Tidewater Inc (TDW) 2004 Q1 法說會逐字稿

Good morning. My name is Unicke, and I'll be your conference facilitator. At this time I would like to welcome every one to Tidewater's 2004 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 star then the number 1 on your telephone key pad. If you would like to withdraw your question press star then the number 2 on your telephone key pad. Thank you. I will now turn the call over to Dean Taylor, Tidewater's President. Please go ahead, sir.

Thank you. Good morning everyone, and welcome to the Tidewater fiscal first quarter '03 conference call. I'm Dean Taylor, President, and I'll be hosting the call this morning. With me are Keith Lousteau, our CEO, Cliffe Laborde, Executive Vice President and General Counsel, and Joe Bennett, Vice President, Controller, and Principal Accounting Officer. I'll begin the call this morning with some comments on our June quarter earnings. Following my remarks I'll turn the call over to Keith for a detailed review of the numbers. I'll then return with a brief overview of our markets and Tidewater's overall strategy. We will then open the call for questions. Before I begin, I'm going to ask Keith to read our Safe Harbor Statement.

Good morning. During today's conference, Dean, I, and other Tidewater management may make certain comments which are not statements of historical fact and thus constitute forward-looking statements. I know that you understand that there are risks and 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. That out of the way, back to Dean.

Thanks, Keith. As most of you saw in our press release, we reported earnings per share of 32 cents for the quarter ended in June. There was a gain on asset sales in the quarter amounting to 3 cents a share. So our operating earnings, net of the gain, were 29 cents. The breakdown of the earnings between our domestic and international operations tells two different stories.

On the domestic side, our Gulf of Mexico revenue was up almost 25% over last quarter, attributable in large part to the digs of the ENSCO vessels we recently purchased. But our domestic operating profits were down 61%, which increased our loss for domestic operations to $8 million versus $5 million in the March quarter. This increased loss was due mainly to two factors. The first was a decline in the utilization of our deep water vessels. Keith will elaborate shortly on the average rates and utilization for that portion of our domestic fleet. The second reason relates to our newly completed ENSCO fleet acquisition. The addition of these vessels, some of which were already on contract, pushed utilization in our domestic towing supply and supply class vessels to higher levels. Most of these units were contracted at lower rate levels than the comparable class of Tidewater vessels when they joined our fleet. So our average day rate for the class declined significantly. This drop in our average domestic day rate did not surprise us. We discussed it during our last quarter's call. As time passes, we expect rates for the ENSCO vessels to trend up, market conditions permitting, as we blended the pricing for the two fleets of vessels into one.

On the international side, I'm pleased to report that revenue increased 2.5% compared to last quarter, and that operating profit rose 15.6%. The upturn in the operating income was obviously not the result of a sharp increase in activity, but, rather, a return to more normalized earnings as compared to income last quarter. Our international business is holding its own in profitability. A substantial number of new vessels were added to our fleet in the June quarter. In addition to the ENSCO transaction, which contributed 27 vessels valued at $80 million to our fleet, we took delivery of six new build vessels valued at $58.1 million. These vessels include the last one of our seven large deep water PSVs that were part of our additional 2000 new built program. It will serve our international markets.

Domestically, we took delivery of five vessels, two new 175-foot vast supply vessels, two new generation 220-foot platform supply vessels, and one new 162-foot crew boat. We also purchased one tug for $4.2 million for our international markets. All in all, we spent $142 million and added 34 new vessels to the Tidewater fleet in the June quarter. The total number of new vessels delivered into our fleet ex-ENSCO since 2001 now stands at 63. At the end of the June quarter, we also completed a private placement of $300 million of debt. These bonds had an average interest rate of 4.35%, with an average life to maturity of 9.5 years. Investor confidence in the company's financial stability was demonstrated by the fact that almost triple the offering amount and double the amount taken, that is $600 million, was tendered to Tidewater in the offering. Our net debt to capital ratio, after completion of this offering, is still at 15.3%. Keith Lousteau and his team get the credit for this job well done. Speaking of Keith, I'd like to turn the call over to him for review of the June numbers. Keith?

Good morning. I'd like to remind everyone that we did file two different documents with the Securities and Exchange Commission this morning. We have electronically filed our 10-Q and, after that, we filed an 8-K. It merely is the filing of the same press release that went out to the public this morning. For those that are interested in it, the 10-Q does have an exhibit which includes our private placement note agreement, the actual agreement that we used in doing our note offering in early July.

