Tidewater Inc (TDW) 2003 Q4 法說會逐字稿

Good morning. My name is Marsha and I will be your conference facilitator. At this time I would like to welcome everyone to the Tidewater Fiscal Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press "" then the number "1" on your telephone keypad. If you would like to withdraw your question, press "" then the number "2" on your telephone keypad. As a reminder, today's call is being recorded. This call will be available for replay beginning at 2 p.m. eastern time today, April 22, 2003 through 11:59 p.m. eastern time April 22, 2003. The conference ID number for the replay is 967-0507. Again the conference ID number for the replay is 967-0507. The number to dial for the replay is 1-800-642-1687 or 706-645-9291. I will now turn the call over to Mr. Dean Taylor. Thank you Mr. Taylor. You may begin your conference.

Thank you very much Marsha. Good morning everyone I'm Dean Taylor, President and CEO of Tidewater and I will be hosting our conference call this morning. With me to assist with the call are Bill O'Malley, our Chairman; Keith Lousteau our CFO, Cliffe Laborde our EVP and General Counsel; Stephen Dick, our EVP in charge of operations in West Africa, North Sea, and North America; and Joseph Bennettr, VP, Controller, and PAO.

I'll begin the call this morning with some comments on our just released quarterly results. Following my comments I will turn the call over to Keith for a review of the numbers and a description of where we stand in our new build and replacement vessel programs. I will then return with some comments on the outlook for our markets and our future plans. We will then open the line for your questions. I ask you to limit the questions two at any one time so that everyone who has a question has the opportunity to ask it. Before I begin, I'll ask Keith to read our Safe Harbor statement

Good morning. During today's conference call Dean and I and other management will make certain comments which are not statements of historical fact and thus they constitute forward-looking statements. I know that you understand that there are risks, uncertainties, and other factors that may cause the Company's actual future performance to be materially different from that stated or implied by any comments that we may make today. Now back to Dean.

Thanks Keith. Our earnings of 33 cents per share this quarter are disappointing. They are in the main comprised by three items, discussed in our last quarterly conference call. Prior to discussing those three items I should point out that our March quarter has two few a days than the December quarter. This results each year on a quarter-on-quarter revenue shortfall. This year it amounted to $3.5m or about 6 cents a share which we are unable to overcome through rate or utilization increases.

The other three items that negatively impacted at our quarterly results were the continued weak drilling activity levels in the Gulf of Mexico; our activity in Venezuela; and continued collection problems with the customer in Mexico whose revenue is accounted for on a cash basis. When we spoke in January I mentioned that we had seen improvement in our Gulf activity in late December. Those of you who track the rig count know that rise in activity was short-lived and Gulf activity dropped again during the January to March time period. As Keith will describe in greater detail when he gives you the financial details that Gulf did not contribute to earnings this quarter.

In our last call we discussed Tidewater's market position in Venezuela and the problems that it was presenting for us. We intended to continue to maintain our presence in Venezuela despite the ongoing political strike, but we were not sure when that area would return to normal operational levels. Though it now appears that activity in Venezuela is picking up a bit and in fact just yesterday we received good news of a significant payment from Pada Vesa (ph.) relating to past activities, our March quarter was negatively impacted by the Company's political difficulties and the attendant oil field inactivity. And revenues we are off some, $2.1m.

Finally we discussed during our last call, a Mexican customer with which we have long worked on a cash pay basis. The timing of payments from this customer are generally better but have become sporadic in the last two quarters. Once again timing this quarter went against us which resulted in a $2.1m less revenue collected than in the quarter ending in December.

I will touch on one other item that Keith will detail shortly. Last quarter we projected the dry dock expenses in the March quarter could outpace those of the December quarter by several million dollars. In fact, they did by about $4m. Continued deferrals of these major repairs were not possible without impacting future earnings potential.

In sum, the ball bounced against us or from us in three significant matters that we discussed in our last earnings conference call. It could have swung during the quarter in either a positive or negative direction. A year-end reduction in our effective income tax rate, triggered by reduced earnings levels and some credits to our insurance accounts resulting from our outstanding safety performance mitigated the effects of these negatives, but not by nearly enough.

There was one very big positive for Tidewater during the quarter. We negotiated and closed the acquisition of the 27th vessel fleet ENSCO International for a total price of $79m. We believe that this acquisition will prove to be a big one for Tidewater as we acquired not only an additional fleet but a new customer with a preferred vendor arrangement and a reentry of what we believe will be a lucrative Gulf of Mexico anchor handling market for us. It has also allowed us to better balance our Gulf of Mexico labor supply, in that we will be able to redeploy some of our crews to these new vessels while awaiting for Gulf of Mexico activity to turn up. The acquisition should be immediately accretive to earnings. Now I'll turn the call over to Keith for his financial review and update on our new build program, including the three new vessels of which we took delivery in the March quarter.

