Oceaneering International Inc (OII) 2011 Q1 法說會逐字稿

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. (Operator Instructions). Mr. Jack Jurkoshek, you may begin your conference call.

Thank you. Good morning everybody. We would like to thank you for joining us on our 2011 first quarter earnings conference call. At usual, a webcast of this event is being made available through StreetEvents Network Service by Thomson Reuters. Joining me today are Jay Collins, our President and Chief Executive Officer, who will be leading the call, Kevin McEvoy, our Executive Vice President and Chief Operating Officer, and Marvin Migura, our Chief Financial Officer.

Just as a reminder, 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 with here with you today to talk about Oceaneering.

Our first quarter EPS of $0.77 was above our guidance of $0.55 to $0.70, as we achieved slightly better than anticipated operating income performance by all our oilfield business segments, and lowered our estimated annual effective tax rate from 34.5% to 31.5%. Our reduced tax rate reflects our intent to invest in international operations, therefore we are no longer providing for US taxes on certain of our foreign earnings. We are well-positioned to participate in the next growth stage of deepwater activity, and our outlook for 2011 remains positive.

We now believe it is highly likely that we will achieve record EPS for the year. We are raising our EPS 2011 guidance from the range of $3.45 to $3.75, to a range of $3.65 to $3.90 to account for our lower estimated annual effective tax rate, first quarter operating results, and revised outlooks for Subsea Projects and Subsea Products. We now forecast Subsea Projects to have lower operating income than previously anticipated. It appears that our previous projection of demand for our services in the Gulf of Mexico to perform installation projects and inspection, maintenance, and repair work during the remaining three quarters of 2011 was too high. The extent to which this demand actually materializes is a major factor that will influence our 2011 results. At this time, we are not revising our outlook for ROVs as we anticipate strong international demand will offset weak non-drill support demand in the Gulf.

We now project Subsea Products to perform better on the strength of higher tooling and IWOCS service sales. As a result, we anticipate Subsea Products operating income will be higher in 2011 than 2010. The resumption of deepwater drilling permitting in the Gulf since our last earnings call has been encouraging. Eight drilling permits were issued by the end of the quarter and three more have been approved since then. We are still expecting that 20 to 25 deepwater rigs will be working in the Gulf of Mexico by the end of the year. This compares to 14 as of yesterday, seven at the end of 2010, and 30 at the end of March 2010.

I would now like to review our quarterly Subsea Products ROV, and Subsea Project results. Year-over-year our Subsea Products revenue, operating income, and operating margin increased on the strength of higher umbilical plant throughput, and an increase on installation, workover, and control system service sales. Operating income improved over 75%, or $12 million. The IWOCS profit improvement was attributable to a large multi-well completion project off west Africa, and an increase in plug-in abandonment and workover activity in the Gulf of Mexico. Sequentially, Subsea Products revenue increased on higher umbilical plant throughput, however, operating income declined primarily on a reduction in field development hardware sales.

Our Subsea Products backlog at quarter end was $382 million, essentially flat with the end of 2010, and up $44 million from the end of March 2010. Sequentially, backlog for tooling and IWOCS services increased, while that of umbilicals declined. Year-over-year the backlog increase was primarily attributable to umbilicals. We now anticipate that our Subsea Products operating income for the year 2011 will be higher than 2010 due to improved outlook for tooling, partially due to the NCA acquisition and IWOCS service sales. Margin is expected to be lower due to a change in product mix.

For the first quarter, our ROV results were slightly better than we anticipated. Operating income decreased 12% year-over-year and 3% sequentially. The year-over-year decline was largely attributable to lower fleet utilization and higher depreciation expense, as we have added 21 new vehicles to our fleet over the past 12 months. The sequential decline was due to lower fleet utilization. Our fleet utilization rate during the quarter was 71%, down from 75% in the first quarter of 2010, and 73% in the fourth quarter of 2010. The year-over-year decline was attributable to a much lower activity level in the Gulf of Mexico. The sequential decline was due to seasonality and less non-drill support demand in the Gulf. For the balance of 2011, we expect to achieve quarterly fleet organization in the 75% to 80% range.

