Oceaneering International Inc (OII) 2007 Q2 法說會逐字稿

Good morning. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering Second Quarter Earnings Release Conference Call. (OPERATOR INSTRUCTIONS) Thank you. Mr. Jurkoshek, you may begin your conference.

Good morning, everybody. This is Jack and I'd like to thank you for joining us this morning and I'd like to particularly welcome those of you who may be participating in the webcast of this event, which is being made available through the Company' Boardroom Services, Thomson CCBN. Joining me this morning are Jay Collins, our President and Chief Executive Officer, who will be leading the call, Marvin Migura, our Chief Financial Officer, and Bob Mingoia, our Treasurer.

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

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

During the second quarter of 2007 we achieved record quarterly earnings, almost 25% higher than our previous best reported for the third quarter of 2006. This is evidence not only of the high demand we're experiencing for our subsea services and products, but also our strong operational performance.

Net income of $47.9 million was more than 55% above the second quarter of 2006 and nearly 45% above last quarter. Our record quarterly earnings were substantially above our guidance range and the Street consensus estimate. Both the year-over-year and sequential quarterly net income improvements were broad-based. All six of our business segments contributed to the increases.

As stated in the press release, our above-guidance performance was led by our ROV, Subsea Projects and Inspection businesses, with each realizing record operating income results. Given our second quarter performance and our improved annual operating income outlooks for Subsea Projects and Inspection, we are raising our 2007 EPS guidance to a range of $2.95 to $3.10, a growth rate of more than 30% over our 2006 record results.

The low end of our current range is higher than the high end of our previous range, which was $2.70 to $2.90. This is based upon expectations that during the second half of this year we will achieve continued earnings growth for ROVs and Subsea Products and comparable results from Subsea Projects. This annual guidance range increase is attributable to our business focus on deepwater and subsea completion activity and our participation in hurricane damage-related platform decommissioning projects.

For the quarter, our ROV business was even better than we had anticipated, as we achieved higher average pricing and more days on-hire than forecasted. Year-over-year and sequentially, operating income increased by over 30%. The year-over-year and sequential growth was accomplished by improving our average operating income per day on-hire by approximately 20% through increases in pricing and utilization.

During the second quarter, we attained record average pricing of $8,300 per day and a record number of days on-hire of nearly 15,700. As we had expected, operating income margin during the quarter sequentially increased. It was 28% during the second quarter, up 4.0 percentage points from the first quarter, and the same as in the second quarter of 2006.

YTD operating income margin has been 26%, the same as in the first half of 2006. Consequently, we still anticipate our annual 2007 ROV operating income margin will be comparable to last year.

During the quarter we added 13 systems to our fleet and disposed of 4.0 for a net growth of 9.0 vehicles. At the end of June, we had 202 systems available for operation, up 20 from June a year ago. Our fleet mix during June was 67% in drill support and 33% in construction in field maintenance. This is a snapshot position and should not be interpreted to indicate any permanent fleet mix. This compares to a 72/28 mix in March of this year and a 71/29 mix in June 2006.

The change to more construction-related service reflects the fact that of the 13 new vehicles added to our fleet during the quarter, 7.0 went into these type of service. In fact, of the 20 new vehicles we added to our fleet this year, 10 have initially gone into construction service. I'd like to remind everyone that we've been pursuing construction and field maintainance work for the last several years and by our count, we are now the largest provider of this type of ROV service in the industry. Consequently, our growth prospects are not solely tied to the reactivation or upgrades to existing floating rigs or announced new floating rig construction.

Our Subsea Products segment achieved record operating income results as OIE, our specialty products group, performed at an all-time high level. The sequential increase in operating income was attributable to outstanding performance by OIE, particularly sales of ROV tooling, field development hardware and pipeline connectors and repair systems.

As expected, operating income margin for this segment sequentially declined, due to our inability to sustain the exceptionally favorable product mix we achieved in the first quarter of this year. We continue to believe our margin on Subsea Products' sales for the year 2007 will be higher than 2006, in the 17 to 18% range.

Year-over-year, both OIE and Multiflex Umbilical operations contributed to the nearly 45% increase in revenues and the doubling of operating income. OIE's profit improvement was broad-based, as it was due to increased contribution from most of our specialty product offerings. The Multiflex profit increase was largely the result of improved performance at our Panama City, Florida plant.

At the end of the quarter, our products backlog was $378 million, up $133 million or more than 50% above June a year ago and slightly more than last quarter. Bid activity remains at a very high level and we expect our product's backlog to continue to grow during the last half of this year.

