Tidewater Inc (TDW) 2005 Q1 法說會逐字稿

Good morning. My name is Melissa, and I will be your conference facilitator. At this time I would like to welcome everyone for Tidewater's First Quarter Fiscal 2005 conference call, with your host Dean Taylor, Chairman, President and CEO. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press star, then the number two on your telephone keypad. Thank you. Mr. Taylor, you may begin your conference.

Thank you very much, Melissa. Ladies and gentlemen, good morning. I'm Dean Taylor, Chairman and CEO of Tidewater and I will be hosting our conference call this morning. With me to assist with the call are Keith Lousteau, our CFO, Cliffe Laborde, our Executive Vice President and General Counsel, Steve Dick, our Executive Vice President in charge of operations in West Africa, the North Sea, the Middle East and Far East, Jeff Platt, our Senior Vice President in charge of our business units in the Americas, and Joe Bennett, our Vice President and Principal Accounting Officer.

This call will follow our usual format. I'll begin with comments on your just released quarterly results. Following those comments, I'll turn the call over to Keith, for a review of the numbers and a status report on our new built and replacement vessel programs. Afterwards, I will return with an overview of our markets and comments on our strategy. We will then open the line for your questions. I'll first ask Keith to read our safe harbor statement. Keith?

During today's conference, Dean, I, and other Tidewater management may 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. Dean.

Thanks. This morning we reported fiscal first quarter earnings of 23 cents a share compared to 18 cents from operations last quarter. Our international operating profit was up very nicely in the quarter, increasing some 37% over the March quarter's operating earnings. Our domestic operating results fell short of profitability. Excluding the domestic portion of the insurance credit of last quarter, our results domestically were about $1.5 million better than the prior quarter. Our gain on vessel sales was larger than usual, due primarily to the sale of two large tugboats.

Our international results were very solid. We began to see activity pick up in April, and May and June continued to show slow but steady increases in utilization. Our March quarter international utilization was around 65%. And as Keith will soon point out, we are now at just under 70% utilization on the 300 vessels that make up our international vessel fleet, at a time during which rig utilization worldwide was essentially flat. We didn't see any improvement in our Gulf of Mexico business unit until the last month of the quarter. You may have heard the same from some of the drilling company conference calls. In our case, the improvement was the result of a number of the steps we have taken over the past year.

Unlike for the drilling companies, recent improvements that we have seen are not the result of an increase in day rates and regional utilization driven by an exodus of the available units from the region. In fact, our return to profitability in the gulf will be challenged by some recent successes in our obtaining work for a good number of our new U.S. flag vessels outside of the Gulf of Mexico. I'll discuss this some more after Keith takes you through the details of the quarter just reported. Now Keith?

I remind everybody that we did, before the market opened this morning, we did put out a press release with our basic financial earnings statement for the quarter. We attached to that statement, for the first time, a balance sheet. We will, prior to about 10:00 o'clock Central time this morning be filing our 10-Q electronically with the SEC, so certainly by 11:00 or lunchtime on the East Coast, through the normal Edgar reporting services, you should be able to download all of the operating statistics for our quarter.

And I would remind everybody that as we talked about in our April call, when we were talking about the impairment charge that we took at that point in time, we have in reporting our statistics for this quarter, we have taken those 83 impaired vessels and taken them out of the available active fleet. So one will see some apparent pickup in utilization numbers on quarter to quarter that will be somewhat misleading if one were not to understand that the 83 domestic supply boats were taken out of the mix of the available fleet. In the verbiage of the 10-Q itself, we go to a pretty good length to explain what the numbers would have been on a comparable to comparable quarter basis. And if I remember, I will attempt to do that when I get into more statistics later on today.

As usual, in looking at our numbers we caution everybody and we ask everybody not to jump to quick conclusions, to look into the numbers and to see what the effect of the numbers -- what the effect of our core business really is, and what's coming through the quarter as we have reported it. As Dean said, we reported a quarter of 23 cents. That compared to the last quarter prior to the impairment charge, we have reported earnings of about 18 cents. And one year ago we had a quarter where we reported 32 cents. The significance in year on year number is a decline in revenue of about $6.5 million. The significance of this quarter is an increase in revenue of some $5.3 million in marine activities. This quarter's 23 cents, as dean alluded to, and as you'll see in the press release, is positively affected by an abnormally high gain on the sale of some vessels. We want to be quick to point out that none of the vessels sold or disposed off during this quarter were any of the impaired vessels. The impaired vessels are still being put into a marketable situation, and none of those vessels have been disposed off. The somewhat abnormally high gain on sale this quarter is tied into the sale of two older tugs.

