Oceaneering International Inc (OII) 2010 Q1 法說會逐字稿

Good morning. My name is Sean, and I will be your conference operator today. At this time, I'd like to welcome everyone to the 2010 First 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. Mr. Jurkoshek, you may begin your conference.

Good morning, everybody. Thanks for joining us. As usual, a webcast of this event is being made available to the StreetEvents Network Service by Thomson Reuters. Now, joining me today are Jay Collins, our President and Chief Executive Officer, who'll be leading the call, Marvin Migura, our Chief Financial Officer, and Bob Mingoia, our Treasurer.

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

And I'm now going to turn the call over to Jay.

Thank you, Jack. Good morning, and thanks for joining the call. It's a pleasure to be here with you today to talk about Oceaneering. We had another good quarter, and I think there were three key takeaway points in our press release and I'd like to address these at the beginning of my remarks.

First, our quarterly EPS of $0.71 was slightly above the midpoint of our first quarter guidance of $0.65 to $0.75, which did not anticipate the $5.2 million impairment charge we incurred relative to The Performer. Second, we are affirming our 2010 guidance of $3.25 to $3.55 per share. While our individual segment outlooks may be slightly different, our view of this year is basically unchanged from that discussed on our 2009 year-end earnings call.

We continue to believe that some deepwater construction projects will continue to be deferred until there's a meaningful recovery in hydrocarbon demand and that deepwater drilling activity will keep growing in 2010 as rigs currently under construction are added to the worldwide fleet.

The major determinant of the spread in our 2010 EPS guidance range is the extent to which deepwater construction activity increases over the rest of this year. This impacts demand for our ROV construction support services, Subsea Products and our deepwater vessel services in the Gulf of Mexico.

And the third key takeaway point is that our ROV operations continued to outperform our expectations, even during a period of low construction support activity. This time, we did it by effective cost-control measures. We set a new first quarter operating income record, even though utilization slipped. Our cost-control efforts excellent execution resulted in an all-time-high quarterly operating margin.

For the first quarter, ROV operating income increased 10% year-over-year. Sequentially, ROV revenue and operating income declined due to a seasonal reduction in demand for construction support services. Operating margin during the quarter was 34% compared to 31% a year ago, 33% last quarter and 32% on average last year.

There's no trend story here as our quarterly results for ROVs do fluctuate for a variety of reasons as much as 4% in any given year. However, given our first quarter performance, we are now anticipating our ROV operating margin for the year 2010 will be comparable to or slightly better than that of 2009. We had previously been expecting a slightly lower margin for 2010.

Our fleet utilization during the quarter was 75%, down from 80% in the first quarter of 2009 and 78% in the fourth quarter of 2009. These declines were attributable to lower demand for construction support services, particularly in the Gulf of Mexico and offshore West Africa. For the balance of 2010, we expect to achieve quarterly fleet utilization in the range of 80% to 85%.

During the quarter, we added five systems to our fleet, and as of the end of March, we had 253 systems available for operation, up from 233 a year ago. All five went to work in drill support service on new rigs. Our fleet mix during March was 76% in drill support and 24% in construction and fuel maintenance compared to a 73%/27% in December of 2009 and a 70%/30% mix in March of 2009.

Our Subsea Projects business had two noteworthy items during the quarter. First, we decided one of -- decided to sell one of our vessels, The Performer, after it completed its contract in Angola and after considerable effort to find additional work for it.

In light of today's soft vessel market and the fact that the boat is 34-years-old facing stiff competition against newer, more capable vessels, we decided to put The Performer up for sale on the international market where we do not normally operate. Based on indicative offers received to date, we had to incur a $5.2 million impairment charge to reduce the vessel's carrying value to its fair value less the anticipated cost to sell.

You may have read that we entered into a contract earlier this month to be the stocking horse bidder to a bankruptcy proceedings for the assets of Deepwater Marine Technologies, which includes four vessels and five work-class ROVs. The decision to sell The Performer and attempt to buy additional vessels is consistent with our intent to high-grade our fleet when it makes good economic sense. The DMT vessels are much newer, have different capabilities, and qualify as Jones Act vessels. While there can be no assurance that our bid of $85 million for these assets will be successful, we hope that it is.

