your company name.

Unidentified Analyst

Yes, hello, B.K. Hunter Global Investors [ph].

B. K. Chin - Chairman and Chief Executive Officer

Hi, Eric.

Unidentified Analyst

Hi. Given the robust outlook in the macro environment, and coupled with the fact that your stock is down 20%? Are you buying stock today?

B. K. Chin - Chairman and Chief Executive Officer

We... if we could, we would. But, we have to follow our 10-Q. And my experts have been telling me that I can't buy any shares until 48 hours after submission of the 10-Q.

Unidentified Analyst

And when would that be?

B. K. Chin - Chairman and Chief Executive Officer

Peter, Peter can you tell me when we are going to submit the 10-Q?

Peter S. Atkinson - President

We're scheduled for tomorrow.

Unidentified Analyst

Okay. So 48 hours after tomorrow.

Peter S. Atkinson - President

But we have until August 11.

Unidentified Analyst

Right.

B. K. Chin - Chairman and Chief Executive Officer

The key thing here is that... Eric, I'd like to see this much cash to invest in the future. We are... I'm very serious about growing the strategy, doing all those things. Now, of course, if the share is at such a low price, and we would do that on the opportunistic manner, just to show confidence in our share, and that's the message that I've communicated in the press release and in the earnings call. The key thing, our first priority is to investing in the assets and in our strategy. But, having said that at this point in time, we have this topple of level share prices. We are going to buyback some, so that it will provide a longer term benefit to our loyal investors and shareholders.

Unidentified Analyst

Right. Another question you mentioned the Orion earlier. At what rate, is the Orion chartered in the Gulf, and when did the charter begin?

B. K. Chin - Chairman and Chief Executive Officer

It has started going to work in the last several weeks. So, we are chartering it at the Commander plus rate.

Unidentified Analyst

And what rate is that?

Peter S. Atkinson - President

Eric, we don't provide that information normally, because it's great competitive information as to what we sell those vessels on.

Unidentified Analyst

Okay.

B. K. Chin - Chairman and Chief Executive Officer

We can't give it to you, because we have competitors. We have competitors listening it.

Unidentified Analyst

Okay. So, you can't give that information out?

B. K. Chin - Chairman and Chief Executive Officer

No I don't think so. Otherwise, with Middle East and lose the project today.

Unidentified Analyst

Okay. All right, thank you.

B. K. Chin - Chairman and Chief Executive Officer

Thank you.

Operator

Karen David-Green, you may ask your question. And please state your company name.

Karen David-Green - Oppenheimer & Co.

Thanks, with Oppenheimer and Company.

B. K. Chin - Chairman and Chief Executive Officer

Hi, Karen.

Karen David-Green - Oppenheimer & Co.

Good morning. How should we look at 2009, I am looking your backlog at $460 million, bids outstanding $4.8 billion, there seems to be a little bit of a, may be disconnect between this and building backlog. But, can you maybe give us some a little bit more color on how you see 2009 kind of shaping up. And then, also, I mean, given that your competitors have won some of these projects that at least we thought like you guys would be really, coming away with the project. Does that mean that your competitors' fleets are fully booked or certainly following up, as we going into 2009, and maybe your success rate should increase, or should we not be looking at that. But, in that that manner can you maybe just give us a little bit more visibility?

B. K. Chin - Chairman and Chief Executive Officer

I think, based on because of the high level activities whoever gets it, is going to be, pretty stretched, as far as the major players are concerned. Now, as far as the regional players are concerned, a lot, like what I said earlier on Karen, some of those don't even have a vessel or a fleet. So, it's probably going to come back to the market for vessels and fleet. And, we'd hope to subcontract to some one. But, could help them out, because finally they realized that they have to deliver the project. So, that may come back also to market. So, the timing is questionable.

But, I thing the key thing, here is that, I feel pretty comfortable based on the marketing asset, that we've done around the world. Even for North America we're spreading our wings up north, to the east and west, and positioning ourselves with regards to the opening up the OCS, the moratorium that we were talking about in the U.S. And everywhere else that we have put in effort in the last year or two. So, I think our extension, our coverage is much better than ever before. And, that is part of reason why you see our bidding activities at such a historical higher level. It's not because we've... the same customers are coming back to us for more bids, it's because our coverage is extended, and besides each one of them going to but it is really the extension our coverage.

