Oceaneering International Inc (OII) 2011 Q3 法說會逐字稿

Good morning. My name is Chrissy and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering International's third 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) Jack Jurkoshek, you may begin your conference.

Good morning everybody. Thank you for joining us on our 2011 third quarter earnings conference call. As usual, a webcast of this event is being made available to the street events network service by Thomson Reuters. Joining me today are Kevin McEvoy, our President and Chief Executive Officer, who will be leading the call this morning, Marvin Migura, our Executive Vice President and Cardon Gerner, our Senior Vice President and Chief Financial Officer. This is a reminder. Remarks we make during the course of this call regarding our earnings guidance, business strategy, plans for future operations, and industry conditions are forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. I will now turn the call over to Kevin.

Good morning and thank you for joining the call. It is a pleasure to be here with you today. We are very pleased with our record EPS for the quarter, particularly in light of the slow recovery of non-drilling activity in the US Gulf of Mexico. Our overall operations performed within expectations, and we remain on track to achieve record EPS for the year. Our third quarter results were highlighted by all-time high quarterly operating income, from our ROV and Subsea products operations.

Given our year-to-date earnings in the fourth quarter outlook, we are raising our 2011 EPS guidance range to $2.11 to $2.15, from $1.90 to $1.98. We are initiating 2012 annual EPS guidance with a range of $2.35 to $2.55, as we expect another record earnings year. For our services and products, we anticipate continued international demand growth and a moderate rebound in overall activity in the Gulf of Mexico. The major determinant of our guidance range spread is the amount of operating income growth we generate from Subsea project business. For Subsea projects, we expect to benefit from a gradual recovery in the Gulf of Mexico during 2012 and a substantial increase in revenue and operating income as a result of an anticipated international expansion for our deep water vessel project capabilities. I will talk more about our 2012 guidance later.

First, I would like to review our operations for the third quarter. As we had anticipated, our ROV days on hire and fleet utilization rate improved during the quarter on an increase in demand for international drill support and vessel-based services. Our days on hire increased to an all-time high of over $19,000, and our fleet utilization was 80%, up from 76% last quarter and 73% for the third quarter of 2010. Segment operating income rose sequentially and year over year to a record level. During the quarter, we added 8 systems to our fleet and retired 8. Our decision to retire such a large number of systems in 1 quarter was based upon a comprehensive review of the future work prospects of each vehicle and our strategy of operating a modern fleet.

Year-to-date, we have added 16 systems to our fleet, retired 13, and transferred the use of 1 to ADTECH for non-oil-field use, for a net increase of 2 vehicles. At the end of September, we had 262 systems available for operation, up 10 from September a year ago. We now anticipate adding 4 to 6 vehicles in the fourth quarter and expect our year-end fleet size to be 266 to 268 ROV's, compared to 260 at the end of 2010. We do not foresee any retirements in the fourth quarter. Our fleet mix utilization during September was 75% in drill support and 25% on vessel-based work. This compares to a 71% to 29% mix one year ago and 73% to 27% mix in June of 2011.

At the time of our last earnings call, in the US Gulf of Mexico, we were receiving full rates for 26 ROVs on 23 rigs, a partial rate for 1 ROV and 0 rate for 1 ROV. 2 of these rigs subsequently left the Gulf, 1 to Egypt, the other to Vietnam, and we retain the ROV contracts to support both of them. As of yesterday, we were on full rate for 25 ROVs on 22 rigs, all of which were working at 0 rate for 1 ROV on 1 rig, which is not contracted. There are presently 25 floating rigs available for use in the Gulf of Mexico and we have ROV's on 23 of them. By the middle of next year, there are 5 known additional rigs currently scheduled to come into the Gulf and we have the ROV contracts for all of them; 1 is an existing rig and 4 are new builds.

So, by mid-2012, we anticipate that there will be at least 30 rigs available for use in the Gulf of Mexico, and we expect to have ROV's on 28 of them. By comparison, we had ROV's on 31 of the 36 rigs in the Gulf pre-Macondo. As permitting becomes more routine, we believe additional rigs will be brought into the Gulf. Just last week, there was an announcement of another new build been contracted to work in this area, commencing in the fourth quarter of 2012. We are pursuing the ROV drill support contract for this rig.