As expected and discussed at our last earnings conference call, our Subsea Projects business substantially improved during the quarter, due to an increase in hurricane damage-related project activity and demand growth for our deepwater subsea equipment installation and inspection, repair, and maintenance services. In fact, this segment performed much better than we had forecast and realized record quarterly operating income, which was attributable to excellent operational performance and higher than projected utilization of our assets.

Subsea Projects' quarterly operating income increased 33% sequentially and 13% year-over-year. YTD, we have earned 15% more operating income than in the first half of 2006 and we expect the second half of this year to be comparable to the first half.

Our Inspection segment had its best quarterly performance ever and achieved better than expected results. Sequentially, Inspection's quarterly operating income more than doubled as a result of normal seasonality and strong overall demand growth in most of the geographical markets we serve. We continued benefit from our ongoing efforts to improve pricing and sell more value-added services.

Year-over-year, Inspection operating income improved by over 55%, on an increase of revenue of 30%. Again, this growth was widespread as it came from most of the geographical areas in which we operate and is evidence of market demand growth and our successes in securing new contracts, selling more value-added services and increasing pricing.

Our MOPS segment operating income increased both sequentially and year-over-year, due to a settlement we negotiated on the previously announced contract termination for use of our production barge, San Jacinto. This settlement was in lieu of the barge being restored to the condition specified in the contract. We are currently investigating our options, with respect to this asset, and we'll keep everyone posted once a decision is made. Most likely it will be sold.

As expected, the earnings contribution from our Medusa Spar investment, reported as "equity income from unconsolidated affiliates", declined sequentially and year-over-year due to lower production throughput at the Spar.

Our ADTECH non-oil field business had a very good quarter. The sequential and year-over-year improvement in operating income was attributable to increased work for the U.S. Navy on submarines and general engineering services.

I'm now going to turn the call over to Marvin to discuss our cash flow, capital expenditures, and balance sheet.

Thank you, Jay. Good morning, everybody.

Regarding cash flow, if you add depreciation back to our operating income, we generated almost $100 million of cash flow in the second quarter, nearly 50% more than the second quarter of 2006 and 30% above last quarter.

For the first half of 2007, operating income plus depreciation was approximately $175 million, up 40% from the first half of 2006. Capital expenditures during the quarter totaled $61 million. These investments were predominantly for upgrading and expanding our ROV fleet and facility expansions in the UK, Norway, Houston and Morgan City.

Approximately 75% of our investments, both during the quarter and YTD, have been in our ROV and Subsea Products operations. We now anticipate investing approximately $200 million this year. This will mainly be for ROV fleet expansion and upgrades, facility expansions, acquisitions, including our recently announced purchase of Ifokus, maintenance CapEx projects and vessel upgrades. We are continuing to look for additional accretive acquisitions and organic growth opportunities with better than cost-of-capital returns and we intend to use our strong cash flows and balance sheet to further grow our earnings.

Because we've been able to find ways to put our cash flow to work, namely in capital expenditures and Subsea Products raw materials inventory, our debt increased $8.0 million during the quarter. At the end of June, we had debt of $245 million and equity of $793 million. Our debt-to-cap percentage was 24%.

Thank you. Jay, now I'll turn the call back over to you.

Thank you, Marvin. In summary, our second quarter performance exceeded our expectations and we are looking forward to achieving record EPS performance in 2007, for the fourth consecutive year. Our focus on providing products and services for deepwater and subsea completions positions us to participate in a major secular growth trend currently underway in the oil field services and product industry.

As we said in the press release and as I mentioned earlier, our business outlook for 2007 has improved since our last earnings release and recognition of our performance doing the second quarter and our improved outlook for Subsea Projects and Inspection, we're raising our 2007 EPS guidance range. We now forecast record EPS for 2007 in the range of $2.95 to $3.10, a growth of more than 30% over 2006 record.

For specific third quarter guidance, we're projecting earnings of $0.80 to $0.88 per share. After taking into account the production barge San Jacinto contract settlement, we're expecting our third quarter earnings to be about the same as in the second quarter.

Compared to the second quarter, we expect profit contribution from our Subsea Products operation to increase on the strength of a rise in contribution from our Multiflex Umbilical operations. We anticipate the operating income contribution from our ROV business to show continued improvement, forecast the Subsea Projects profit to be about the same and forecast lower results from MOPS, Inspection and ADTECH segments.