Good morning and thank you Dean. I generally in my comments do not make any comparisons on generally speaking of year-to-year. I generally try to make my comment relative to quarter-on-quarter analysis, because I always felt that, that's kind of what everyone wanted to know where the trend was headed. When I tried to compare this quarter looking for some comparables it was quite easy to look back to the September quarter because numbers were quite comparable to that quarter on a revenue basis. But when I started to do that, something dawned on me. It dawned on me that the year-on-year analysis was much more important than I would normally give it credit for. One of the things we always try and do is get people to understand what Tidewater is. You can decide if you like us or not but we want to make sure that you fully understand us and one when one looks at this year-end review, I think you get a much, much better handle on what Tidewater is today.

Revenues for the year -- year-on-year were off. I'm sorry to say by about $90m. Revenues fell from $715m to $624m and the significance here is that while international sales actually gained a modest 2% for the year, domestic revenues were off $100m, or a 50% decrease from last year. That left Tidewater with domestic revenues for the year of about $103m. I did a quick desk review of information available. I keep some statistics going back down nine years, nothing magical about that. But it's just what I had available to me. I could not find a single year in the last nine where Tidewater's domestic revenues were anywhere close to a $100m. In fact, the previous low point that I could find was in the year 2000 and it was actually 40% higher than the revenues of this year.

Joseph Bennettr tells me that in order to find a year for Tidewater where domestic revenues were at this low point we need to go back into the late 80's prior to our merger with Gepata Gulf (ph.). So needless to say that Tidewater presenting to you today is the Tidewater of today is a company that is embedded in for if the worse Gulf of Mexico activity in the last twelve to thirteen years but one which in spite of all of that is still showing revenue growth internationally. It is a company that is reporting for the year net earnings of a $1.57 and is a company that generated about $200m of operating cash flows. So a review of the year-on-year really does give you an indication that Tidewater is a company of two separate worlds right at the moment.

Enough on the year-on-year, let's look at the quarter itself. As Dean said, disappointing financially is probably a fair term to it. We were just as disappointed as everyone and it seems like everything that could go wrong financially did end up going against us.

For the quarter, we're reporting a 33 cents net earnings per share i.e. versus a quarterly earnings of 41 cents for the last quarter and as we have said the year-ended up at a $1.57. Revenues for the quarter were down from $163m to $153m and that was equally spread between a revenue loss domestically at $5.4m and internationally at $4.1m. I'll come back to that in a minute and kind of tie that back to the numbers that Dean used in his opening comments.

During the quarter, operating costs were up by about $2m in spite of the revenue downturn to about $92m, gain on sale of assets returned from the previous quarter where we reported basically nothing to about a 2 cents per quarter net after tax number here from about $1.3m gain for the quarter--much more in line with historical numbers. The income tax expense for the quarter is one of those items that worked to our benefit since we had to lower the annual effective tax rate down to an effective rate of 32.5 cents for the whole year. It equated to 22.4% effective tax rate for the quarter.

Looking forward into your next year, anyone looking at earnings models probably should factor into a rate of about 32.5% for the go forward for our fiscal year. As we said revenues for the quarter were negatively affected to the tune of about $9.6m. Lots of numbers, some of them end up overlapping each other but as Dean said the major items were as we said were two days less of revenue which accounted for a downturn of about $3.5m. The collection situation in Mexico accounted for a negative $2.1m, the Venezuelan situation accounted for a negative $2.1m, and just plain downturn in activity in the Gulf of Mexico equated to about $3.5m shortfall at this quarter from the previous one.

Some of those were positively affected by the new bills in the December quarter and in this quarter we told you we had significant new equipment entering the fleet. This quarter we actually had an upturn in revenues of about $3.5m from new vessels that were either delivered in the December or the March quarter. So that is the kind of positive--the new vessels fall into a fairly good world and are experiencing fairly good utilization for us.

As we mentioned, operating cost for the quarter were up to $92m from $90m last quarter. Easily explained by the quarter's increase in repair and maintenance required dry docks were up about $4m for the quarter. And on the positive side, we were able to reduce our insurance expense by about $2m. As Dean said, most of our insurance policies are self rated meaning that they have a large self insurance effect to them and due to some outstanding safety records we were able to book some refund premiums. So insurance expense was down about $2m. Overall the effect of the quarter was that operating costs were up about $2m.

During the quarter itself, we experienced 24 dry docks at a cost of about $9m. That was up, as we said, about $4m of dry docks from the previous quarter.

Giving you a little guidance on a go forward basis, this is a number that Joe and I had to look at two or three times because we weren't sure how to explain it, but it is relatively self explaining in that we believe that in the forward-looking quarter that operating costs are going to be up somewhere $10m-$11m. We do believe that they're going to fall into the $102m-$104m range. One might ask like where such a large increase is coming from? Well once again in the future looking quarter, we expect repair and maintenance to be up one more time an additional $4m, we expect to do 31 dry docks this quarter, and then the accruing cost for accruing the additional ENSCO fleet--on the positive side--we're glad to have this additional costs, will be about $4m. And the insurance cost for the quarter will be up $2-$3m. As we said we will not have the benefit of booking the insurance rebate this early in the year and the fact that we are insuring 27 more pieces of equipment in the Gulf of Mexico, perhaps the highest insurance rated market for us in the world kind of adds to the insurance cost numbers. So on a go forward basis, we would expect a significant increase in operating costs this quarter from about $92m as I said to somewhere in the $102m-104m range.

