Oceaneering International Inc (OII) 2011 Q2 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 second quarter 2011 earnings conference call. (Operator Instructions).

Mr Jack Jurkoshek, you may begin your conference call.

Thank you, Mike. Good morning, everybody. We'd like to thank you for joining us on our 2011 second quarter earnings call. As usual a webcast of the event is being made available through the Street Events network service of Thomson Reuters. Joining me today are Kevin McEvoy, our President and Chief Executive Officer who will be leading the call and Marvin Migura, our Executive Vice-president and 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 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 Kevin.

Good morning, everyone. It's a pleasure to be here with you today and to lead my first Oceaneering earnings conference call. Our second quarter EPS of $0.52 was above our guidance range of $0.45 to $0.50 and the street consensus estimate of $0.48. As expected, we achieved higher sequential quarterly operating results from our ROV, subsea products and inspection businesses. Each of these operations achieved record quarterly operating income. We are well-positioned to participate in the next growth stage of deep water activity, and our outlook for 2011 remains positive. We now believe we will achieve record EPS for the year and are raising our 2011 EPS guidance range to $1.90 to $1.98 from our previous guidance of $1.83 to $1.95.

Relative to the first half, we anticipate our ROV, subsea projects, inspection and advanced technologies business operations will achieve higher operating income results during the second half of 2011. Compared to 2010, for 2011 we forecast increased operating income from ROV, subsea products and inspection. For 2011 we anticipate generating in excess of $450 million of EBITDA. Our liquidity and projected cash flow provide us ample resources to invest in Oceaneering's growth. Our CapEx estimate for this year is $250 to $275 million, of which approximately $100 million is anticipated to be spent on upgrading and adding vehicles to our ROV fleet.

About $55 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, which we completed at the end of the first quarter.

I'd now like to review our quarterly oil field segment results starting with ROVs. We achieved record quarterly ROV operating income during the second quarter as our days on hire surpassed 18,000, an all-time high. Year-over-year, operating income increased on an increase in days on hire as we added 13 new vehicles to our fleet in the past 12 months. Establishing a new quarterly operating income record for ROVs is particularly gratifying as demand in the US Gulf of Mexico is constrained by government regulations.

In addition last year's results included $3.5 million related to an insurance gain for a lost system. Sequentially, operating income improved 23% or $10.7 million on the strength of improved worldwide demand for vessel-based construction and fuel maintenance services. This was led by activity increases in Norway and the Gulf of Mexico. Our fleet utilization rate during the quarter was 76%, down from 78% in the second quarter of 2010 and up from 71% in the first quarter of 2011. The year-over-year decline was attributable to lower activity level in the Gulf of Mexico. The sequential improvement was largely due to seasonality and an improvement in permitting by the BOEMRE in the Gulf. For the balance of 2011 we expect to achieve quarterly fleet in the 78% to 80% range. During the quarter we put four new ROVs into service, retired one, and transferred one to advanced technologies for non-oil field use. At the end of June we had 262 systems available for operations, up from 249 a year ago.

Three of the new ROVs went to work in drill support service. Our fleet mix during June was 73% in drill support and 27% in construction and field maintenance. This compares to a 72%-28% split a year ago and a 78%-22% split in March of 2011. At the time of our last earnings call in the US Gulf of Mexico we were receiving full rates for 20 ROVs on 17 rigs, partial rates for 5 ROVs and zero rate for 2 ROVs. As of yesterday we were on full rate for 26 ROVs on 23 rigs, partial rates for one ROV and zero rate for one ROV. There are presently 29 floating rigs available for use in the US Gulf of Mexico and we have ROVs on 25 of them. We anticipate adding 15 to 20 vehicles to our ROV fleet in 2011, seven to twelve during the last half of the year. And we currently have contracts for six of these for work on five new rigs.

We continue to believe that we will achieve record ROV operating income for the eighth consecutive year in 2011 on an increase in international demand for drill support services and the expansion of our fleet. We expect our average revenue per day on hire and fleet utilization to be slightly higher than in 2010. We anticipate our ROV margin will be slightly lower due to a change in geographic mix as a result of a reduction in work in the US Gulf of Mexico.