As Dean said, the quarter itself, we're reporting a net income of 32 cents per share, and that's versus 33 cents per share in the quarter ending in March, a mere flat-looking quarter. But if one were to try to reach that conclusion, I think that they would be missing some of the underlying facts here. Even though this quarter actually had an increase in our depreciation expense of $2 million, this quarter had an increase in insurance of $4 million over the previous quarter, even with that $6.2 million increase earnings before income tax for this quarter we're actually up 12.5%. If you go back and look at last quarter, last quarter was abnormally affected upward by a very unusually low tax rate, which was a year-end adjustment, and so insurance adjustments at year end. So the quarter once again, although not a shining one by any stretch of the imagination, was much, much more solid from an operating point of view than the quarter that we experienced in March.

As Dean said, gain on sales from assets included in the quarter were 3 cents after tax, and that compares to a 2 cents after tax for the previous quarter. During the quarter, that gain on sale is after the write-off from three scrapings, we did scrap three vessels in the United States right at the end of the quarter, continuing our scrapping program which has been averaging over the last couple of years about one vessel a month. Looking at some of the individual details, as Dean said, domestic sales for the quarter were $31 million. That was up 24.9% from the previous quarter and made up 20% of our world wide revenues, and the increase in revenues was generally driven by the addition of the ENSCO fleet early in the quarter. International revenues came in at $129.4 million. That's 80% of our revenue for the quarter. It made up -- it was an increase of 2.5% from the previous quarter. Thank goodness that the international increase, which makes up 80% of our revenue, resulted in an overall revenue quarter-on-quarter gain to Tidewater of 6.1%. As I said, a substantially more solid quarter than the previous quarter.

Operating profits, as Dean reported, once again, international operating profits themselves were up 15.7%. The domestic operating profit was down 61.1%. Overall, world wide, we were up operating profit at 5.8%. It's interesting to note that almost the entire difference in our domestic operating loss for the quarter, which was at $5 million last quarter and came in at a little over $8 million this quarter, can almost be directly attributable to an increase in insurance costs. The increase in insurance cost is made up of two factors, in that this year's program is just more expensive. The addition of the additional U.S. or domestic exposure with all of the new employees and vessels from ENSCO has increased this year's level of insurance and last quarter had the benefit of a year-end credit adjustment in it.

So operationally, the quarter, even though we're reporting a much more negative number, was just about the same as the previous one. This quarter, total operating cost came in at $98 million, slightly less than the guidance we had given when the quarter began. When the quarter began, we had suggested on the last conference call we thought the numbers might be more in the 102 to 104 range. We were anticipating heavier R&M for the quarter than actually happened. We had anticipated having 31 dry docks for the quarter. We actually ended up doing 21 dry docks for the quarter. Some of those were pushed, as you can imagine, forward into the next quarter, the September quarter so even though the operating costs for this quarter came in at about $98.3 million, once again, our guidance will have to be somewhere around $102 million number for the future quarter. That's made up of some of that R&M that was probably deferred and pushed forward.

Dean said we took in three new bills during the first quarter, and during the quarter, you might remember back in the year 2001, we purchased eight vessels from the Senco (ph) Steamship Company. During the quarter just ended, two of those were returned to us. They came off of bare boat. They are now out under nice operating contracts, but they will add a noticeable number to the operating cost quarter on quarter. So that makes up a little bit of it, and a number, probably in the $102 million range, is probably the best guidance we can provide at this point in time in regard to that.

Some of the individual statistics on some of the individual vessel classes that we generally give out are made up of [inaudible]. Internationally our deep water vessels averaged for the quarter a day rate of $13,303 down from the previous. The domestic number averaged $13,303 down from the previous quarter's $13,867, a decrease there that we talked about, it was a tough quarter on the deep water equipment, more exemplified than in the bare rate in the utilization, where the utilization for the quarter came in at 68% versus the previous quarter where we were at 90.9%, and, unfortunately, as we sit here today, the current numbers are more in line with today's activity than even last quarter. Current day rates are averaging for that class about $12,000 a day and current utilization is somewhere in the low 70% range. So up a little bit, but the day rates have fallen and kind of settled in at the $12,000 rate.

In the supply and towing supply division, as we told you, the addition of the ENSCO fleet took the average day rate down from the previous quarter where it was $5,979, and this quarter it fell to $5,469. It has currently crept back up a little bit. Our current day rate is about $5,500 on the average. Utilization last quarter did go up, with the ENSCO fleet coming in with some contracts. In March we reported a utilization of about 18.2%, and the June quarter we were reporting to you 24.1% utilization, and today, we're still at that 24-25% utilization level, and today the vessel count, remember, is at about 125 vessels after all of the ENSCO vessels have been included in the fleet.

One of the nice things that did come about from the ENSCO acquisition is in our offshore towing division where their utilization last quarter increased from 23% to above 31%. A 35% increase in utilization in the tug division, and a lot of that is directly attributable to the contract that we have with ENSCO to be a preferred provider on their towing activity in the Gulf of Mexico. In fact, Joe Bennett showed me some numbers this morning that showed me that we did as much business with ENSCO as a customer last quarter as we did with them the previous year. So that's a part of the deal that doesn't show up whenever we generally look at the operation of the vessels, but a nice side benefit to that transaction.