The second noteworthy item was that Ocean Intervention II unfortunately incurred substantial deck damage while installing an umbilical during heavy winter weather in the Gulf of Mexico. The boat is expected to be out of service undergoing repairs until the end of the third quarter. The cost of the repairs should be covered by insurance except for a small deductible. We will, however, lose the potential earnings contribution from the use of the vessel until it's repaired.

I'd also like to point out that we now include our MOPS financial results in our Subsea Projects segment as our MOPS business is no longer significant to our overall performance. Historical segment results in the press release tables have been conformed to the current presentation.

Year-over-year, the decline in Subsea Project quarterly operating income was the result of lower demand in pricing for our shallow water diving and deepwater vessel services in the Gulf of Mexico, The Performer impairment charge and the retirement of the Ocean Producer in 2009.

The softer market for our shallow water services was mostly attributable to the absence of platform and pipeline damage project we performed last year in the aftermath of Hurricane Ike. Sequentially, Subsea Project operating income was lower as a result of The Performer impairment charge and the sale of the Ocean Producer last quarter.

Our Subsea Products backlog grew slightly during the quarter and at $338 million was up 20% from that of one year ago. This occurred in spite of a very competitive umbilical market in which several large orders have recently been awarded to others. While the umbilical market continues to be hindered by excess manufacturing capacity, several of our other specialty Subsea Product lines have experienced an increase in bid activity, and we continue to forecast improving demand with meaningful increases in operating income during the second half of 2010.

Year-over-year, our Subsea Products revenue, operating income and operating margin were basically flat. Sequentially, Subsea Products revenue declined about 10% on reduced demand for most of OIE specialty Subsea products and lower umbilical planned throughput. Operating margin, however, improved about 2%, largely due to increased operating efficiency and spending cuts at Multiflex. Consequently, operating income grew 4%. We continue to anticipate that our Subsea Products revenue, operating income and operating margin for the year 2010 will be above those reported for 2009.

On April 19th, Knut Eriksen joined Oceaneering as Senior Vice President, Subsea Products. He previously held numerous management positions in engineering, operations and business development at Natco Group, Aker Kvaerner and Aker Maritime. We will benefit from his exceptional experience and perspective as we prepare for an escalation in demand for our current Subsea products in an attempt to our product line offerings.

In summary, our first quarter results were in line with our expectations, and we're looking forward to realizing another year of substantial earnings performance in 2010. Our focus on providing products and services for deepwater and Subsea completions positions us to participate in a major secular growth trend in the oilfield services and products industry.

We were pleased with our cash flow generation capability as demonstrated by $101 million of EBITDA during the quarter. Capital expenditure for the quarter totaled $36 million of which $27 million was invested in ROVs. At the end of the quarter, we had $220 million of cash, $120 million of debt, $200 million available under our revolving credit facility and $1.3 billion of equity.

For 2010, we anticipate generating in excess of $300 million of cash flow simply defined as net income plus depreciation and amortization. Our balance sheet and projected cash flow provide us ample resources to invest in Oceaneering's growth.

As I stated earlier, for 2010 we're expecting -- we are forecasting EPS in the range of $3.25 to $3.55 per share. Compared to 2009, our forecast assumptions are that we will achieve profit growth from our ROV and Subsea Products businesses and experience a decline in operating income from our Subsea Projects operation. These three business segments are anticipated to account for 85% or more of our annual operating income, as they have for the past few years.

Compared to 2009, we anticipate our ROV operating margin will be flat to up. Our Subsea Products margin will be higher, and the Subsea Projects margin will be lower. Our ROV business earned 63% of our operating income in Q1 compared to 53% in Q1 of last year and 54% for all of 2009. This is consistent with our expectation that ROVs for the year 2010 will continue to earn over half of our total operating income.