Going back to that gain or loss on sales, it is significant and that we actually got rid of 13 pieces of equipment this quarter. Very unusual and very high quarter for vessel dispositions. Three of those were straight out scrapings vessels never to be seen again. The rest of it was a quarter in which we sold ten vessels, the majority of which were sold outside of the oil patch and all of which were sold out of any potential domestic operation. So an unusually high quarter for the number of vessel dispositions that were included.

A little statistical recap here and to start off with on my vessels statistics. For anybody who does keep a model on the company, the 27 ENSCO vessels, we will account for them starting on the April 1st by adding one of those vessels to our domestic deep water program. We ended the quarter with 6 deep water vessels domestically, we will have 7 for this next quarter, the other 26 vessels we will be adding to our towing and towing supply division, which will effectively take that division from 101 vessels to about 127 vessels.

The deep water fleet for the quarter, as it ended we had reported a day rate of about $13,100 in the December quarter, due to some nice increases. That deep water fleet actually increased an average day rate of $13,867 in the March quarter. And through today it continues to average about $13,800 a day. Utilization in the quarter was slightly off. We reported 95% in the December quarter for the quarter ending in March, we are reporting 91%. And today, we are now reporting an average of about 83% to 85%. Please remember that the seven vessels that was added to it is the one big anchor handling vessel, the Kodiak (ph.) equipment, which we have now renamed is operating in the Tidewater fleet and it is generally not a fixed term 30, 60, 90 day like you would have with the bigger platform supply boats. So the day rate continues high, utilization number on a larger number both will probably average a little smaller in the 83% to 85% range.

In the towing supply and supply division day rates, once again, for the quarter itself, for the last quarter held pretty steady. We reported $5,800 in the December quarter. The March quarter actually went as high as an average rate of about $5,975. Utilization is where we really took the killing as Dean mentioned, We had enough upturn in December, it did not last very long, it lasted just about through the conference call in early January and then utilization went way back down to where we had reported 24% in the December quarter. We are now reporting to you 18% for the March quarter.

More importantly on a go forward basis, for the June quarter, remember I just told you that average day rates last quarter were about $5,975. We think with the addition of the ENSCO fleet as they came into our fleet, that average day rate is going to fall, is going to fall rather significantly on an average basis through a rate that we're averaging today of about $5,150 and that is absolutely due to some of the ENSCO boats coming in or most of the ENSCO boats coming in at rates that were substantially below the Tidewater fleet. On the good side, utilization for the quarter we believe is currently running in 25% to 27% range. So that range is on the new number, the new 127 vessels that we now have in that class today.

Internationally, the deep water boats, we saw a little downturn in average day rate when here we have 28 vessels in this category. We reported an $11,400 a day in December. In the March quarter we're reporting a rate of $10,900 and currently the average rate is still about $10,700 a day. So we see a little deterioration in international pricing.

On the other hand, utilization remains fairly flat. We reported 87.7% in the December quarter. In the March quarter we are reporting %85.8 and today we're back up in the %87.3 range. We had quite a few vessels that were being moved from different jobs, particularly in West Africa during the quarter. We lost a little utilization but otherwise no significance in utilization trends in the deep water international boats. The towing and towing supply division internationally, once again remains strong. We reported an average day rate to you last December of $6,314] during the quarter ended in March that number actually went up to about $6,350 and today is still in the $6,350 to $6,360 range. Here is where dry docking comes in for its second effect. As you can well imagine quarter-to-quarter when you add seven more dry docks and they average 20-25 days, you lose 140, 150 days of revenue at the same time. So due to that $4m increase in dry docking last quarter, we did see a decrease statistically in international utilization from 79.3% down to 76.5%. And it continues kind of at the 76.5% range today as I mentioned earlier when we talked about operating costs where the June quarter--dry docking has not abated particularly in the international. And it's all mainly in this international towing and towing supply division. So dry docks are having the double effect of revenue wise and also in costing you the absolute expense dollars in sales.

Even after this year, as we said with a historical low in Gulf of Mexico activity levels, Tidewater's balance sheet continues to remain an outstanding one. Total debt at the end of the quarter was $139m. That equated to a debt total cap ratio of 9.3% and even after the ENSCO acquisition which happened on April the 1st so you don't see it in the 10 K, the total cap came in-- it's still at 13.9%, still under 14%.