Operating margin during the quarter was 29%, compared to 34% a year ago, 28% last quarter, and 32% on average last year. We continue to anticipate our ROV operating margin for the year 2011 will be slightly lower than that of 2010. During the quarter, we put four new ROVs into service and retired four. At the end of March, we had 260 systems available for operation, up from 253 a year ago. All four new ROVs went to work in drill support service. Our fleet mix was during March was 78% in drill support and 22% in construction and field maintenance, compared to 76%/24% split in December and March of 2010.

As of our last earnings call in mid-February, we were receiving full-day rates for 14 ROVs on 11 rigs, partial rates for seven ROVs and zero rate for seven ROVs. As of yesterday, we were on full rate for 20 ROVs on 17 rigs, partial rate for five ROVs, and zero rate for two ROVs. We believe this is a strong indication of what our customers are thinking about an acceleration of Gulf of Mexico deepwater new well permitting in the month ahead.

Since our last call, there have been no additional announcements of Gulf of Mexico floating rigs relocating to other market areas. There were 27 floaters available for use in this area at the end of March, compared to 36 a year ago. There has been a recent announcement of one floater being brought back to the Gulf from Egypt to drill a well for Statoil, and we have the ROV contract on this rig.

Additionally, one floating drilling rig is still slated to commence drilling operations in the Gulf of Mexico by the end of the year, and two more are scheduled for 2012. We anticipate adding 15 to 20 vehicles to our ROV fleet in 2011, 11 to 16 during the remaining three quarters, and we presently have contracts for eight of these. Six will work on new rigs and two on a vessel.

Year-over-year and sequentially the declines in Subsea Projects quarterly operating income, were the result of lower demand and pricing for the shallow water diving and deepwater vessel services in the Gulf of Mexico. Sequentially Subsea Project operating income was substantially lower,this was attributable to seasonality and an unusually strong fourth quarter performance in 2010. During the fourth quarter of 2010, we benefited from performing Idle Iron projects and an umbilical installation job that was delayed from earlier in the year due to high vessel demand at BP at Macondo.

During the first quarter, the lack of new projects and bad weather resulted in low vessel utilization and poor job profit margins. While we expect an increase in demand for our diving and deepwater vessel services during the remaining quarters of 2011, our current forecast is for a more challenging market. Consequently, we now anticipate that our Subsea Projects revenue, operating income, and margin for the year 2011 will be lower than we had previously anticipated. Our new Ocean Project replacement dive support vessel commenced work on March 12th, and worked for 17 days during the month. We retired and sold a previous 37-year-old Ocean Project vessel in February at a small gain.

In summary, our first quarter results were above our expectations, and we're looking forward to realizing another year of record EPS performance in 2011. 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 are very pleased with our cash flow generation capability, as demonstrated by $97 million of EBITDA during the quarter. Capital expenditures for the quarter totaled about $109 million, of which $30 million was invested in ROVs and $56 was spent on the NCA acquisition. At the end of the quarter, we had $187 million of cash and no debt.

I would now like to review our future business outlook. As I stated earlier, for 2011, we are raising our EPS guidance range to $3.65 to $3.90. Compared to 2010, our forecast assumptions are that we will achieve operating income growth from our ROV, Subsea Products, and inspection businesses, and experience a profit decline from our Subsea Project operation. I believe we are well prepared for the challenges we face in 2011, and have the assets in place to take advantage of growing international markets and resumption of activity in the Gulf of Mexico.

For 2011 we anticipate generating an excess of $435 million of EBITDA. Our liquidity and projected cash flow will provide us ample resources to invest in Oceaneering's growth. Our CapEx estimate for this year is now $220 million to $250 million, in which approximately $100 million is anticipated to be spent on upgrading or adding vehicles to our ROV fleet. About $40 million is for Subsea Projects, which includes the completion of the Ocean Patriot renovation and adding a third sat system. $56 million is for the acquisition of NCA.

For the second quarter of 2011, we are projecting EPS in a range of $0.90 to $1.00. Sequentially, we anticipate quarterly operating income improvements from all of our oilfield [distal] segments. ROVs, due to an increase in fleet days on hire, we expect to benefit from the seasonal pickup and demand for construction work, and growth in both domestic and international demand for drill support services, Subsea Products on the strength of higher tooling sales, and Subsea Projects in inspection due to seasonal demand increases.

