Tidewater Inc (TDW) 2003 Q2 法說會逐字稿

Good afternoon. My name is Jessie. I will be your conference facilitator today. At this time I would like to welcome everyone to the follow up Tidewater Second Quarter Earnings 2003 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 period. If you would like to ask a question during this time press star then the number one on your telephone keypad. Before turning the call over I would like to thank you all for your patience on today's earlier call and we would like to express our deepest apologies for the inconvenient experience on the call. Now I would like to turn the call back over to Mr. Dean Taylor. Mr. Taylor you may begin your conference call.

Hello, everybody. Sorry for the problem earlier this morning. There are some people in the office who have suggested that we didn't use the Tidewater Communications Industry for our service today. That's why we had the difficulty. I apologize. We will open up for questions right away. And apologies for the problem. Jessie, go ahead.

Okay. Sir your first question comes from Bill Herbert.

Hi Bill.

Hey, good morning, Dean, how are you.

Good afternoon.

That's right. It was a good morning, how about that? I guess the first question I have here is we have four deep-water vessels, new ones, which are going to be coming to Tidewater some time this second quarter. First of all, where are those vessels slated to work? And then second, what are the employment prospects for them and what kind of day rates are we contemplating for those vessels?

I don't want to give too much out to our competition. Our competition is probably listening in so I won't get too specific about the day rates, Bill.

Okay.

We have two vessels that will come in Singapore, one in the Gulf of Mexico and one in Brazil. One in the Gulf of Mexico I expect almost immediate employment, the same with Brazil and the two in Singapore we have bid all over the place at different rates but in general I would expect that they would be also gainfully employed, so--

Okay. Then I am going to proceed perhaps in an attempt to be more subtle here in terms of trying to get a handle on where the day rates are, the Gulf of Mexico, we've had some slippage here with respect to the average day rates realized and the second quarter, I think 127 was the average for the quarter, 135 was the average in the June quarter. So I guess the question I have to ask is, are the day rates which were we are contemplating or just the market if you will for deep water vessels if you will in the Gulf of Mexico are they closer to where you are for the second quarter average lower or higher? I'm just trying to get a sense as to the trend in rates?

I need to tell you what happened with one of the vessels. We actually took a job for another vessel that's coming later on. It's not a deep-water vessel so we used the deep-water vessel to fill a slot. We wanted a job and we took it at what we would consider to be a sub par rate in order to own the slot. So that's sort of what drove our average down partly this quarter. The other thing that happened is we had a vessel assigned to, not only to the Gulf of Mexico but actually working in Trinidad at a very good rate. It came off of that rate, left Trinidad, came back to the Gulf of Mexico and didn't achieve a rate that was nearly as good. So between those two factors I think our rate, our average rate came down this quarter. I expect that the unit that we'll put out in the Gulf will actually cause our rate to rise.

Then the follow-up question to that is asset employment in the quarter slipped a little bit for the deep water vessels, 78 thereabouts versus 91% in the June quarter. Where are your expectations with respect to asset employment for your deep-water vessels in the Gulf of Mexico?

I think Keith touched on that. I think he said we're actually at 100% right now. And I mean there's no guarantee that through the quarter we'll be 100% but we're pretty optimistic they will be better utilized this coming quarter rather than the present quarter.

So the deep water overall in the Gulf of Mexico seems to be reasonably well behaved, is that fair?

You know, remember, we are pretty small players in the deep water in the Gulf as compared to certainly one of our competitors so I can't say. I can't say that we are optimistic about our prospects.

So the second subject, if you will --.

Now remember, Bill, this started off as two questions.

Right. I will wrap this up with this question. Thanks. The impact of the Gulf of Mexico storm, could you just talk about that a little bit with respect to the September quarter and if you're seeing a corresponding sort of pick up in activity after I assume what you witnessed in the September quarter was a slow down due to the, due to the storm activity?

I am going to let Joe answer part of that. In general, we have, I will answer the part about the activity level. In general our small boats seemed to be busier than they were partly as a result of activity related to repairs, platforms that had been damaged. I don't think that our supply boat division activity has been much affected by the aftermath of the storm. Joe will give you the exact breakdown with what we figured the impact was as a result of lost revenue.

Bill, as you know, we experienced two storms back to back two weeks in succession.

Yes.

The first one hit right at the end of September so the only thing that really could happen at that point in time is a few boats being released. That's what did happen. We didn't have enough time in the quarter for it to then recover before the second storm hit.