We anticipate adding 20 vehicles to our fleet in 2010, 15 during the remaining three quarters. We have contracts for 11 of these. I believe we are well prepared for the challenges we face in 2010. We continue to have a watchful eye on cash flow generation and cost control and our intensifying efforts to improve business processes and the effectiveness of how we work.

Looking forward, we see specific signs of a healthy deepwater and Subsea market that will drive demand growth for our products and services. As of the end of the March, 93% of the existing 240 floating rigs in the world were under contract. 74 were contracted through 2010. 73 floating rigs were on order and scheduled to be delivered through 2014. 44 of these have been contracted long term for an average term of nearly seven years. ROV contracts have been let on 33 of the 73 rigs on order, and we have won 10 of them, one in the first quarter of 2010.

During the quarter, a competitor was a low bidder to provide new ROVs for 17 of the rigs on order as part of a 30-rig ROV Petrobras bid package. Petrobras plans to use the remaining 13 new ROVs as replacement vehicles on existing rigs over the next several years. There are 40 ROV contracting opportunities for new rigs left to be pursued, 11 on the contracted rigs.

We estimate that 30 to 35 rigs will likely be placed in service during 2010. Nine went to work in the first quarter, and we had ROVs on seven of them. Of the remaining 21 to 26 rigs, we have ROV contracts on 11. Competitors have the ROV contracts on eight, leaving two to seven ROV contract opportunities for the rest of the year.

Our accumulative total win/loss record on new-bill floating rigs since 2007 through March 2010 has been 41 out of 67, or 61%. If all of the floating rigs on order are placed into service, the global fleet size will grow by 30% to over 300 rigs and growth of over 100% of the high-specification fleet, which currently totals 68 rigs.

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

With our existing assets, we are well positioned to supply a wide of range of the services and product required to support the deepwater exploration, development and production efforts of our customers. We believe Oceaneering's business prospects for the longer term remain promising. Our commanding competitive position, technology leadership and strong balance sheet position us to continue to grow the company, and we intend to do so.

For the second quarter of 2010, we are projecting EPS in the range of $0.80 to $0.85. Sequentially, we anticipate quarterly operating income improvements from ROVs and Subsea Products. ROVs, due to an increase in fleet days, is on higher as we benefit from a seasonal pick-up in demand from construction and from new vehicles being put into service and Subsea Products on the strength of higher sales for field development hardware, ROV tooling and IWOC services. We're also forecasting that we will achieve a seasonal profit improvement from our Inspection business and higher Ad Tech results.

For Subsea Projects, we're expecting Q2 operating income to be flat with Q1, including the impairment charge. This is attributable to the completion of the performance contract at the end of the first quarter and the lack of the Ocean Intervention II's availability as a result of its deck damage. Additionally, while the vessel is out of service, we will be performing and expensing its regular dry docking.

In summary, our results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well over both the short term and long term. We like our competitive position in the 2010 oil field services market. Our technology gives us the ability to prosper in another challenging year.

We are leveraged to what we believe will be an inevitable resumption in the growth of deep water and Subsea completion activity, the longer term market outlook for our deep water and Subsea service and product offering remains promising. We continue to believe we are in one of the sweet spots of this secular up cycle. 2009 was our best year ever and we are well-positioned to have another year of substantial earnings performance in 2010.

Before the -- turning the call over to questions, I would like to express my condolences to the families of the individuals who have not been found and to those who may have been injured in the recent deep water horizon fire. This was certainly a tragic event. We had three employees on board the rig at the time of the incident and fortunately, all were safely evacuated without injury. We did have an ROV system consumed in the fire, which is covered by insurance.

We're currently working with BP at the site where the rig sank and are providing all the equipment, personnel support that we can. We're not, however, going to discuss any of the specifics regarding our involvement and additional information requests should be directed to BP.

Now, we appreciate your interest in Oceaneering and will be happy to answer any of your questions. John?

Thank you. (Operator Instructions).

Your first question comes from the line of Chris Glysteen. Your line is open.

Thanks. Good morning.

Good morning.

