Oceaneering International Inc (OII) 2008 Q3 法說會逐字稿

Good morning. My name is Angela and I'll be your conference operator today. At this time I would like to welcome everyone to the third-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions). Thank you. Jack Jurkoshek, you may begin your conference call.

Good morning, everybody. We'd like to thank you for joining us on our 2008 third-quarter earnings conference call. As usual, a webcast of the event is being made available through the Street Events network service by Thomson Reuters.

Joining me this morning is Marvin Migura, our Chief Financial Officer, who will be leading the call, and Bob Mingoia, our Treasurer. Jay Collins, our President and Chief Executive Officer regrets that he could not be with us this morning as he is tending to a sudden and urgent personal matter.

Just as a reminder, 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 Marvin.

Good morning and thanks for joining the call. Even though Jay could not be here this morning to do his usual great job on this call, I'm inviting you to stay on the call a bit and hear what he wanted me to share with you. Again, Jay [sincerely] regrets not being able to talk to you about our results and outlook. I will do my best to stand in for him; it is a pleasure for me to be here with you today to talk about Oceaneering.

We achieved record quarterly earnings of $55 million which demonstrates the healthy demand we are experiencing for our subsea services and products. We continue to expect to achieve a fifth consecutive year of record earnings per share in 2008 in the range of $3.53 to $3.61. At the midpoint our guidance is up slightly from what we indicated on our last call. This is based on our year-to-date earnings performance and an improved fourth-quarter business outlook for our Subsea Projects business to perform inspection and repair work in the aftermath of hurricanes Gustav and Ike. We expect to report record fourth-quarter earnings.

During the third quarter we purchased approximately 1 million shares of our common stock at a cost of about $55 million. This completed our outstanding Board authorized stock repurchase program. To enhance our future financial flexibility, during the quarter we obtained a one year unsecured $85 million term loan to augment our existing $300 million revolving credit facility. We had $122 million of available credit on committed credit lines at the end of the quarter. As of September 30 we had $303 million of debt and $981 million of equity on our balance sheet. Our debt to capitalization percentage was 24%.

As you have read, heard or written about the financial markets are in turmoil, oil prices have declined precipitously and we are facing the possibility of a global recession. It would be presumptuous to claim we have all the answers as to the impact this environment will have on our business, particularly with regard to commodity prices, the level of our customers' capital spending on deepwater exploration and development, and the timing of sanctioned projects. Consequently we are not at this time going to give our customary detailed annual earnings guidance for the upcoming year.

We do believe, however, that with average oil prices above $70 per barrel we will achieve record earnings in 2009 for the sixth consecutive year. Under this scenario we further believe that next year's EPS growth will be double-digit on a percentage basis and we will have earnings of at least $4 per share. We believe our 2009 growth and earnings will be led by profit improvements from ROEs and Subsea Products. We anticipate adding 24 to 30 vehicles to our ROV fleet next year and expect to achieve an increase in days on hire and will continue to push for higher average pricing.

Our Subsea Products earnings growth is projected to come largely from increased demand for our specialty products like ROV tools and field development hardware and from efficiency gains through manufacturing process improvements. Our preliminary forecast for 2009 includes Subsea Projects operating income to be at about the same level as that of 2008 and we are expecting a decline in MOPS operating income of about $10 million next year.

This anticipated reduction is due to the likelihood that our FPSO, the ocean producer, will be off contract for an extended period of time as it comes to the end of its seven-year contract offshore Angola. And we will not have the $2 million gain from the sale of San Jacinto we realized earlier this year.

At $4 of EPS in 2009 we should generate at least $340 million of cash flow defined simply as net income plus depreciation. We believe our anticipated cash flow from future operations and our debt availability gives us ample liquidity to continue to invest for the future or sustain a slowdown in business activity should one occur. Preliminarily we anticipate spending no more than $175 million on capital expenditures next year as compared to our estimate of $250 million for 2008.