Looking forward to 2012 and beyond, we are convinced that our strategy to focus on providing services and products to facilitate deepwater exploration and production remains sound. We believe the oil and gas industry will continue to invest in deepwater as it remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates. Others must share this belief. At the end of the quarter, there were 70 new floating rigs on order, and five more have been ordered since then, 60 of these are planned to be available by the end of 2013, 36 have been contracted long-term for an average of over seven years. If all of the end rigs on order are placed into service, the global floating rig fleet size will grow nearly 30% to 338 rigs. The high-spec fleet consisting of fifth and sixth generation semis and dynamically positioned drill ships, which currently totals 89 rigs, will grow by almost 85%. We have an ROV drill support market share of over 80% on the existing high-spec rigs.

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

Furthermore, renewed industry and regulatory emphasis on safe and reliable operations is providing us additional opportunities to demonstrate our capabilities. With our existing assets, we're well-positioned to supply a wide range of the services and products required to support the safe deepwater efforts of our customers. We believe Oceaneering's business prospects for the long-term remain promising. Our commanding competitive position, technology leadership, and strong balance sheet and cash flow, enable us to continue to grow the Company and we intend to do so.

In summary, our results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well, in both the short-term and long-term, we like our competitive position in the 2011 oilfield services market. Our technology gives us the ability to prosper in challenging times. We are leveraged to what we believe will be an inevitable resumption in the growth of deepwater and subsea completion activities. Longer term market outlook for our deepwater and subsea service and product offerings remains favorable.

The renewed industry and regulatory emphasis on reliable equipment and redundant safety features of deepwater operations has caused our customers to be even more focused on risk reduction, which elevates the importance of the utility and reliability of our ROV services and related product line offerings. It reinforces the benefit of our value sale. In 2011, we are now anticipating our EPS performance will likely be higher than 2010, and that we will achieve another record year. We think this distinguishes Oceaneering from many other oilfield services companies.

Before turning the call over for questions, I would like to say farewell, as this will be the last earnings call that I lead. Kevin McEvoy, whom I have worked with since I joined Oceaneering over 17 years ago, has been designated to succeed me upon my retirement following our Annual Shareholders Meeting on May 6th. I am confident that the organization will continue to prosper and grow under his leadership. It has been a pleasure meeting many of you during my tenure as President and CEO these past five years. I plan to continue my affiliation with the Company as a member of the Board of Directors.

I appreciate everyone's interest in Oceaneering, and will be happy to take your questions.

(Operator Instructions). In consideration of other participants, please limit your questions to two per queue. You may queue up again at a later time. We will pause for a moment to compile the Q&A roster. Your first question comes the line of Brad Handler from Credit Suisse. Your line is open.

Good morning, guys. Sorry, I think my pen burned up in the midst of me trying to keep up with you, Jay. If you could go over the rigs that have been ordered, those with contract, those remaining. That will help me start the process. Sorry to make you go over that again.

Sure. Well, let me do it this way. There are 70 rigs on order, 36 of those have a contract with an oil company, 17 of those have signed an ROV contract, so there are 53 opportunities available for us going forward. Does that help you?

That is actually very helpful. Very good. Were there awards in Q1 for ROV contracts?

Two jobs were awarded in Q1, we won one job with Statoil, and there was a Russian rigthat came out. And we're not sure what happened with that, we didn't get it.

Okay. What is your sense, I'm sure this slips to the right like everything else, but what is your sense as to what gets awarded in 2011? How many ROVs might get awarded this year?

I don't know.

I'm sure it's all right.

It really is because we don't know how many of those are contracted --

We have got contracts in hand right now for eight additional systems, right. For vehicles--

Those have already been awarded.

That is helpful too, Jack, so thank you.

We were chasing three to eight is what we have a contact over the rest of the year in order to meet our guidance of 2011, 15 to 20 for the year, and we are confident that we will be able to do that.

Understood. Will you actually build or will you order long lead items on ROVs that are not under contract?

We've got our long supply chain. We always have components coming in so we have the ability to move our booked programs up and down, depending on the demand that we see. So we're always looking out. We're really modifying that on a quarterly basis.

I figured as much. I guess just sort of a non-operating follow-up for me, I just happened to notice that theD&A line has drifted down the last couple of quarters. Can you comment on that a little bit, Marvin, and then give us your D&A outlook for 2011, please?

(Inaudible) including corporate, I think--

Marvin, you were a lot harder to hear than the other guys.

Sorry about that. Did you say D&A or G&A?

That is much better. Depreciation and amortization.