Looking at the Subsea project segment and excluding the impact of the impairment charge, can you talk about, A, what you're seeing there? What drove the change quarter-over-quarter? And secondly, what you're seeing with regard to the current environment and demand for your deep water vessels? Are you seeing any improvement there?

Well, first of all, what drove the results, excluding that, was that the performer continued to work in Angola for most of the quarter. And I mean, that was a little bit better than what we had expected. I would say with regard to the Gulf of Mexico market, I don't think we've seen any real increase in demand.

I think it was a very slow period, slow quarter and there is increasing demand, other vessels in the Gulf of Mexico. I think we see a return to a more normal shallow water market for sure and note with a less -- ending of hurricane repair type work and I would say a relatively slow market in the Gulf of Mexico for the deep water activities.

Okay. Then turning to the products, you're seeing an improvement in demand for the non-umbilical products. What kind of pricing environment are you in for those?

I would say there's no real change in that. I think that's been a stable pricing environment. We are in some niches that -- where we generally are able to achieve reasonable prices. Certainly, our West African Subsea product offering that we provide to some of the OEM guys has -- there've been significant business along those lines. But I would say nothing -- no moves in the product -- in the pricing side.

Okay. That's very helpful. Thank you very much.

Okay.

Your next question comes from the line of Neil Dingmann. Your line is open.

Good morning, guys. Say, Bill, I was wondering, on the Subsea products, given what you said about, obviously, the competition, but bidding activity increasing, is it fair to say that a lot of the previous delays that we were -- that you were experiencing late last year, earlier this year, have now subsided a bit? I'm just wondering, on your guidance, I know you are expecting some -- definitely some income improvement. Is that assuming new project wins or is that just things that already been contracted for?

I'd say a little of both, Neil. It -- certainly we've seen more activity, a lot more quote activity in the Gulf of Mexico and as I mentioned before, we have seen a pickup in activity, of work that we're providing to some of the OEMs for West Africa, which really started last year and is continuing.

I wouldn't really say I've seen the projects -- the dam has burst on the project side, but it certainly seems like there's a lot of talk and activity and quotation going on, so I think that's really what our expectation is based on, as well as some of the orders that we've been receiving from West Africa that really started late last year.

Okay. And then, just my follow-up is on ROVs, obviously that market continues to be quite strong and continues to dominate that market. I'm just turning to pricing on that segment. I mean, are -- you're seeing some of these new -- I guess the ones you already have contracted, are we expecting a bit higher prices that you've already included in those or would we see that on some of these new ones that you bid for? Are you bidding, assuming a bit higher prices or about -- stay in the same prices?

I would say pricing is stable in that world. Again, we've been anticipating pretty flat revenue per day in that business for the entire year and nothing really has changed there. But we are encouraged about the ROV business for the rest of the year. As I indicated, we started with a 15 to 20 systems going to work this year and now, we've moved that to 20.

So, I think that is encouraging to us overall and you heard our expectations for higher utilization for the rest of the year. So, as we talk to our customers, we think there is going to be improving activity throughout the year in the ROV business.

Thank you.

Your next question comes from the line of Max Barrett. Your line is open.

Thanks. Good morning.

Good morning.

Good morning.

In Subsea products, you had another sequential order uptick in Q1 and I was just curious if you could give us a sense as to the mix? Specifically, did this include any umbilicals or was it all OAE?

There were some umbilical awards included. Nothing that is of the nature that required or that we thought merited a special release, but it was -- it -- the mix hasn't changed. It was pretty even across our products offerings.

Okay. And then, sticking with Subsea products, you talked about potentially expanding IWOCS into the North Sea markets, where there might be customer appetite for those systems. Do you have any updates on that front?

Our equipment is, I think, just about --

Being completed.

-- being completed. We're pretty close to being able to provide some service in that market.

Great. Thank you very much.

You bet.

Your next question comes from the line of Philip Dodge. Your line is open.

Yes. Good morning.

Good morning.

Thanks for the comments. Could you give us any help in terms of a metric on how competitive bidding has changed on umbilical projects from where it might have been at the peak awhile back?