Internationally, 29 deep water vessels. There were no new deep water vessels added except for the one that Dean talked about. The day rate that we had reported to you in the March quarter of 10,887 was up during the quarter to 11,578. We are still staying near that number today. Today's average rate is about 11,625. On the other hand, utilization went down a little bit from quarter to quarter from an 85.8 number to 80.8%. And a little bit of that day rate increase and a little bit of that utilization decrease can be attributed directly back to those two bare boats that we talked about taking back the vessels that we had purchased from the Senco fleet. When the vessels were out on bare boat, they were providing 100% utilization but at a much lower rate. As we took them back and we had to mobilize them to new areas, we lost a little utilization time during the quarter, but the bare boat rate has been replaced by a full operating rate. So we would expect that upper rate to exist into the future, as I said, as it is today.

Once again, the supply and towing supply on the international basis had a good quarter. The average day rate was up once again. Last quarter, we reported $6,347 as being the average. This quarter we're reporting $6,544 being the average, and today the average is still around $6,450. So a nice little increase in day rates on the backbone of supply of international vessels. Utilization was off slightly during the quarter from 76.4% to 73.2%. We don't attribute any meaningful movement in that direction as vessels go on dry dock or the number in dry dock in any one quarter, your utilization numbers can easily be affected by a point or two.

Looking at the balance sheet, kind of as Dean said, we ended the quarter with $245 million worth of debt. Stockholders' equity of $1.362 billion. That equated to a 15.3% debt to total capitalization. We look at the refinancing which happened in early July as being nothing more than 100% refinancing, but if one wants to look at debt on a gross basis and not account for the extra $50 million of cash that we still have as of today, the gross debt to stockholders' equity increased to 18.1%, but the net number did stay unchanged at the 15.3%. As Dean said, we were quite happy with the financing that we were able to accomplish in early July. The $300 million was placed out in different year trances, five years, but it came in with an average life of 9.5 years to maturity. The average interest rate is 4.35%. The average spread over treasury was 108 basis points. So a transaction that has interest rates have risen in the last three weeks, certainly looks better and better. It is fully call-able, fully payable at any point in time. In fact, with the recent rise in interest rates, there would be zero penalty if Tidewater were to find another opportunity in the world and needed to prepay that debt for any purpose. So a transaction that's sitting there quite nicely.

A couple of other items I want to mention to everyone is that at the end of the quarter, Tidewater still had 20 vessels under construction. At the end of last quarter, we reported 25 vessels to you, 6 delivered during the quarter. We were able to add one new construction contract, an anchor handler that was within about 60 days from completion in Singapore was added to our commitments in June, bringing to the total 20 vessels currently under construction, a total outstanding shipyard commitment that is now down to $104 million. For the balance of this fiscal '04, we will be taking delivery of 16 vessels. The total cost of those 16 vessels remaining to be paid is $87 million, and then the remaining four vessels, which would carry over into fiscal '05, only have an additional $17 million at that point in time. So the 20 vessels have a combined construction value of $311 million, and as I said, $207 million of that has already been funded, leaving us with the $104 million.

During the next quarter, during our September quarter, we are scheduled to take delivery of eight additional vessels. That's made up of two platform supply vessels which will both be domestically here in the United States, five crew boats, of which two would be in the United States, and one anchor handler. That's the boat that should come out of the shipyard in Singapore. In the next quarter we should see an additional eight vessels being added to the fleet. I spoke about the Senco fleet. We are down to five bare boats left in regard to that. By December of this year, we expect to take redelivery of three of those vessels, so in addition to the new construction vessels that are entering our fleet, we will be adding three of those bigger supply boats back into our operational fleet and taking them out of the bare boat category.

After calendar '04, we will only have two vessels left that are on bare boats, and they go well into calendar '04 before they were scheduled to be returned to us. And the only other item for people attempting to model or look at our finances, you should anticipate that interest expense itself will be up about $500,000 to $600,000 in the September quarter. As our construction in process is delivered to us, as those vessels go into the active fleet and out of inventory status, the ability to capitalize interest into the cost of those is lost, and with our program winding down, as I've said, with $207 million already funded, we've been able to capitalize quite a bit of our interest expense. That's a number that's going to sneak up on us a little bit over the next couple of quarters and should be up about $500,000 this quarter. I'll turn the meeting back to Dean now and certainly will be available to answer any questions at the end of the call.