Our 2009 CapEx will be primarily dedicated to support growth of our ROV fleet to meet firm demand. Our CapEx estimate is all inclusive and contains maintenance CapEx projects as well as potential acquisitions. We will not add further Subsea Products manufacturing capacity and we will be more selective in our acquisition criteria.

In summary, with our ability to generate significant annual cash flow and our decision to reduce capital expenditures, we expect to generate a substantial amount of cash which will be available to pay down our debt in 2009. We do not pretend to have a bulletproof business strategy, but to believe our customer spending on Deepwater prospects will be less susceptible to a decline in commodity prices than those in shallow water or on land.

We continue to like our position in the overall oilfield services and products market. Market conditions may change, but our commitment to our shareholders remains the same. We have seasoned management in place that has experienced previous oilfield service industry cycles. We are confident in our ability to adjust our business plan as may be dictated by the market.

One last comment about 2009. Based on our preliminary and conditional estimate of at least $4 earnings per share, we would expect our EPS for the first quarter of the year to be in the range of $0.70 to $0.80. This is consistent with our historical quarterly earnings profile and takes into account normal seasonal declines in activity for our ROV, Subsea Projects and inspection businesses.

Moving on to our third-quarter results. Our ROV business achieved record quarterly operating income as we attained all time high days-on-hire and average operating income-on-hire of over $3,000 per day. During the quarter we added nine systems to our fleet. At the end of September we had 223 systems available for operations, up 19 from September a year ago. We now anticipate adding approximately 26 new systems to our fleet this year, 10 in the fourth quarter.

Our fleet mix utilization during September was 64% in drill support and 36% in construction and field maintenance. This compares to a 61%-39% mix in June of this year and a 68%-32% mix in September 2007. Sequentially operating income rose 6%. At 31% operating income margin percentage for the quarter was the highest achieved over the last five years. Average revenue and cost per day-on-hire declined primarily as a result of a change in job mix to more drill support work. Our fleet utilization rate was 84%, the same as the second quarter, but our days-on-hire increased by 5% as we grew our fleet size.

Year-over-year operating income was over 25% higher due primarily to higher average revenue per day-on-hire. Year-to-date ROV operating income margin was 30%, 300 basis points better than the first three quarters of 2007. We are now projecting annual 2008 ROV operating income growth to be $40 million or more. This would represent a growth rate of about 28% over last year's record.

Our Subsea Products segment operating income during the third quarter improved sequentially due to higher throughput at our Multiflex umbilical manufacturing plants. Year-over-year Subsea Products operating income declined on lower sales of specialty products and higher BOP control system engineering and manufacturing cost.

We had a good third quarter and remain optimistic about our outlook; however, we did not achieve an improvement in operating results to the extent we had projected earlier. We realized a lower than anticipated operating income margin during the third quarter due to higher development cost on BOP control system and a different mix in specialty product sales. Consequently we now expect our Subsea Products annual operating income growth this year to be approximately 11% or at least $10 million more than 2007 which was up 73% from the prior year.

On a general note, we believe our sector of the greater Subsea Products market continues to experience project delays and an overall lower level of activity than we would otherwise expect in a rising deepwater and subsea completion market. At the end of the quarter our products backlog was $334 million, down 10% from the end of June largely due to a drop in umbilical backlog. Given the record level of throughput at our umbilical plants, this was not particularly surprising.

While bid activity remains at a high level, the lack of visibility on timing of the placement of orders causes us to be cautious about forecasting backlog. At this time we are expecting our Subsea Products backlog to remain at the same level or be slightly up at year end.

Given the uncertainty of when umbilical order flow rate will increase, we are implementing steps to improve our manufacturing efficiencies. This includes the recent internal announcement of up to a 25% reduction in work force at our UK umbilical plant. This rightsizing is not expected to diminish our ability to respond to our customers' needs in 2009. It has been apparent for some time that industry subsea umbilical manufacturing capacity exceeds current market demand. We believe a more efficient manufacturing operation will make us more competitive and serve us well in the intermediate and long term.