When one looks at this particular quarter, there are three items that I think are of significance. And as I mentioned earlier, those significance are an increase in marine revenues of about $5.3 million or by 3.8% from the previous quarter. The fact that gain on sale was about $4 million higher than the previous quarter, those two being somewhat offset by the fact that we are now back to a more normalized income tax rate of 32% versus a tax rate in the quarter previous, where we had about a 2% tax rate due to some year on year adjustments, a year within year adjustments that flowed through in that particular quarter. The significance of vessel revenue increased to Tidewater becomes quite apparent where one looks at this quarter's numbers and we see that a $5.3 million increase in revenue, results in a $4 million increase in worldwide operating income. The significance of this quarter is that the operating revenue from marine activities, before any gain on sale is calculated are actually up 40% from the previous quarter. We have reported $10 million of operating income in this quarter. We're reporting slightly more than $14 million of operating income.

As we look at individual revenue numbers, you will determine, you will see that domestic revenues were relatively flat during the quarter. We're reporting $28.2 million worth of revenue versus $28.5 million from the previous quarter. The real story here being over 5% increase in international revenues, whereas last quarter we reported $115.9 million, this quarter we're reporting $121.5 million. One of the things that we're apparently getting a little bit better at is last quarter we offered guidance on this quarter's operating costs. We offered, we thought the number would be between $98 million and $100 million. We're reporting $98.5 million. We also, because of the change in taking those 83 boats out of the fleet, we had suggested that we felt like depreciation for the quarter would come in at about $24 million, and it came in right on that number.

Jumping to a little bit of guidance for the September quarter, we once again would give the same operating cost guidance with a number expected to be about $98 million with a little bit of variance, perhaps up or down from that amount. And we would expect depreciation to go up a little bit to about $24.5 million due to the fact, as I'll talk a little bit later about the number of new vessels that we actually added to the fleet, during this particular quarter. Of significance is that our operating cash margins did, for the first quarter in a number of quarters, increase where on a cash on cash basis, our cash operating margin actually increased to 34.2% from the previous quarters, 33.8%. That obviously being tied to the increase in revenue and a pretty good control on our operating cost numbers.

Once again, we just for the sake of reminding people, the fourth quarter, our March quarter, did have an abnormal benefit in that quarter as reported, in that we had about a $6 million insurance credit at that point in time. So in this particular quarter, to kind of summarize the numbers one more time, to summarize, excuse me, operating revenues were up, operating profits were up. The gain on loss was up about $4 million. That gain was almost completely eaten up by the increase in tax rate. So we think the increase, quarter on quarter, is directly related to the pickup in marine activities. To go through a little bit of the statistics that we normally give to you, first of all starting with our domestic markets. Our domestic deepwater fleet, which was made up of seven vessels, day rate activity during the quarter, the March quarter we reported an average rate of $13,500. This quarter the average was about $12,700. Nothing of much significant there except the fact that our larger anchor handling boat, which generates a higher than average day rate did not have utilization in the quarter quite equal to the previous quarter.

As we sit here today average day rates for the deepwater fleet are probably more like $13,000. Utilization in that deepwater fleet in the March quarter, we had reported 81.6%. In the June quarter we're reporting 75%. And today, going forward, we're operating more in the 83 or 84%, a division where utilization has certainly picked up in the last four to five to six weeks.

Domestically, and this is where we need to be a little careful, where we're reporting 51 vessels for the quarter as being available, we're reporting utilization of 50.7%. We think that's much more meaningful, but that is the number after taking out the 83 vessels that we impaired. On a comparable to last quarter basis, that number would have been 19.8% for this quarter, versus 19.2% for the quarter that ended in March. So slight, not very meaningful pickup in the utilization there. Next quarter, the utilization report will be more on a comparable basis, and the 51% running rate that I just reported for the June quarter at the moment is up to about a 66% comparable rate.

Average day rates within that segment in the Gulf of Mexico, our supply and towing supply division. In the March quarter we reported an average day rate of $5,900. For the quarter just ended, the average rate was down to $5,570, and that was due substantially to a change in the mix of vessels as utilization did pickup towards the end of the quarter.