Looking beyond 2007 we expect worldwide demand for oil will continue to escalate, production from existing fields will deplete and the price of oil will remain at high levels. Recent announcements of disappointing oil production growth from several major oil companies highlight the difficulty the producers are having growing production. Pemex's declaration that it intends to spend more than $75 billion over the next five years to fight production declines is illustrative of the depletion problem that the world's currently producing basins are experiencing.

In this environment, oil and gas companies, our customers, are projected to increase their capital spending, a rising percentage of which is expected to be spent on deepwater fields. Deepwater is one of the best frontiers for adding large hydrocarbon reserves with high production flow rates, at relatively low finding and development costs.

Specific signs of the healthy deepwater market that will continue to drive demand for our services and products were evident at the end of June. About 75% of deepwater field discoveries around the world were not yet in production. Over 95% of the existing 204 floating rigs in the world were under contract and nearly two-thirds of these are contracted through 2008. Sixty new floating rigs were scheduled to be added to the worldwide fleet through 2010 and 38 had already secured term contracts, with an average length of nearly five years.

During this quarter, our contract with one of these rigs was announced with a minimum five-year term and a contract value approaching $1.0 billion that won't even start until the third quarter of 2010. Talk about future market visibility. As a side note, of the 38 contracted rigs, of these new rigs that had contracts by the end of June, 12 have chosen their ROV supplier. We secured all 12 contracts and we'll provide 18 ROVs on these 12 contracts.

Based on Quest Offshore's latest forecast over the next five years, average subsea production tree orders are forecast to be nearly 550 per year and demand for umbilicals is forecast to average approximately 3,000 kilometers per year. The forecast compared to an average annual demand for approximately 350 tree orders and 1,500 kilometers of umbilicals over the past five years. That's a doubling of umbilical demand.

In view of these market signs, we anticipate demand for our deepwater services and products will continue to rise from current levels and believe that our business prospects for the next several years are excellent. Consequently, we expect our 2008 earnings to be even higher than 2007.

In summary, our quarterly results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well for both the long-term and the short-term. Our technology gives us operating leverage to take advantage of the high level of deepwater and subsea completion activity currently underway. The market outlook for our deepwater and subsea service product offerings is excellent.

We continue to believe we are in one of the sweet spots of this up-cycle. We're expecting record annual earnings for the fourth consecutive years in 2007 and with escalating demand for our ROVs and subsea products, 2008 should be even better.

We appreciate your interest in Oceaneering and we'll be pleased to answer any of your questions.

(OPERATOR INSTRUCTIONS.) Your first question comes from Stacy Niewoudt.

Good morning, guys.

Good morning.

Good morning, Stacy.

During the quarter you built 13 ROVs. Is this kind of build-rate sustainable going forward?

I think our best forecast is what we've continued to say, is that we believe that, on balance, we will increase our fleet by about two vehicles a month. If we look at the last 12 months, we've increased by 20 vehicles net and we think that's the best forecast going forward, so I think in '07 you would see about the same net increase by the end of the year.

Okay. That's helpful and then, pricing momentum on ROV day rates. Can you kind of walk us through how you expect this to unfold during Q3 and Q4?

Again, it's a fight every day to pass along cost increase to our clients. So far we've been successful in doing that and we continue to expect and maintain our margins in this business and so far, we've been able to do that and that's our expectation. These are tough guys we deal with though, so it's not an easy task.

That's helpful. I'll turn it back over. Thanks, guys.

Neal Dingmann, M.S. Howells & Co.

Good morning, guys.

Morning, Neal.

Say, on Stacy's question on the ROVs, how many disposals are you all looking at or have you said anything publicly for the remainder of the year?

Yes, we really don't predict that. That's why I've just sort of given you the net to a month, is really your best, I think, forecast for you, particularly if you look at 2007 as a whole. We got a little ahead of the game by being up 16, but I think, by the end of the year, two a month will be a pretty good forecast net.

Okay and then obviously Subsea Projects had just a stellar quarter and you did give some color on that. I was just wondering, for the remainder of the year, similar type projects out there or what have you seen on sort of the bid activity?

Activity is still strong. Obviously we're in the middle of the BP project on the platform decommissioning and abandonment. We'll see continued revenue along that same lines, maybe up a little bit in the third quarter, but margins will go down as there's a lot of pass-through costs in that BP project. And I think we had just a tremendous execution in the second quarter, probably better than our average and better than we can expect on an average basis.