Our Subsea Projects business, as expected and discussed in our last earnings conference call, was sequentially comparable to last quarter. Our results included the cost we incurred to mobilize our new charter deepwater vessel, the Olympic Intervention, forward to the Gulf of Mexico and to complete its final outfitting for service. The OI IV charter began in late July and the vessel commenced work in mid-December performing inspection and repair work in the aftermath of Hurricane Gustav.

Also in mid-September one of our dynamically positioned vessels, the Performer, began work under a one-year term contract. This vessel is primarily being used to support manned diving and ROV services offshore Angola. This contract represents our first step out to expand our Gulf of Mexico projects business into the growing West African subsea market. Year-over-year Subsea Projects operating income declined as expected due to a softer market for our services as a result of substantial completion of work associated with damage caused by hurricanes Ivan, Katrina and Rita.

For the reasons we've previously discussed, including the wind down of hurricane work and our vessel dry-dock schedule, we anticipate that our Subsea Projects operating income for the year 2008 will be about $25 million to $30 million or 27% less than the phenomenal amount we earned in 2007.

Moving on to cash flow. If you add depreciation back to our net income, we generated nearly $83 million in cash flow during the third quarter. If you add depreciation back to our operating income, you get $118 million. How ever you choose to measure our cash generation you'll find an increase of more than 5% over last year's third-quarter results. Capital expenditures during the quarter totaled $52 million. These investments were predominantly for upgrading and expanding our ROV fleet and our Subsea Products manufacturing facilities.

Over 80% of our investments during the quarter and over 90% year to date have been in our ROV and Subsea Products segment. At present we anticipate spending about $250 million in capital expenditures in 2008. The remaining projected expenditures of approximately $50 million consist mainly of additional ROV fleet growth and organic growth investment in Subsea Products.

Our balance sheet remains in good condition. As I mentioned earlier, at the end of September we had debt of about $303 million and equity of about $1 billion. Our debt to cap percentage was 24%. And as noted in the press release, we believe we will have ample cash flow in 2009 to fund additional growth and to generate the funds to repay debt.

If our actual cash inflows fall short of our expectation we will further reduce capital spending in response to a weaker market environment. The vast majority of our projected CapEx is to fund ROV growth and only a small percentage of the total $175 million is actually committed at this time.

Unallocated expenses declined sequentially and year-over-year as a result of lower incentive compensation expense, particularly that element related to restricted stock units awarded under a long-term plan adopted in 2002 which fluctuates with the closing price of Oceaneering stock at the end of each quarter. Two thirds of the remaining outstanding restricted stock units under the 2002 plan vest in 2009 and the balance vest in 2010. No awards subsequent to those made under the 2002 plan require mark to market accounting.

Our other expenses during the quarter consisted primarily of currency translation losses as the US dollar strengthened relative to the real in Brazil where we use the dollar as the functional currency. To give you some sense of this, the value of the US dollar versus the real increased 20% from the end of June to the end of September. This US dollar strengthening and the resulting expense basically negated the gains recorded in other income as the US dollar weakened against the real earlier in the year.

For clarification, currency translation gains and losses related to changes in the US dollar exchange rate against the British pound sterling or the Norwegian kroner do not flow through our income statement because we use the local currency in those countries as our functional currency for accounting purposes. With this in mind, and based on the relative exchange rate of the US dollar to other currencies at this time, we see no material risk to our 2009 EPS estimate of $4 a share related to future currency movements.

In summary, our third-quarter performance overall was in line with what we had anticipated and we are looking forward to achieving record earnings in 2008 for the fifth consecutive year. Our focus on providing products and services for deepwater and subsea completions positions us to participate in a significant secular growth trend in the oilfield services and product industry.

Looking forward we see specific signs of a healthy deepwater and subsea market that will drive demand growth for our services and products in 2009 and beyond. As of the end of September over 95% of the existing 210 floating rigs in the world were under contract and over 80% of these are contracted through 2009.