We put back to work more of the old 180-footers who generally work in the range of $4,000 to $4200 a day. So better utilization in this particular class of vessels actually met a lowering of the average day rate. Currently that number is probably in the $5,700 a day for those 51 vessels. I've said about 66% utilization at the moment. Some pick up in actual day rate being charged for all of those vessels in the last four to six weeks. Internationally, the numbers are much more meaningful to us at the moment and much more positive. Whereas in the March quarter, in our 30-vessel deepwater international fleet, we reported an average day rate of $12,434. For the June quarter we're reporting an average of $12,680. And we're reporting a current running rate or a current, as we sit here today rate, average of about $13,000. So a pretty nice pickup from the March quarter to where we are today.

Even more meaningful was the utilization during the quarter just closed, came in at about 72.6%. That was comparable to the March quarter where we reported 72.5%. But as we sit here today, utilization is running about 85% on that class, a class whose activity levels has certainly picked up as far as Tidewater's reporting and our results are concerned. Internationally, our Supply and Towing Supply division, the story is somewhat the same. Whereas we reported an average day rate in March of $6,134, today we're reporting an almost comparable $6,050, and a current running rate today of about $6,100. The utilization progression for that class was about 64.8, as Dean mentioned, we reported for the March quarter. We are reporting historically a 69% utilization rate for the June quarter, and a 70% utilization rate as we sit here today.

So all of the international classes pretty much are up in the utilization factors, quarter on quarter and then in addition to by the end of the month of July versus the June quarter itself. A little bit on the balance sheet, on our balance sheet, obviously still remained quite strong. Debt during the quarter, our fixed debt did go up to $365 million. That represents a 21% debt to total capital ratio. A little bit of that increase from the previous quarter where we reported $325 million worth of debt, is the fact during this quarter we identified, negotiated and purchased on the international market, three Anchor Handling Towing Supply vessels that were not a part of our original new construction program.

In fact, during the June quarter, we took delivery of five new vessels, as I mentioned, three international anchor handlers. We took delivery of our final Platform Supply Vessel under our Gulf of Mexico replacement program, and we took delivery of one more of our Fast Supply Vessels here in the Gulf of Mexico. Our new construction program that we've been talking about now, for just about four years, that total program now stands at 102 vessels. Total commitments of $1.25 billion, of which 84 vessels have been delivered. As we sit here today, we have 18 vessels being built in various shipyards around the world. The un-funded portion of that commitment is down to $125 million. Those 18 vessels represent a commitment or a shipyard value of $340 million.

So you can see we have already funded $215 million of that project. The $125 million of open commitments is basically to be funded by the payment of about $92 million for the balance of this fiscal year, and over the balance of this fiscal year, we will take delivery of about 13 new vessels. That's ten Anchor Handlers on the international market and three more of the Fast Supply Vessels. But not any immediate help, only two new vessels will be delivered during the September quarter. So the delivery of the 13 vessels will be much more heavily weighted towards the December and the March quarter. After those 13 are delivered and going into our next fiscal year, we will have five vessels yet to be delivered, but a shipyard commitment as we sit here today of barely $33 million.

So we will have worked through, by the end of this fiscal year, basically almost all of the $1.25 billion. Additional commitments have not been made beyond those. So the program not ceasing at this point in time, but certainly the cash expense portion of the program being largely behind us. I remind everybody that Tidewater at its meeting, its Board Of Directors meeting last week did declare its normal 15 cents dividend. Such dividend was payable, I think, to holders of the record I think on the 26th and payable in, early in the month of August. I and Joe will be here for official financial questions, but back to Dean for his operational update.

Thank you. As you can clearly see from the particulars of the quarterly earnings, we have cause to be encouraged by what appear to be signs of strengthening international markets. On the domestic side of the business, the rig count remains flat. We are not in the same position as the drilling companies, wherein they are able to raise rates because of a reduced supply of available equipment due to the exodus of a relatively large number of rigs from the Gulf, to more profitable areas overseas.

We at Tidewater are taking similar advantage of opportunities that have come about in certain of our international markets, as we are now in the process of moving eight vessels out of the Gulf to various international areas. We have secured contracts at good rates for all of these vessels. And they will all commence operations on these contracts as soon as they arrive. The vessels that we're mobilizing are a mix of boats. But most of them are part of our newer replacement fleet. It will be brought back to the Gulf of Mexico, when conditions warrant. Too early to tell what impact these vessel movements will have on our domestic earnings in the future. They all will contribute nicely, however, to our consolidated results beginning next quarter.