So we see continued good market in that world and I'll just remind you that we are in the IRM business, Inspection, Repair, and Maintenance. And there's more things being put on the ocean floor every day and one of those things presents an opportunity for us to either help put it there or go back later and check on it. We really like that long-term market as well as the short-term hurricane-related market.

Sure and then to follow that up, when you're looking at, I guess, pricing, you discussed a little bit of the ROV. But on the Subsea Products or Projects, are there -- are you putting sort of additional, I guess for a lack of a better word, bells and whistles on things that you're able to pass through some pricing? I guess what I'm trying to get a sense of maybe the services versus the actual products, if you're able to sort of pass through on both sides. Or is it more on one or the other?

I think on the services side, particularly in the Gulf of Mexico and Projects, I think we provide particular value to the client in that we've got the engineering, the ability to make subsea tools, as well as the operational skill, the vessels to do a complete job for our client. So I think that package really adds value to the client. And we also have tool rentals and the same kind of services in our subsea tooling rental business as well.

On the product side, I think we're just solving the subsea -- the needs of our client routinely and we're not necessarily adding bells and whistles on the product side, but we are solving problems every day for our clients.

Okay, okay and then a last question. Obviously you're generating a nice amount of cash, as you mentioned on discretionary. If you don't see any acquisitions I guess that you deem attractive, would you decide to maybe pay down debt or buy shares or what would be next in order?

I think we've always said internal investment is the first priority, acquisitions are second, and if we build up too much cash we have authorization to buy back our shares and that's always a possibility. We have done that, historically, in the past.

And in the interim, we would pay down debt.

Right.

So we won't build up cash until our revolver debt is paid off. But I mean the way Jay ranked of opportunities is exactly what we'll do.

Okay, okay, thanks, guys, keep up the good work.

Thank you.

Thank you.

Stephen Gengaro; Jefferies and Co.

Thanks. Good morning, two questions. The first is on. I guess the somewhat sensitive topic of ROV pricing and it seems like things continue to progress very well. Can you give us some indication of the new ROV awards that you've won? I think you mentioned 18 new ROVs on 12 rigs. Are they -- how are they priced? Is it a long-term contract? Does the pricing change on a periodic basis? How does that work, exactly and can you also give a sense for kind of directionally where we're going?

Well, we really can't release any information on individual contracts. We negotiate every opportunity individually with the clients. In some cases, though, we can get some term contract, but many of these contracts have relatively short cancellations. But the truth is, once we get on rigs we almost never leave the rig. So I would say you should think of it as a continuation of our continued profitability in that sector.

Okay and --.

And if we do have long-term contracts, we do have opportunities to increase prices periodically.

We continue to pass along personnel increases in our contracts.

Okay, okay, no that's fair. Is personnel availability -- I mean, it's obviously one of your competitive advantages. Is that still a big issue in the industry right now?

Well, I think it's a tremendous issue and say we have four training schools going in the world and without that we wouldn't be able to support this growth at all. So there are no excess people in the industry to hire at all, so it's all dependent upon training your own people and we continue to do that as a strategic advantage to us.

And I think underscores -- with all the new people and the new equipment, it underscores our focus on execution, because there are a lot of moving pieces out there and it takes a lot of effort to maintain the margins that we've achieved.

Okay and then on the umbilicals front, as we look at it, you've obviously won a lot of work. There seems to be a tremendous amount of work ahead of you to possibly win. When you look at your current capacity, would you hazard a guess on kind of what level of utilization or how close you're running to full capacity right now and how that kind of plays out, as we try to look out into '08 as far as revenue potential?

I really don't have a good figure on that. I would say that we said we're going to have bigger business in the second half of the year. We've completed our expansion of our UK facility to increase its capacity by about 50% and we've been ramping up there during this quarter for a stronger second half and throughput up there and that business, then, we very much like our position in Panama City and Brazil for the second half of the year. So its not a really easy question to answer and on total capacity, but I think that we expect continued growth in that market in the second half of this year and in '08.

And we have ample capacity in Panama City and Brazil.

And we do. That's correct.

Okay, very good. Thank you.

Scott Gill; Simmons and Co.

Yes, good morning gentlemen.

Morning, Scott.

Hey, let me go back to the ROV pricing. Just refresh my memory here, a little bit of ROVs. Is there a difference in the pricing between those ROVs used in construction and those used in drilling applications?

Not necessarily, Scott. They operate on a little bit different model and the ROVs on construction we get lower utilization because they typically -- there are dead spots between the construction barges. So we achieve lower utilization, but we also usually have higher manning, maybe a six-man crew instead of a three-man crew, so we achieve higher revenue per day. At the end of the day, we make about the same amount of money from the two different services.