Now for subsea products. Year-over-year our second quarter subsea products operating income improved 40% or $10.4 million to a record high on an increase in umbilical plant through-put and higher clamp, valve and installation work-over and control system service sales. Sequentially subsea products operating income rose on profit increases from all of our product lines.

This was led by tooling, which included the benefit of our acquisition of Norse Cutting and Abandonment at the end of the last quarter. Our subsea products backlog at quarter end was $405 million, up from our March backlog of $382 million, and $347 million one year ago. The backlog increases sequentially and year-over-year were primarily attributable to umbilicals. We continue to believe that our subsea products operating income for the year 2011 will be higher than 2010 on the strength of higher umbilical plant through-put and an increase in tooling sales, partially due to the NCA acquisition. We expect margins to be lower due to a change in product mix. For inspection, we also achieved record quarterly operating income during the second quarter.

Year-over-year and sequentially the increases in inspection quarterly operating results were attributable to an increase in service sales in all of the areas in which we operate. Of particular note was additional work to perform asset integrity management services in North Africa, higher activity on refinery and nuclear power plants in the UK, and an increase in providing specialist inspection services in the Caspian Sea. We continue to expect our inspection operating income for the year 2011 will be higher than 2010 on a global increase in demand. Switching to subsea projects, year-over-year the decline in subsea projects quarterly operating income was the result of lower demand and pricing for our shallow water diving and deep water vessel services in the Gulf of Mexico. Sequentially, subsea projects operating income was lower on a reduction in the rental of miscellaneous equipment to perform installation work. During the second quarter the lack of new projects and bad weather continued to result in low vessel utilization and poor job profit margins.

We do expect an increase in demand for our diving and deep water vessel services during the remaining quarters of 2011. We continue to anticipate that subsea projects revenue, operating income and margin for 2011 will be less than in 2010. This is attributable to completion of the Macondo project work in 2010 and a reduced level of subsea activity in the Gulf of Mexico as a result of additional environmental and safety regulations that have been implemented by the BOEMRE. In summary, our second quarter results were above our expectations and we are looking forward to realizing another year of record EPS performance in 2011.

Our focus on providing products and services for deep water and subsea completions positions us to participate in a major secular growth trend in the oil field services and products industry. We were pleased with our cash flow generation capability as demonstrated by $121 million of EBITDA during the quarter. Capital expenditures for the quarter totaled about $58 million of which $23 million was invested in ROVs and $20 million was spent in subsea projects primarily on the ocean project --sorry, Ocean Patriot renovation and a third saturation diving system.

At the end of the quarter we had $151 million of cash and no debt. For the third quarter of 2011 we are projecting EPS in a range of $0.54 to $0.58. Sequentially we anticipate quarterly operating income improvements from ROVs due to an increase in fleet days on hire as we expect a benefit from higher demand for international drill support work, subsea products on the strength of higher field development hardware and valve sales and a higher profit contribution from tooling due to a change in product mix, subsea projects on increased demand for our diving and deep water vessel services and increased contribution from the Ocean Legend due to revenue associated with its demobilization, and advanced technologies due to increased maintenance and installation work on US Navy submarines.

We expect inspection operating income to be about the same. While our second quarter earnings exceeded our expectations, and international demand for our services and products continues to improve, there are still risks in our forecast for the last half of 2011 related to the US Gulf of Mexico. There are differing industry views regarding the level of activity in the Gulf of Mexico during the rest of the year. We are not anticipating a slowdown from the current level but have no visibility of any meaningful increase in activity, either. Looking forward to 2012 and beyond, we are convinced that our strategy to focus on providing services and products to facilitate deep water exploration and production remains sound. We believe the oil and gas industry will continue to invest in deep water 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 72 new floating rigs on order. 62 of these are planned to be available by the end of 2013. 35 have been contracted long term for an average of over seven years. Four more floaters have been ordered since the end of the quarter, but 2014 should be our delivery date. Two are contracted long term to Statoil. If all the rigs on order are placed into service, the global floating rig fleet size will grow 28% to 346 rigs. The high spec fleet, consisting of fifth and sixth generation semis and dynamically positioned drill ships, which currently totals 97 rigs, will grow over 75%. We historically have had a high market share on the high spec rigs and are currently on 78% of them. Looking forward we see no reason why we will not continue to be the dominant provider of ROV services on these rigs.