Right.

For that first storm, our best kind of estimate is probably about a $250,000 reduction in revenue during that September quarter. Then we went into the first week in October, we got hit with the next storm and then recovering from that as Dean said we've seen some recovery in vessel utilization, both as regards to kind of repair work, and then blending into maybe just a little bit of an increase in activity in the Gulf any way so it's hard to kind of nail, decipher what is storm related and what is not specifically. But in regards to September a fairly moderate amount of reduction in revenue.

Okay. Super, thank you very much.

Bill, just remember what we said that those people, those boats two of them were you the one of the boats in Brazil and one of the boats in Singapore are physically scheduled to be delivered after December 15 but in this quarter but don't book too much on those guys. The domestic boat is scheduled for mid to late November and the fourth boat in Brazil -- in Singapore is scheduled for delivery by November 1.

Great. Thank you, Keith.

Thanks, Bill.

Your next question comes from Jeff [Friedberg?]

Hi, good afternoon. One follow-up question, the two platform supply vehicles and the two crew boats that are being delivered, are those all domestic or are those going to be split domestic/ international?

Well, both of the platform supply vessels are domestic vessels. It turns out that, at least nominally go on contract outside of the United States. Now, we may do a substitution for one of them but that's not decided yet. The two crew boats would also be delivered also into the domestic market.

Okay. Then I just had, you know, some analysts can never be happy with where things are, I want to pose a question on your pricing philosophy, you know, you guys are basically taking boats off to keep rates up in the Gulf of Mexico which is improving the profitability or lowering the losses, which is fine in the interim, I guess in the long term is this just giving your competitors that don't have the capital just a little too much cushion to go ahead and build boats and expand their fleets and you guys kind of let them get away with that instead of just using your balance sheet and staying power to make them hurt a little bit and maybe cleaning up the mess afterwards?

I guess we could, we might do something like that, we are not ruling that out but I guess for the time being we are satisfied that what we are doing is still the proper thing. Lord knows we ask ourselves the same question that you're posing to us now. And for the time being we are happy with the status quo. I know I'm not giving you a very good answer but that's the answer.

No that's fair. As I said we always wish that we could have something better than what we've got and you never know until you get there that it might not be what you want.

Is that building domestically right now?

It seems that, I mean that doesn't mean tomorrow somebody might not go out and do an order of ten. For the time being it seems that sort of the hiatus in activity here in the Gulf has sort of, put a hiatus on some of the new construction.

Getting back to the pricing activity and I'll end it there, internationally it looks like thing are trending fairly sideways, everybody is hearing the stores about what's happening in the North Sea, and we've talked before about a lot of that equipment just a little bit too big to be bid into the West African market, are you seeing any more competitors setting up shop in West Africa, that market being strong or is it really just kind of a steady as she goes supply and demand right now?.

Steve is here, I will let Steve field this one. I'll be quiet now. Steve?

Hello, Ken. I would say that there has been some migration out of the North Sea but generally it's been, it's been on kind of a project basis and when that, when that particular project is finished those vessels tend to go back to the North Sea, they tend to be project specific. There's some upcoming projects where there may be some more migration that way but I think our presence in Africa with some of that equipment of the same kind would certainly give us an advantage, there's been some but it certainly hasn't been a wholesale migration down to West Africa.

Would you say there's not much change in pricing in that market at this time.

The North Sea or West Africa?

West Africa.

I think sideways is probably the best way to say it.

Okay. Thank you.

Your next question comes from Mike Clark.

Good afternoon. Keith, you pointed out a few reasons why the international work rates were down about $200 a day sequentially. At the same time you mentioned that rates in West Africa were up about 125 a day sequentially. So rates, one might conclude that rates are down somewhere. Could you help us sort that out?

Okay. Mike, the biggest one here it's in the North Sea itself, and remember this is a mix, whatever, whatever I wrote to you by region as opposed to by class the region goes across class lines. I don't have by region but by class in the North Sea, for instance, ten vessels in the June quarter averaged $10,490 a day. In the current quarter they averaged $9,175 a day. So you have a $1,200 a day drop off there. The other place where we saw a small drop off in the Far East where we operate about 60 vessels the average day rate there in the June quarter was 6538, this quarter it was 6319, so Latin America where we have 100 vessels the day rate was, this is the one that because of the number of vessels we had an average day rate of 6633, the previous quarter this time it was 6530. So there's $100 there, plus the $1,200 drop off in the North Sea. You know, a little bit in the Far East. The other areas as Dean said West Africa was up the $125 or so.