Our core international business continues to improve in several markets. And although the pace is slow, it appears to be sustainable. Excluding the North Sea, almost every market shows promise for improvement. And even the North Sea is showing hints that it, too, may improve.

Although it is often difficult to predict the eventual timing of customer project startups, we know that the projects are there. The major oil companies who operate them intend to spend the necessary funds to fully develop them. We're confident that Tidewater will participate in many of the large long-term projects when they are initiated. I will mention that any improvement in the North Sea markets should diminish the exodus of vessels from that market, looking for work in other areas.

All in all, I believe that we should be able to take advantage of the strength and expansion we're seeing in our international business in future quarters. I caution that the utilization pickup internationally will probably be gradual, and that day rate improvement will probably occur slowly. Our new buildings and replacement vessel purchases should show increasingly better utilization as the market evolves. As will the remainder of our international fleet. The vessels in our construction pipeline should be delivered into the marketplace with good timing. I'll now open the line for questions.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Again, to ask a question, please press star, then the number one.

Okay, Melissa, we're ready.

The first question comes from John Chappell (ph) of JP Morgan.

Hi, John.

Hi. Good morning, guys. I had two quick questions for Keith. And then a more strategic one for Dean. Keith, on the one expense item that you failed to go over was the G&A, that was pretty big sequentially and a little bit more than the guidance you gave in the April call.

Couple of things, and I'm sorry I missed that, because I intended to. If you went back to our June of last year, our September and our December quarter, you would see that it's not up, but about $400,000 for those quarters. The G&A cost is up and will be, the number this quarter is reflective on what we would expect on a go forward basis. So the number at 17.5 would be the number that we would expect to be realistic. The reason that the last quarter was down where it was, was the fact that in last year, if you might remember, last year was the year that started off with better numbers and our markets deteriorated through the end of the year. We start off on a kind of a worse basis accounting, and we were accruing into our compensation packages some anticipated bonuses at year end under our bonus programs here at Tidewater. As earnings failed to materialize last year, when we got to the fourth quarter, not only did we have additional accruals, but we had to reverse some of those this had been accrued earlier. So the fourth quarter had about a $700,000 swing in management compensation from this quarter to be under normal conditions. We have had no real increases in those costs here. And the other item is Tidewater last year, I think, somewhat in anticipation of having to one day expend stock options, our board actually granted a few restricted shares last year. And those are now having to be amortized through the P&L as opposed to stock options as such. So two items that affected this quarter. And really the only affect in this quarter from a year earlier would have been the amortization of the restricted shares. Everything else would have been on a normal par.

OK.

But 17.5 should be reflective. As long as earnings are on an increasing basis, as long as earnings don't fall off the table again, that should be a fairly good number going forward.

OK. And then on the tax rate, the guidance last quarter was around 34, and you came in at 32. Which would you look at for the next three quarters?

A little bit -- a little bit of a problem. Because as you know, in Congress, there is a massive tax bill at the moment. One has passed the House, one has passed the Senate. Both bills have -- they have provisions that are detrimental to Tidewater, they have provisions that are beneficial to Tidewater. When we gave a guidance of 34%, we took the position going into this quarter that the tax bill probably would have passed, that the detrimental piece was likely to pass. The good portion was less likely to pass. 32% is the number that should continue through the September quarter. And it probably should be good through the September quarter, even if the new legislation, as it is enacted at that time, we don't think it will be retroactive. So, 32% should be a good number for the September quarter. At that date, we may have to give you a little higher number on a go-forward basis if that legislation finally does clear out. But it still under no conditions, would it ultimately go higher than 34 for any of the quarters.

OK. Handicapping Congress is very difficult, obviously.

Well, and it could, it could come out better. But we anticipate 32% for the quarter going toward. We don't think the legislation will be retroactive, whatever form it finally takes.

OK. And ...

This is Dean. I'll pass on that there's actually, I would say, a better probability now that in the last quarter that the tax legislation that is eventually passed is actually more favorable to us. So things could actually get better. But all that's still in play. And there's lots of interest competing for those benefits in Washington. But I would say that things look better now than they did a quarter ago in terms of our benefiting from some of that tax legislation.