Quick recap of our outstanding commitments under our new vessel construction program. As we speak today, we have 25 vessels continuing under construction. As of April the 1st, our outstanding commitments to shipyards was about $147m. That $147m is scheduled to be expended about $130m in fiscal '04. And the small balance of $17m carrying over into fiscal '05. The big bulk of those 25 vessels, of those 25, 21 are scheduled for delivery in fiscal '04. In fact, 6 are scheduled for delivery in the first quarter, end of June quarter, that being the final deep water boat internationally, three domestic platform supply vessels that are either marked for replacement of fleet in the Gulf of Mexico, and two additional crew boats.

So we've only got about $147m of commitment left. That makes up total contracts of about $361m worth of value, indicating that we had funded well over two thirds of that project--$214m of it had been already funded. So the new vessel delivery program coming at the current commitments are starting to wind down with 25 vessels remaining.

And the final comment is whenever I started off kind of looking back to see where we were in trying to explain Tidewater and its current domestic markets, one of the statistics that kind of jumped up and got to me also was the fact that in the last five years, Tidewater has disposed of 229 vessels. We talk about in our press releases that we stay around this 500 to 525 vessel fleet. It's astronomical to think of a company disposing 229 vessels in the last five years. We've replaced, changed out half of our fleet during that period of time. We spent well over a billion dollars on new construction, all in the time when the domestic market has fallen to a low that we can't even find the on the charts at this point in time. So, that's the recap of Tidewater at the moment. As I said, it's disappointing, but we don't consider it surprising. We knew that there were some things that could go against us for the quarter and as it turned out, it basically did. So, that's my recap and back to Dean for a little summation of (inaudible) the world today.

Thanks Keith. Before I get into my prepared remarks, I just want to say one thing. I'm not sure whether this is worthwhile or not, but I supervised two people that have children in Iraq and they have participated in our wonderful effort there. And anybody who is on the phone that has family over there, I just want to thank you for your part in what has happened with our country and our efforts over there.

In terms of our outlook for a go-forward basis, there's no doubt that the last few months were proved to be of most extraordinary geopolitical significance. Their impact on energy prices in the short-term, even as we look to the OPEC meeting scheduled to begin in just a few days, is still unclear. The same goes for the longer-term effect.

Nevertheless, I believe that our major oil company customers will continue to plan and execute large oil drilling projects in key international areas. And Tidewater will continue to play a significant role in these projects. We also believe that independent exploration and production companies will be active in the international markets that we serve. Our international operations were able to produce $88.6m of net profit this past year. The outlook for next year remains very good.

I don't understand why pricing fundamentals have not generated more activity in the Gulf of Mexico. Most of you have heard lots of explanations. Land drilling does seem to have taken off. Land When and if it will be followed by new activity offshore still puzzles many, including me. Our view is that it will come. In the meantime, while we await it, I will tell that you Tidewater intends to continue to implement its Gulf of Mexico pricing strategy, now into almost its third year. And to keep as many boats at the dock as necessary to try to maintain a price floor that makes sense for Tidewater.

I believe that the addition of the ENSCO vessels and the opportunities that they represent for us to work with an important new customer, ENSCO drilling, and the addition of five anchor handling vessels were proved to be very profitable for Tidewater. Our acquisition and new drill program has thus far been very successful for us while maintaining a solid balance sheet. Our financial position, as Keith has pointed out, is very strong. We're able to fund that program of the acquisition of ENSCO and still maintain a debt-to-equity ratio of under 14%.

Concerning the future, we have yet to have seen a pickup domestically. Short-term, we expect that there will be major repair and maintenance expense increases, as we can no longer defer some dry dock expenses, regardless of activity levels. We're unsure also how payments with our Mexican cash customer and how activity in Venezuela will develop. We know that insurance costs were up as a result of a new insurance pricing that took effect on 1 April.

Longer-term, however, my outlook remains very optimistic. Our international business remains strong and is generating exceptional cash flows. U.S. storage requirements and natural gas prices should generate a significant upturn in U.S. activity and we're poised with greater leverage to U.S. and international markets by way of substantial new build and acquired capacity. Our debt-to-total capital is such that we will continue to be able to advantage ourselves of other acquisition opportunities when they materialize. In short, I do not feel that we have been in better position to benefit from increased activity levels in the industry when they occur. Now, we will now open the line for questions. Marsha, we're ready to take questions.

Thank you, sir. At this time, I would like to remind everyone if you would like to ask a question, press "" then the number "1" on your telephone keypad. We will pause for just a moment to compile the q-and-a roster. Your first question comes from Jim Crandell with Lehman Brothers.

Hi, good morning everyone. Question, Dean, on two things. Number one is, could you explain your contracting strategy internationally and domestically as far as the deepwater vessels are concerned? Particularly is it a response to the length of contract that you're getting currently? And it may be less of a strategy than what the market allows, but, maybe you could talk about contract length for each of these. And secondly, with regard to near-term earnings, are you suggesting that because of events that you cited, in terms of repairs, maintenance dry docks, lack of payment from a Mexican customer that we may not have seen the bottom yet in the earnings this cycle? Thanks.