I'm afraid not. I think we've really been in a very competitive market for the last 18 months here and we won some projects at the end of last year and during last year, the Kizomba award for Exxon, the Shell-[Gubemanset] job. And now, we've lost a couple of orders as we indicated here, but I think that's just the nature of the beast of win-some and lose-some. I think it hasn't been -- I haven't seen any change, really, in the last year.

Yes, and Phil, going back to -- at the peak, I would say it's substantially down. Substantially more competitive.

Right.

Yes. Do you expect, trying to see a silver lining, do you expect any relief from the fact that a couple of your competitors now have taken on some significant business, which might limit them on the next one?

Well, we're always trying to figure that out, but I would -- I'm always reluctant to predict if our competitors can't do the next job and we'll get hired. So, we'll just wait and see. Hopefully, if enough bids come, I think overall, we should see increasing activity over the next year and hopefully, we will all start to fill up our factories and prices will rise. But I certainly can't report that I've seen that happen yet.

Hope so. Okay. Thanks very much.

Your next question comes from the line of Jim Crandell. Your line is open.

Good morning, guys.

Good morning, Jim.

Good morning, Jim.

Jay, just to make sure I heard it right, could you repeat the number of ROVs, which were included in the Petrobras tender that you lost at Subsea 7?

Sure. The Petrobras tender, let me just give you full information on that. They had a bid for, in the first quarter, for up to 30 new ROVs with a guarantee of 20. So, it's somewhere between 20 and 30. The vehicle in-service dates are scheduled by Petrobras to commence late this year and be completed by the end of 2012.

13 of these ROVs are -- will be for existing rigs. We have ROVs on four of them and once that has a contract end-date late this year and three that have contract end-dates in 2011. So, that leaves 17 of those that are for new rigs and that's what we talked about with 17 new rigs that are part of that 30.

That would be very unusual, wouldn't it? That they would take your ROV off an existing rig and replace it with someone else's?

It would be very unusual and we have yet to see if that really is going to happen, but it could certainly -- it may very well happen.

I mean, what do you -- this is going to represent for new contracting policy, doesn't it, by Petrobras? What do you sort of make of it?

Well, I think they are very aggressive in looking for the low price and they got a very low bid from Subsea 7. They were low bid by a significant amount. We would not work for this rate -- for this price. So, we'll see -- we'll just have to wait and see how it all plays out. While we're certainly disappointing in this -- in missing this opportunity, there are plenty of other opportunities, will be later in Petrobras and with the IOC.

Just to give you some perspective, in the first quarter, we put four ROVs to work in Brazil, two for Petrobras. At the end of March, we had 29 ROVs operating in country, 20 for Petrobras and for year-end, we expect to have 31 vehicles working Brazil, 21 for Petrobras.

On the drill support side, we have about 47% market share at the end of March, even projecting after this bid going forward, we still think we'll have 40% or more by the end of 2011. So, we're still a major player in Brazil and we still see lots of opportunity, even though we're sorry to have missed out on this opportunity.

And Jim, these 13 contracts that they are supposedly replacing are at the end of their exploration term. So, it's not like they are kicking anyone off of the rig during a contracted term. But they competitively bid this and others wanted the work at way lower prices than we did.

And Jay, I would assume that with Petrobras, that you still have a meaningful advantage in terms of sort of time -- down time due to ROV failure versus the competition?

We think we're by far the best value, but we obviously failed to make this -- the value sale to them as they really are focused on price.

Okay. Jay, did these big umbilical awards, which occurred away from you, did you bid on all of those jobs?

We did not -- we bid on one, we did not bid on the other one.

Okay. And you may have said this, so I apologize, but what regions are -- would those occur in?

One is in the -- is a Middle East --

One is in the Middle East. One is in the Gulf of Mexico and then there was another one that I don't remember where it was for. This mostly would have been work for our Panama City plant.

Yes. Okay. Are we talking about [Marvin III] jobs in total?

There were -- yes.

Yes.

Okay.