OK. And one last thing for you, dean, speaking of, in play. Now, there's been some rumors that one of your major competitors may be for sale. Can you just talk about your acquisition strategy? Would you look at acquisition, given that a lot of these assets are also in the gulf market? Would you look to acquire a decent fleet to expand your market share in some of the more promising international markets? Plus, you also have to take these U.S. Gulf assets at the same time.

We look at acquisitions a lot, John. And I guess there are a couple of opportunities that are pretty active that are out there right now. I think, one thing we have to look at, is the age of our fleet. Once, if we actually get in an acquisition a lot of more mature tonnage, we would not value that very highly in our evaluation of the overall company. So how that would play out with a couple of the opportunities that are in place is really unclear. I mean, of course, they are trying to get the most for their assets that they can. I tell you, one thing we don't need around here at Tidewater these days is too many more old ships. So we're looking at that pretty closely. And we'll just see how it all plays out. But we -- someone that had a relatively new fleet and that the pricing appeared to be relatively reasonable, we would be very interested.

Okay. Thanks a lot, guys.

The next question comes from Pierre Conner of Hibernia.

Hi, Pierre.

Good morning, guys. Dean, couple of questions. First on, I know that the gain on sale of assets is volatile and just depends. But could you describe, sort of your strategy there? Does it, I mean, is it just as simple as being opportunistic, or are there certain things that you're looking to move out? I mean, I realize again, the caveat that it is going to be volatile. What sort of perspective we should take on that?

I think if you look through time, Pierre, we have pretty much a running rate, an average running rate of $2 million a quarter of gains on sales. And this quarter was a little bit better than that, some quarters are a little bit worse. But the average is about that. We sort of, use that in our budget. But sometimes opportunities come along and we feel -- and we've got some equipment that we don't feel is strategic to our company, and we sell it. And that's what happens in this case. That's what happened in this instance.

Sure.

But you know, for your model, if that's the basis of your question, probably $2 million a quarter is a pretty good number.

And so, and then your philosophy is just kind of, somewhat continual renewal. You'll consistently have some of that?

Sure. And if we do an acquisition, we might have more. If we don't do an acquisition, we might have more, too. We just impaired 81 vessels.

Dean, on the good news, moving boats to international markets there, just to clarify that, that eight boats comes out of the 50 -- the existing -- after we're taken out the 80 plus impaired and you're moving an additional 8 out, and can you go into any more detail? Maybe they haven't arrived yet, maybe you don't want to talk about it. in terms of what kind of -- are they long-term, as in year plus contract, and customer base. Or is it majors or state owned?

Well, we've got a number of our competitors on this call, so I'll pass this to where they are going. But I will say for the most part they are very attractive contracts or we wouldn't have moved them.

Sure.

And what I don't want anybody to get the idea of is that we're abandoning the Gulf and that we're making space for maybe new construction. We can bring these boats back, we can do some substituting around. Well, we can bring things back when we see the Gulf picking back up. And -- but you know, I'll leave the answer at that, Pierre.

OK.

The new contracts will contribute very nicely, however, to our next quarter's operating results. And then we're going to play things by ear as to when and how we bring them back to the Gulf, as things in the Gulf seem to warrant their return. But they certainly can be brought back to the Gulf when we want -- when we want to do so.

OK. If you take some boats out, Dean, will you change? I know you given some guidance to the cost structure here. But do you change the cost structure, again in the Gulf at all, or you maintain current support levels as they are?

Well, we'll have to look at that. You know, we've driven down our administrative support structure pretty well. This exit, these vessels will, you know, prudence dictates that we look at it pretty closely. But hopefully we won't have to make any more additional cuts. If we do, we will.

Yes.

We will look at it more closely.

OK. Good. Look I appreciate the information and I'll turn it back. Let some other guys ask. Thank you.

Good talking to you.

Your next question comes from Bill Sanchez of Howard Weil.

Hi, Bill.

Good morning. Just a bit of a follow-up on that prior question, Dean. On the eight vessels, you said they were going to be primarily newer boats. Should we be thinking, and maybe this is more for Keith as well, should we be thinking as we look toward the September quarter, allocation in the Gulf of Mexico, how many, how much we'll be cutting down out of the deep water. Any of those coming out of the deepwater fleet or is just going to be coming from the Standard Supply Vessel fleet?

A couple will come out of the deepwater. And I say a couple, I'm not going to give you the -- couple, it could be one, it could be three or it could be four, but a couple. And then, a few come out of the Standard (ph) Supply supply and a couple others come out of crew and utility. So I'm not going to give you the exact numbers because I just don't want to telegraph too much. I hope you'll bear with me with that.