As the use of floating rigs grows 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. Quest Offshore's latest sub-sea hardware forecast for the period 2011 to 2015 includes a 33% increase in tree orders over the previous five-years. In 2012, subsea tree orders are projected to be 538, an all-time high, eclipsing the previous record of 462 trees in 2006. While we don't make trees, orders for subsea trees do drive demand for a substantial amount of ancillary subsea production hardware we manufacture. For example, Quest is forecasting a 55% increase in umbilical orders for the 2011 to 2015 period. Umbilical demand in 2012 is forecast to be about 1835 kilometers, which would be the second best year behind 2005 for umbilical orders.

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 are well-positioned to supply a wide range of the services and products required to support the safe deep water 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 over both the short term and long term. We like our competitive position in the 2011 oil field 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 deep water and subsea completion activity. The longer term market outlook for our deep water and subsea service and products offerings remains favorable. The renewed industry and regulatory emphasis on reliable equipment and redundant safety features of deep water operations has caused our customers to be even more focused on risk reduction. This elevates the importance of the utility and reliability of our ROV services and related product lines and reinforces the benefit of our value sell. For 2011 we are anticipating that we will achieve another record year of EPS performance. We think this distinguishes Oceaneering from many other oil field service companies.

We appreciate everyone's interest in Oceaneering and I will now be happy to take any questions you may have.

(Operator Instructions). Your first question comes from the line of Jim Crandell from Dahlman Rose. Your line is open.

Congratulations, Kevin. You're off to a great start.

Thanks very much.

Kevin, any sense as to how many of the 74 deepwater -- ultra deepwater rigs under construction have ordered ROVs?

Yes. I can tell you that.

We've got that information, Jim. We're just kind of making sure we get it right here. Here we go.

Okay.

15 have ROV contracts left on them. So there are, of the -- we were looking at the 72 on order at the end of June, and 15 had contracts. And we've won six of those. Therefore there are 57 ROV contracting opportunities for new rigs left to pursue .

Okay. Kevin, do you see, except for Brazil, are there any signs that Subsea 7 is becoming a more aggressive competitor globally in trying to win drill support ROV contracts?

Not at this time, Jim. Really outside of Brazil as you say there, we are continuing to maintain at a high percentage of wins in the other markets on the ultra deepwater rigs.

And the fact that you won just six out of 15 that have been let so far, is that a function that a lot of them came from Brazil?

That is correct.

Okay. Where are we in the process in Brazil, Kevin, of Subsea 7 replacing OII, Oceaneering on expiring contracts?

Jim, our total exposure there was four. And we got replaced last year on one. And the other exposure was three this year. And I don't happen to know exactly where we're at.

But are there still going to be contracts ending from here that you'll be replaced on?

At some time during this year. We were on three rigs that we were scheduled to be replaced on, that's true. But whether all those have occurred already or not I'm not quite sure.

Okay. Kevin, could you also talk a little bit to the subsea umbilical market? I think we've seen results steadily improve in recent quarters. Where are we now in terms of capacity utilization and bidding, and can we look to -- with confidence at this point to the business improving through 2012?

Well, we still believe that although there's no really good, accurate data on this, our belief is that the capacity that exists is only being roughly 50% utilized. So there's still significant capacity remaining in this business.

As far as going forward, I mean, all the data suggests that if orders are let as projected that 2012 should be a big order year, although 2011 is down compared to last year. So this remains a very challenging market to be able to predict in spite of whatever data is put out there by the likes of Quest and others; it has just been challenging to have a good handle on how operators are actually going to give out these orders. But generally speaking, we believe that starting in 2012 order intake should pick up and that should look very good through the 2015 time frame.

Has there been any improvement yet, Kevin, in pricing in subsea umbilicals?

Not really, no.

Okay. Would you expect some in 2012 if demand picks up as you project?

Well, we would certainly like to hope so. I mean, as that picks up and factories start to fill a little bit more you would certainly expect some increased pricing to result from that.

Okay. My last question, Kevin, is could you talk a little bit about the pricing outlook here in ROVs? And as your contracts end and you're putting the ROVs back to work, are you getting improved prices? And if so, maybe characterize the nature of the price improvements?