Sorry. I think if you look at what we did in Q1, Last year we had a $5 million impairment charge, and right now we're thinking ofdepreciation and amortization running,we haven't changed that between $145 million and $150 million for the year.

125 million to 150 million?

$145 million to $150 million.

So $145 million, got it. It's a tight range. Very good. Alright, guys, thanks very much. I'll turn it back over.

Let me get back to a question you asked earlier on new contracts. Let me switch it around a little and talk about rigs placed in service in 2011 because I think that might have been just as much what you were interested in.

Sure.

We said that 27 rigs will be placed in service during 2011, five were placed into service during the first quarter. We have an ROV on one of those. Of the 22 that are remaining, we have contracts for six more, six of those the competitors have six of the fleet's opportunities. Three of those are going places we probably are not likely to work. So we are pursuing the other seven, so I hope that gives you some breakdown.

It did. You were a little hard to hear, as well. I am sorry, could I ask you to do that again?Because it's a little choppy for some reason.

Okay. 27 rigs will be placed in service during 2011. Five were put in service during the first quarter. We have an ROV on one of those. The remaining 22 rigs, we have contracts for six. Our competitors have contracts for six. That leaves ten opportunities, three of those we don't think fit us, and we are pursuing the other seven.

Got it.

And Brad, the three that don't fit us, just for information, they are rigs that are most likely going to Russia, China, or Cuba where we can't work.

Got it. Okay. That is really helpful. Thanks again, guys.

You bet.

Your next question comes from the line of Jim Crandell from Dahlman Rose.

Good morning everyone, and Jay, congratulations on a job well done over the last five years.

Thanks very much, Jim.

Jay, with the demand outlook for ROVs looking like it is improving, what is the outlook for pricing in ROVs and what are your thoughts about margins in that business going forward?

Well, margins are depressed a little bit right now because of the Gulf of Mexico situation. I think the last two years, we had excellent margins, so I would think our outlook is to, this year we will not get quite up to where we were before, and hopefully by 2012, we will be coming back to those historical margins. I don't see improving those margins immediately in the near term. I think they are excellent margins and being able to pass price increases along to our customers would be a good objective for us. I think we still have some pricing power to pass along all of these cost increases that will be happening. I think getting back to those excellent margins that we had in 2009 pre-Macondo would be our expectation.

Jay, with all of the new offshore rig order announcements, could you review with me, if you would, your capacity to build ROVs at the current time?

We have been building in the 20 to 25 systems a year. We could easily build 40. We can expand that almost on a quarterly basis. So I think we are very flexible. We can move it up or down, we can do more retrofits of old systems or we can expand more newer systems almost on a quarterly or a six-month basis. So we are pretty flexible on that. I think our supply chain has got parts available to us, and a relatively small amount of labor to assemble an ROV in our Morgan City facility.

Jim, we can keep up with demand whether it comes from vessels or from new rigs being delivered. That capacity to add is not going to be a problem.

Okay. And, Jay, if you would maybe try to take me through this. If we look since October 1st, I think there has been 31 new floaters ordered, at least according to ODS-Petrodata. When we could expect on average, to see the ROV contracts given for this batch of floaters that's been ordered over the last six or seven months?

I tell you, that is really an interesting question. We see some customers working, major oil companies tend to move further in advance. When they sign up one of these rigs maybe a year or two in advance, they might very well come to us and we might make a deal on the ROV. But other companies wait until the very last minute. So we don't really have a pattern, other than some could be as far as two years in advance, and others could be six months, 90 days, even for some people.

Some wait until after the rig is delivered. I think the key date for all of these new rig orders, Jim, is going to be when are they going to get contracts?When will there be an operator identified that we can go chase?

Usually when that happens, there is somebody we can deal with and you would expect that the orders should be placed a year ahead of time. But not always.

Okay. Got it. Thank you very much.

You bet.

Your next question comes from the line of John Donnell from Howard Weil. Your line is open.

Good morning.

Good morningJohn.

I had a question regarding the products. It sound like the IWOCS results for the quarter, as well as the build and the backlog for that group was a lot better than previous expectations. I was wondering if you could talk a little bit about where the demand is coming from that, if that is better Gulf of Mexico than expected or if that is more of an international focus?