Now, so, I would like definitely that... to increase the backlog situation, but backlog is where we can recognize it to be. So, the backlog definitely doesn't give you that visibility. But, on the other hand, there are so many things that are happening around the world, in terms of where we play, and how we are playing it, and how we're positioning it. It gives me a pretty good feel of what the future yields are going to be?

Now, if you just look at the in on a run rate basis, we're already are sitting a $100 million a month for the last six months. So, from a growth strategy standpoint I'm actually pretty satisfied with the way we grow it. And where, of course, I'm not satisfied is the delivering the bottom line. So we just need to work on that and at the same time we're upon the marketing aspects to bring closure to some of these projects. So is the long way of telling you Karen is that keeping tune with a backlog we are working aggressively and growing our market share around the world. And, hopefully in the next few years we will show the results that we're talking about.

Karen David-Green - Oppenheimer & Co.

Great and the $4.8 billion that you mentioned that bids outstanding is most of that for '09 work or is that 2010 and beyond. How, does that break out?

B. K. Chin - Chairman and Chief Executive Officer

I think it's a actually it includes some of the '08, and '09 and '10 and '11 too. So, it's just our visibility in the future is just on further and further. So, it spreads all over. I don't have the numbers here with me, but I think it well spread into the future.

Karen David-Green - Oppenheimer & Co.

Okay. And then, second question from the project management perspective, I mean, how soon do you know, if you have a problem on a project? Can you kind of walk me through your internal systems kind of we should be looking at that?

B. K. Chin - Chairman and Chief Executive Officer

All right, firstly when we let me go back a little bit and I'll try to be brief here. When we pursue a project what we normal try to do is to appoint a project manger hopefully the project manager is going to do find this project, again, typically you don't have the luxury of doing that. But you're temporary manager to work with project manager to hope work with the bidding team. So, that as we bid a project, the input from the project manger in terms of how we execute the project from our planning standpoint, from starving standpoint, and from scheduling standpoint. So, that, we can meet the schedule and identify critical items on the schedule so that if we get awarded the job, are the things that we need to order first. What are the plans that we need to put in place. And so, and so forth. So, it stops during the bidding stage.

Now, as soon as we know, that the we are run for it that's when we finalize on the project manager, and a small team to start going through it, and participating with the customer in the short list interview, and bidding process, to bring it to closure. And some times customers wants to, interview the project management team to. After we saw that at that time you'll finalize what you're going to put in place. As soon as you sign a contract, close the contract you're actually ready to go at that time to implement the plan ordering the materials and we having kick off meeting with the customer.

Now, so as you execute a plan it is necessary for the project management team to look at their schedule, look at activities, on a weekly basis. Having the review as soon as they see some issues we've addressed to the delay and some of the customer supply items, or some of the sub contractors all suppliers that we've assumes, certain mixes and assumptions, and then looks like a the latest deal is that they are going to be two weeks, two months late. Then we go back to schedule and look at a how we look around that situation, to improve it.

Now, if some of this three re-sequencing does increase the cost then we will reflect into our costs, at the same time we look at what other actions we need do put in place to mitigate the cost. So it starts as early as that Karen, and then you go down on a weekly basis by the project team. And then they review its management on the monthly basis. So, we have visibility with regards to the major FERC projects where, how is it going, and it doesn't if it doesn't smell good, then there is a time that we are going to re-look at actions that we need to take to, if the problem is with the project management team then we look at whether we need to beat it up, or we need to do certain things to the project management team. And then, be satisfied with the recovery plan that they are coming up with.

Karen David-Green - Oppenheimer & Co.

Okay. I mean in your estimation, how much of this the issues during the quarter were maybe could have been avoided versus, obviously there are some things is like weather, and some other issues that are a little bit more hard to predict. But, I mean if you had to kind of, with the port clearances and the logistics and things like that. Can you kind of maybe give us a little bit more clarity on that?