That's fine. And just on the 83 impaired vessels, in the last quarter you all gave guidance in terms of how many you thought would ultimately be scrapped, how many you thought would actually be sold in the non-oilfield. I think it was about half and half, I guess. Is that still the expectation now? And are some of those sales going to start creeping into the September quarter gains, Dean, which you outlined about 2 million a quarter?

You know, we had the 2 million a quarter before we impaired any vessels. So you know, I don't think you need the impaired vessels to arrive at that $2 million a quarter number. To answer your question specifically about the impaired vessels, we've already had some opportunities to dispose of some. We didn't quite like the pricing that we had, so I sort of sat on them. I think the opportunities are still there. It's just, you know, a lot of this stuff is by feel. And I think we're going to have some nice opportunities for some of those impaired vessels, and we'll react to them as we feel appropriate. But the $2 million a quarter is a number that's been constant for a long time without having any impaired vessels.

Bill, we have nothing as of the end of July that would indicate other than the kind of average running rate. We don't have a big sale that we've booked or anything at the moment, other than, you know, the kind of general guidance. We would hope to be right on line with that number. But there's two months, and when the opportunities arrive, that's when you make your decisions.

Sure. Thank you for that. I just want one follow-up. You said in the Gulf of Mexico profitability was better by about a million and a half versus the prior quarter. I think Keith, you've given a number of $3.1 million operating loss. What's the outlook, you know, here in terms of the September quarter? Is that -- do we see that business getting to breakeven, given the higher utilization and a bit higher day rates here or does the migration of some of the boats out, you know, kind of keep a lid on returning that to profitability? How are you all thinking about that business now, in terms of potential breakeven point?

You know, Bill, last September I said we were going to get to breakeven one way or another in our domestic business. And Jeff Platt was off in Houston visiting customers that day. And he came back wanting to know what kind of trick bag I had put him in. So I'm going to let Jeff respond to your question right now. He's right next to me.

I think the answer to that is certainly on the remaining vessels we'll see the utilization come up where it needs to be. Day rate increases, that's yet to be seen if that's going to be able to be achieved. Certainly losing the vessels that are being talked about, that's going to take out a bit of the revenue side, certainly. I'd say in this quarter, as we're seeing the vessels leave, it's probably going to be about a wash. I'd say that we should probably have that loss in the quarter and then in the following quarter, I think we should do the return to at least a breakeven domestically.

Okay. Jeff, any of the rate increases you're seeing right now in the gulf really just a function of the seasonal construction period? Or what's really driving that right now.

I want to be cautious when I say the rate increases we're seeing. We're seeing utilization firm up. Certainly the rates, certainly have not seen a real big increase there. So it might be more by less. Some other companies have also moved some equipment out of the Gulf. So cautiously saying, you're seeing a little bit of an improvement, but I think it's more by less. Certainly the rig count has languished and it really hasn't shown any significant increase.

Thank you all.

Thanks, Bill.

The next question comes from Bill Herbert from Simmons and Company.

Hi, Bill.

This is actually Scott Gil (ph) with Simmons.

Scott, I thought you had changed companies.

No. Still here, Dean. Dean, if I could ask just a couple more questions on these boats leaving the Gulf of Mexico. What's the timing of these vessels leaving the Gulf?

It's a mixed bag also.

It's a mixed bag. But for the most part, much of it is done.

OK. I guess what I was, kind of curious about, I think in Keith's comments he talked about some increased utilization levels in the Gulf of Mexico. I'm trying to figure out if that's just a function of vessels leaving the gulf, or if there's some underlying activity increase?

The statistics I gave you are kind of where we stand today. So, Jeff will have to get back and answer is it -- what's actually doing the pickup. But, we gave you deepwater statistics for international of about 85% and almost 85% in the Gulf. So if we moved whatever vessels from one to the other in those classes, it wouldn't affect either one of them. We'd still be going at the same levels. So, I think Jeff tried to address the issue of just a kind of a, utilization pickup anyway. Our pick up in utilization is directly tied to the fact that we have eight less vessels for him to market. Jeff, do you want to address that?