100 additional floating rigs were scheduled to be delivered during the remainder of 2008 through 2012 and 70 of those have been contracted long-term for an average of six years. This year seven new rigs have been delivered, four during the fourth quarter. All of these have been placed into service and we have ROEs on all of them with two on one rig for a total of eight vehicles.

In addition to the delivered rigs, ROV contracts have been let on 22 of the remaining 100 new rigs and we have won 19 of them to provide 23 ROVs. We anticipate three additional new rigs will be delivered by year-end 2008 and we have the ROV contracts on them to provide four ROVs. In 2009, according to ODS-Petrodata, 25 new rigs are scheduled for delivery. Of these we currently estimate 19 will actually be placed in service next year.

We have the ROV contracts on 13 of these rigs to provide 16 vehicles and another company has the ROV contracts on two of these rigs. That leaves four 2009 ROV contracts yet to be awarded and we are pursuing them. Three of these rigs are going to work for Petrobras in Brazil and the other is gone to work for Reliance in India.

Given the recent deterioration and the global credit markets, the decline in the price of oil and the threat of a global recession, it is quite possible that some of the new rigs currently on order may not be built. In fact, construction had not yet started on 34 of the 100 rigs on order as of the end of September. Assuming that 20 of these rigs will either be delayed beyond 2012 or canceled, this would still represent an additional 80 rigs to the current fleet of 210.

So we're still talking about growth of nearly 40% in the floating rig fleet and growth of 190% in the high specification fleet which currently totals 42 rigs. This is the ROV service market we dominate and we believe we are in the pole position to seize this opportunity. Moreover, the delays or cancellations being envisioned should not affect 2009 or our projected ROV drill support growth.

We believe yesterday's announcement by Transocean of a five-year contract award for a new build ultra-deepwater drill ship at a high day rate to begin the fourth quarter of 2010 underscores the strength of the deepwater exploration market, even in the current environment. In addition to the current rigs being built, an international ship broker reports that about 180 subsea support vessels are under construction with anticipated delivery dates by the end of 2011. Of these we estimate that a minimum of 125 will require at least one ROV each.

While our ROV business represents our single largest growth opportunity, we like our position in Subsea Products as well as our other business segment. With our existing assets we are well-positioned to supply a wide range of the services and products required to support the growing deepwater exploration, development and production efforts of our customers. We believe Oceaneering's business prospects in 2009 and beyond remain promising. We have the financial resources to continue our growth and intend to do so albeit on a tempered basis until we have a better clarity as to how 2009 unfolds.

For 2008 we expect our net income to result in record earnings per share of $3.53 to $3.61. For the fourth quarter of 2008 we are projecting EPS in the range of $0.88 to $0.96. Sequentially we expect quarterly operating income improvements from Subsea Products on the strength of higher OIE specialty product sales and Subsea Projects due to inspection and repair work necessitated by hurricanes Gustav and Ike. We expect the results from ROVs and MOPS to be about the same as that of the third quarter and we anticipate a sequential quarterly decline in profit contribution from inspection due to normal seasonality.

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 long-term market outlook for our deepwater and subsea service and products offering remains promising despite the recent deterioration in global economic conditions. Deepwater remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development cost. We're expecting record annual earnings for the fifth consecutive year in 2008 and with escalating demand for our ROVs and Subsea Products, 2009 should be even better. We appreciate everyone's interest in Oceaneering and we'll be pleased to answer any questions.

(Operator Instructions). Neal Dingmann.

Excellent quarter. (multiple speakers) was wondering, you had mentioned at least that the cutback in the UK based on what you thought as an overbuild on the umbilical market. It seems you think a bit weak in that area. Are there other areas you think that are making up for this or other particular reasons that you think would be exceptionally strong?

I think we've been talking about our lower margins in Subsea Products as we added capacity for an order flow rate that did not occur. And we are going through our entire Subsea Products operations looking for manufacturing efficiencies. And I think the UK that I indicated, where we will be reducing our work force of up to 25%, is kind of a leading indicator. We'll be looking at our other operations, but right now there are no current plans that we're prepared to announce.