B. K. Chin - Chairman and Chief Executive Officer

Yes, on the port clearance, I think we could have improved some of those areas if we now recognize some of the issues that we have with some of marine department and port clearances by booking on those and filling up those forms earlier while we are waiting on weather or while we are looking on the other jobs and not getting available. Now its not 100% guarantee that it would be, but I think with our relationship working with them now, I would say that a lot of those will go away because now they know who we are and they... we know what they would be asking for and making sure that we'll fill up the form in the manner that they are asking for.

So, I think some of this pro-activeness will help, but a lot of that will depend on the relationship that we have built. So, the next term around, I think it will easier.

Karen David-Green - Oppenheimer & Co.

Thank you.

B. K. Chin - Chairman and Chief Executive Officer

Thank you Karen.

Operator

Victor Marchon, you may ask your question and please state your company name.

Victor Marchon - RBC Capital Markets

Thank you. It's RBC Capital Markets. Good morning.

B. K. Chin - Chairman and Chief Executive Officer

Good morning, Victor.

Victor Marchon - RBC Capital Markets

B.K. the first question I guess... was on the third quarter and looking at just the logistics and where there was a third quarter, is that working from a clean slate or is it some lingering impact, whether it's logistic the poor clearance weather, I guess the short... in short is the third quarter working with any lingering impact from second quarter?

B. K. Chin - Chairman and Chief Executive Officer

I just don't... more precisely the question, Victor.

Victor Marchon - RBC Capital Markets

Yes, is there lingering impact on the losses incurred in the second quarter going to be in the third quarter?

Peter S. Atkinson - President

The overall margin, because we attempt for projects and the percentage of completion basis, the overall margin on the Berri, Qatif project will decline going forward. So to the extent that margin has being diluted with the events that occurred and the remaining work will get a lower margin when we recognize it.

Victor Marchon - RBC Capital Markets

Okay. And just the lastly one I was just... there a way to quantify the amount of cost recovery that you guys are going to be looking for?

B. K. Chin - Chairman and Chief Executive Officer

No. I think well of course we are working on it and we have some numbers that our people will... until we get resolution with the customer, we are not willing to communicate because otherwise if you're going to set the wrong expectation with the investors.

Victor Marchon - RBC Capital Markets

Okay. Right fair enough, that's all I had. Thank you.

B. K. Chin - Chairman and Chief Executive Officer

Thank you, Victor.

Operator

Scot Macky [ph] you may ask your question and state your company name.

Unidentified Analyst

Good morning, it's Add Capital [ph]. Thanks for taking my call.

B. K. Chin - Chairman and Chief Executive Officer

Good morning Scot.

Unidentified Analyst

Could you speak just a little bit about wherein if you could compare debt for utilization for the first month of the second quarter relative to the first month of the third quarter? Essentially, what I am looking for is just the trend in overall vessel utilization throughout the second quarter and where we are at through one month in the third quarter.

B. K. Chin - Chairman and Chief Executive Officer

Peter we will take that question.

Peter S. Atkinson - President

Scot, good morning. This is Peter Atkinson. one of the things that we try to emphasizing discussion with investors, as we go through its, utilization isn't necessarily a good indicator profitability or, turnings you can fluctuate quite significantly between geographical regions and the earning capability of individual vessel and varies quite dramatically.

I think the excellent example of where the profitability is conversely proportional to the profitability is in the Middle East this time where we experience the 100% utilization, a lot of these were non-compensated utilization we've talked about because of the issues regarding port clearances and weather standby and rescheduling.

So, we have 100% utilization in that particular region in the second quarter but our profitability obviously declined quite significantly. So, as you move quarter-on-quarter, utilization isn't necessarily a good indicator of the business we are in. But historically having said that, the third quarter usually has the highest utilization in most regions geographical.

Unidentified Analyst

I think you may have touched on this earlier but the existing backlog right now is... how much of that is expected to be worked off in the second half of 2008?

Peter S. Atkinson - President

Substantially all of it Scott.

Unidentified Analyst

Okay. And then for your comments on may be on the lower end speck vessels and perhaps some increased competitions from regional players and the six new vessels in the last three years. I mean are you finding that there is a difference in the regionals ability to complete on different... of the specks of your vessels, or is that pretty consistent throughout the fleet and the types of jobs you are bidding on?