And we bid on one of them.

Okay. And do you think that the job that you bid on, is it -- are -- is pricing meaningfully weaker than for the jobs that you won recently, that you had to bid down on? I mean, can we say the pricing is deteriorating further in the industry or --?

No. I don't think so.

No, no.

I think every bid is contested and some you win, some you don't. So, I would just say it's the same situation we've seen over the last year.

Yes, I would not say that it had deteriorated. It has just been very soft and the competition's close.

Got it. Okay. Thank you.

And the third one was for Australia.

Australia.

Australia. Okay.

Right.

Yes. Thank you, Jack.

Your next question comes from the line of Daniel Burke. Your line is open.

Good morning, guys.

Good morning, Daniel.

Good morning.

I was curious, on the DMT front, if you were to be successful, do you currently have the, sort of the backlog to load those vessels immediately? Or would it sort of take some time to get those introduced?

Well, we certainly don't have the backlog and if we're successful in winning that, I think I'll -- we'll be glad to talk to you then about what -- how we're going to utilize them and what we'll do. But I'd rather not go into that now, since we are in a competitive bidding situation. But certainly, I would say we don't have backlog. But again, the Gulf of Mexico is not a real backlog-driven place. It's very much of a call-out market, with short term businesses.

Right, I understand. And then revisiting, once again, the product segment, I think you'd remarked pricing's been pretty flat, just looking at the backlog, also pretty flat over the last year. Just looking at that and then comparing to the statement that we're looking for a meaningful increase in operating income second half of the year, could you just maybe revisit the drivers there? Is it mix? Is it timing? I guess it's a combination of both?

Well, as I mentioned earlier, one of the fastest growing segments in our business has been the Subsea to -- equipment that we've been providing to the OEMs for West African projects. And so, that just is -- there's nothing. That was normally priced and that volume has been growing throughout last year and further into this year.

And then, I think we anticipate increasing in construction activity from what we saw last year into our Subsea tooling businesses overall. And as you might recall last year, we did have some initial operating losses in our BOP business, which we're not experiencing this year. So, if you add all that up together, then you get an -- I think, improving outlook, even though we're certainly not saying that the dam has broken and everything is great. We're just seeing more activity and we're in bids along with those other items that I just mentioned.

And Daniel, our forecast range has always been predicated on a pick-up in construction activity in the second half. So, I would say it's timing, mix and a pick-up of activity.

Okay, thanks Marvin, it's -- that's useful, I appreciate it.

(Operator Instructions).

Your next question comes from the line of Brad Handler, your line is open.

Thanks. Good morning, guys.

Morning, Brad.

Could -- couple of questions on the ROV business please. Could you speak a little bit more to your margin performance this quarter and then your commentary for sort of the basis for why it fluctuates as much as it might?

I think this is one of the quarters when everything went really well for us. We had excellent offshore execution and the continued very successful efforts on cost control and our guys are working very hard to figure out how to improve the efficiency of how we work in all parts of our business, supply chain and other parts of our business. So, I think it was just a particularly good quarter. I think we are running that business quite efficiently and we're seeing the margins had been improving and so, we're very pleased about that.

I think timing can relate to -- some of it is R&M expenses, windows get charged, umbilicals are -- I mean an ROV umbilical is quite different from what we used to determine the multiplex sense, but the tether and umbilicals that connect the ROV are particularly high cost items and so, those things can swing between a particular month or quarter.

And I really think it could be -- I mean, one of the things that we're realizing now is some of the results of our world class training program and the continuous improvement effort and -- but timing on expenses is, you know that R&M overtime, all of that gets expensed as incurred and so it just does vary.

Okay.

And there is a difference between -- in a mix between drill support and construction. So, there are -- and by area, I mean Brazil and Norway or high-operating cost areas. West Africa as well, but it's usually a high revenue place, so it varies upon geographical mix if one level -- one area picks up and another area goes down. It can move at 100 basis points, pretty easily.