Well, at least you should not ask me on what activities there will be in the next two weeks. Jim, I'll answer your question. The second question I will answer first. I think I'm going -- I have said what I'm going to say in terms of next quarter. A lot is going to depend on whether we see any activity levels pick up in the gulf, and frankly we don't see it in the next quarter. It may happen, it may not happen. But we're pretty deep into the quarter now and we're not seeing much. So, the other stuff I've said what I'm going to say. So, if you just let me leave it at that, I'll appreciate it.

In terms of the contracting strategy, you pretty much on the mark when you say you do what your customers will let you do. Sometimes you know they're trying to lock you in at low rates for a long time. They're figuring that we've reached bottom. And sometimes you stomach that you simply because you know that you don't seep a whole lot of better alternatives. And sometimes you don't, sometimes you say, well, I'm going to pass on this one because I think we're going to see a better use for that piece of equipment. It depends on the customer, it depends on the area of the world, it depends on sort of how we view, whether they're going to pay us and when we will get paid and all of that stuff. A lot really depends, Jim. I think that answers your question. We view each one almost on an ad hoc basis.

Is there any way to quantify, Dean, if you took your newer deeper water vessels which have average contract length, both internationally and domestically?

It depends on whether it's PSVs or anchor handlers. The anchor handlers tend to be shorter term, and PSVs tend to be longer term. PSVs -- the terms will be typically closer to a year. The anchor handlers can be of three months or they can be well to well or they can even be a year longer, again depending on the area and the customer. But in general, anchor handing terms are not as long as PSVs.

Okay and just last question, Dean. For the deeper -- again, just your deeper water vessels. Do you think that the likelihood over, as far as you can see, let's just say 3-6 months, is that the rates will move up from this point, flattish or reverse?

There is certainly pressure, the longer the downturn remains in the North Sea, the more pressure you're going see on pricing of stuff that people who really don't want to leave the North Sea, but, you know, will bid outside of the North Sea simply because they don't see better alternatives. And we're not seeing the North Sea picking up. I know some conference calls people are predicting a pickup in the North Sea, and I hope it happens, but we're not seeing it yet. Well, I'd say at least for the time being, we're looking at a flattish scenario, but again that could change if the North Sea picks up, if people start to get busy there. If the tax change that recently occurred, if people will react to that in a rapid fashion, then we could see a pickup.

Okay. Thank you.

Thanks Jim.

Your next question comes from Bill Herbert with Simmons & Company International.

Hi, Bill.

Good morning, Dean. How are you?

How are you doing?

Fine, thank you. I guess continuing along the lines of deepwater, especially in the Gulf of Mexico, at least by our math, it looks like we've got 30-35 new vessels expected to enter the market over the next two or so years. And so, barring a pretty significant recovery in deepwater demand, would you agree that it's hard to envision that day rates actually do not come under additional pressure in the Gulf of Mexico just industry-wide?

I think that's probably true, Bill.

Okay.

We're not deep into that segment though.

Sure. Yeah. But I'm trying to get a handle on the Gulf of Mexico market and again barring something pretty significant from a survival standpoint; that markets looks to be oversupplied here for a while. And then the second question with respect to...you mentioned the continuation of your pricing umbrella...

Parachute.

Parachute, sorry about that. Yeah. Thank you. ENSCO, day rates are quite a bit lower than what you were commanding on your fleet prior to the acquisition of the ENSCO's fleet. What is the approach there? Do we sacrifice asset deployment or do we continue working those vessels at lower day rates?

Well, our approach has been to establish a pricing lower that make sense for us. Whether we're going to do that gingerly in some cases. One benefit of the acquisition I think is to get us back with some customers that we lost when we maintained pricing a couple of years ago. And they, of course -- the very first question that they asked when they heard about the acquisition was what are you going to do with the pricing of my boats?

And so, we're not going to move very quickly, but we are going to do our best to get the pricing such that it makes sense. So, it's not a very specific answer in each case, again, we will deal with it at a net high basis. But, we're not going to -- I'll say this for the other vessels that -- the few vessels that were in the Tidewater fleet that we were working with we are sure not dropping those rates. And the ENSCO rates, we're going to try to push them up when we can. But again, it will be a delicate balancing act.

Okay. Thank you.

Your next question comes from Arun Jairam (ph) with Credit Suisse First Boston.

Good morning. This is Arun. Dean, in your opening remarks, you're talking about the Gulf of Mexico and you're talking about the impacts of the gulf from an earning stand point. You stained said that there's no impact. Were you talking about the earnings impact on a sequential basis in that there's no improvement or from a regional P&L bases that you breakeven in the gulf?

I don't think that we broke even in the Gulf. We lost $5m operate in the gulf last quarter.

Last quarter, okay. And as you look to the second quarter, do you have any conviction on the trends getting a even a little better with the addition of the ENSCO's fleet, I know that visibility is tough to look at?