Now, turning to Subsea products, as I indicated earlier, we achieved record operating income for this segment for the quarter. Sequentially, operating income rose on profit increases for most of our product lines, led by increased sales of valves and installation to work over control systems, or IWOCS services. Year over year, the increase in operating income was primarily attributable to an increase in umbilical plant throughput and higher valve and tooling sales. At the end of the quarter, our products backlog was $403 million, comparable to $405 million at the end of June and $308 million 1 year ago. The year over year increase is attributable to a higher backlog for umbilicals, tooling, and valves.

For Subsea projects, our quarterly results include, in gross profit, the $18.3 million gain on the sale of the Ocean Legend. While we appreciate the gain on the sale of the Ocean Legend as a nonrecurring item, I personally want to thank the individuals who made this happen. There are a lot of ways to exit a business line, and adding $18.3 million of operating income is one of the best ways I know. I applaud their effort and the result. Absent this gain, third quarter operating income performance was sequentially slightly higher due to additional diving demand. Year over year, Subsea project's operating income declined as a result of lower demand and pricing for our deep-water vessels and shallow water diving services. Lastly, our other expenses for the quarter was primarily due to foreign currency exchange losses.

In summary, our third quarter operating results were in line with 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, as demonstrated by $148 million of EBITDA during the quarter. Capital expenditures for the quarter totaled about $50 million, of which $31 million was invested in ROV's and $12 million was spent in Subsea projects, primarily on the Ocean Patriot renovation and the third saturation diving system. We now expect our CapEx for the year to be around $280 million, of which about $54 million is related to acquisitions. During the quarter, we also purchased 500,000 shares of our common stock at a cost of approximately $17.5 million, and we paid $16.2 million in cash dividends. At the end of September, we had $166 million of cash and no debt.

Now let's talk about our outlook. For the fourth quarter of 2011, we are projecting EPS in a range of $0.48 to $0.52, up from $0.44 last year. With the exception of Subsea projects, we are expecting year over year quarterly operating income improvements from the rest of our business segment, led by an increase from ROV's. Subsea projects results for the fourth quarter are expected to be lower. This decline is attributable to the current weak market conditions in the Gulf of Mexico, and the fact that we benefited last year from unseasonably high demand for our services on projects that had been delayed from the summer due to the Macondo well incident.

Sequentially, we expect quarterly operating income improvement from ROV's and operating income declines from the rest of our business segments. Part of the declines can be attributable to normal seasonality. The Subsea products decline is mostly due to project timing. Looking forward to 2012, we are initiating EPS guidance with a range of $2.35 to $2.55, based on an average of 109 million diluted shares and an estimated tax rate of 31.5%. We have not completed our planning process but the big picture of the annual 2012 versus 2011 changes we envision can be summarized as follows.

ROV operating income is projected to grow on the strength of an increase on days on hire as we benefit from an increase in demand off West Africa and in the Gulf of Mexico and continue to expand our fleet. We anticipate adding 15 to 20 vehicles in our fleet in 2012 and retiring 4 to 6. For West Africa, we are anticipating an increase in ROV demand for both drill support and vessel-based services in 2012 compared to 2011. For the Gulf of Mexico, we are projecting an increase in ROV demand for drill support services. We are encouraged by the recent pace of new deep water well permitting by the BOEM and anticipate this trend will continue. We are projecting that, for 2012, our days on hire will increase and our fleet utilization rate will improved to 80% or more.

Subsea products operating income is forecasted to be higher on the strength of higher tooling sales and increased throughput at our umbilical plant. We do foresee a very challenging Gulf of Mexico umbilical market for our Panama City plant due to the after-effect of the drilling moratorium of 2010 and 2011. Subsea projects operating profit is expected to improve substantially on international expansion of our deep water vessel project capabilities. We are also anticipating a gradual recovery in demand for our shallow water diving and deep water vessel services in the Gulf of Mexico.

We are in discussions to undertake a multi-year international project that will allow us to expand our deep water project capabilities outside the Gulf of Mexico. If we secure this work, an appropriate press release detailing the award will be issued after we obtain customer approval. Given our lack of visibility for 2012 projects in the Gulf of Mexico, we are forecasting a gradual recovery in demand for our services in this area. The recovery we anticipate is particularly for saturation diving projects that may require the use of our new ocean patriot vessel. Whether we win the international services contract or not and the degree to which the Gulf of Mexico activity recovers are major determinants of our EPS guidance range spread.