Thanks, Keith. I'd like to spend a few minutes talking about our markets. I'll avoid talking too much about strategy, so as not to benefit our competitors that may be listening in. The Gulf of Mexico remains a sluggish market for us. While there is more interest to drill for natural gas, it has not translated into increased activity offshore. The offshore rig count remains flat. Offshore drilling permits and plans are down this year as compared to last. Ditto for the number of offshore wells drilled. Though commodity prices remain high, investor anxiety and operator caution remain high as well.

Depending upon to whom one listens, gas prices will either remain at the current $5+ levels or fall to $4 levels, depending on storage fill, the weather, fuel switching, and/or a turn around in the domestic economy. Indeed, although I believe that some have declared that the recession is over, my belief is that much skepticism remains and that caution will continue to dominate operators' domestic spending plans for the immediate future. Tidewater's international business remains very healthy, and we are confident in the stability of our major overseas markets. West Africa, Southeast Asia, and South America. As the North Sea and Gulf of Mexico markets remain weak, however, we can expect continued challenges to us in our global marketplace from those North Sea and domestic operators looking for brighter horizons. They will attempt to challenge our established positions either by offering advanced technology or cheaper rates.

To date, we have been able to remain competitive with new technology by dint of the investments we have made in our deep water and replacement fleets. We intend to continue to remain technologically competitive with additional new vessels that we will bring to the marketplace. Proper response to companies attempting to go buy market share by lowering rates is more difficult. This becomes especially more difficult in a stable, rather than a growing, marketplace, and the world wide market, with some exceptions, is flat at the present time. We will focus on those international markets in which we are strongest in order to maintain market share and to take advantage of new opportunities as they arise.

On the domestic side, Gulf of Mexico drilling activity is a question mark. We have kept a parachute pricing policy intact for two years. We adopted our parachute pricing policy at a time when we believed that the domestic downturn in activity would be short lived. We did not expect it to last as long as it has. The longer the downturn persists and the more that we hear operators say that the present level of drilling activity is to be the future norm, the more we must ask ourselves whether the parachute pricing policy continues to make sense. In each case, both domestically and internationally, I look to Tidewater's great balance sheet and international presence to continue to position us to respond to these challenges and to grow in spite of them. Profit, particularly in the Gulf of Mexico, is clearly unsatisfactory, but we ask for your patience because we have added tremendous leverage that should generate huge rewards in the future.

Finally, in closing, I'd like to comment about how pleased we are that the integration of the personnel and equipment from the ENSCO acquisition has gone so smoothly, as has our agreement to provide marine services to ENSCO. And now I'd like to open the call for questions. Please limit your questions to one or two so that we can accommodate as many participants as possible. Thank you.

At this point, I would like to remind everyone if you would like to ask a question please press star then the number 1 on your telephone key pad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Bill Herbert with Simmons.

Hi, Bill.

Thanks. Good morning. How are you?

Good.

Dean, the big sequential incremental negative here with respect to the domestic operations was with respect to the deep water Gulf of Mexico asset employment and day rates are a bit lower as well. What's the outlook there, assuming that you have a relatively stagnant and unresponsive Gulf of Mexico environment overall? You've got more capacity likely from a deep water standpoint to be introduced over the next year or two. What keeps this market from getting worse?

Good question, Bill. You know, some people are pinning their hopes on the deep shelf.

Right.

I don't think that's going to be the savior, particularly until some people upgrade some rigs. I mean, all of the rigs that are capable of drilling deep shelf now are busy, so there's not going to be much improvement there.

Yeah.

I really don't know. What I can say is that we're not going to sit idly by and do nothing. I think, you know, it seems to me, on watching for 15 months or so that I've been in this job, that lots of people have taken advantage of the leadership that Bill O'Malley demonstrated in this industry and for this company, thinking that Tidewater would just be asleep at the switch, and that's not going to happen.

Right.

So we will respond to the marketplace as we feel suits our best interests. You know, I'm very optimistic, particularly in view of the fact that we're better able to mobilize excess equipment out of the domestic marketplace if we feel that that best suits us, and our balance sheet certainly provides us the strength to do what we need to do with the rates, as we deem proper. But we're not going to say what we're going to do. We'll respond to the marketplace. I think you're going to see some nice results next quarter, but we'll let them speak for themselves.

Okay. And that segues into the second question, and that is, you were candid enough to articulate the fact that the longer the Gulf of Mexico continues to disappoint, the more you're going to question your parachute pricing strategy with respect to your standard vessels. You know, assuming that you don't see a dramatic Renaissance here with respect to a drilling in the Gulf of Mexico, and that rigs continue to migrate from the domestic Gulf of Mexico into Mexico and the rig count really doesn't dramatically change, how long do you stick with the pricing parachute strategy?

Well, I'm not going to say. For the time being, that's what we're doing. You know, there's still 51 rigs here in the Gulf that can go to work.

Yeah.

27 are in the actively stacked fleet and about 24 in closed stacked fleet. A lot is going to depend on the domestic operators. We've seen some of them are announcing some budget increases. Lots of people are saying that they're not going to do much more.