Well, we really can't characterize that. I mean, we put out that metric to give people some idea of what's going on. And that metric is also affected by geography and by mix of what work is going on. I'd say you could look at the trend or how that number's been going and continue to expect similar in the future.

Okay. Thank you.

You're welcome.

Again, in consideration for other participants please limit your questions to two per queue. You are welcome to queue up again for additional questions. Your next question comes from the line of Brad Handler from Credit Suisse. Your line is open.

Thanks, guys, good morning.

(Multiple speakers) Good morning, Brad.

A couple of questions related to your product orders in the quarter, which looked -- hopefully my math is okay -- it looked like it did strengthen sequentially, maybe was as strong as it's been for the last several quarters or I should say stronger. Have I got that right? And maybe can you talk to some of how that --what contributed to that?

You got your math right. And I think as Kevin said in the opening remarks, most of it was related to umbilical orders.

Can you tell us roughly where geographically you got those umbilical orders?

Brad, I mean, I'm going to just -- what we've got is -- what we've noticed this year is going into the year, the biggest risk because of our backlog, the biggest risk was for our North Sea plant. And that's the plant that has turned around the most in bidding activity and order intake. Brazil is doing very well with Petrovos and other international customers there, but mainly Petrovos. And the hold that we see for 2012 is what our own US government has done to us and what activity levels there are going to be in the Gulf of Mexico. And sort of beyond that, we really don't get into specific orders unless they're the size that we announce. But I mean, I think that's the color of the umbilical market. I think also, I talked to the guys yesterday; there is a significant increase in bidding activity that we hope bodes well for 2012. I mean, some of these are budgetary but there is much more interest in umbilical bidding than we have seen in several quarters.

Great. Thanks, Marvin. I appreciate that color. If I could steal hopefully what counts as an unrelated follow-up, just the unallocated expenses in the quarter? Can you talk to that a little bit and then give us some guidance for the second half of the year?

Let me look at that real quick. How much did it go up? I mean, it's all good cholesterol. I mean, that's where my thought goes. (Laughter).

I guess not really a lot. I just -- I think --

Okay. It went up in -- looking at unallocated expenses, the SG&A portion we went from $25 million in Q1 to $27 million, about $1.7 million increase. There's just -- we're doing more things for IT to support our rolling infrastructure. We've got some other programs going on. I would expect to forecast something in that similar range. Of Q-2.

Very good. Thank you guys.

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

Good morning, guys. A couple of other questions on the product segment here. I was wondering in terms of the backlog increase, you talked a lot about the umbilical awards here. I was wondering if there was any contribution of that from just incorporating the Norse acquisition at the end of the last quarter, if that had any effect on the backlog?

It was included in last quarter's backlog and this quarter's. So it --

Sequential change would have been only the incremental NCA work that they got.

Right.

Okay. And so did the -- okay. And then did that work increase in the Gulf of Mexico with the P&A? I know you talked about that on the last call and also the IWOCS work in the Gulf of Mexico. Was there another sequential increase from their end products?

John, NCA it's really too early to tell. I don't see -- not significant enough to mention. And IWOCS had a very strong quarter.

Relative to the rest of the product group in the Gulf of Mexico, I'd say NCA is so small it's not mentionable. And we don't really break all that stuff out, anyway. But there was contribution from the Gulf of Mexico from the products group sequentially.

Okay. And I presume that the IWOCS work in the Gulf of Mexico is driven a lot by just the lack of the drilling going on. Were you still seeing that? And is there any risk in the second half that if the drilling work picks up that there could actually be a decrease in the products as a result of less IWOCS work?

I think as drilling picks up, there will be some reduction in the IWOCS work that we have experienced this year. I would not say that that would be significant enough to alter the overall product results.

I think it will damper the growth opportunities in IWOCS for certain. Because we'll have to fill in with international work because you're absolutely correct that the level of P&A and development work that's been done in absence of exploration drilling has increased our IWOCS utilization in the Gulf.

Okay. Great. That's helpful. Thanks, guys.

Your next question comes from the line of Andrea Sharkey from Gabelli & Company. Your line is open.

Hi. Good morning. I was curious if you could tell me how much the Norse acquisition added to your subsea products revenue this quarter because there was that strong incremental sequential increase. Just curious how much came from that acquisition.