Our inspection segment profit contribution is forecast to be slightly higher on increased global service sales. Advanced technologies performance is expected to increase, primarily due to improved operating efficiencies and profitability on US Navy surface vessels overhaul work and higher demand for submarine repairs. Unallocated expenses are estimated to be slightly higher. At the midpoint of our guidance range, we would expect our overall operating margin in 2012 to be about 16%, up from what we are anticipating for 2011 and about the same as it was in 2010. Based on our preliminary numbers, we are not anticipating any big changes in our segment operating margins in 2012 compared to 2011.

During 2012, we anticipate generating at least $525 million of EBITDA. Our balance sheet and projected cash flow provide us with ample resources to invest in Oceaneering's growth. Our preliminary CapEx estimate for next year, excluding acquisitions, is $200 million to $225 million. Of this amount, approximately $125 million is anticipated to be spent on vehicle upgrades and adding systems to our ROV fleet. About $75 million is for Subsea products to support our umbilical, tooling, IWOCS, and Houston manufacturing operations.

Our focus in 2012, as it was this year, will be on earnings growth and investment opportunities, both organically and through acquisitions. We are not presently going to give more detailed guidance information on 2012, and are not providing quarterly earnings guidance for next year at this time. For those of you who intend to publish quarterly estimates, I would like to remind you that, historically, our first quarter is the lowest of the year due to seasonality and that we tend to have higher earnings in the second half of the year as compared to the first half.

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, at relatively low finding and development costs. Therefore, we anticipate the demand for our deep water services and products will continue to rise and believe our business prospects for the next several years are promising. Others must share this belief. At the end of the quarter, there were 74 new floating rigs on order; 59 of these rigs are planned to be available by the end of 2013. 37 have been contracted long term for an average of over 8 years. 3 more floaters have been ordered since then, with 2014 shipyard delivery dates.

Of the 37 contracted floating rigs, operators have let ROV contracts on 19 and we have won 8. That leaves 58 ROV contracting opportunities for new rigs left to be pursued, at which 18 have operator contracts and 40 do not. If all of the rigs on order are placed into service, the global floating rig fleet size will grow 28%, to 349 rigs. The high spec fleet, consisting of fifth- and sixth-generation semi's and dynamically positioned drill ships, which currently totals 104 rigs, will grow nearly 75%. We historically have had a high market share on the high spec rigs and are currently on 75% of them.

Looking forward, we see no reason why we will not continue to be the dominant provider of ROV services on these units. As the use of floating rigs grows, we believe it is inevitable that discoveries will eventually drive orders for Subsea hardware to levels not previously experienced. And demand for ROVs to support vessel-based activities will follow. Quest Offshore's latest Subsea hardware forecast for the period 2011 to 2015 includes a 33% increase in tree orders over the previous 5 years. In 2012, subsea tree orders are projected to be 561, an all-time high, eclipsing the previous record of 462 trees in 2006. While we do not make trees, orders for subsea trees do drive demand for a substantial amount of ancillary subsea production hardware that we manufacture. For example, Quest is forecasting a 52% increase in umbilical orders for the 2011 to 2015 period.

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, for both the short-and the long-term. We like our competitive position in the 2011 and 2012 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 growth of deep water and subsea completion activity.

The longer-term market outlook for our deep water and subsea service and product offerings remains favorable. The renewed industry and regulatory emphasis on reliable equipment and redundant safety features of deep water operations is causing 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 and that 2012 will be even better. We think this distinguishes Oceaneering from many other oil field service companies. We appreciate everyone's interest in Oceaneering. I would now be happy to take any questions you may have.

(Operator Instructions)

Brad Handler, Credit Suisse.

Thanks, good morning. Just a couple topics based on your comments, please. I would love to understand, the first thing on that multi-year project potential that you referred to in projects, would that relate -- would there be a new build involved if you were to win that work, or would that be about repositioning assets out of the Gulf?

There would not be a new build. It would be about repositioning an asset from the Gulf of Mexico.