Right.

You know, I think a lot is still going to depend on what happens with the storage amount we go into the shoulder season with storage, and how much demand continues to be destroyed. There's just no telling. For the time being, you know, we've stated on many occasions we're going to maintain this policy.

Yeah.

And I am stating today that we're looking at it pretty closely.

Okay. Thanks very much.

Thanks.

Your next question comes from Ken Sill with Credit Suisse First Boston.

Good morning, Dean. I think everybody on the call has to appreciate your candor in looking at the situation in the cold light of day here. I did want to talk about something a little bit more positive and that's about what's going on in some of your international and joint venture things and trying to get a handle on how big your business is in Mexico and how you see that progressing with, obviously, more rigs moving down there over the next few quarters.

Well, I'll tell you, Ken, I used to run that business, so I know it pretty well, and frankly, I've been disappointed in how we've done in the near past. I expect us to do a little bit better. We have a nice presence in Mexico, we have a nice market share. We've probably got about our share of new business that's come up. We recently have won a couple of tenders down there. They don't show up in this quarter's numbers, but should start to show up pretty soon. But I expect us to do much better in Mexico, and I'm going to be working hard to make sure that we do. It's not a -- well, let's see. Let me just leave it at that, Ken.

Yeah, could you, you know, kind of give us a bigger than a breadbox estimate how much of the equity and unconsolidated subs is coming out of Mexico versus other joint ventures?

None. Virtually none. 2 to 3%. We operate direct in Mexico. We don't operate through joint ventures as such. We have Mexican participants who provide the registration necessities. We have a Mexican subsidiary. But from an accounting perspective, Mexico is barely seen in that line.

Okay. The next question is the equity and earnings of unconsolidated subs was up a little bit this quarter. You know, where is that being driven?

West Africa.

And that, you know, we've seen a little bit of a pause there. Do you expect that one to kind of flatten out here, or is it continuing to get better?

Well, it's being held back a little bit by the fact -- because of, you might remember a few years ago, we joined in as a participant in a minority owned Gulf of Mexico joint venture, and the equity participation is run through that line. Obviously that participation, that performance from that company, has not been very stellar, it being a supply boat operator in the Gulf of Mexico. The balance of it is almost exclusively from West Africa. That joint venture is doing very well, and the prospects of it growing slightly, you know, are quite good at the moment.

Okay. And then one final question. I'm wondering if you'd care to talk about opportunities for consolidation, you know, for years people have said Tidewater couldn't really do much in the way of consolidating in the Gulf of Mexico because you were so big, but your share of the Gulf has declined a lot. Do you think there's opportunities for you in the Gulf of Mexico for consolidation?

There are opportunities, Ken. A lot will just depend on, you know, willing sellers and right prices and all of that, but I think certainly there are opportunities.

And you don't believe there's any anti-trust issues at this time, or would it depend --

It would depend upon the match or the mix. There could be, but certainly we would take that into account in any review of any transaction.

Okay. Thank you.

Okay, Ken, thanks.

Your next question comes from Magnus Fuhr, Jeffries & Co.

My questions have been answered.

Your next question comes from Beau McKenzie (ph), Kerr-McGee.

Going back to the deep water side of the fleet for a minute. Have you had any incidents that you’ve seen with any kind of frequency of seeing yours or other deep water vessels having to compete in the shallower market either because of a lack of demand or an abundance of supply that is out there in the spot market? And that's it from our side. Thanks.

Well, there's probably been some of that. I can't name off of the top of my head, but I expect there's probably a couple of big vessels working in what we would call deep shelf applications, or some of them have been put into specialty markets, seismic or diving support activities. So I would say there's been some of that, yes.

Do you think it's putting pressure on rates as they renew?

Could you say it again, please?

Could you foresee that putting pressure on rates as fixtures renew soon?

Oh, I think there's pressure on rates right now. I think there's been a decrease in deep water activity, and one or two of our competitors have had some vessels come off charter from deep waterworks, and they have actually, one in particular, has some idle equipment, and I think that puts pressure on rates.

All right. Thanks a lot.

Your next question comes from Pierre Conner with Hibernia.

Hi, Pierre.

Good morning, everybody. First for Keith, just to tick off a couple of numbers. I may have missed them, but you ran through current utilizations on the number of classes. I wonder if you could for domestic towing and supply, international deep water, and international towing and supply. You had given currents for the others.

Okay, okay. The domestic current deep water in our fleet is made up of seven deep water vessels. We're running right at 71%. The supply and towing supply today we're running along at about 24% clip.

Okay. And then what about towing?

Towing, towing is doing -- is having one of its better seasonal-adjusted operations at the moment. They're up around 45% as we speak here today.