John, that has been predominantly a Gulf of Mexico business. So I think as oil companies haven't had permits to build new wells, they have focused on completing some of the wells that they have had. So I think that has helped our Gulf of Mexico IWOCS business. But we are in the process of expanding that business internationally. But I think the big movement that we saw this quarter is really due mostly to the Gulf of Mexico business.

We had a large West Africa job that was in products this quarter in IWOCS. And it kind of shifted. This quarter was a mix where there was a lot of IWOCS rentals related to plug-in and abandonment activity in the Gulf of Mexico. So for a time, we went through this period where rigs couldn't drill. They were doing completions, and that was like Q4, the early part of Q1 where there was really good utilization of IWOCS. And then the latter part, it shifted to being plug and abandonment. But there was a large multi-well completion project off West Africa in Q1.

That is helpful. And I guess that kind of maybe ties into a little bit about the tax rate question. As you do more international investment, with the tax rate coming down in the first quarter, is that indicative already of that Norse acquisition, or is that just a different emphasis on where you reinvest the earnings from international operations?

No John, I think it is nothing to do with NCA, but something to do with NCA. But what we have noticed, and as we have been tax effecting all of our foreign earnings as if they were going to be brought home, initially it was to pay back debt, and then it was to grow the business. Obvious to us, that most acquisitions have been made, have been international. So it's more tax efficient to keep that sum of that cash overseas and don't tax it to bring it home. We don't usually bring it home until we actually need it. But we have been providing taxes as if we will ultimately repatriate it. I think with the emphasis of growth in international water and a significant amount of cash flows, we can now leave some cash in our foreign subsidiaries and grow there, and not have to grow through the US parent company. So it really is a change in tax accounting treatment that says the money that we are going to reinvest from foreign earnings, we could just leave over there and not tax effect in the US.

So that sounds like it is based more on what you've done in the past. Is there any, I guess incremental acquisitions internationally that is sort of baked into getting to that 31% number? Or I guess another way to ask that is, if we see more international acquisitions could that tax rate come down even further as we go into 2012, maybe?

I think we have looked at that tax rate. And answer is, it could come down a little bit more, but it just really depends upon how successful we are going to be. I mean, just to be clear, from a tax purpose, reinvesting it means just not bringing it home. It could sit in cash in a foreign bank account, and it would be 'reinvested in international operations.'So it is not going to be tied to acquisitions that we make. However, as more and more of our cash is generated internationally, it could slightly impact our day rates. And as more and more ROVs shift from the Gulf of Mexico to international, I mean our cash flows are significant internationally, and we just thought it was about time that we stopped effecting, tax effecting all of our earnings to bring it home.

Great. Thanks. That is helpful. I just wanted to say congratulations to Jay and best wishes in your retirement here going forward. It has been a pleasure working with you over the last few years. Thanks a lot guys.

Thank you very much.

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

Thanks. Good morning,guys.

Good morning, Max.

I wanted to start with Subsea Projects. I am curious if you could give us a senseas to the vessel utilization you saw in Q1 versus Q4, and then also, could you tell us how many boats are performing work today?

We really don't give out those quarterly numbers but it was lower. Definitely lower in Q1 than it was in Q4. I really don't know how many of our boats are working today. They come in and go out. It as a call out kind of business, so we are in and out on jobs so frequently that I just don't happen to know. All of our vessels are active going out and doing work and then coming back to the docks.

Max, I think Jay did address in his opening comments about Q4 was unusually strong in projects because of umbilical installation and the pent-up demand from so many vessels being involved in BP in Macondo, and now that's gone away. And Q1 was a bad weather quarter, offshore as everybody is reporting onshore. And there are more vessels competing for work, and it is a very competitive market out there. But we don't give out utilization of our vessel fleets, or updated status reports.

So for Q2, in that segment, should we kind of think about top line improvement in the kind of single digits?

Again, we are just not forecasting those details. We will have a seasonal increase but I guess part of what we, the visibility that we see in this market, it's just lower than we had thought that it would be a quarter ago. So as Marvin mentioned, it's a competitive market and it's also a volatile market. This is one of things where rates swing up and down. They can go up quickly, they can come down quickly. So we have a double whammy of lower utilization and lower rates. We thought it would be --we knew the first quarter would be tough. We thought we would see better visibility than we do now right now. But right now, it looks like it's going to continue. We will have some seasonal improvement but still tough.