Okay. Thanks for that. My follow-up question relates to products. I would love a sense from you -- you had some nice movers in 2011 relating to ROV tooling, for example, not your only driver of growth, but an important one. Where do you think you are in that process of growth? Is there a -- do you have enough of your ROV tooling packages on rental already so that there is sort of a -- it starts to flatten out, or is there continued opportunity to put more into the marketplace and is that part of the growth driver for 2012?

I think it's an across-the-segment issue here. There are a lot of moving pieces to this, but we generally see favorable demand growth compared to what it has been for next year. I think it would be hard to pin it on any one piece of that segment, particularly.

And I do think, Brad, for tooling, we will benefit from the full-year acquisition of NCA.

Sure. That is helpful and steering me more broadly. Presumably, it includes IWOCS and further international expansion on that score. Again, is there optimism about actually adding more systems and pushing further into the West African market, for example?

There is optimism about expanding the IWOCS business, but I would say that, on its own, that is not a material driver. It is something that we're constantly trying to do, and over time it does add up. But, in the short term, it is probably not a huge needle mover there.

So, maybe I should ask it in the reverse. Acknowledging that it is across the board, is there something you would point to as being the most influential piece? Is it the full year of NCA, since you point that off for me, Marvin? Is that how I should be thinking of it?

No, I think you should be thinking of it as pretty broad-based. I think, as Kevin pointed out, we should have more umbilical throughput, but we do have a very challenged Panama City plant, because if you're not drilling, and especially if the independents aren't drilling, currently, then you don't see much homegrown Gulf of Mexico umbilical demand. So, while we see global demand picking up, short term, 2012 Panama City plant, is going to be seeking work outside of the Gulf of Mexico because of low project visibility.

Fair enough. Maybe I can steal one more. Can you give a little color around the ROV margin in the quarter and expectations for how that progresses over the next couple of quarters?

Let me look. I think what we said is, we don't expect any change in our -- material change in our margins, and we looked at 30% for the operating margin in the third quarter, compared to 31%, and we have been saying that we think it will be around 30% all year. So, no, I think that performed very much in line with our expectations.

Okay, good enough. Thanks, guys. I'll turn it back.

James Crandell, Dahlman Rose.

My first question is also about the ROV business. Could you comment, Kevin, on the effect of margins from this, what seems to be meaningful change in your fleet? You're retiring, you've upped your retirements, you are putting more of your ROVs on ultra-deep water rigs coming out of the yards. It would seem that combination should have a positive effect on margins? Or no?

The ones that we are retiring have not really been contributing in the recent past, which is one of the reasons that we are retiring them. Also, in light of the cost that would be involved in trying to upgrade them to make them usable in today's market. Even though we are the price leader, there is still constant pressure on pricing from our customers. We are increasing day rates over time, generally consistent with increasing costs, of the new capital equipment for deeper water and higher specifications that are coming out, but I would not say that there has been great opportunity to increase margins.

To give some color on that, of the 8 systems that we retired in the third quarter, 5 of them had not worked in the past 12 months. And, 2 of them had only worked a little bit in the first half of 2011.

That is helpful, thank you. Maybe you gave this number, if I missed it, but what percentage of ROVs have you won this year? Is your market share in line with historical averages in terms of your win rate in ROV contracts?

Well, during the quarter, 9 jobs were awarded and we won 4. Of the 5 we did not win, 1 went to Cuba, 1 ROV contract was awarded to a local Nigerian company, and 3 went to Subsea 7, 1 for Petrobras and 2 for Statoil.

Okay. So, this year as a whole, then, your market share would be less than what it has been historically. Why do think that is? Just a mix of customers that are ordering the ROVs has changed somewhat?

Well, of the list that I just gave you there, you could say mix was partly responsible. But, as I said earlier, pricing is still a major issue in all things offshore. And I think we are seeing some pricing pressure and some companies are going to ultimately try a lower-priced alternative and see how it works out.

Okay, and one question about the umbilical business if I could. I think you mentioned that the international businesses has improved in the Panama City plant suffering from weak activity in the Gulf of Mexico. Are the international businesses up to margins and levels of profitability that you would consider to be adequate right now? This has been sort of the drag on this segment's earnings for maybe the last 3 years or so, but it seems to me that umbilical profitability overall has been improving and led by the international side. Can that business now be, quotes-unquotes, healthy? And the only real issue is the Panama City plant?