It certainly will affect the utilization. We can be more efficient with the vessels we have. But when you look at the rig count, it's for two quarters in a row they used rig counts in the low 90s. We haven't seen any increase in it. Maybe it's bottomed out, that's the good news there. Another thing that I think we're seeing is, the rigs move from client to client. And we are seeing -- we are seeing clients that we enjoy very favorable business relationship with. Maybe their activity is picking up, which is also helping Tidewater.

Let me make one, kind of, final comment, Bill. When I say the movement has pretty much done, what I mean is that they are out of sort of objectively but they're not necessarily in the international fleet yet. Some of these are in dry dock, some are in transit, some are in mobilization. For -- they are not really helping -- they are helping Jeff's utilization numbers some, but they are not really in the revenue stream necessarily in the international numbers. So I think for the purposes of looking at Jeff's utilization, they are almost all out. For the purposes of looking at the international utilization, they are not in. So they are sort of in that in between period when they are either in dry dock or in mobilization to the new jobs. But by -- I'd say certainly by the end of next quarter, they will all be contributing nicely to our international strength.

Okay. So partial benefit in the September quarter, full benefit in the December quarter.

That's right. You got it right.

That's correct.

OK. And I guess lastly here, with respect to deepwater, Gulf of Mexico, we keep hearing about, you know, prospects for increased levels of activity in 2005. What are you seeing with respect to the boat market servicing the deepwater rigs next year?

Well, you know, we sort of heard that the same thing a year ago. 2003, everybody was saying it was going to be better than 2004. I believe it when I see it. We're hearing a lot more of it this year than we heard last year. Certainly we will welcome it if it's there or would seem to be there. Product pricing of our customers is so good. But you know, a lot of those guys are struggling to keep production up. And they are looking at their numbers pretty closely. So I think the probabilities in general terms are higher, that 2005 will, in fact, be better than it's been in 2004. But I don't think anybody was really expecting deepwater activity to have been as flat as it's been in 2004.

You're not getting a sense from your customers, Dean, that there will be a shortage of vessels to supply their needs for deep water?

Jeff, you want to take that.

No, I don't think there's going to be an overall shortage. Again, it still -- even in the deep water, there's times when a well is spudded and they need a large amount of mud, they may bring on several spot large vessels. That tightens up a little bit. But overall, I don't see there's going to be a shortage of deepwater vessels.

Great. Thank you.

Thank you.

Again, if you would like to ask a question, please press star and the number one on your telephone keypad. Your next question comes from Jim Crandell of Lehman Brothers.

Hi, Jim.

Hey. Good morning, Dean, how are you?

Fine. How are you?

Good. First topic is, can you comment on, first of all, what you think your new vessel construction plans going forward are likely to be, presuming no acquisition and presuming sort of modest pickup around the world like you're seeing now.

Modest pickup?

OK. Modest pickup in demand. Tidewater doesn't do any acquisitions. What are you -- what are you thinking of in terms of your own new build program under that scenario.

Well, my bet is to do an acquisition. That's what I really want to do if we can do the right one. Most of these -- most acquisitions don't work out. Seven out of ten are ultimately failures. And so, you know, our criteria are pretty stringent in terms of, when we get ready to do one. Nevertheless, that's what we want to do. We think putting more equipment into the market is something we may be forced to do. But that's not our bent. Our bent is to try to take equipment that's already in the market. We've just done that in a much smaller way this year already by buying equipment that was already built by somebody else. We bought it, we put it on jobs that we had, they didn't have, we put it right to work. So to answer your question. Specifically a lot's going to depend on what opportunities we see coming forward. If we see some more onesies and twosies and threesies and foursies of vessels, that we think that our needs, we may just buy them, and instead of ordering, making new shipyard commitments. If we don't see those as attractive opportunities, we may make some more shipyard commitments. But, I think that's not something I'm necessarily going to telegraph. We'll play that by ear. We've spent a lot of money on new equipment. We need to integrate that new equipment into our fleet nicely, where it's producing nice returns. And we'll play it by ear as to how things go forward. We had previously said in other conference calls that you could count on about $150 million a year of new capital commitments from this company. We've already this year done about $100 million of commitments. So we've got some more room within sort of our goal of 150 million for this year, but we may go faster or we may go slower. Bill O'Malley, when Bill was running this company, Bill said, and it's something that I absolutely concurred with at the time and I still do, that this is something we are going to evaluate on a year by year basis. We're not going to say today what we're going to do for the next five years. We'll say today what we see for the next year maybe. And all that's going to be contingent upon events as they transpire. So, it's a loosey goosey answer, but that's the way it is, Jim.