Okay. Combination of construction and moving of the ENSCO boats?

And rig moving going on in the Gulf of Mexico. Jeff can address that.

I think, as Keith said, there's some spar activist going on. Those projects that we have participated nicely in with some long term Tidewater clients and then the rig moving, when you look at it, the ENSCO deal I think that has really increased our activity level.

Good. And internationally, can you --

Internationally, the deep water level of utilization, as I said for the quarter, we reported 80.8% and we're almost right in line with that. We're still at 79.1% at the moment.

Okay, great.

And the supply, towing supply, we're at 72% as we speak.

Okay. Thanks. And then, Keith, also, further, any other, on your Mexican contractor that's on cash basis, was there any impact this quarter?

Positive. We have made some arrangements that have added to the probability of collection. We have gone back to work for the customer. We have three pieces of equipment working for them today. They are asking for more. Last quarter, they paid all of their bills currently, and we picked up $1 million of old collections which added to last quarter's revenue. We still have, on the balance sheet, between $5 million and $6 million of unreported receivables, so there is some positive feeling towards there being a pick-up in Mexican reported activity from that situation in the September quarter. The June quarter was a lot better than the March quarter. The March quarter was totally dead. But you can kind of read our confidence by having put some equipment back to work for those individuals, and they have been meeting their cash obligations in the last couple of months.

Okay. Then since we're still on topics for Keith, the gain on sale, was that a bit of an acceleration of planned for the next couple of quarters, or should we go back to a typical run rate assumption there?

A typical run rate of about $1.5 million pretax is where I suggest you model us. We were able to close on one extra sale of a vessel. That's not one that we have any timing.

Sure.

I mean, when someone shows up to buy old equipment, a lot of times it's a tire kicker dragging it out, looking for a job for it, and a lot of times it's for someone with a job that they want the equipment now, and we have already signed contracts in this current quarter that the $1.5 million number should be a good number. You know, we will continue with our strapping program into the September quarter. But on a net basis, after all of that, we certainly hope to come in at about the $1.5 million.

Okay, great. Thanks. And, Dean, I keep going back to this deep water Gulf of Mexico issue. Is it something -- is this impact in the quarter temporary due to a couple of projects that were delayed? Is it something you see that structurally utilization will be in these lower 70s until such time as the, you know, contractors can react to it? Can you give us a feel for that?

I wish someone would give me a feel for it. [Laughter] You talk to the operators and you get seven different ways from Sunday. You know, we've got some tough competition out there. We have a family company, a company that's trying to go public, and these guys are doing everything they can to keep their utilization up independent of rates. To say how it's all going to play out, I don't know. But let me hearken back to what I said a little bit earlier. We have better opportunities to place this equipment in more places around the world than anyone else. We're actually working on a deal to place some, I won't say where. It could be outside of this marketplace.

But, Pierre, you know, I'm confident that we're going to find homes for this equipment. We've done it since 2000, you look at what we've done with the money that we've invested in new equipment, and returns have been phenomenal, the utilization has been very good. We have a little hiccup here generated by what's going on in the Gulf. Yes, it's very disappointing. As I said in my statement, the profitability in the Gulf of Mexico is clearly unsatisfactory. But when you look at all the upside that this new equipment is going to provide for our company, you know, long term, I am very confident that it's going to provide great returns for our company, and I'm confident that we're going to find the right homes for it. So whether it happens in the September quarter, I don't know. But this company has demonstrated that it does not misuse either its owners' trust or the assets that are entrusted to it. That's the way we're going to run this place.

Well said, Dean. I'll turn it back.

Thanks, Pierre.

Your next question comes from Kurt Hallead with RBC.

Good morning. I just had a quick question relating to the cost structure. It looks like you guys are doing an exceptional job on that front.

Thanks, Kurt.

Can you give some element of [inaudible] as fiscal '04 unfolds, do you think you'll be able to contain your operating costs below $100 million a quarter, or is there some creep that will come into play here?

Kurt, Keith. I think it should go the other way. You know, we start the year where our operational people in our budget is generally heavily weighted with R & M towards the front end. If one were to see an internally generated budget, it might look like 30-30-10, or 30-30-20-20 over the year. The first quarter we control the R&M relatively well. Control is one thing, postponing is a different story. Some of that is going to be pushed back.

But certainly at that 102 level, you know, the additions on top of that should not be from increased costs but should be from increased vessels, and increased vessels operating should also add to revenues. I think what you're going to see is that the numbers, except for repair and maintenance, which is something that you can only defer for so long, are pretty well going to stay at the current levels. The increase in insurance is in this quarter. There will be no additional increases in insurance over the balance of this year. By the end of the year, we'll know how our safety record is running. Our insurance is at a maximum number. There can never be any upside surprises, although by the end of the year, there can be some credit takes-backs if our performance is better than what the actuaries say it was going to be on the front end. So I would not be concerned with a real run-up in operating costs except for the addition of new vessels over the year.