I think from the tone of our answers, you can tell that where we had earlier reported the biggest swing factor for 2011 was going to be the resumption of drilling activity in the Gulf of Mexico with the permitting and having as many ROVs on full day rate as we do now. We hope that will continue. And then the big swing factor becomes how much does vessel activity in the Gulf of Mexico pick up? And that is what we tried to articulate in the press release and these call notes.

Fair enough. And switching to Subsea Products, could you give us an update on the outlook for near-termumbilical awards? And then also maybe give us a sense as to the current margin differential between umbilicals and the segment average?

Really, the umbilical business is pretty much what we, playing out pretty much as we anticipated and really not much change from the quarter ago. The market is over-supplied with capacity. It looks like Brazil might be the first market to come into balance if Petrobras continues to grow their demand as they have forecast. There is quite a bit of quoting activity going on in the North Sea at the moment . But some of those awards are still pending out there. In the US, it is by far the slowest market right now. Our US plant is pretty much living off of jobs that serve West Africa and Brazil. We think that market continues to be the same, and we have hopes that it will continue to improve over time. For us, 2011 is better in the umbilical business than it was in 2010. And I think next year will likely be better. So no real change in that market, and we just don't give out subsegment information on

Okay. Thanks. And, Jay, congrats on retirement.

Thank you very much.

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

Good morning guys.

Good morning, Michael.

Question on the products business, how much of that is outside the Gulf of Mexico?

We just can't answer that.

In the umbilical business, we have three factories, one is in the US and two are outside the US.

But the one in the US is doing West Africa and Brazil work. Subsea Field Development in Houston is working on [Uson] and West Africa projects. IWOCS is splits, mostly Gulf of Mexico, but some international. We don't track it that way.

Well, how does it, just help me understand how it's, I guess because I look at 2011 and will you do probably about the same top line you did in 2008, but I would assume that 2011 is going to be a better international year versus 2008, and the Gulf of Mexico is still relatively depressed because of Macondo. Is that correct?

Let me make sure we understand the question. Are you comparing this to 2008?

Well, I guess top line in the products division. You are already kind of at that run rate.

Give me a clue, what was our products revenue in 2008? Michael, tell me what it was.

$650 million.

How much?

$650.

The umbilical business had a pretty big year, I think.

Umbilicals are certainly growing. But I think it's definite to say that international is stronger relative to domestic in 2011 than it was in 2010, because domestic products in 2010 is seriously depressed. There is no completion activity going on. There is no installation activity, its all related to the construction. So we are, as Jay said, pretty much living off of the international market when it comes to product. With the expectation of the stuff we do in plug and abandonment, but even vessel activity and inspection, repair, and maintenance activity is all kind of down, so tooling is down in the Gulf. So most of this is international.

I think your perception is correct.

Okay. No, that is what I was getting at. Just as a follow-up to that. How long does the work in West Africa last?Will that go into 2012?

We are not going to try to go there.

I think it goes on. There is a whole series of West African projects. Cameroon is a big customer, and I think they have got these projects stretching out for years.

So it is not something you have to replace in 2012? The market will be there for it?

Specific jobs that we have will have to be replaced.

I think the outlook for that business is excellent. It has been one of the fastest growing pieces of the product sector is that field development business, and I think its outlook for 2012 is excellent.

Great. Thanks for the color.

You bet.

Take care.

The next question is from Chris Glysteen from Simmons and Company. Your line is open.

Thanks. Good morning.

Good morning.

Jay, I just want to start by saying congratulations on your retirement and we wish you well, it has been a pleasure.

Thank you very much.

Quickly on Subsea Products. Your NCA, that flows through in the product segment going forward?

Yes correct.

And how much of your revised outlook for products is reflective of that acquisition versus organic improvement of IWOCS and tooling?

Some of it. There is some of it in there. But in relative terms, what did we say in our press release that it had revenues of $50-some-odd million?

$56 million.

No, that is what we paid for it. Did it have $56 million in revenues? Anyway, $50-something million of revenues, Chris. So we can't have for the whole year. So it is, when you look at it in the scope of our products. What we did $550 million last year. It's not for three quarters going to be 10% of our top line numbers, because all the other ones are organically growing. Particularly on the top line with much higher umbilical throughput.

It's a piece, but not the largest piece.

It's a small piece.

Do you per chance, can you can provide us with either the EBITDA on NCA, or the general profitability on that compared to the segment?

No.