We don't really break out those individual numbers. Sorry.

Okay. That's fine. And then I was curious if this is sort of a maybe out there question, but it seems like there's a lot more interest in FPSOs and those being built. Are you guys able to participate in that at all? And how so? And how are you thinking about potential growth in that market?

We are not thinking about further growth in that market. We're actually exiting the mobile offshore production system segment. It's just a totally different business than it was when we started off. And we're not going to be participating there.

Okay. I guess what I was thinking was -- and maybe I'm off base, but would you put an ROV on an FPSO or anything like that? Would there be some sort of opportunity there?

Typically the FPSOs do not have ROVs on them since typically the drilling is already done and there's no reason to have them out there. That would usually be a field support vessel with a ROV on it that would be doing field maintenance and what not.

Yeah. I think the increased interest in FPSOs is just good news because it just shows how much more offshore production there's going to be and the need for umbilicals, and as Kevin had mentioned, support vessels with ROVs. But as he said correctly, I mean, as we know internally, FPSOs per se don't generate much work for us.

Okay. That's helpful. Thanks a lot.

Sure.

Your next question comes from the line of Mike Urban from Deutsche Bank. Your line is open.

Thanks. Good morning, guys.

(Multiple Speakers) Hi.

I wanted to revisit the pricing question on ROVs and maybe attack it a little bit differently. You obviously have a tremendous amount of new build rigs coming into the market, if -- and this is a big if -- as you noted if the Gulf of Mexico comes back in a meaningful way. Then it also looks like construction activity is picking up. We don't typically think of ROVs as having a lot of pricing power. But it sounds like that would be an awful lot of work, an awful lot of demand coming through at the same time, maybe in the 2012-2013 time frame. Would you see that as a potential opportunity to get a little more value for the service you're providing?

Well, I mean, that's certainly possible. I mean, we of course are always looking for opportunities to increase prices. And it is a -- while we do have a dominant share in at least the ultra deep water part of this market, there is competition, there is always somebody with another ROV. And so we have to manage that carefully. And again I think if you look at the historical graph or trend of these prices, I think that should be a good guide for what you should expect in the future.

Okay. And unrelated --

Hey Mike, let me just remind you that we are the price leader already in this market. So everybody is pricing off of Oceaneering. So we press -- I think you've got some good strong tail winds expected with all these new rigs and construction picking back up. And these are going to be high-spec equipment. So generally we do a pretty good job in getting good price increases when they're available. As Kevin said and what we say all the time, we walk a -- half the people ask us why do you think you'll be able to expect to retain market share when everybody's being so aggressive, and the other half ask, why don't you raise prices? And somewhere in the middle is what we try to do. We try to maintain market share and raise prices.

Gotcha. And you've generally done a good job of that in the past. Unrelated follow-up question, could you give us an update on where you stand in the process in the Gulf of Mexico and globally of re-engineering subsea equipment, greater redundancy, more functionality and interoperability between BOPs and ROVs? I know that's been an ongoing process, but it seems like we're finally moving onto the prescriptive phase here of this whole process. I was wondering where you guys stand in that process.

Well, primarily our business in that area has been focused on ROV-mounted skids to be able to interface with the panels on the BOP stacks at higher pressures and higher flow rates. And that business continues to grow. We continue to have orders and service that part of the market. The panel part of that market, which is the BOP side, which is really the interface point for the ROV, that business has also been pretty good. And so those are the primary areas that we have been playing in, in that area.

And that's something you're seeing now and manifesting itself in the P&L? Or is that more on the come?

No. That is manifesting itself within the tooling part of the products group. And then there is one other product that we have been primarily selling, which is a -- we call it a six-shooter or a six-pack or something like that, but it's a set of accumulator bottles that are independent of the rig sitting on the sea floor that the ROV can connect up to the panel as another redundancy provision there.

Great. That's all for me. Thank you.

Yep.

Your next question comes from the line of Victor Marchon from RBC Capital Markets. Your line is open.

Thanks. Good morning, guys.

Hey, Victor.

Good morning, Victor.