A generally flattish progression.

Flattish progression as we add the new equipment.

Let me mention one thing. You know, we continue to be structured domestically to run 60 to 70 vessels. We continue to have many people more than we need to run the present operations that we're running, we we're staffed up to do that. We still have some costs that we can ring out of the system, if we so choose. We have not done so until the present time because we consider people as assets, just like all this iron we buy. We've got some great crews, we've got lots of people that are well-trained that we need to run this new equipment that will be coming into the marketplace. But there are additional costs we could ring out of the system if and when we choose to do so. I just point that out.

Right. And then, Dean, catching your commentary there, just to circle back about asking the question as to whether or not to continue to price parachute makes sense. I would take it from that comment that the future is more hazy or feels less comfortable to you than it has at any point in the prior, you know, year and a half period, I guess, right?

Well, I'm going to respond with an analogy. If you had asked us a year ago what we wanted for product pricing at this time this year and what we would have felt like that would have translated into for operator activity, we would have said something like, well, about $4 gas and $25 oil. Well, we've got $5 gas and $30 oil, and the activity simply hasn't moved. To the contrary, it's down, year on year. Now, whoever would have thought that?

Right.

So a year ago, when we were one year into the parachute pricing policy, certainly our expectation was, if we had good product pricing that the operators would be busier than they presently are. You know, I read almost all of the reports that the investment community generates about our industry. You know, you get more flavors of why there's not more activity than -- you have almost as many as you have analysts covering the sector. And those are lots of smart guys giving their opinions. And why it's not happened, I don't know. I sort of hearken to what Carl says. Until he sees an increase in economic activity, he doesn't think there's going to be more on the part of operators. I suspect Carl is as right as anybody else. But who knows? Yes, two years in the policy, we've got the product pricing that we thought would generate activity. It hasn't happened. Surely we question it. But how are we going to respond to it? Well, people will see.

Great. Maybe you shouldn't give us that much credit then, but ... [Laughter]

I give lots of you guys credit. I just wish we had more activity. I wish we could tell you we did.

Thanks a lot.

Your next question comes from Jeff Bellman, SAC Capital.

Could you tell us how many supply boats do you currently have stacked down in the Gulf of Mexico if the boat utilization is running at 24%?

I'm going to let Jeff respond to that. Jeff?

Currently we've got just over 80 vessels stacked domestically in the Gulf of Mexico.

Okay. And what's the total supply boat count right now active in the Gulf?

Active in the Gulf? 220--

I don't think he's asking hours, I think he's asking total fleet.

Yeah, total fleet. Total company.

220.

Okay. Can you give us a rough estimate on market share amongst the big boat companies between Schwest, Hornbeck, and Tidewater, please?

Jeff, I don't have that handy and I'd rather say that I don't know precisely than give you some number that look like I'm pulling it out of my hat.

Dean, can you give us some kind of feeling for what you need to see in terms of improvement before you would contemplate pulling off this parachute pricing policy?

Well, just look back two quarters. If you remember, in our December quarter, we made month. And that was only with about -- the Baker Hughes rig count was only 111. It's now 102. If we had 9 rigs going back to work, we'd be close to breaking even or making money again. It's not going to take much. There are not that many boats that are out there in the inventory that are either aren't ours or don't need major refurbishment or major dry docking expense. We control the better part of the available inventory. Nonetheless, we can't force the operators to drill wells. Until they do that, you know, we're sort of stuck where we are.

What about the impact of more rigs from the Gulf of Mexico leaving and going to Mexico? What does that do to the Gulf of Mexico balance for you?

Well, if you look back in 2001, there were 171 rigs working in the Gulf of Mexico. There's still 185 -- about 183 rigs in the Gulf of Mexico right now. So if ten more go to Mexico, and I expect ten more will go to Mexico, there are still enough rigs in the Gulf of Mexico that we can still get back to the highs of 2001. So I don't think that's a factor. I don't think rigs going to Mexico necessarily depletes our ability to generate nice returns in our Gulf of Mexico division. But the operators have to get busier. So, you know, I think there's still plenty of rigs. As I said, there's about 27 rigs in the actively -- in the [high back] mode here in the Gulf of Mexico, so there's plenty of equipment to go back to work. And then there's 24 in the closed stack, so there's 51 rigs there that can go back to work there. It's just going to be a function of operator activity.

That goes true I guess for semis. It seems we're getting semis departing the Gulf of Mexico as well.

Well, that's right. But the semis departing going down to Mexico I think is positive. We've got more of that equipment, being international and now we have some from the ENSCO acquisition that can go down there with those rigs.

Thank you.

Okay, thanks.