I can almost back in what the other trades are there, that's great. Dean, I had a question for you. on the last call you mentioned that Brazilian ship owners were putting pressure on the government to enact tougher [cabatage] laws and I was wondering if you saw this is as a greater threat under [LuLu] [inaudible] government, in other words in Brazilian flight vessels get even greater preferential treatment, how would that effect Tidewater and your tactics in that market?

I think everything in South America is a region where I've worked a long time, there's plenty of risk out there. In many ways, Mike, I've said to lots of people almost the more risk there is the more I like it because I think it serves almost as a barrier to entry. Responding to your specific question of [LuLu], [LuLu] is going to need to do something to keep sort of the economic engine going. We've seen what shall be business has done in Venezuela and the results thereof and I think Lulu is [inaudible] smarter than that. Brazil is an import of net crude. They have to continue their level of activity to keep from falling farther and farther behind in terms of balance of payment. Their biggest balance of payment is purchase of crude, The biggest outflow of currency. So I think that [LuLu] will be loathe to tamper much with [Petrogas]. And [Petrogas] in general wants a certain amount of local participation in their market but not too much. They want enough to keep the government off of their back but they need only so much because typically the locals haven't given them very good service and they've also tried to fix prices and do a lot of other things and that hurt [Petrogas] in the long run. So my perspective is there won't be much time because [Petrogas] is not going to tolerate too much change. We've seen in Brazil [Penvasa] has pretty much fended off from too much interference, intervention from the government. I sort of feel like the same thing is going to happen in Brazil. There's no guarantees of that, [LuLu] may come in and put his man in charge of [Petrogas] right away. And other things may change, he might put his guy in charge of Central Bank. There's lots of probabilities for problems but I guess I sort of think that whatever happens we'll be able to deal with it. We've dealt with much worse in Brazil. So that's just what our view is. I don't know if that answers your question.

That's helpful. Thanks a lot.

Your next question comes from David Snow. David? It's your line.

I'm trying to get a feel of what your after tax returns are running on your new builds to date?

David, you and our Board of Directors after having spent a billion dollars it's a fairly common topic. It's very difficult to be absolutely honest with you because so much of rate of return for vessels that are less than two years old depends on what you think the residual value is to date. So I'm going to start off by saying that we try and take a realistic view. We take the position that our vessels generally depreciate by about 4% a year that is somewhat similar to our accounting policy. We certainly don't take the position that we heard some competitors that a vessel holds it's value for five years and then starts depreciating. Having said that, based on the fact that we are knocking off about 4% a year for depreciation in the vessel, we think we are getting overall something in excess of a 15% after tax rate of return. We have been very pleasantly surprised, we have been very happy with that fleet and, in fact, I didn't do my math yet for this quarter, but for the quarter when we ended in June on an absolute basis the 45,40 or 45 vessels that had been delivered at that point in time were contributing about 25% of our pretax earnings. So you can see --

How many boats were doing that?

There were, there were 45 vessels at that point in time.

That was what period again?

That was for the June quarter.

Okay.

The pretax earnings in that June quarter were generated 25% so we are doing very well in absolute, were doing very well in rates of returns and on them and as long as the vessels continue to hold a relatively good high value comparable to the market and it's realistic to say that they are worth what we paid for them because they are still so new. But we think we are doing better than the 15% which is kind of our threshold to go out and build a boat and in absolute terms their relative value to the company is increasing as each and every one of them is delivered.

Does that 15% include the downtime that's less than 100% utilization?

Absolutely. It's cash return versus cash out the door to buy it.

What kind of utilization do you think you're averaging on the new builds?

90%, 92%.

Wow. What's the utilization rate for the industry for the international market and for the Gulf, do you have any figures there, rough?

We made a little presentation to our Board of Directors here back in September and based on a survey of the Gulf and there's no absolute, but the survey of the Gulf was broken down into about three pieces. It indicated that our public competitors, Secor, Tryco and Ansco, were on the average they were operating at about 55 to 60% utilization. The mom and pop small operators were operating at about 92 to 93% utilization, and then Tidewater came along and we were at 20 to 22%. So overall the statistics would say the Gulf was operating at about 65 to 68%. But that's not a true, that is a true story but that's not accurate. That's the smaller players have lowered their rates on basically 100% utilization. The other market guys have held their market rates pretty well and are in their mid-fiftys and Tidewater held their rates the highest and we are at 20 to 22% internationally, and I will let Steve talk about it. We've given you our numbers. Our international fleet all classes all around the world, every piece of international equipment we have is utilized at 77.5% last quarter. In fact, all vessels available on a worldwide if you factored into domestic and international, our factor would have been 62.3.