The first question I have was just on projects and understanding the demand side and capacity. And just wanted to see if what you guys are seeing there is leading to increased discussions or looking further at or harder at other markets where you can maybe take some of your equipment out of the Gulf of Mexico.

Well, I would say that we've been pretty consistent in our strategy of focusing on the Gulf of Mexico with our vessel assets. It's just a whole different business jump to move to another international area. Having said that, we have looked at specific opportunities outside the US that would fit our risk profile and commercial requirements. But I'd say generally speaking we're not looking to make any big push to go outside the Gulf of Mexico. This has been a great business for us in the last several years, primarily kick-started by the hurricane work and maintained by that work, which is largely over.

So we're now back to a more traditional Gulf of Mexico environment for these services. Having said that, we are also in a very down period right now due to lack of permitting. It's not just on the exploration drilling side. Permitting has been very, very slow to come for all the other stuff that gets done in the Gulf. And that has affected project work as well. So I do think that that is going to slowly improve. And we would expect that once things get running a little bit back to normal that operators will up the pace of their maintenance and especially in the deep water side.

Thanks for that. And then the second one I have is just on products and looking at it in the second half for the year. It seems that expectations that that business will be down versus the first half. And given backlog, is it fair to assume that the expected decline is coming from margins, lower margins due to the mix, higher mix of umbilicals relative to the revenue side?

Well, there's two things there, I think. First of all, we did state previously that we were somewhat front-end loaded in terms of the umbilical business and the IWOCS business. And secondly, any increase on the umbilical side does have a decrease effect on the overall margin for that segment.

Great. That's all I had. Thank you guys. And congrats on the quarter.

Thank you.

Thanks.

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

Good morning, guys. Kevin, looks like a fairly seamless transition so far. (Laughter).

So far so good, Tom.

Sticking with the subsea products to start with, curious, looking across the three non-multiflex segments, DTS, IWOCS, and subsea field hardware, for any of those three are you getting close to a decision point on investing in additional capacity? And if so, what metrics are you focusing on? What would be the triggers and where would you make that investment?

Let's start out by talking about tooling. I mean, we just spent $56 million acquiring NCA. But as far as adding plant (Multiple Speakers) we bought a little company in Australia. But as far as adding capacity, I think our jobs have adequate capacity to grow considerably in Norway, in Houston and Australia and the UK. So I don't see it but I think the opportunities for tooling is in bolt-on acquisitions where we've been pretty focused on the last ones. IWOCS is equipment. And I think we're looking trying to expand geographically. And then subsea field development, I think we've got adequate capacity to grow orders. That's my take on it.

Yeah. And we're expanding trying to produce in (inaudible) other locations as well.

Okay. And then turning to subsea projects, have there been any meaningful changes in the competitive landscape since the last destructive hurricane season in 2008? And if so, what type? And then could you please remind us of the specific services you provide when it comes to the response effort?

Well, I think there are some vessels that have left the Gulf of Mexico as a result of the -- largely the completion of that work. Others still remain, which is sort of depressing the market at the moment. The services that we provide are vessel-based ROV and diving and also tooling. We provide a lot of the cutting equipment. Generally speaking, this is shallower water work, and primarily a diving exercise. And typically what we've done is incorporate an ROV into that as well so that you can increase the safety factor for the diver in the water. And then DTS or the fueling guys provide all the cutting tools and what not for that work.

And is any of that new or have there been any meaningful technologically differentiating products and services added over the last three years?

I wouldn't say there's any technological advances there, no. From our side.

Tom, let me make sure I understand the question. You're asking specifically about our -- the scope of services that we can provide when? In what situation?

Hurricane damage. Downed platforms and that sort of thing?

Right. Right. Those first-call, immediate response services.

Okay. No. We have it.

I think what we provide is really not so much technology as we've got a full package of the products and services necessary to immediately respond to something like that.

And the additional which would be ready in Q4, an additional sat boat would be an increase in capacity but not a change in technology. Not for downed hurricane platforms or platform inspection.

Okay. Thanks for the overview. I appreciate it.

Sure.

Your next question comes from the line of John Lawrence from Tudor Pickering. Your line is open.

Good morning, guys. Congrats on a great quarter.

(Multiple Speakers) Thank you.