B. K. Chin - Chairman and Chief Executive Officer

Scott the regional player tends to have the equipment of vessels that were ageing, so by definition they tend to be on the lower end side, they are just having a low cost type vessels that is some of them are at the end of there life. So as a result of that, it doesn't have all of those and gadgets and ability to do stock associated projects. So they tend to be on a lower end and it doesn't mean that it won't pick up work that has only higher end to, but that means is that for those type of work, they may have the subcontract it out to someone else that is of relative with those... and with those and more sophisticated vessels to the with the job.

I think at a long term strategy is that technology and the right assets will deliver a good return. And one good example is the Gulf of Mexico. If we look at the Gulf of Mexico shell water depth type of business, that is a low end business, it's a commodity business, and when there's a hurricane, the price goes up.

And when things reach the stable state, then it's just the cut throat business. Now once you get into DP DSV type with deepwater surf and some of the P&A work, that's when you start getting into value added and that's where you differentiate yourself and the vessels that we have acquired a large and most of the newer ones have the ability to differentiate itself.

Unidentified Analyst

Thanks for your comments.

B. K. Chin - Chairman and Chief Executive Officer

Yeah, thank you.

Operator

Joe Agular, you may ask your question.

B. K. Chin - Chairman and Chief Executive Officer

Hi Joe.

Joe Agular - Johnson Rice & Company

Yes, just a couple of quick follow ups. Peter, did you gave CapEx I think through the Q2? But I guess in the quarter it seemed like if there was about a t $150, $160 million is that right?

B. K. Chin - Chairman and Chief Executive Officer

Joe I'll answer the question. One second. Yeah we had significant capital expenditures in the second quarter of about $165 million that was primarily related to the purchase of the Orions we discussed as well as the expenditures that we're incurring on building the Global 1200 and the 1201.

Joe Agular - Johnson Rice & Company

Is the... new construction cost running fairly consistently quarter-to-quarter?

Peter S. Atkinson - President

Not really. Its based on milestones, Joe. Depends on the construction milestones only obviously lay into key and cut into the steel et cetera and the installation some on they own have furnished materials.

Joe Agular - Johnson Rice & Company

Okay. And could you may us gives us an update for what you think it to look like for the rest of this year and 2009 if you have in terms of?

B. K. Chin - Chairman and Chief Executive Officer

Our outlook for the reminder of the year is between a $145 million and $165 million.

Joe Agular - Johnson Rice & Company

Okay. Another question if I could. The question on the market overall and the bids outstanding and gives the supply of vessels, is there the potential still to get to a point where there is a shortage of equipment in some of the areas where you work?

B. K. Chin - Chairman and Chief Executive Officer

Potentially could. Like right now in Middle East, we are short of vessels. If we have another vessel there, I could put it to work. We've a normal customer. So it depends on regions too. So may be because of the marketplace as steel pretty active in terms of getting infrastructures in place and getting platforms and pipelines being built and being replaced. So there is a timing and location.

Joe Agular - Johnson Rice & Company

Yes I guess theoretically we still have jackup rigs coming into fleet and starting to work in '08 and '09. Those rigs assuming they find oil and gas successfully there should be continue growth for at least on the shelf more infrastructure. I'm just trying to figure out if the fundamental story has changed? It seems like there is going to be continued growth in drilling and then potentially infrastructure news down the road?

B. K. Chin - Chairman and Chief Executive Officer

There is, like what I said, as I have traveled extensively. I was in Middle East in April and three weeks ago I was in Mexico, two weeks ago I was in Brazil and I am still getting strong messages from the customers out there that they are drilling away each one of them that have different sets of drivers but all of them have the same common go ideal way to produce small, faster and as their plant, so in order for them to do that, they need this companies like us to install the infrastructures and most of them have not reached at that point yet and they have been doing a lot of drilling.

So now the only way is to increase production is to bring, the oil that is being drilled or the gas being drilled to shore and to production, and there is where our services come in play and that is the reason why I'm so bullish with the future.