Before I got this job, Keith and I did a road show together. In August we felt that by November 2001, things were going to be better in the gulf. Of course, 9-11 came along and the world has changed. I am so gun shy about saying anything anymore about the gulf other than, I really feel like we're doing damn near everything just right, in terms of both our pricing for the units for our fleet, the ENSCO acquisition I think is going to really position us very nicely. I think there's some other opportunities that are out there that will be nice. But for us to call the timing on this anymore, I give up. I'm not going to try. But I do think that we're going to be very well positioned, when activities level increase, to really take advantage of that.

Would Mexico be one of those opportunities for you guys?

Mexico is certainly -- we have a presence in Mexico a long time. We know how to do business. It is not an easy place to -- either do business or get paid. But talking about another 26 rigs, going to look being contracted in Mexico. And they've not really increased their vessel count. They're going to have to do that. And we feel like that will be a very nice opportunity for us.

What is your market share by the way in Mexico.

I don't know. I can't say. Probably it's about 33% right now - 33% to 40%.

Last question, in Nigeria were you at all impacted in the March quarter from anything that occurred in Nigeria?

I'll let Steve handle that. He is the one who deals with that. At one point we had four vessels missing, but I think we got most of them back.

The only real impact that we had, of course we had to evacuate. We had a number of vessels working for the Shell and the Chevron in the [Najid] Delta. And those vessels - the off shore vessels were moved off shore as was one of our customers terminal. And it was being operated from the off shore FPSO in the off shore platforms. And the only real impact was four inland vessels. We ended up stacking those vessels, taking the crews off, and then having security to guard the vessels.

But there are -- everything is back at are work now. So the impact was minimal. As far as any lost revenue, the only possible revenue loss we had was for a couple of the inland vessels and that was just for a few days. So it really didn't pick impact us very much other than making it little convenient to service the structures in the off shore rigs. But everything's back up and production is back up about 80% of what it was and they're looking to get back up there in a few more weeks. It was - it wasn't very pleasant but everybody was very careful and everybody was really security conscious and everything is back kind of like it was before.

I appreciate your commentary.

Your next question is from Pierre Conner with Hibernia South coast Capital.

Good morning everybody. Keith, just a quick mechanical questions first. Any guidance for G&A and depreciation, if you would please, sir? .

G&A should be unchanged. G&A has been running relatively steady. Lend me few papers - flat...

[inaudible].

The [16-7 16-8] range should be unaffected. Vessel depreciation has been going up by about $800,000-$900,000 per quarter due to the new additions as they hit the fleet. So we finished the March quarter right at $22m. I think you could almost kind of increase that by about a $1m a quarter going forward with the significance of deliveries we have over the next year. We estimate from the full year that depreciation will probably be about $98m. So it's a delivery of the new vessels during the year and the addition of, more specifically, the ENSCO vessels on April 1st that increase that number.

Dean, on international deep-water vessel, could you break down a little bit more on that average rate decrease, was there some specific geographic areas that affected that average or timing of rollovers? And then would you care to comment on what you see that going forward and what that impact was?

Well, certainly some timing of delivery issues, mobilization issues. There is pressure out there, Pierre. We see some people doing stuff with $20m-$25m-$30m assets. Pricing, I mean, it only makes sense if you sort of in a survival mode and we have to deal with that.

Do you see that internationally? I know domestically before -- but even on the international side, I guess.

There is some of that coming out of the North Sea. It's just, you know, you don't really understand what they're up to. We have a lot of -- we don't have to react dollar for dollar to that. At the same time, it's tedious. I mean you have to sort of pick and choose your battles. Sometimes you can't avoid it. Sometimes you just have to confront it. We work awfully hard not to play that game, because that's not Tidewater. We bring - we feel like we just bring so much more of the equation, but we shouldn't have to complete just on price and particularly with people who are taken delivery of the vessel where they've got to pay - they put 10% down and they got a 90% payment that they have to pay on delivery. And all of a sudden the markets going bad and they get nervous. That's some of the stuff that we're up against. You know, it's there, it's tedious, we're not going to deny it. But I think that we've demonstrated over a long period of time. We've been -- we've taken delivery of about 65 new vessels either that we bought or built in the last couple of years and you look at our track record in terms of both utilization and average day rate. It's pretty good. So I don't see why that's not to going to continue.

So to paraphrase -- would you say that if you do see the North Sea improve or tighten up and less leakage of vessels from there, if that would be one of the bigger factors to help stabilize international deep water. Is that appropriate, Dean? Or am I taking it too far?

No, I think that's an appropriate comment Pierre.

Okay. Great. And just, if you would -- I'm sorry to keep going. But on the Gulf of Mexico side, you guys - I got to make this comment about the what you have all been able to do with the date rate over utilization strategies. It is phenomenal. And obviously you get a day-to-day deal with costs versus, you know, duration in terms of keeping your ability to respond. Is there -- what's the direction here on cost? You mentioned there's some dry docks that had been built up that you can't continue to defer. Meaning that more of the Gulf of Mexico or was that international and is there anything else that we can wring out of that?