And then wondering, it still looks like that ROV, it looks like demand still seems to be quite good, although you cut it back just slightly for next year. With that do you envision the operating income per day continuing to move up slightly?

With the uncertainty out there -- but yes, I think even with the strong deepwater -- I was just thinking about the new additional rigs should be coming in and adding to that -- yes, I think the answer is we expect operating income per day to continue to improve.

Okay. If I could sneak one last one in just on share buybacks. Are you still considering increasing that or how does that sit?

Right now that is under consideration by our Board and I think it will probably be discussed at the next meeting in November.

Thanks a lot.

Byron Pope.

Good morning. Just wanted to, within the Subsea Products segment, wanted to get an update, if we could, on -- you had mentioned the subsea control systems and just where are we on those. Are we still expecting delivery Q1 of next year. What's the current status on those for? You mentioned higher than expected development costs, just wanted a status check on that one.

I think there's no new news on BOP controls. I think the higher manufacturing and engineering cost was a carryover and it's related to the first two systems. And they should be delivered either at the end of this year or during the first quarter.

Okay.

And we expect improved operations for the systems coming after that.

Okay. And then for Subsea Projects, with the post-Gustav/Ike work, is the visibility there such that we should expect stronger activity levels for you guys in that segment extending well into '09, is there that much visibility and I was just wondering if you could help us quantify the opportunities subsequent to the hurricanes?

The visibility does not extend into '09 at this time. Right now there's mostly been inspection and emergency repair work. We're not looking for the kind of hurricane-related work that Ivan, Katrina and Rita brought us. So I would say not at this time. We're expecting an improvement, or I should say strong results from our Subsea Projects in 2009 based on the additional capability that the OI III and IV bring us and most of it to be in deepwater IRM work.

Okay. And then one last quick question if I could sneak it in. Just your thoughts on maintenance CapEx, if I think about it in the context of your '09 CapEx guidance, how much is (multiple speakers) maintenance?

We debate that internally and so much of maintenance CapEx is really going to depend upon the market environment that we're in. To give you just a broad number as to what I think is going to be part of that $175 million estimate, I would have to say somewhere around $30 million.

Okay. Thanks, Marvin. Appreciate it.

Chris (inaudible).

Good morning. A question regarding ROVs. Assuming $65-$70 a barrel next year, under that assumption how does that change your outlook for ROVs and the operating income you can garner per day?

Well, Chris, we really haven't correlated our operating income results to a specific price per barrel of oil. I think what we started with was the assumption that it was going to be over $70 and that under the assumption of over $70 we could go ahead and do at least $4 per share. The underlying assumption is that normal deepwater and subsea completion activity will continue.

If we ratchet down oil $5 a barrel I have no way of quantifying that. For ROVs though, most of the work that we have is for vehicles under contract. Now will oil companies come to us and want a lower price because the price of oil has dropped? I can't predict that. We really don't track ROV contract backlog. Our premise is that we're on rigs that are under long-term contract and if the rigs continue to work we will continue to work.

Right. If you include the 30 that you expect to add next year, what percentage of the entire fleet is booked through '09?

Go ahead, Jack.

The answer to that is that a significant portion of our contracts are subject to 30 to 90 day cancellation clauses. The stated terms in the contracts really don't matter.

That's what I tried to address. But I don't see if the rig is continuing to work under existing contracts, the oil companies coming to say I think an average day rate of 9,600 for you is too high because we're spending $800,000 to $1 million a day and we'd like to squeeze yours by $500. So the likelihood of that we don't imagine as being a probability of that being very high.

And I think that if the rigs continue to work our ROV business segment will do very well and we believe that the Riggs will continue to work under long-term contracts. The Transocean rig, I also read today that I think it was a Pride rig that got renewed, a 1,500 foot semi. So I see no signs of weakening in deepwater demand for our ROV services.