That's helpful, I'm glad you touched on a bunch of that stuff. Did you wind up -- with respect to the lower utilization on the construction vessel side this quarter, presumably that had some weight on the margins, right, just under-utilization of the assets and did you wind up doing some R&M on those vessels that might have also added some expenses in this quarter, in this past quarter?

No, no, no. The first answer is yes, although utilization does weigh because you have the depreciation, but we do not have much expenses on idle equipment, so -- and what we're doing upgrades and routine maintenance all the time. So, I won't say that because there was lower utilization, we had unusual expenses and when you have all-time record high margins, I don't think anything weighted down our margin, in Q1.

Certainly not in that direction, I think often it works the other way. If you're equipment is in, timely maintenance gets performed on it rather than when it's all out working. So, it's certainly nothing that, with regard to utilization, that caused the margins to be higher.

Okay. That's helpful too, and if I just stick with it another question or two. On the -- so in getting to a 85% utilization for ROVs, presumably that's a big swing back in favor of construction, right?

Yes.

That's correct.

And unless I'm misreading your comments, it doesn't sound like you have a lot of visibility on that happening for the second quarter, is that a fair statement?

We're in close contact with all of our customers and so we are anticipating, I think -- we're looking customer-by-customer as to what ROVs we'll be working for, for whom and exactly when they're going to go to work and how long they will stay at work. So, I think our 80%, 85% does reflect a pretty detailed review of what our customers are telling us at this point in time for the rest of the year. Certainly that can change and it's not in stone, but that's what -- I think that's our analysis at the moment.

So, we are expecting a meaningful improvement in ROV utilization Q1 to Q2, Jay gave the range and it is what we believe that the range, the quarterly range for the next three quarters will be between 80% and 85%, or close to those numbers.

So, you're probably there today?

I wouldn't say that. I mean, I just -- I wouldn't comment on where we are today.

Okay, from where we are gradually increasing towards those numbers throughout the year.

Okay. All right guys, I'll turn it back. Thank you.

No problem.

Your next question comes from the line of Michael Marino. Your is open.

Good morning, guys.

Hi Michael.

Good morning, Michael.

My question relates to the products group and just trying to kind of put margins in a historical perspective. I'm just looking at my model and you guys, back in 2007, the early part were doing kind of the 19%, 20% range in the operating margin line. That was, correct me if I'm wrong, but that was not a particular good year for Multiflex given some internal issues, or some pricing?

I'm trying to figure out, I guess, where -- how the future may compare to the past in terms of if Multiflex is just okay because you've cut costs and you've got some throughput there and pricings are just okay. How much can the OIE business really drive margins in that business in that segment?

Well, I think to get back to those numbers that you were talking about there, we certainly need Multiflex to increase throughput and see better pricing on that side of the business.

I think if I -- and I don't recall that well, accurately. But I would guess that -- and I'm pretty certain of this, that our UK plant in 2007 was pretty full and right now, we have not seen much activity from the North Sea or that of West Africa that we can serve from our UK plant.

So, if I look around the world and I see the plant-by-plant and I see Panama City working well with the Kizomba order, I see Petrobras filling up the Brazil plant and I see a factory that needs work in the UK and I go back several years and I probably would have seen maybe a lull in Brazil definitely that was before BC-10. So, it could have been a lull in Panama City and Multiflex is being pulled along by the North Sea.

It really is a global kind of business but it really does depend upon where the customer wants the orders placed and where that activity is. So, I think it's probably 2007 was a like you said, an "okay" year. It wasn't a banner year by any means, but the short answer is OIE can drive margins pretty substantially if we get the right mix in IWOCs and ROV tooling and subsidy field development. If they've got a full book of business it's -- with a lot of construction activity, they can do well.

They're excellent businesses for us.

What's kind of the margin spread between OIE and Multiplex?

No comment on that.

Okay. All right. Thanks a lot.

You bet.

You bet.

We have no further questions at this time. I turn our call back over to our speakers.

We thank you very much for your attention and appreciate your participation. Good-bye.

Take care.

Ladies and gentlemen, this concludes today's conference. You may now disconnect.