Almost entirely--on the dry dock--it's almost entirely international and that's where all of our profits are coming from and that's where major part of our revenue is coming from. So we just have to continue there.

Domestically we're going to able to shuffle some stuff around because of the ENSCO vessels coming into our fleet. And we don't anticipate that it's going to be a major effect domestically. Other costs, you know, we're probably still a little bit heavy on some people. But - well look at it -- we're investing a billion dollars in new equipment. Not all domestically, but a good portion of that is going to be domestically. Why would you invest on all the hardware of the business and not be willing to take a chance and invest on the software, and that's the people.

And we saw in the last upturn, how difficult it was for people to get ramped up again, licensing requirements are even more difficult than they were before. Our safety program is absolutely dependent upon having a core group of people who know us, know our program. So which we're just not going to, we're not going to walk away from net investment on the software side. So that's where we are. We look at it almost weekly, but that's my posture. It's going to take a while to get me off of that posture. But that's where I am.

Great. Well keep the faith on the activity. Dean thanks for your comments. I'll turn it back.

Thanks Pierre.

Your next question comes from Marie Walsh (ph.) with Cane Anderson and Rednick (ph.).

You talked about that you do so much more. Can you talk about why a customer would pay a premium price for your product? What is it exactly that you do that allows you to have higher pricing than your competitors?

Well one thing, we make big investments in most of the areas around the world. We feel like we are really the single only international company in our business. We have lots of regional competition. We have lots of local competition but toe-to-toe around the world internationally we don't think there's anybody that maintains the same standards of professionalism, training, safety that we do around the world. There are some really good companies in the North Sea and we compete with them there and in Brazil and in some other places, but not around the world.

If you're getting, a few big oil company and you're getting ready to sink a few billion dollars into a project, but the last thing you need is an accident. Everyone has seen with the Exxon Valdez and originally with the procedure Exxon off of Spain. The cost of an accident and the cost are two fold. One you have a cost that's your direct cost and then even more costly as your indirect cost and public relations costs. So people, when it comes down to looking at working off in Timbuktu and I just use that word in the general expense sense not specific sense, but if you're going to Timbuktu and you got a big program, you want to work with a known quantity rather than somebody that the [inaudible] down there because in north sea's that business isn't very good and you want to work with somebody that still has standards that are universal around the world. So, we think we offer that to the oil companies. We also offer large warehouses full of spare parts. We offer people who are living in these regions who know sort of the [inaudible] and the customs of the various regions where we work. Now know how to deal with customs, immigration, and all of the local problems that are inherent and working in all those places where we work.

We work in 62 different countries last year. So we have people that sort of know how to do that and we do think that means something to these people that are sinking large amounts of money into big projects. I think I've given you some of the reasons. There are other reasons. But look at this it this way, we operate on a daily basis about 350 ships around the world in the international market. Somewhere between 350, depending on the state of the market, 275. People say that our pricing is too high. How can that be? We are in effect, a market in places and yet our pricing is higher than other people. So if we're -- and we're dealing with lots of customers in lots of places. People are obviously willing to do it because they're doing.

Would you say that you are the low cost producer?

We hope we are. We're not going to tell anybody if we aren't. We certainly try to operate our own business very efficiently. So we think that one of the things that local knowledge does bring to you is the ability to operate at a cheaper cost than some of these places. Does that answer your question?

Yes. One final question. What is the maximum level of debt-to-capital that you would be comfortable with?

I don't know. Keith and I joke about this. I get nervous at 15%. But I think it depends. It could be as high as %30, %40. We actually got well over 50% when we did [OIL] acquisition. A lot more depends on the opportunities that we perceive -- acquisition opportunities that present themselves and how we fast we think we could pay the debt off with the cash flows that we would generate from any particular acquisition.

Thank you very much.

Your next question comes from Robert Ford with Sanders Morris Harris.

Thanks Dean. How are you doing?

How are you doing?

Good. I need to check one number and see if I can reconcile some. Keith, you said that you're averaging 5,150 in your Gulf of Mexico towing supply vessels currently?

That's domestic towing supply, that's Gulf of Mexico, that's California, that's everything that we report as domestic, majority of which is Gulf of Mexico.

But 5,150 is the right number?

Yes.

I need you to help me with the math here. [ENSCO's] fleet had a weighted average day rate of about 6,200 and change in the fourth quarter and I'm sure that slid down sequentially in the first quarter. How do I get from 5,800 for you guys in the March quarter to 5,150 when they were averaging over 6,200 in the fourth quarter?