Joe Agular - Johnson Rice & Company

Okay and one other question, I could, you in past I think expressed an interest to may be may be move up, in terms of your project side, indoor skill may be taking on more of the responsibilities and before may be you didn't, or you just may be act as a subcontractor. Is that still strategy that you pursuing? In other words... some of these... when your backlog today is 450 million, I think in the past you've indicated, you have bid on jobs that may be as big as 400 million or even higher, 600 million on a stand alone base. Are you are still perusing that strategy?

B. K. Chin - Chairman and Chief Executive Officer

Yes. It's going to be a mixture. So I think a balanced portfolio going forward is good to have small and big jobs. Now you don't want everything to be big jobs, because big jobs...you just have to... once you finish a big job, you'd better have another big job coming. So I think the best mix would be having a mixture of big jobs that will provide a base line and then the small jobs to fill up valleys. So if you have the right mix around the world, I think you would have good model...and we are long terms wise, we'll like to get to that model.

Joe Agular - Johnson Rice & Company

Okay. Thank you very much.

B. K. Chin - Chairman and Chief Executive Officer

Thank you.

Operator

Jeff Bronchik [ph] you may ask your question and please state your company name.

Unidentified Analyst

Good morning. It's Jeff Bronchik [ph] from RCB Investment Management.

B. K. Chin - Chairman and Chief Executive Officer

Good morning, Jeff.

Unidentified Analyst

Gentlemen, would you update CapEx for the next few years? And has... you've added a fair amount of assets, and how does anything you're seeing affect the CapEx for the next two years?

B. K. Chin - Chairman and Chief Executive Officer

I will get either Peter or Jeff to answer the question.

Peter S. Atkinson - President

Jeff, we have specific commitments, our major commitments that we have already have press released are the global 1200 and 1201, those two new construction vessels, one of them comes into the market in first quarter of 2010. The second inn in 2011. Those vessels we've indicated, that they're approximately $250 million of base [ph] and as we mentioned one of the calls earlier that those, the investments are not in progress pipelines [ph] are spread over the pyramid between our commitment and the delivery date, not necessarily despite of that date [ph]. Of the other items we've indicated that we are going to spend approximately $140 million, $160 million the reminder of this year. And we don't have any major capital expenditures targeted other then those vessels that we have named at this particular time in time --

Unidentified Analyst

$300 million roughly for '08 and $200 million each in '09 and '010 is a working number?

Peter S. Atkinson - President

No that's my number. The $250 million that we've mentioned for the two vessels, we have scheduled progress payments on those vessels as they are under construction. So it's spread over from 2008 to 2011, that $500 million investment.

Unidentified Analyst

And secondly, may be, our new CFO, and looking at management of the company, complex bidding, global expansion, what is your new CFO bringing to the table here as far as financial controls and assisting in the management of the company.

B. K. Chin - Chairman and Chief Executive Officer

Well thank you for asking this difficult question. Lovely could be difficult but to me it's pretty simple because as we are growing despite of that the fourth [ph] driver of the strategy investing in our people and technology... Now we can have all the equipments, we can have all the geographical expansion and, but we don't have enough the coverage. And Peter has been overloaded with his [indiscernible] as a President CFO for a long time so it is important that Peter has more time to help me in order to grow the strategy as we have mention and the announcement that we make have on Jeff.

Now Jeff has a lot of experience working with large company before and his is going to bring that experience to the company because global is getting to be a large company. So Jeff's experience will definitely add but the addition all think it as that I need to free Pert so that you can act to the President and help us to the most successful around the world and so that beside positioning is helping us to make sure that we have the right investment in terms of delivering the strategy and making sure that there are less pick ups on project execution.

Unidentified Analyst

And when talk about if you some the pretty bases question I guess but talk about putting into both in dry dock in getting them out how were the conditions at the docks in terms of this capacity over load and getting bodies to work on ships when you are there what you see there now versus may be six months ago and it is that getting better or is it still a problem and hence you have the problem with that.

B. K. Chin - Chairman and Chief Executive Officer

Its still a problem I think it's a industry problem and not only in the enerhy industry but is in the construction industry problem big time I mean the issues that we have is that for example the... I mean we plan for a 90 day dry dock which is extensive we ended up with a twice the number of days is 190 days. So, and you want me deal with is that firstly should you outstand repay yards our sour overloaded and in our case if we can plan it better because a lot of those are driven by regulatory requirements and once you get in there the quality of people it's the not the same as it use to because full employment with the quality control issues and there is delay.