Okay, just one quick one. Do you have any estimates in terms of what are you thinking for industrywide ROV additions for '09 on top of the 30 that you're expecting to put in there?

We really don't have any good industry data. No one tracks that, but I will say that our primary competitors, or I should say the other companies that have the next largest ROV fleet, are adding those vehicles predominantly to service their own internal needs. But I can't quantify how many vehicles they're adding to their fleets.

Thanks a lot. I appreciate it.

Kevin Pollard.

Good morning, everyone. I have a question about your Subsea Projects guidance to be relatively flat going forward in '09. I guess I was a little surprised by that given there's probably some element of work to be done from these recent hurricanes, plus you have the new vessel, the OI IV, plus you're not going to have the headwinds of all the dry docking of your deepwater vessels. I was wondering if you could sort of -- I know the BP contracts aren't going to contribute next year, but I was wondering if you could clarify what's causing that to be flat given all the pluses there?

First of all, I think you understand the moving pieces. Secondly, I think with the uptick in Gustav and Ike-related work we're not going to see the decline to the extent that we had earlier envisioned it from 2007. So it's rising to a higher level -- our fourth-quarter results are expected to be better than we had anticipated, so staying flat is staying at a better level than what we would have envisioned a quarter ago.

And lastly, when you look at what segment is most susceptible to a slowdown in activity and dependent upon independence work, it is our Gulf of Mexico projects business. So one of the reasons we're not giving detailed guidance, but Jack made me give estimates on Subsea Project saying that it's going to be flat is that there are a lot of variables that we have not been able to quantify yet.

Okay, all right, that's fair enough. And then with regard to the Performer moving to West Africa, is that something you would expect us to see more of or you may be moving additional vessels or perhaps even chartering new vessels to expand operations internationally?

That is really going to depend upon the opportunities that come up. The answer is we are prepared to look at that. I don't know if we'll be moving anymore over because demand in the Gulf of Mexico for our fleet looks pretty strong, but putting the Performer on a one-year contract at good rates was something that we seize that opportunity and we hope to do more of it but that really is going to be on a contract-by-contract opportunity basis.

Okay. If I could squeeze in one last quick one. With regard to your headcount reductions in the UK facility, how soon would you start to see an improvement in margins from some of these efficiency initiatives in addition to the timing of realizing those? Do you think you can get those margins back to the '07 levels with the impact of these initiatives?

Well, it's really going to depend upon the market that we see in 2009. The answer to your first question is we're going to see some of those efficiencies start to flow into our operations in the first quarter of 2009 on an apples to apples basis, but whether or not that's going to translate to an improvement in margin, you've got a lot of things that go into our margins.

What we're saying is we are squeezing cost out of our operations to be more competitive and hopefully that translates into us winning more work and being more profitable. I haven't taken a look at it in such detail that I can tell you there's going to be some quantifiable impact on the operating income percentage line.

Okay, thanks a lot, I appreciate it.

Joe Gibney.

Good morning, guys. Most of my questions have been answered, just wanted to follow up on mix side relative to ROV. Good job on the operating side -- obviously a little modest degradation in the average revenue per unit. Just curious, higher drill support mix this quarter in the wake of the hurricanes. Any change to that as we look into the fourth quarter? A little bit higher work class mix or are you still probably holding the 65-ish percent drill support range?

You know, we knew that one day we were going to break our string of consecutive quarter increases and average day rate per -- or average revenue per day on hire. We're real pleased to have broken that string when we set an improvement in our operating income per margin. So there is some correlation there that we were able to reduce our cost.

Those snapshots that we give you during the month of the quarter end are really that. And I think they're indicative of that quarter's activity and nothing more. As many rig opportunities there are, we seem to be learning of as many vessel opportunities. So we have no crystal ball to tell us if that's going to move 1 percentage either way or not. And I don't think it had anything to do with the hurricane.

We told you we intended to add 10 vehicles in service in the last quarter and only three of those, according to what we told you, are going to go on new rigs. But (inaudible) seven others that are going on a lot of other things.