Good answer, Dean. Two related follow-up questions. Number one, what are you seeing in terms of new vessel orders from the Scandinavian companies currently? And secondly, what kind of speculative orders are you seeing by shipyards? For example in the rig business today we're actually seeing the shipyards just start building vessels with the idea that some rig owner or potential rig owner will take them out of it as it goes through the building process. Are you seeing that in the supply vessel business currently?

Only in the Far East. None in Europe. And in the Far East, in fact, we have bought a number of those speculative new builds. And they happen to fit the exact specs for which we were looking. So they worked very nicely. We may have overpaid a little bit for them. But we got them just when we needed them. We didn't have any supervision costs. And there's more of that out there. I noticed yesterday an outfit in the Far East called GIAZ (ph) ordered speculatively four more, roughly 5,000 horsepower vessels. There's some of that, out there in the Far East right now. GIAZ (ph), the company is supposedly in play. No telling what's going to happen with them. But I suspect there will be some of that. But I think if there's any company that has the financial wherewithal to take advantage of it, it's us. Our balance sheet is just pristine. And Keith is managing our cash very judiciously. And so, yes, there's some out there. But it's not nearly as it was two, three years ago when you had all that stuff cascading out of the North Sea. There is some in the Far East, but it's taking longer, the quality is somewhat suspect. There's other things involved. But mostly, most of the speculative building right now is limited to the Far East.

Okay. Another question on the supply. Most of the equipment out there is old. So the industry as a whole, was either nearing retirement age or past historical retirement ages. Are you seeing other companies take steps like you have or just retiring vessels? Do you think there's any kind of step-up in the retirement of these 20 to 25-year-old vessels that are so prevalent up here?

No. Most of the companies that are open will go by Seabulk or Trico or something and do some of that cleanup for them. And you know, as I said earlier, that's not really our -- what we're looking to do. Some other companies need to step up to the plate. They haven't done it yet. We've not seen any of it. What happens with Trico is a big question mark. And you saw last week, trade winds such as Seacor and Seabulk were in some talks. And we weren't (inaudible). There's no telling what's going on with Seabulk but they have some old equipment. And how it's going to shake out, I'm not sure. But I think how it does shake out is ultimately going to be favorable for the industry. Big question mark, how it's going to play out but there's a lot going on right now, I think.

OK. One operating question. West Africa is your, I guess, most important region. Can you comment on the outlook as you see it now in Angola and Nigeria, and then, if you could, Dean, break it down shallow water versus deepwater.

Jim, we have Steve Dick with us today. And Steve has been involved in that business segment of ours for the better part of the last 15 years. If you don't mind, I'm going to pass that question to Steve.

Jim, as everybody is aware, the deepwater play in West Africa is on everybody's lips. And some of it has come to pass. But like many things in West Africa, politically and operationally and for a lot of different reasons, many of these things kind of get pushed out. We've enjoyed our part of that and will continue to. And there's a lot of things that are coming. They keep getting put off, they keep getting pushed back, but the programs are there. And somehow the majors always eventually work out the difficulties and get over the obstacles. So that looks pretty good for us. In the near term, the shallow water market, the jackup business in West Africa is pretty flat. There's a few rigs that are available or some have moved out of the area. But it looks like that towards the end of the year, that that will probably -- that will probably pick up a little bit. Many of the majors are getting rid of the shallow water and then turning that over to the small independents or even to local groups in Nigeria and the Congo and a few places up and down the coast. So we look for that to get a little bit better towards the end of the year. Our utilization there is OK, and it's gotten a little better over the last few months. But we look for it to be kind of steady. But the deep water really hasn't kicked in completely because a lot of the programs have been pushed out.

OK. Thank you, Steve and Dean, appreciate it.

At this time there are no further questions. Do you have any closing remarks?

Well, I'd like to thank everyone for their interest in our company and wish everyone well and have a good week. Thank you very much.

Thank you for participating in today's Tidewater First Quarter Fiscal 2005 conference call. This call will be available for replay beginning at 11:30 AM. Eastern Time today through 11:59 PM. Eastern Time or Thursday, July the 29th, 2004. The conference ID number for the replay is 8576067. Again, the conference ID number for the replay is 8576067. The number to dial for the replay is 1-800-642-1687, or 706-645-9291. You may disconnect at this time. 1