Let's talk about the international market first. I think there is still huge over-capacity in the market, pricing is still very tight. I think, what we have seen is improved execution on our side for one thing, and secondly, I think we have been a little more successful more recently than we had been, say, 2 or 3 years ago. But, we are encouraged by the direction the market is heading. For example, if Petrobras sticks to their procurement plans, we could expect 18-, 24-month time frame to see things tighten up there in terms of local capacity versus Petrobras demand. They do have a history of inviting others in, though, when it gets to that point in their supply chain, so we will see what happens there. But, that is the way we would characterize it. There's still a lot of over-capacity, so pricing is tight. We are happier today with that business than we were 2 years ago, that is for sure. With regard to the Panama City plant, the Gulf of Mexico -- a reasonable amount of our business in the past has been with independents, as Marvin alluded to earlier, and they have pretty much been absent from the drilling scene for some time now. And that is really the source of short-term single-well tie-back opportunities that benefit our business here. While there is some optimism regarding larger, deeper water developments here right now, those are several year lead time ideas. So, it's not a short-term deal.

In the quarter that you reported this morning, at least versus my estimates, your revenues were quite a bit stronger than what I would have anticipated, but your margins were lower. Is that because of a shift in the mix toward umbilicals in the quarter?

I think it was a shift in products in general, and, yes, umbilicals, specifically.

Yes, umbilicals usually drives that.

Okay. Thank you very much.

Michael Marino, Stephens Inc.

If I could just follow up on the Q3 margin question, I guess products was kind of flat sequentially, maybe up a little bit, you guys noted high IWOC and valve sales. Is there anything about the IWOC margins that's changed, or was the valve mix and the umbilical mix weighing on the margins of that group?

There's been no change in the IWOC side, so it really is a lot of moving pieces in this segment, so it's hard to draw any major conclusion other than umbilicals generally have lower margins than the rest of the subsegments there, and that will affect that margin.

Okay.

And, Michael, we have been saying high teens is what we expect, and 19 is about as high as you can get within that range. So we are pretty pleased with 19% margin. Year to date, we are at 18%, and I think everything in products is really unfolding as we expected, or perhaps a little bit better.

Fair enough. As a follow-up, the international project you all referenced in the guidance as being a swing factor, does that have potential pull-through into the products group? And if so, is that something you have kind of baked into the guidance or is it maybe something that develops later in the project or next year?

I think, first of all, we have baked into our guidance whatever we see coming from that. Secondly, aside from ROV tooling, which generally goes with that kind of work, we would not expect to have any other product pull-through.

Okay, thanks. That's all I have.

Jon Donnel, Howard Weil.

Good morning, guys. Trying to size up a little bit, your commentary around the gradual recovery in the Gulf of Mexico on the project side. I know it has been a number of quarters since we've probably had anything that's resembling normal activity levels there, but should I be thinking about this, that you may be, like, a first quarter, '10 is something of a normalized state here? Absent any incremental hurricane work that may come in the future, and realizing there is some seasonality, obviously, between the quarters as well?

Jon, it is really -- the first part of it, it's been a long time since we've seen anything normal. So, It is really hard to gauge that. Kevin did say that first quarter '10 had, in Q4, of -- well, let's see -- no, '10 we still had some hurricane work in it, Q1.

Okay.

Not significant --

Not significant, but it is probably not far off from normal, but we have not looked at it that way.

Okay. That's helpful, at least to just get sort of a general size of it. And then, in terms of the ROV demand in the Gulf of Mexico, I thought I heard you say that the growth in '12 versus '11 was going to be purely drill support, and I did not hear anything about a vessel or construction side of that business. Did I hear that correctly? I guess, is there any thoughts that there could be some recovery on that side of the business as well, and maybe help those ROV utilizations as we go forward? Why would that be different for the ROVs versus the projects?

Well, first of all, the ROV comment also included West Africa. We did note that there are going -- there are expected to be, if the schedules hold, 5 additional rigs coming to the Gulf of Mexico, so that, I think, is that piece of it. And I think the vessel-based ROV part pretty much mirrors our expectations for the project's business. We just have little visibility on that at this point in time. So, that is why there is the caution about that.

Okay. That's fair enough. I guess I just misconstrued those comments a bit. And finally, regarding the share repurchases, is this something that was more opportunistic during the quarter, or is it something you're looking to maybe be more systematic as we go through 2012, given the free cash flow that you all are projecting to -- getting into in 2012?