Just one more on IWOCS if you don't mind. Just on the international push, I think you've done well in West Africa and the North Sea is an opportunity. Could you just talk about quantified international opportunity on IWOCS for us?

Well, we are certainly expending some degree of effort to try and push that business outside of the Gulf of Mexico. As you note, we have had some success in West Africa. And we have -- we currently have a system down in Brazil. And we're building a couple more systems to grow the fleet. So these things do tend to move around as well. So it's kind of hard to pinpoint where they are at any given point in time. But I'd say from maybe three years ago we had zero systems outside the Gulf of Mexico and today we might have half a dozen.

I would just add that North Sea is a very competitive market with low margins so that's not a high priority for us.

Okay. So mostly West Africa, I would assume.

And we hope Australia.

Okay. That's helpful. And then just on the acquisition market, are there any other Norse Cutting acquisitions out there, maybe reasonable valuations? (Laughter).

Well, we would like the other side of the Chinese wall to bring us some, okay? But no. No comment.

Okay. Thought I'd try. Thanks, guys.

All right. Thank you.

Your next question comes from the line of Ed Muztafago from Societe Generale. Your line is open.

Hi, guys, how are you?

Good, thanks.

I was wondering if you could talk a little bit. There's obviously a lot of high spec rigs coming in. And I'm assuming that ROVs that go on those are higher margin, higher revenue. Absent an improvement in ROV pricing, is there any reason for us to think that we wouldn't see improvement in margin and revenue per ROV? And then really to that extent, with the pricing recovery, assuming perhaps the Gulf of Mexico finally gets back to some level of normal activity, would you opine as to whether we could see ROV margins possibly go back to the sort of 32%, 33% range?

Well, first of all I would say that the Gulf of Mexico inactivity has not really affected our pricing. I mean, we just quit working. Or we were getting paid less because it was kind of a discount on stand-by sort of thing. So I think it would be inaccurate to say that Gulf of Mexico situation has affected our pricing.

In terms of the higher spec rigs, I mean, it is true, especially for the getting into the 4,000-meter-capable systems, that those ROVs are higher spec and more costly than the others and the price is going to be higher. Whether the margin is higher, you know, is topical with any bid, any client. I don't think you could necessarily assume that margins would perform any differently in terms of growth over time than -- again as we've said -- as it has over the past recent years.

Sure. Sure. Yeah. I mean, I wasn't implying that the Gulf had hampered or hurt pricing, but clearly a recovery in the Gulf would materially tighten the market. And one would assume that that would lend to a little bit of pricing power.

I think -- we have a lot more leverage, I would say, in utilization increases than we do in incremental pricing, which tends to be pretty small as it comes and it's just a cumulative thing. It's good and we like it and we always try to get it. But leverage is really in utilization, I'd say.

Sure. And no opining as to whether you could get back to a 32%, 33% margin in ROVs?

We said when we achieved those that those were pretty lofty accomplishments. And we didn't think they were sustainable. When you add a lot more high spec equipment, the depreciation component goes up. I think Kevin's given a very good response to -- in relationship of pricing and utilization. I think the juice is in the number of days' worked.

Right. And in a really tight market, your utilization if it is really high can get you those numbers. But that is almost unsustainable except for fairly short periods of time.

I think what we have to see, Ed, is to get the kind of utilization that drives those sorts of margin is a robust drilling and a robust construction and field maintenance market. And we haven't seen one of those for quite some time. So I think we've squeezed as much cost out of it as we can, and I would expect with higher utilization we'd be seeing more cost pressure on our labor as well and so it's a lot of moving pieces and I think the respectable margin of 30.7% is pretty strong.

Okay. And just as a second question, given what we're seeing in terms of increased offshore activity in Mexico, does that present any opportunity for the product and project business? Businesses, I should say.

I would say that we're always looking at Mexico and it just really hasn't matured to the point where we see it as anything meaningful at this point. It's still characterized by very shallow water stuff. Until they start finding some oil or gas in deeper waters that really plays to our main focus. But ultimately, eventually that is going to happen, but it's not going to happen -- I can't see it happening in the next two years anyway.

All right, thanks guys. Appreciate that.

There are no further questions at this time.

Great, Thank you.

Thank you very much. Have a good day. Bye-bye.

This concludes today's conference call, you may now disconnect.