62.3?

Yes, that's out of 500 vessels and that's based on revenue days actually earned versus revenue days available so that's counting everything but our international average for 332 vessels was 77.5. Let's see what Steve thinks the rest of the world may be doing.

Okay.

Certainly in West Africa we're talking about an 80% utilization and, of course, that includes vessels that are off getting repairs and in dry dock and any major repairs that happen to be going on. But we are 80% is about our running rate. As far as our competitors, what they are doing in between jobs or when they are on a project that finishes, some of the vessels are migrating out of the area and some stay in but, so to give you an exact number but I would suggest to you it's probably a little bit lower than the 80% that we are enjoying.

David, this is Dean. Worldwide, our international rig utilization rate is about 80%. I don't think that -- boats are probably 75 to 80%.

Is that-- ?

The vessels are 75-80%.

What would be full utilization, is that pretty close to it?

No, full utilization would be 90%.

That would be internationally and domestic is 75 to 80?

No, again about 90% would be full utilization.

You gave me two figures. 80% is international and 75 to 80, is that qualifying your first figure or was that 75 to 80?

I think that's a qualification.

Okay. So there's a little slack internationally but has it been pretty much the same as in the previous two quarters?

I think so. Again, David, I don't want to cut you off but we do need to be fair to everybody else. But I would say that worldwide utilization has been pretty flat last couple of quarters.

Thank you very much.

Thanks.

Your next question comes from Kurt Hallead.

Hi, Kurt.

Hi, how's everybody?

Okay. How about you?

A couple questions, first as it relates to capacity in the Gulf of Mexico, a couple years ago we had 170 rigs running in the Gulf today, we have about 110, we can perspectively get back to the 130 range let's say at some point in time next year. That would still suggest maybe some over-capacity in the Gulf of Mexico market. Can you discuss what you may be able to do in that sort of rig count environment in the Gulf with respect to reducing capacity or what you think the industry can do as well?

I am going to let Keith take part of that but I think it's hard to speak for the industry as a whole. We think we do our share of carrying the industry. I think it's fair to say Kurt that we have some ships in the Gulf of Mexico we are not confident will ever go back to work again. How we dispose of them profitably I think is a challenge that stands before us but I don't know that we'll ever get back up, there was one point in time in 1997 we when 120 boats working in the Gulf of Mexico. I don't think that's going to happen for us again in the next upturn if it comes this next year. In terms of total upside I will let Keith answer some of that but I think I would say that we get up to 75, 80 boats operating I'll be real pleased in the next quarter.

Kurt, it's not quite as dire as your numbers indicated, the off shore rig count which is the one that's applicable, did get down low but at the moment it's back up into 125, 128 range, and noticeably up from the 120 that it was about two weeks ago. The purpose of that kind of vessel recap that I went through when we talked about availability in the Gulf of Mexico when you saw it transforming the small operators being pretty much utilized in the middle public companies being about 55% utilized at that time you get to the point where Tidewater really needs to see 135, 137 rigs working to have a meaningful effect on us at that point in time our utilization numbers have to come into play because everyone else is at a high level of utilization at that point. Now comparing that to December of 2000, or even the summer of 2001 the rig count in the Gulf got up to 177. Granted some rigs that left the Gulf, some rigs had gone to Mexico but speaking realistically we certainly think that 145, 150 rigs are not outside of the question of getting back to the Gulf. If you get to that point like Dean said in 1997 we operated 120 that were active, the last up-cycle in June of 2001 we had about 85 vessels working and this time we probably could get into 70 to 75 range with a good rig count of 145 to 150 just trying to give you an idea of where we think we are.

And secondly with respect to the cost structure, I think in one of the conversations we may have had in the past there was some general comment about possibly cost structure not matching activity levels. I just want to get a sense from you as to whether or not you would think about doing some thing to reduce the cost structure or whether you are pleased with where you stand relative to where you see the market going?

We are pleased not from where we see the market is going because I can't see where we see can't see where the market is going. But I am pleased where we stand. I think we've done the right thing, certainly we can go down to a million and lop off a good number of crews and administrative support but I don't think that's best for our company long term. There will be a pick up. We are going to need those people. They are good people. They are doing a great job. They are running the safest company in the business and we are going to stick it out a little bit longer. I may be sitting here six months from now kicking myself in the fanny but I don't think so. I think this has been an investment in, like in capital equipment but we are doing it in human resources and it's an investment we are going to make for the time being.