It was opportunistic.

Okay. Thanks a lot, I appreciate the time.

Joe Gibney, Capital One.

A couple questions on segment-related detail on your '12 guidance. I was curious about inspection. I know you indicated it will be heading slightly higher next year, and this segment often gets pushed under the rug a little bit versus the other ones, but '11 is shaping up very nicely as kind of a plus 20% year-over-year growth in Op income. I'm just curious how '12 is shaping, indicating to be slightly higher. Is it continuing growth, just moderating growth? If you could touch a little bit about some of the drivers of that business.

It is continuing moderate growth. This really is a combination of 2 big pieces, if you will -- UK and North Sea activity and then other areas, international, where there is a focus on top sides inspection activity.

Okay, helpful. And then following up on the previous question about Gulf of Mexico, the gradual recovery within projects. On the shallow water side, I'm trying to understand, are you sort of seeing this more as a function of the Sat diving and the Ocean Patriot contributing more and it's gradual underlying improvement elsewhere? Just trying to get a sense of diving pricing now as it stands in 3Q, obviously still challenged. The permitting outlook, getting a little bit better, but shallow water diving outlook, I guess, in the next year, is it really more a function of your asset mix or are things, constructively, getting a little bit better?

I think, generally, the market has been slowed down because of lack of permitting for non-drilling kind of projects. We do see that starting to improve. However, at this point in time, there is still a lot of capacity in the market and pricing is down. It's a question of how much demand is going to come next year that will allow pricing to tighten up and to get back to some better margins. We do believe that there is going to be some opportunity for this DP2 saturation diving vessel that will be available for the market for next season.

I appreciate it, gentleman, I'll turn it back.

Tom Curran, Wells Fargo.

Good morning, guys. Just following up on a few of the lines of questioning that have already been started. Starting with Subsea Projects, the vessel that you are considering relocating for this opportunity, is that a shallow water or deep water vessel?

It would be a deep water vessel.

And, how many of those do you have in the Gulf, and of those, how many are currently working and how many do you consider eligible for these types of redeployments?

Well, we have 4, and probably eligible for deployment would be 2, but there is also the opportunity of providing charter vessels on projects as well. So, it is not just solely a question of moving whatever we currently have someplace else.

Okay, and those 4, what percentage of 3Q revenues did they account for?

We don't give that level of detail.

How about just sort of a rough recent run rate, utilization wise?

We don't give that out either.

Okay. But, fair to say that --

It's been low.

It's fair to say that it's been low because we've been talking about a challenged Gulf of Mexico non-drill support market.

Fair enough. Turning to DTS, is there any percentage of the post-Macondo BOP stack-related spending that was sort of at a temporary high, that you're assuming drops off in 2012?

Compared to 2011? No.

So the level of the BOP-related spending you're at right now is, for the most part, expected to be a sustained run rate into 2012?

Yes. As we said previously, the majority of what we are doing in this particular area are rental items, and so we are expecting that to be over a longer term deal there.

Are any of those assets on the equivalent of term contracts? If so, could you give us an indication of the percentage of the assets?

No, we are really getting into subsegment and one kind of tool rental, equipment rental. I don't think much of our equipment at Oceaneering is being on term contracts that you can book as firm backlog. As you know, most of our ROVs have pretty easy termination for convenience. This kind of equipment matches the ROV contracts.

Okay. That's helpful. I will finish with an easy one, I apologize if you have already shared it, but I don't think you have. Please just update us on how many of the floater new built in the queue have yet to award initial ROV contracts, and then your sense of those rigs that haven't, the percentage that are likely going to Brazil?

We've got that, we are trying to find it in the remarks.

As of the end of September, there were 74 floating rigs on order, and 3 more have been ordered since then, and we currently estimate -- there are 58 we said in our opening remarks. 58 that are current opportunities. I think 40 of them have no operator contract, and the remainder do have contracts, and we are diligently following up on every one of those.

Okay, I will take up the rest off-line and turn it back. Thanks, guys.

Andrea Sharkey, Gabelli & Co.

Good morning. I was just wondering if, maybe, you could update us on your outlook for potential acquisitions. You have net cash on the balance sheet, I know that something you guys have always looking to do, but a matter of trying to get things at a good price. Has that market improved at all? And maybe, remind us again what sort of products or products lines you would be the most interested in?