Because either they are too busy or they committed themselves with too many jobs with probably people that have employee that have less experienced than we like it to be so they cost it overall in casual overall in cost now that is only the first part of it whenever you have an overall in casual we have committed to do jobs a lot of customers so when they late incoming out is effects our [indiscernible] projects we have customers so this that is a -- troublesome problem in the industry there as we relate to ship beyond.

Unidentified Analyst

At the last thing you mentioned, what have been you mentioned the call was issues about moving in ship...just export clearance, getting in and out of and you have mentioned the Brazil in the Middle-East. With this whether again another weather related issue or is this just we give mention grow in [indiscernible] of organic is growing pains of this knowing with how could doing organic is it, just capacity issues of moving in-out at very busy port?

B. K. Chin - Chairman and Chief Executive Officer

its not weather related. I think we know what the heg we are doing, but the, I think the issue is like Brazil for example, to clear the foreign Brazil; firstly you have to get the environmental permit. So that you have own a polluted water, so you go to environmental permitting after that, then you go to the next level which is the marine department, before you bring vessel in, and once you satisfy all of those, you have to get special dress [ph] approval. So you go to a 3 tier pipe approval.

Unidentified Analyst

Got it. And that's just the cost of doing business and so conception ally speaking you are there, and that's one issue behind you for say. And again these dry dock issues of getting things back, I mean some of the contract, recovery your looking for, but you incurred in the second quarter, I am just try to... your looking and it's not difficult I would think to have a better third quarter and second half, but there is still some lingering take from these issues we saw in the second quarter. Is that a fair statement?

Peter S. Atkinson - President

We have a recovery plan in place, we have... we still have a project to execute. So we need to implement our recover plan successfully, and our recovery plan includes execution, includes change orders, includes getting the job finished. So, we are implementing our recovery plan.

Unidentified Analyst

Right. But I am just talking about the overall corporate performance you noted quote I hope so for a better third quarter and second half, but and I am just getting a sense to that there is some of the issues plague you in the second linger on into the third and the second half of the year. That's a fair statement.

B. K. Chin - Chairman and Chief Executive Officer

That's not as you would wish but it will be better is what you are saying.

Peter S. Atkinson - President

Oh yes.

Unidentified Analyst

And lastly just on the share repurchase is it an opportunistic plan, is it a program like we will execute $100 million in the next twelve months, or it is... how do you... how you are going to work at?

Peter S. Atkinson - President

As we have indicated in our press release is that we have approval or have approval to spend $100 million within 12 months when I choose to. And so it is on a opportunistic manner.

Unidentified Analyst

I would just add on that basis that if you think the stock is cheap, you should buy it. If benefit or if you are looking to signal something, in addition to that, you should buy it. And it would be counter productive to that if you press released a share repurchase rather than actually doing it natural giving away be my point. I appreciate your time.

Peter S. Atkinson - President

Thank you for your advice.

Operator

Our last question comes from John Kim [ph], you may ask your question sir and please state your company name.

John Kim - SET Capital

Hi, this John Kim with SET Capital. A quick question, I am just trying to work through the cash flows and just trying to ball park, I mean you guys started the year if I add up the marketable securities in cash with $823 million, and I just want to see what you're guys are saying in terms of CapEx both maintenance and new vessels and what we can expect from cash from operations for the rest of the year so that kind of... what kind of cash number do you end up with kind of at the end of the year?

B. K. Chin - Chairman and Chief Executive Officer

I'll get Peter to answer the question.

Peter S. Atkinson - President

John, we don't normally get guidance on our earnings, and I think giving you that number would be giving guidance.

John Kim - SET Capital

Okay. But what's the total CapEx, that's the 300 number?

Peter S. Atkinson - President

That's the $300 million. We have incurred actual 177 for the six months and we are estimating between a 140 and 160 for the remaining six months.