There may come a point in time where you may have to readdress that situation but you are not going to put any kind of specific time frame on it where you have to readdress it, is that fair?

That's a fair assessment. You know, I guess things can always get worse but we are not going to run our business based on a possibility of things getting worse. We think things are going to get better and we may be wrong on the timing but lots of other people have and there's lots of reasons for it, I am not going to state the reasons for it, it's happened, but it's an investment we are going to continue to make for the time being.

I want to clarify one more point, you said there are 125 rigs running right now. Do you need to see 135 to 140 before Tidewater starts to see some positive utilization, did I hear that correctly?

You have to be careful with the rig counts. There are two entities that counts rigs. One counts drilling rigs, one of them counts workovers and you don't know who's including which in which counts and they are never the same and they are always about ten to 15 units different.

Right.

I don't know which one Keith is using, I assume it was the one including the workover rigs. I also presume -- I will let him speak for himself but I think he's also talking about including workovers going around the 35.

I just wanted to clarify the magnitude if it's 125 and you said 135, 140 before you started seeing some positive impact, I wanted to make sure I heard that magnitude and the number is generally correct.

Perhaps just trying to oversimplify people always try and relate it and with this I was trying to relate as best I could what we see as the market overhang of other available boats because with our pricing umbrella there is still a number of boats that we believe would be actively marketed and way back up getting to us, the point being we need either another eight to ten rigs to go to work to get the phone to start ringing, that's our speculation in our mind as to the market.

I just wanted to clarify. Thanks a lot.

Thanks.

Your next question comes from Pierre Connor.

Hi Pierre.

Hi guys, appreciate you setting it back up so we can get back on for questions. A couple things, maybe Keith, the additional two PSVs, additional two crews coming out this quarter, could you tell me something about more specifically the dates and prognosis for timing, going to work when they come out?

The PSVs are contracted.

Okay.

The first one we take delivery tomorrow, so hopefully in about five days or around November 1 it will hit the payroll on an international assignment. The second one is scheduled to come out on December 15. It is under contract and hopefully will go on economics about January 1. I'm not prepared to address too much to absolute day rating except to say that that's a 220-foot heavy-duty supply boat that's going to turn day rates in the 11 to $13,000 range. Both of those.

Are those incremental contracts or replacements of any type?

Absolutely brand new contracts.

Okay. Then the crew boats coming in this time, just a general time?

First crew boat, one of the crew boats very interesting is our new prototype 175, we are calling it a fast supply boat for delivery about November 15. The other one is 162-foot supply boat, also for early November, December, all of those have a fixed contract, which is not unusual. Both of them have thrown lots of interest from our institutional, our bigger customers, and particularly the new 175. I don't know if Dean wants to talk to you about anything on pricing or not.

I don't.

Okay. That's fair. Speaking of pricing, Dean, I think you obviously set up that there's a distinct difference in the deep water vessel contract in the Gulf and international markets by indicating that when the recent boat returned it took a sub par rate. Do you see that distinction staying, is that currently, in other words, new deep water vessels going into an international market ought to get the rates that you would have predicted when you started the program.

I have to caution you a little bit. You know as well as I do that there's a number of vessels still to be delivered in the North Sea this year so.

I guess that would mean --

That's going to put some pressure on pricing. And those guys as I've said lots of times, they don't migrate very long out of the North Sea but it's still an effect. Nevertheless getting back to your comparison, for the time being there's more pressure on deep water rates in the Gulf than there is internationally for a couple reasons. One, I mean both markets are relatively stagnant and in that neither seems to be growing much. There are more projects on the drawings board internationally that could start up sooner I think than domestically so I just think in spite of the fact there is some overhang, potential overhang in new construction in the North Sea, I still think the dynamics are going to work better on the international side. Does that answer your question?

It does and I guess it has to do somewhat with the competitors in those various arenas affecting those markets differently. Another segment I'm interested in, it's a small one I know but the domestic towing business could be somewhat related to construction activity which may be of impact due to strong repairs. What's the sort of current situation there and what do you see there?

We've been out of that business for a long time so I am going to let Steve answer that.