And what about if you were to contrast a new ROV versus and old one, kind of a day rate difference between those?

Well, often the new ROV may have some higher spec equipment on it and have a higher capital cost so generally would have a higher day rate than the old one, but not in all cases.

And the people component would be about the same.

That's correct.

And like Jay said, with additional crew on all construction jobs, the average revenue per day on construction is higher than it is on drill support. However, when you take utilization into factoring utilization for the year, the profitability is about the same, so we're pretty indifferent.

I guess I was just trying to look at the third quarter and given the nice uptick you had in the margins on the ROV, the mix is going to influence that at all in the third quarter. But it sounds like, Jay, from what you're saying, its just kind of keep those margins kind of flat-ish. Is that right?

I think we're really -- as I've said along, the 07 margins we thought would be pretty much flat with '06, as we pass along price increases to our customers.

Okay and Marvin, did I hear you say that '07 CapEx is now expected to be $200 million? Is that right?

Yes sir, you did.

And you spent, what, a little over $110 million in the first half of the year?

That's correct and we've got the $20 million announced for Ifokus.

Right. That's -- so I guess I'm trying to figure out what the back half of the year looks like. Is that $20 million part of the $200 million?

Yes.

Okay, so we're going to see a significant slowdown in capital spend?

We should, unless new opportunities come up.

Okay. All right and then my last question, Jay, on the project work, can you give us some sort of visibility what 2008 might look like and is Oceaneering ready to make some commitments to capital or leases for that business next year?

The BP work that we announced already, those contracts go to the middle of 2008, so that's really the long-term contract that we have. The Gulf of Mexico project business really is a relatively turnover type work, so they didn't end up with long-term contracts. So, I think, other than the BP jobs that we've announced there isn't any visibility that we can give you.

And with regard to -- we're always looking at the market and looking at our capacity needs, so I don't have anything to announced at this point in time, but we're always looking around to see how supply and demand are matching up and where we can serve our customers' needs. So, good question, just don't have anything for your right now.

And that's about as close as we're going to get to quantifying 2008, on this call.

Well, I had to make a stab at it.

Good question.

All right, well thanks, gentlemen, good quarter.

Thank you.

Thomas Escott, Pritchard Capital Partners.

Good morning, fellows.

Good morning, Tom.

I think all the questions have been asked about ROV pricing and everything that's been said, it's pretty stout, I mean, up 6.0% quarter-to-quarter sequentially. It sounds like that was spread both from price increases on existing equipment and then some pretty stout new day rates on brand new equipment. Is that a fair characterization?

It's a combination of everything, Tom. We take our total revenue and divide it by our total day, so everything you mentioned would be in the mix.

Plus there was a change in fleet mix to more construction work, so you've really got three things.

Okay, so it's all in there. So it's higher, probably significantly higher day rates on a brand new ROV being delivered and going to work, plus mix of more construction-related work, plus price increases on older existing ROVs with other customers?

I think all those things are in there. That's right.

That's fair.

Okay, thank you.

You bet.

And then on the Subsea Products, you've said in the past and it was true again this quarter that the margins on that kind of move around because of mix issues. And I guess my question is do umbilicals typically carry a way different mix than say Subsea Products or hardware? That's kind of one part of that and then secondly, all this new backlog, we're up to $370 million new backlog or whatever. Can we anticipate that a lot of that new orders in that new backlog typically, across the board, going to carry higher margins than the Company is posting currently?

Tom, there's a lot of different discussions that we could to. So what we did in Jay's remarks was we gave you the answer. We think product's margins for the year is going to be 17 to 18%.

Okay, thank you.

And yes, generally, umbilical, depending upon the mix between thermoplastic and steel tube umbilical margins are lower than the specialty products and generally, our backlog has better margins than historical backlog did. But all of those things taken into consideration and the way we see our tea leaves for '07, we're going to wind up between 17 and 18.0 to operating income margin.

Okay. That's a good answer. Thank you.

Waqar Syed, Petrie Parkman.

Good morning, gentlemen, a great quarter.

Thank you.

A couple of questions, first on the ROV side. The four systems that you disposed of, I would assume that they were idle ROVs?

Not necessarily. I know of one systems right now that's working and just finishing this last job and then that'll be its last job, so generally the older ROVs that probably have the lowest utilization but not necessarily idle.

Okay. So (inaudible) --

If they've been idle for a long time, we probably would have disposed of them before.