Sure, absolutely. All right, I appreciate it, guys. I'll turn it back.

(multiple speakers) if we give you an answer to that, then next quarter it may not turn out to exactly what we tell you now.

Fair enough. All right, appreciate it.

(Operator Instructions). Victor Marchon.

Good morning, guys. Thank you. I just had a question -- I apologize if you had talked on this already, it was just on the ROVs on operating margins. It was a significant jump in the quarter and somewhat of a step change coming out of that mid to high 20% range over the last couple years. And I just wanted to see if that was sort of the new run rate for that business going forward or was there something that was one time or an anomaly in the quarter that pushed it up a couple hundred basis points.

There wasn't anything in the quarter that was an anomaly that pushed it up a couple of hundred basis points. However, I would not take one very good quarter and extrapolate it. I don't think there's a new shift to a higher plateau of operating income margins. I think costs are not daily. Everything in our operations, those costs change, they're not at a fixed daily amount is what I was trying to say. And I would not change my model based on a one quarter operating income margin of 31%.

Okay. That's great. And the only other one I had was just on the Producer. Are you guys going to be looking to sell that asset or are you going to be looking to market that vessel?

I think at this time we would be looking to redeploy the Producer and find another contract for it. But I think what our expectations are is that it would take some time to do that and, after being on location for seven years without interruption, seven plus years, it would take some maintenance CapEx to get it back in to the shape that it could stay on the next location for an extended period of time. And I haven't included that maintenance CapEx in my $30 million assumption. That will be based on a contract that we will be building towards.

I appreciate that. That's all I had. Thank you.

Brad Handler.

Thanks, good morning. Couple of unrelated things I guess. Just first on the Performer one-year contract, can you speak to what you might see sort of longer-term? Someone else I know asked about other vessels, but just even for the Performer might this yield sort of follow on yearly contracts or something? Can it be a longer-term position do you think?

The answer is yes, it could be. There's no indication now that it's for anything more than a one-year period. I really don't know what the market is going to be like 365 days from now. But the answer is if we stay there one year we could definitely extend it.

Okay, but the scope of work, as you understand it, for now is one year?

Yes, sir, very much so.

There are no options being considered, there's nothing tactically being considered?

No, not at this early -- it was in mid-September not this early in the game.

No, I just didn't know if that was sort of the basis under which you even started to talk to (multiple speakers).

I appreciate the question. I understand, but no, we have nothing to add that would indicate that it would be longer than that.

Fair enough. Unrelated follow-up then. In your comments -- and I understand there was a lot of prudence brought to a number of things in these comments. But you mentioned I think something about acquisitions and maybe a different tone with respect to acquisitions. So I'm hoping to draw you out a little bit on that.

In the sense that if things soften up, as they might here, there's presumably a chance to pick up some companies in interesting businesses that you I think have been targeting for some time anyway. So again, sort of an open-ended question, but maybe you could speak to philosophically how you might think about acquisitions now?

Philosophically the first way we think of acquisitions in this environment is we've seen a serious compression in multiple -- as to Oceaneering stock. And if a potential seller had the same expectations as he may have had a year ago we would not be interested at that price. One of the things that we are fortunate in is our financial flexibility allows us to do what you just suggested and to be opportunistic should something come across the board that says they're willing to sell at a reasonable price, then we want to be able to move on that.

I don't know if that's going to occur in 2009 or not in the space that we play. But if that is, we definitely are going to stick to our tradition of being opportunistic and making acquisitions when that is the best use of our cash flow. But it is going to be on a much stricter criteria because I think the valuations are out of whack right now, but as long as they are we're not going to pay somebody a higher multiple than we are getting in the stock market.

That makes sense. And that spread, if you will, is wide enough that in your comments this morning you would suggest that there's probably very little that you'll do. Again, being the prudent comments that they are, but (multiple speakers)?