I think right now with the two stones that did come through there's a significant amount of evaluation that's going on and certainly our discussions with the variance construction companies and the pipe line companies we think that's going to have a positive effect on our business and I think that's a fair statement. There's a few things, you know, with platforms and pipelines that I think is going to have a really positive impact and, of course, we have, we have some vessels that have engaged themselves in that construction business for a long time that are now doing other thing that I think migrate back to that portion, segment of the industry and I think it's got a positive outlook.

Okay. What's the current utilization there, Steve, is that --

About 70% I guess is what we've been doing. Actually it's our domestic together business has not been too bad. There's been a few rigs moving. We've held with moving in Mexico and some other things so that part of our business is probably doing as well as it's done for some time right now.

Okay. When we say 70%, I probably am at fault there but 70% of our actively crude tugboats. We have a number of tug boats that are stacked due to sort of the soft market conditions but the once that we have crude has gotten up to about 70% and that may even increase for awhile.

Okay. And then just a little bit more, Kurt had a great question relative to and you explained quite extensively it's a little different, what I'm hearing you say is you are comfortable with your cost structure representative to where your current levels are in the Gulf of Mexico and you don't see any incremental sales to complement on what you've done savings wide to date that you would hold that task for now?

Are you saying, is the question that if activity levels increase our cost structure, is it going to increase proportionately?

No. I guess my question is if activity levels do not increase if we don't see the incremental rigs again for whatever reasons, again, I'm not saying if that's happening, is there further room in your cost structure and would you hold it at least for the next quarter where it is?

Well, I don't want to go as far as to say a quarter but it's for a practical reasons it's probably right.

Okay.

We are crewing, we have people to operate right now about 40 ships.

Okay.

We are running from 20 to 25 daily and sometimes it's as few as 15. So we have two many people in terms of crews. Our administrative structure really hasn't, we did have one cut about maybe nine months ago administratively where we reduced our staffing levels somewhat but I think we could get, we could get up to 50 or 60 vessels running without increasing our administrative staff at all. So clearly I've got too many people around. We probably have too many automobiles and a bunch of other stuff. The automobiles we are starting to lop off and that kind of stuff. We have too many people for the present level of activity. If we go, let's say we got six months and for whatever reason, economy is sour, we are in Iraq, and things just seem to be and it really looks like the oil companies to hunker down even more than they already have then we have a fair amount of room for some significant cost reduction.

Okay. I know you're rehashing it but the further explanation on the numbers is was helpful so I appreciate it and thanks for the information I'll turn it back to the moderator.

Your next question comes from Stephen Ingaro.

Thank you, good afternoon, gentlemen. Just a quick question, a lot of them have been answered but what are the current expectations from your standpoint as far as, you have a lot of vessels delivering into the North Sea and I know you talked a little bit about this but what point do you really get concerned if the North Sea doesn't pick up if it does have a material impact on West Africa and some of the other markets around?

Steve, I think it's kind of interesting. Steve Dick who runs that business, who oversees it now I was pointing out to him the other day, there are a lot of vessels trading in the stock market in the North Sea and I see that as indicative as a market that's sort of soft. By the same token every day they've only got one or two vessels idle in that spot market. So it's not really as soft as I guess it could be. What has happened, I'm not sure if it's Ken or someone puts out a report maybe we get a report from the North Sea brokers but what's really interesting is the general fleet utilization levels in the North Sea have remained pretty much 90% plus. But what's happened is that the rates have gone to hell. Rates that used to be $20,000 a day are now $11,000, $10,500 or for individual cargo runs. I expect we are going to see more of that before we see a whole lot of migration out of the North Sea. Right now there's hardly any vessels available on as a day-to-day basis in the north say. Rates have fallen substantially. I think some of our competitors that are mainly situated in the North Sea you see that sort of in their results.

To answer your question when do I really get concerned, I've told a couple of people this and I guess, I get really concerned when people make the investment that we've made in places like West Africa and places where it's really hard to work, I get concerned when they do that. And so far not many companies have done much of that. They like to go down and they try to run with the ship's captain and they try to run it with one guy on the beach and no inventory or spare parts, nobody to really handle the crews. I don't get too concerned with people running their business like that because ultimately that comes back to haunt you. If someone sets up shop in a big way and gets a big monetary investment then you get concerned but so far we don't see that.

Thank you, that's helpful. And just a second follow-up question, when you're in the Gulf of Mexico and you're expanding your presence in the deep water, what has been the customer's reaction with you having more relationships with them and them having dealt with some other deep water players before you made your big push there, what have you heard from your customers as their willingness to push others aside to use you?