Okay, we are always looking for viable acquisition candidates, and we can't give too much more color on it other than that. We, in the recent past, have been successful in finding fairly smallish candidates. I would say that, generally speaking, anything in the offshore, subsea, deep water market niche is pretty highly valued and priced and that further complicates the opportunity to find something that, A, fits with our -- with what we want to do, and B, is economically viable. So, I can't say much more about it other than that, other than we are constantly looking, and hope to continue to be able to make some acquisitions. And we would love to be able to make some larger ones, if we could.

Okay, great. And then, just one more from me. On the outlook for the umbilicals, saying more throughput in those plants and better plant utilization, is that based on things that you have already booked and that you know you have, or is it based on a number of projects that you see coming down the line? Maybe give us a sense of what that split could be.

It is based on what we see as opportunities in the marketplace today, that we are trying to secure and I don't think I can give you a breakdown of backlog versus what we think is out there, whatever -- couldn't do that.

Okay. Thanks.

Victor Marchon, RBC Capital Markets.

First, on the projects and the international contract that you guys are pursuing right now, just wanted to get a sense from how you guys are thinking about it. Is this something that we can think about as being a first step in a more permanent international beachhead versus previously, where you've done work with a vessel and then brought it back to the Gulf? Is this something where you think that, again, would be a more permanent move, where we will see additional work in this area over the next 2, 3, 4, 5 years?

We hope so. We did indicate that this would be a [sober] year, project to contract, and I think that this -- I would think about this as a niche market kind of endeavor. There is a very broad market out there for vessel-based construction services and that sort of thing. I would not go anywhere near that with this, but we do believe that there are additional opportunities of a like nature that could be available and we are going to be actively pursuing those as they arrive.

Great. Thank you for that. The second one I had, just on bidding activity for the umbilical business, I just want to get a sense, given the uncertainty on the macro side the last couple of months, just wanted to get your thoughts on the level of bidding activity that you guys have seen since the second quarter call and how you see that progressing as we get into 2012?

Well, bidding activity has been very high, particularly Brazil and for our [resite] plant, which is really geared towards the North Sea and West Africa. So, it has been very high for those particular areas there, and we see that continuing into 2012 at the moment.

That's all I had. Thank you, guys.

Mike Urban, Deutsche Bank.

I think most of my questions have been answered. Just wanted to be clear. We're pretty clear on this. I just want to make sure I got this entirely correct. The potential international project is something that is baked into the high end of the guidance range?

That is correct.

And, unrelated, in Brazil, you had a lower market share than you've enjoyed elsewhere in the world, and part of that has been getting them to buy into the value proposition. There was an incident down there where you had a significant amount of downtime on a rig because of an issue with the ROV. Has that helped at all in your discussions with the customer down there, or too early to tell?

I would not anticipate any major shift in Petrobras' acquisition policies. You can only hope that would be helpful at some point in time. But, I don't see any major shift coming from Petrobras.

Okay. That is all that I had, thank you.

John Lawrence, with Tudor, Pickering, Holt.

Hi, good morning. Just one more on Brazil, just on the product side. If you exclude umbilicals, could you talk about the opportunity down there? Is it still very competitive or -- it sounds like the body language might be pretty positive?

It is very competitive in Brazil. And Petrabras does a pretty good job of pitting every competitor against each other to get the lowest pricing. In addition, they are going through the changes that are more or less expected of an economy like this where they are demanding more and more local content, both in terms of personnel, which we have always been very good on, but also in terms of equipment. So, if you provide anything, supply anything, make anything, there is a penalty in one way or another if it is not done in Brazil. Now, the problem with that, generally, is that there is not a lot available of the right quality and whatnot. So, it makes it very challenging and introduces risk into projects just in its own right. That is slowly changing and of course, over time, that will not be a big problem, but in the short term, it is a very challenging market. They change the rules -- the government changes the rules fairly regularly, so you have to be on your toes all the time, ready to change.

Okay. Thanks for the color there. Just clarifying a housekeeping item here. Fleet utilization for 2012, you said 80% on the ROV side?

80% or more.

Thank you very much.

Thank you everybody for your attention, I appreciate it.

Take care. Goodbye.

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