Okay. Turning to Subsea Projects, understanding that seasonality you get an increase in the second quarter. But when you think about Q1 as a seasonal low in terms of activity, vessel additions coming into your fleet between the Patriot, the Project, is it reasonable to assume that Q1 would mark the low point of the year, understanding that for the year, the assumptions have come down as a whole, but from a progression standpoint, that Q1 would probably be the low point?

I would assume that. I think that is a reasonable assumption.

Okay. That is helpful. One last one, what portion of your fleet is on mid-water semi? So first through third generation semis, ROV fleet?

We don't track that. But we do know something about that --

I do have that for the rigs that have contracts expiring in the rest of this year. So let's take a look at that. And let me see if I can find my notes here. So for the rest of the year, we have 25 ROVs on 57 rigs that have contract expirations. And of those 57 rigs that have contracts that are expiring, no, 25 that are expiring, three are second generation and seven are third generation, and eight are fourth generation. So hopefully that gives you some --

I would look at it another way. You have got 15 of 25 on fourth and fifth generation semis or drill ships.

Okay.

So if you go looking at second and third, the answer is ten.

Okay. That is very helpful. Thanks very much, guys.

You bet.

Your next question from the line of Tom Curran from Wells Fargo. Your line is open.

Good morning, guys.

Good morning, Tom.

I am curious, on Subsea Products, what percentage of your revenues outside of multi-flex at this point are derived from rental base services?

Man, is this a hard question call? Is this what this is? You guys are thinking of hard questions --

We'll stick with this these so far.

I think, we don't know, and mostly when we go through the lines, the things that we rent are in ROV tooling and IWOCS.

IWOCS is a service.

And then we've got service on that side. IWOCS is really a service. Really, it's a DTS part. DTS is one of five businesses, in that business, and part of its business is tooling.

We don't rent umbilicals, we don't rent in subsea development hardware. We don't rent in Graylock, we don't rent in Rotator. So most of these things are, I mean it's an exception in the tooling business, and in IWOCS, where it's more of the service and rental business, or as Jay said, IWOCS is really a service. So I hope that gives you an answer without, or gives you a flavor without giving you a number. Because we don't have a number.

It might be a low-double digit number. There's probably not a single digit but there's probably not much more than a low double digit number, if I had to guess.

I wouldn't even know.

We don't track it that way.

Okay. So it sounds as if we should still expect the vast majority of your new demand to surface in orders, to show up in orders from quarter-to-quarter?

I would say the mix will be the same that it has been.

Okay.

Even in the area where we are renting equipment, like in our subsea ROV tooling business, that is one of the areas where we are renting new equipment that has come about as of Macondo, so that business is growing, as well. So I would say the mix is likely to continue to be what it has been.

Tom, if you're looking kind of a back of the envelope book to bill. If you look, we had whatever it was, $157 million of revenues. A lot of that goes in and out of backlog within the quarter.

Right.

It's not the visibility and such is really in umbilicals and Subsea Field Developments where our backlog is mainly. And we've got in all of the other places, but it's some of our throughput is booked and billed within the same quarter, so it is short-term turnover.

Right. That is essentially what I meant is that that mixture isn't meaningfully changing.

Correct.

Okay. That is helpful. And then on inspection, it often doesn't get as much attention, and I guess historically, there has been good reason for that, but my impression is that it is expected to perform nicely this year internationally. Could you share some color on where exactly you expect to see growth?

You are right, that is a nice, steady growing business for us.

It doesn't get much attention because usually it is overshadowed by projects. This year, it really is going to be very much more relevant.

I think the UK, the largest areas for that business are the UK and then the new contract we have with BP in the Caspian area. So I think that both of those areas have been growing nicely for us.

US, shipyard, I mean, yard activity where we do some inspection. US is picking up on fabrication work. I think the outlook is for a broad based improvement. Mostly coming from international, but the US will be improving as well.

Is there anything about the trends that are driving that improvement that would, that might potentially make you interested in investing and expanding that business, including for acquisitions?

We continue to look for small, what we find throughout the world generally, is small inspection companies. We continue to look for those. We bought one in Australia late last year. So we are continuing looking, and continue to expect to find small acquisitions that we add to our business in that arena. We hope so.

Okay. That is all I have. Thanks, guys.

You bet.

There are no further questions.

Alright. Thank you very much.

Take care, guys. Bye-bye.

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