Your next question comes from Richard Fiery (ph), Delphi Management.

What's your cash balance right now?

Today or at the end of the quarter?

At the end of the quarter.

It was about $11 million, I think. I'm turning pages on you right quick. We reported $11 million at the end of the quarter.

What's the total goodwill and intangible assets?

It's totally unchanged.

About 318.

All right.

$328 million.

Okay. Thank you very much.

Thanks, Richard.

Your next question comes from Joe Agular with Johnson Rice.

I want to circle back to the comment you made, the issue I was going to bring up was the Gulf of Mexico cost structure. I think you mentioned that you're kind of geared up right now to crew around 60 boats or so, and I guess you're running, what around 30 right now?

Somewhere in there.

Yeah. And I guess what I was trying to figure out is maybe, you know, either strategically what kind of criteria, I guess, you were looking at in terms of whether or not to go ahead and down-size? And maybe what kind of a dent could you make in that $8 million loss domestically if you kind of took your crewing levels down to something more in line with where the market is today?

A number in the 83 was insurance.

Right.

That leaves about five. There is another way to skin this cat, and that's to drop rates. I mean, we could work 50 vessels. Put all those crews to work. I'm not saying that's what we're going to do, but that's an option just as much as cutting people is. Again, I don't want to telegraph what we're going to do, but there's two ways of skinning that cat, and we're looking at both of them pretty closely.

Right. Okay. And I was -- maybe, Keith, you might be able to help me with this a little bit. The G&A line was, you know, I guess you didn't really have much of a bump whatsoever from the ENSCO acquisition into G&A. Is that --?

That's correct. We only hired crew members that were directly associated with the fleet.

Right.

Shore-based basis. I don't think we added any net individuals.

Okay. Well, those are, you know, good acquisitions then. Thank you very much.

Thanks, Joe.

Your next question comes from Bill Herbert, Simmons.

Hi. A follow-up. Dean, you earlier made the statement with respect to some good news to look forward to in Mexico, at least that was my understanding. Could you just take a moment to describe the competitive environment in Mexico, because given all the rigs that have mobilized to Mexico, I'm a little bit surprised that actually business is not a little bit more encouraging than it is at present, recognizing that we hope it's going to improve. How much local content do you compete against and how, sort of for lack after better word, voracious are the sort of U.S. and other international contractors with respect to competing in Mexico?

Well, Bill, you know, I'm going to preface everything that, the shores of Mexico are littered with the carcasses of American companies that have gone down there thinking that they were going to do pretty well.

Right.

There are lots of companies that have foundered in Mexico.

But you've been there a long time.

We've been there since 1962, as a matter of fact. I personally have been involved in our activities there since 1985. So it's not -- I mean, doing business in Mexico is not like doing business domestically in the Gulf of Mexico. First you've got to get paid. I mean, the only thing worse than not having a job is to have a job and not get paid.

Right.

So there's that issue. Lots of people go down there, they ally themselves with somebody who claims to be the brother-in-law of the president, and the next thing they know, they're not getting paid. There's plenty of challenges working in Mexico. One thing that Pemex did last year when they brought those 24 additional rigs in there, they didn't pick up any additional boats, not one. They squeezed the fleet that they had and they had the situation where rigs were waiting on boats, and the boat guys, the guys that contract the boats, thought they were doing a really good job, because the guys that were running the divisions were looking at, you know, horrible losses of time on the rig side simply because they couldn't get materials. They've started to contract some boats this year, and as I say, we've probably gotten about our market share worth of the new work, but we've not gotten as much as I had hoped we would get, but I actually think we're going to do much better on a go-forward basis.

Again addressing -- you may have answered it, I didn't understand it if you did, the kind of local content that you're competing against, are there a number of local contractors that you compete against down in Mexico, or are they not that relevant from a competitive standpoint?

Well, there's one fellow, a fellow by the name of Sanchez Schultz, he's got seven or eight boats, and all of them are working. You've got some guys that have small crew boats and utility boats. They're all working. So it's not as though -- I think Captain Schultz has got one PSV that he's building up here in the States, so that will be an incremental unit into the marketplace. It will find work. He's well-connected and it will find work. But I think all the rest will come from the Gulf of Mexico. Farstead just put a couple of boats down there. One of the family companies here in the Gulf put a couple of boats down there. So I think the remainder will come from the Gulf of Mexico fleet.

Okay. Thanks.

Your next question comes from Beau McKenzie, Kerr-McGee.

My questions have been answered.

There are no further questions at this time. Are there any closing remarks?

No, I would just like to thank -- I think we had over 180 people listening in on the line, which is a record, and we want to thank everyone for your interest in our company, and we thank you very much for listening in. Thank you.

This concludes Tidewater's first quarter 2004 earnings conference call. You may now disconnect.