Or it was in -- and what Jay is talking about is we look at when a system comes off of a long-term job that it may have been on, it's re-marketability. And if it's re-marketability is low and it's net book value is fully depreciated, these were old systems, generally, and we look at the future value, not whether its idle and I agree with Jay. If it had been idle for a long time it would have been retired in quarters past.

Okay, so you had clues associated with those four systems already you had on the payroll?

Again, I don't have the specific numbers, but to the extent that they worked, which I assume they did some of the time, they would have had some crews working on them, absolutely.

Okay. So I just want to understand. After the 13 new ROVs that you added, how many new crews were you able to train during the quarter?

Well, we really don't release that number. I think we've said in the past that we were trying to hire in the range of 400 people for the year. So we're out there hiring people as much as we can, but we really don't release quarterly numbers on that. But keep in mind that we got -- for all the systems that go to work, we have to hire people and hire people for attrition as well.

And our crews are fungible. I mean, they're not dedicated to one system and we take a supervisor or we promote somebody on the existing crew to a supervisor and we put him on a new system and we train him. So, I mean, the -- how many we hire and train during the specific quarter I don't think is giving you very valid information that you can use, other than we put 13 systems to work with crews.

Right, but in the past you've said that the biggest obstacle to increasing capacity over two a month has been crews and this time you've added about 13 new. So you could potentially add 13 a quarter if you see the demand, so, on a recurring basis. Is that correct, then?

I would say keep in mind that when we put -- in order to put an ROV in service, first we have to build it and then it has to go probably be installed on a rig somewhere in a shipyard, so there's a lag between when things may be built and when it actually comes into service. And so there are also shortages of equipment and our ability to build equipment. We think the net to a month is really a pretty good balance of both hardware and people and we think we're basically keeping our customers satisfied. We're not really passing on any great jobs that we want.

And I think, if we look at Jay's statistics that he gave, we added 20 over the past 12 months, net.

Right.

And we expect to add an average of two a month for the year. The fact that we did 13 in one quarter is pretty short-term and not relevant.

Okay, sounds good. There have been a number of new drilling rig announcements, new construction of deepwater rigs. Have you received any new contracts to provide BOP-controlled systems to these rigs in the last three months or so?

I think in our backlog, we have the one that we announced and I think we're not going to make public announcements about --.

We're not going to make any public announcement on any (inaudible - multiple speakers).

I mean, we're not going to comment on that unless we make a public announcement.

Okay, fair enough, and then, Jay, just a strategic question, MOPS business. Do you really have to be in that business and then the tanker that you have, what are the prospects of converting into FPSO and would you be better served just to outright sell it?

First of all, the MOPS, the rest of our business is certainly not dependent upon the MOPS business. We have historically liked that business in that it gave us a chance to invest a significant amount of capital when we were able to find a suitable big project. Clearly it's been an episodic situation where we found a project that fit us.

We like having -- we like owning this tanker at the moment. We are looking at potential jobs. If those jobs don't come through and we always can sell the tanker and I think we would have gain in the tanker at the moment. So I'm feeling no pressure, really, to make any change in operations right there and we'll just see what happens.

Okay, great. Thank you very much.

Victor Marchon, RBC Capital Markets / Dain Rauscher.

Thank you, good morning and congratulations on the quarter.

Thank you, Victor, good morning.

The first -- actually, I have two questions on backlog. I wonder if you had the number split for '07 and '08?

No.

No. We do not, Victor, sorry.

Okay. The second part is, Jay, you had mentioned that you expect backlog to creep higher in the second half of the year. Can you give us a sense as to is that OIE or Multiflex or is it a combination of both of those?

Well, I think it's probably -- particularly in Multiflex and our Quest numbers that we used, show us that Quest's view is that only less than a quarter of the jobs that they expect to be let in 2007 actually were sold in the first half of this year.

So that 75% of the business, according to Quest, will be transactions in the second half of the year and that maybe into the second half of 2007 could be the same size as all of '06. So that seems to be driving -- I guess that one of things that we see out there. There seems to be a lot of quotes out there and we think some of this business will close in '07 in the second half and that is a major driver of increasing our backlog in the second half of the year.

So the bids are outstanding. It's just a question of timing of the awards?

That's right, correct.

Okay and that's really all I had. The rest of the questions I had were answered. I appreciate it. Thank you.

Okay. You bet.

Thank you.

There are no further questions at this time.

Excellent. Thank you very much. We appreciate your attention.

Thank you, guys. Bye-bye.

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