First of all, you had their fleet, their one biggest boat. We moved into the deep water fleet and that boat goes out anywhere from $13,000-$15,000 a day. So that would have lowered it itself. And just based on the fact that there were four other towing supply vessels that we aren't utilizing. They are in our count at the moment but utilization numbers, they were using them for their own rig moves, we are basically still utilizing those boats to do some rig moves. But we have not contracted those boats out yet. We're doing most of the rig moves with our own tugs. So those boats are not being utilized at the same level. We're attempting to market those boats in a different fashion than ENSCO was operating those boats. But there's no way around it, their supply boats their 180 and their stretches were priced anywhere from $4,200 a day up to $5,200 a day with the bulk of them being at $4,420 a day level. So basically what's happened is five bigger boats, the one big boat that we moved out of class and the lack of revenue at moment from the other four to get the number down to $5,150.

Would you expect those other four to be back to work shortly next quarter? What are we looking at there?

This is Stephen Dick. We've been utilizing our tug -- offshore tugs to move the rig which is a more traditional approach and a few of the vessels that we -- those vessels -- as ENSCO assets were used primarily to move their own drilling rigs. And we are now using them to do some moderate deepwater and kind of shallow deepwater moorings. So that evolution is taking place as we speak. And they're being utilized in that kind of a service. So, they're not being use in the same way as the supply vessel. We really are using them as towing and anchor handling vessel. So, that's still evolving and there may be some other opportunities in the Gulf and in other places. But the supply boats are really just doing the supply business and the towing is being done by our tows.

Okay. Keith, one last question. CAPEX for FY04 is how much?

On the new construction is $130m plus we have about another $30m of capitalizable [uranium], I don't think that it will be spent, but it will be capitalized financially. So total is about -- between $150m and $160m in total.

Okay. Thank you all.

Your next question comes from Buckie Ruan Miller (ph) with Spinning and Scattered Goods (ph).

Hi Keith, hello dean. Dean, I'm with you. I don't get it. I mean, we're out of gas. You got the royally relief on the shallow gulf, maybe you can speak to that a little bit. Is that actually the law yet or is that still on the come?

It's in a 60-day comment period, so it's not in effect yet.

Okay. I don't understand where the independents are. I mean, we're not going to have any gas next winter and I'm just astounded that you all don't see some stirrings in that segment.

Well we heard -- I don't know if there's much merit to this or not. But one thing that we heard recently is at that there about to be some more property divestitures on the part of the majors to some of the independents and the independents are holding fire on their activity levels until such time as they work their way to some of these eventual opportunities for themselves. So that to me, I guess, of all the stuff that I've heard from, you know, lack of prospects to new size [mix] to no funding. The Enron funding and the Dynegy funding has gone away and all that stuff. I have heard lots of reasons that to me don't wash very well.

I guess this one washes a lot better for me. It makes more sense. I hear that there are plenty of rumors to that effect circulating around. I can't comment on the veracity of them or not. But, that would make some sense--that if there were about to be some divestitures that people would wait until such times as they have digested them prior to initiating any new activity. But that's just conjecture. I don't know.

I obviously agree with you. I think the question -- yea, if it's merely a question of win because these people are swimming in cash. Thanks a lot.

I would say spread some around.

They will hang in there.

Your next question comes from James Stone with UBS Warburg.

Hi guys, how are you?

How you are doing?

I might have missed this, bear with me, Dean. But would you -- given the fact that you have got a pretty mediocre outlook for the Gulf of Mexico. You have guys thought about, you know, reducing the new build program or curtailing it out into the future for that market--the fleet replacement. And then, there is a follow-up for that. I mean, just kind of a follow-up for one of the previous questions. What's kind of keeping you from adding more debt to the balance sheet and perhaps buying back -- buying in the shares here?

Well, our focus now is really going to be on replacement for our international vessels for the time being after the ENSCO acquisition. But that doesn't mean if we see a nice opportunity domestically, we may yet avail ourselves of it.

Meaning an acquisition opportunity?

Yes. But, you know, it have to be nice pricing, it have to be nice. But our focus for time being is going to be international.

In terms of share repurchase, balance sheet?

Well, our balance sheet -- again, we're sort of saving our bullets for opportunities that might present themselves. Share repurchase, we just few that our needs are so great to sort of renew the fleet in the business that we're in, that for the time being we're going to defer that. That doesn't mean that's forever. Back when everybody was building in the Gulf of Mexico we bought back about $330m worth of stock. So, it's something that we talk about in all of our board meetings, but for the time being, we think that the replacement of our core international fleet is in order. Thanks.

Thank you.

At this time, there are no further questions. Mr. Taylor, are there any closing remarks.

No. Thank everyone for your interest in our company. We wish you very well. Thank you very much.

Thank you for participating in today's Tidewater fiscal fourth quarter earnings conference call. This call will be available for replay beginning at 2 p.m. Eastern Time today through 11:59 p.m. Eastern Time on Wednesday April the 23rd 2003. The conference ID is 967-0507. Again, the ID number for the replay is 9670507. The number to dial for the replay is 1800-642-1687 or 706-645-9291. This concludes today's conference, you may now disconnect.