John Kim - SET Capital

Okay. So... and typically or based on information you have right now, is your earnings going to be significantly different from your cash generation? So I mean whatever number it turns out to be whether it's $0.50 or whatever for the year let say, is that about what your cash flow potential is going to be or is this going to be different part from that number?

Peter S. Atkinson - President

We're as indicated in the conference so far, we're expecting in the second half earnings to be better than the first half at the six months, and we are expecting that we will have positive cash flow by the end of the year.

Unidentified Analyst

Okay. So is the conservative way to think about is assume that for the year, cash from operation is kind of flat, just kind of not much cash from operations?

Peter S. Atkinson - President

No. Well that's a very conservative way to look at it I guess. I think the other factor that employ at the moment is that during the second quarter. And we did mention it in the call that we had a significant increase in use of cash for an increase in short-term working capital requirements.

John Kim - SET Capital

Yes.

Peter S. Atkinson - President

On some of these projects.

John Kim - SET Capital

Yes.

B. K. Chin - Chairman and Chief Executive Officer

And we also mentioned that is already reversed [ph] in partially reversed in July, it's a question of a $160 million.

John Kim - SET Capital

Okay.

B. K. Chin - Chairman and Chief Executive Officer

Accounts receivable, and that was a spike that we experienced in the second quarter with the build up in receivables on some of these projects. That moved slightly to the right with the sloppy [ph] kind of schedule and the measurable contractual milestones for billing purposes.

John Kim - SET Capital

I got it. But, so if I could just kind of go to the end of the end of '07 number, the $823 million of cash in securities, and say $300 million CapEx, and let's say cash from operation is pretty minimal this year that would still leave you with let's say $475 million, or so. And then you have... how much in terms of the two large vessels that you have in order, what's the outstanding commitments to complete, and those two vessels, do you have outstanding after at the end of '08?

B. K. Chin - Chairman and Chief Executive Officer

I'm sure... let me see if you got that Henry [ph]. Somewhere in the region of $250 million.

John Kim - SET Capital

Okay.

B. K. Chin - Chairman and Chief Executive Officer

To $275 million.

John Kim - SET Capital

Okay. I got it. So, in effect that's like, that's money, that probably going to go out of the next couple of years. That you kind of earmarked this fact cash for basically?

B. K. Chin - Chairman and Chief Executive Officer

That's correct. That's will be through 2011.

John Kim - SET Capital

Right. Okay and just going back to the discussion about the buyback again, clearly, if you guys think your stock is cheap and this is a good use of cash, you should do the buyback. Besides, the stock price obviously being significantly different from what is it three, or four months ago when you did your last call, has anything changed strategically in terms of how you're looking at the cash in terms of additional growth projects or anything like that? That has changed, or is it... is the change in terms of buyback today, versus three months ago, when your... when your stock was at the a lot higher, maybe $17, $18 whatever. And people asked you about buybacks, but you seemed pretty hesitant about doing a buyback. Is the biggest difference the change in the stock price or is anything else strategic uses of the cash have changed?

Unidentified Company Representative

Yes. You're absolutely right, in that John. You're absolutely right to say that three or four months ago, we were not interested in the stock buyback at that point in time, and that's being communicated to lot of investors. They were calling us up and talking to us. There is no question that one of the key drivers is that how a low share price that caused us to change our view with regard to stop a share buyback. Unless, we have confidence in our shares. And the significant a price that we're looking at is definitely a tremendous buy and if we look in the long-term basis, I think it's the right time to look at it, and see what long-term benefits we're bring today, to existing shareholders. And that is the key driver in driving our decisions in share buyback.

John Kim - SET Capital

Okay. Thank you very much.

Unidentified Company Representative

Yes, thank you again.

Operator

Evan Jones [ph], you may ask your question, and please state your company name. I'm showing no further questions at this time.

B. K. Chin - Chairman and Chief Executive Officer

Thanks, again. Thanks for your interest in this discussion. Definitely, we are very disappointed with the performance on earnings for the quarter. And we as company have committed to bring better results, to all the investors that we have. And, we believe that we have a good plan in place, for a better future, and better quarters ahead of us. And with that, I'd like to conclude today's call. Thank you.

Operator

You may now disconnect. Thank you.

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