That's a good question. Steve, you want to --

We've got two of the certainly the deep water boats that we've taken delivery of and, oh, the feedback that we get from our customers is wonderful. We think and they think that we've built a pretty good vessel with capacities and capabilities that outstrip some of the other deep water equipment that's in the market today. And we've had some really good results and some real good feedback, so all I can say is that they've got other equipment to compare it to and at least when they are giving us a report card we get a pretty good one.

Thank you. That's helpful.

Thanks, Steve.

Your next question comes from Jeff Friedberg.

Hi, Jeff.

Good afternoon. Thanks for making the follow up time. I do appreciate it. I believe it was you, Dean, at the end of the morning conference call you mentioned that you foresee the next quarter results to be pretty much in line with the second quarter. Could you try to elaborate whether you feel that's going to be in your earnings or in your gross revenues?

I think -- I don't want to pin myself down too much but I will say in earnings, I think when you look at the increased R&M. Expense that we are going to have for the late arrival of some of this equipment.

Less vessels sales.

Less vessel sales as Keith points out I think we are going to have to work hard just to sort of stated where we are. But I do think we have some, we have some upside on the revenue side and we have a couple projects that I think we'll probably do okay on. So I guess what we are trying to do is make sure that we sort of have a rough feel for where we see the quarter coming in. But we'll have a lot better feel for that as time goes on but that's sort of how we see it today.

Again if you can reiterate, how many boats are coming in service, the new boats in this quarter, third quarter versus the fourth quarter?

For Tidewater?

Yes.

We have 12 vessels scheduled for the balance of this fiscal year, we have eight of them coming on this quarter, so that's obviously going to leave us with four coming in the last quarter and that's going to be two platform supply vessels similar to the two that are being delivered this quarter and we will have an additional and final two crew boats coming in at that point in time.

And there's some work right now for those vessels once you get them out of dry dock and into the water?

The ones coming in the first fiscal, first calendar quarter of next year at this stage are not contracted. They are sister ships to the two PSVs that we have this quarter that are under contract but the two coming in next quarter which would be kind of January and March type those are not under contract at this point in time but they have proven to be a marketable commodity. We certainly hope that in the next two to three months they will be placed before they do arrive in the fleet. But as of now they are not committed.

Very good. Well, all right.

Jeff, let me add to what I said earlier. Keep in mind that I prefaced my remarks sort of what we see for the coming quarter based on all the uncertainty related to the economy, the oil companies activity, prices of gas, prices of oil, so I'm hesitant to say pretty well. If the oil companies and the gas companies look in their pocketbook, and their pocketbooks all to be pretty full. When you look at gross revenue generation versus gross investment their pocketbooks are full. As we get to year end they may decide and we'll be the last people that they will tell, the service companies will be the last ones to get an indication that they are going to go spend some money because they don't want us raising rates. So they are going to put in very close to the vest but it's entirely conceivable that come November 15 or November 1 they just decide to go rent some rigs and put them to work. If that happens thing will be better. If it doesn't happen, well, I sort of told you what I think our earnings will look like. But this, I mean it's pretty cloudy in terms of what those guys are going to do so that's why I'm sort of hedging my bets a little bit.

Thank you very much for the explanation. Just one other follow-up. With the possibility of turmoil in the Middle East which could possibly lead to a slow down in oil coming out of the Middle East, is there any sort of a pick up you see the government or oil companies do you spend more money outside in exploration or pumping more oil out of the other areas besides the Middle East that might be helpful to Tidewater should something like that happen?

We'll go back to 1991 when Saddam fired all those oil fields in Kuwait, a tremendous waste of an asset, of a commodity, nothing really, and oil prices and gas prices reacted for a little while but the market very quickly adjusted and there's lots of scenarios and some of them are, some of them are just bad and some of them are sort of manageable and you go through a panorama of all those scenarios and what would help Tidewater and what wouldn't I'm sort of a Patriot, I just hope that whatever those scenarios are helpful for our country, our lifestyle and I think that's going to be the ultimate arbiter of activity levels. If our economy is sick we might have a nice little pick up for awhile but sooner or later we'll pay the Piper.

I would like to see the Middle East learn a lesson so we are not under such an impact in the future. I'm not sure whether the government or oil companies are beginning to focus less on Middle East and start exploring in other areas so we are not as dependent.

There's plenty of movement to try to explore Russia but that's not going to happen in the next quarter, I don't think.