I think that's fair and that says that we have very little in the queue. But if we do pull the trigger on any of them it will be because they represent to us growth opportunities and a better opportunity than buying back Oceaneering stock as treasury stock.

Sure, sure. Okay, I appreciate the clarification. Thanks, guys.

[Thad Zeda].

Two quick questions both relating to umbilicals. First, with regard to the restructuring of your UK manufacturing facility, what do you think the [report] of magnitude cost is going to be and when do you expect to incur that? And then the second question relates to the excess manufacturing capacity in umbilicals, could you remind me again approximately where that stands right now? And in that context, have you seen more pricing pressure, more aggressive pricing than usual?

Okay. We have not quantified, we have not identified the individuals. In UK law their tenure with the Company is going to depend upon their redundancy cost, as they call it. So I don't have an answer as to how much that cost is going to be. I can tell you that we will incur that cost in the fourth quarter and we have included in our estimate for the fourth quarter in that range an amount that we think is prudent.

Worldwide capacity for umbilicals has not changed, nobody has added a new plant or we're not aware of anyone adding a new plant. And with the order rate being as lumpy as it has been and so many orders being delayed, I can't quantify where we are on capacity. That's a pretty elusive thing depending upon steel tube and thermoplastic mix.

One thing that I do want to say is we are -- we continue to remain optimistic that the next five years of umbilical orders will be substantially over a much higher rate than the previous five years that we have incurred. But we just think these manufacturing efficiencies are going to serve us well and will not limit our ability to serve our customers.

As far as pricing pressure, the umbilical market, because of the excess capacity we've reported several times, over and over again, continues to be very competitive. Has pricing pressure increased? I hope not. I haven't seen any signs that it's gotten any worse, but I haven't seen any signs that it's getting any better either. It all depends upon which contract and who has an empty spot in their plant that they need to fill and that's what keeps margins from umbilicals at a lower level than what we would hope they would be.

Great, thank you.

Waqar Syed.

A couple of questions. First, are you seeing any impact on the margins because of lowering of steel prices on your steel umbilical side?

Not yet, not at this time. I mean that is one of the things that we are expecting is that commodity prices, steel and copper, should come down. And it will all depend upon the level of order rate to see if that's going to translate into better margins. We hope that it is, but I have nothing to report. At this time there's just not been enough order flow -- since this economic crisis started for me to be able to have two data points that I could extrapolate.

And second, on some of your small businesses, inspection or ADTECH, what is the relationship revenue relationship of these businesses to oil prices or global GDP or how should we be thinking about those businesses over the next year? And then also more specifically on the Navy contract, anything recent on the contract with the space suits?

Okay. I don't think our ADTECH revenues could be correlated to the price of oil. But I think the next administration, whoever that may be, is going to have more impact on government budgets than the price of oil and how the global economy impacts that is yet to be seen.

We have no new news on the Constellation spacesuit contract. I think that's being in the process, as press has reported, of being reevaluated and we still remain confident that we will ultimately be selected or confirmed as the selected provider. I don't think that's going to have much impact on 2009 one way or the other.

Regarding inspection, I really see that the inspection is so key to the existing infrastructure and integrity management of the existing energy infrastructure -- refineries, power plants, offshore facilities -- that I don't see much impact in the global economy and our inspection prospects.

And then on the on the M&A side what do you see -- you mentioned a few words on potential acquisitions. How do you and the Board and everybody else feel about being on the other side given that you're such an attractive business and could be -- at current valuation look pretty attractive? Are you hearing companies make movements talking to you, anything like that?

First of all, I guess it's better to be attractive than to be otherwise. So I am glad you think that this price, because we do, we think it's a very attractive investment opportunity. Secondly, we pretty much focus on what we can influence or control and I think somebody acquiring Oceaneering is outside of our influence or control. Lastly, I am not aware -- I know no one has called me and I'm not aware of any calls to anyone about such matters.

Thank you very much.

We have no further questions.

All right. Thank you very much for your interest and I hope you have a good day. Bye-bye.

Thank you.

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