Thank you gentlemen for your time.

Thanks.

Your next question comes from Tom Escott.

Hi, Tom.

Good afternoon, everybody. I'm trying to end this is on a more positive note here late this afternoon. I know you currently have been involved in bidding on a lot five major vessel tenders going on around the world in various places and I think those tenders involve as many as 56 vessels pieces of high end vessels for higher end contracts, can you offer any insights into the status of those tenders in the various regions of the world and some rough ideas on when those folks might be going ahead and accepting the tenders?.

Tom, I hate to dampen your enthusiasms especially after a long call. It's hard to say. I don't want to hazard a guess at this time. There's lots of potential places for things to come in nicely and there's lots of room for disappointment. We have some indications in some places that things are looking pretty good and others are not. They don't look as good as we'd like. But on the whole I think I will say this, I will tell you what I've told a couple people including our chairman, Bill O'Malley, I'm probably more optimistic these days than I have been in the last six months. So I may be way off base but I just sort of feel pretty good about things looking forward but I don't want to hazard saying our earning are going to jump off the page because lots of things have to happen but I'm pretty optimistic.

Well, thank you, I appreciate it.

Your next question comes from Bucky Rulamiller.

Hi, how yah doing? If I can get you to do the vision thing a little bit, when we finish, I shouldn't say finish but we start to tail off here, will the fleet average age be comparable to the competition and would it be reasonable to think that in fiscal 05 the cap X. might tail off and that the dividends might get some consideration?

Okay. I don't quite know how to respond. I'll just say what I think.

Okay.

We are looking for acquisition opportunities all the time. So if we see a good one that doesn't look too expensive, that's an area where we may cut down on our cap X. but we'll spend a lot of money to do so and there will probably be some goodwill involved so there's money spent there. If we don't see an acquisition opportunity we pretty much said that we are going to be building a couple hundred million dollars worth of equipment for, say, the way we sort of look at it now the next five years going out so that certainly includes your fiscal year 2005 and a couple years beyond that. It's possible that we would, I mean we review the dividend all the time when we need to do so, we need to take that review seriously because dividends are becoming a very important component of an investor's sort of evaluation of what stock purchase and which one may be to pass on. for the time being we think that our needs as a company and the viability of our company on a go forward basis is better served putting that money into new equipment and if the right acquisition came along at the right price and we would sort of obviate the need to build more replacement vessels, in some period of time that may cause us to repurchase shares as we did a few years ago. You know, we bought about $380 million worth of shares back in 1997, 1998. So we take that responsibility seriously but right now I can't say what's going to happen in 2005 but I can say with sort of what I can be to be the vision for this moment in time and I think I've explained it and if I didn't please say so.

That's perfectly fair. Let me throw one that may be off the wall and let it go. Is there any work in the Caspian or Mediterranean or is that local boys only?

No, there's work there. We have a fair amount of work in the Mediterranean, not as much as we want but there's work there and there's work in the Caspian, we are working on a couple deals now where we may participate. We don't have it signed up yet but I would say the probabilities that we'll be in the Caspian pretty soon are pretty good.

Thanks a lot.

Thanks.

Your next question comes from Jim Bouson.

Good morning, a clarification from the morning section, did you say that there was two-thirds of the vessels are operating internationally?.

Correct.

Okay.

There are signs of our international division that we are operating under.

Okay. On other calls I've heard from other companies there's indication that the majors are slowly trickling back in the Gulf [inaudible]. can you speak to that at all?

Steve is shrugging his shoulders and I can't do much better. I'm not seeing it yet. We are hearing it but not seeing much action to that effect.

And lastly what can I expect in terms of scrapping going forward?

We will continue -- our objective is to scrap two to three vessels per second quarter. We didn't do very well this quarter but that's our objective and I expect we'll probably catch up soon next quarter.

Great. And thanks for one of the more memorable calls this morning that I've heard in awhile.

I thought I was getting off easy.

Thanks a lot, take care.

Thanks, Jim. Any more calls, please?

Yes, sir. Your next question from Bill Herbert.

Hi, Bill.

You know what, I will wait until the call is over and follow up. Thank you.

Alpha Omega. You are good, Bill. Any more questions, please?

At this time, sir, there are no further questions.

Thanks to everyone, apologies again for the inconvenience this morning. We wish everyone well. Thank you very much for your interest in our company. Thank you.

This concludes today's Tidewater second quarter earnings 2003 conference call. You may now disconnect.