Oceaneering's ROV Operating Income Buoys 3Q Earnings

Oceaneering has reported earnings for the third quarter ended September 30, 2009. On revenue of $484 million, Oceaneering generated net income of $49.8 million, or $0.90 per share. For the third quarter of 2008, Oceaneering reported revenue of $516 million and net income of $55.0 million, or $0.98 per share. For the second quarter of 2009, Oceaneering reported revenue of $451 million and net income of $48.1 million, or $0.87 per share.

Sequentially, quarterly earnings improved on solid growth in ROV operating income. Year-over-year, quarterly earnings declined primarily due to lower Subsea Products operating income on a decrease in umbilical plant throughput and higher BOP Control System development and manufacturing costs.

T. Jay Collins, President and Chief Executive Officer, stated, "Our third quarter performance was highlighted by record ROV operating income. Earnings per share were at the top end of our guidance range. All of our business segments had operating income performances in line with or better than what we had expected, with the exception of Subsea Products. In Subsea Products, we incurred $5.5 million of unanticipated costs on two BOP control systems that are in the final stages of manufacturing.

"Our all-time high quarterly ROV profit performance was attributable to achieving a record number of days on hire. During the quarter, we put 11 ROVs into service and retired three. At the end of September, we had 243 vehicles in our fleet, compared to 223 a year ago.

"During the quarter our capital expenditures were $55 million, of which $47 million was in support of growing and upgrading our ROV fleet. We also repaid the remaining $20 million of our 2009 debt maturities. As of September 30, 2009, we had $120 million of debt, over $80 million of cash, and $200 million available under our revolving credit facility. With $1.2 billion of equity on our balance sheet, our debt-to-capitalization percentage was 9%, down from 24% a year ago.

"Despite reductions in exploration and production spending by our customers, overall demand in the first three quarters of 2009 for our deepwater services and products has held up remarkably well. During the quarter, our Subsea Products backlog declined slightly and was $328 million at September 30, 2009. We have taken proactive steps to align our cost structure with lower activity levels where appropriate. As a result, our year-to-date EPS is only 3% below that of the corresponding period in 2008. We now expect that our annual 2009 EPS performance will be the second best in Oceaneering's history and are narrowing our annual guidance range to $3.32 to $3.38. For the fourth quarter of 2009, we are forecasting EPS of $0.75 to $0.81.

"According to the International Energy Agency, there is a surplus supply of oil due to a reduction in demand stemming from the 2009 global economic recession. Heading into 2010, we believe deepwater drilling activity will continue to grow as new floating rigs currently under construction are added to the worldwide fleet. However, we do not expect deepwater construction activity to increase next year, as we anticipate project deferrals to continue until there is a recovery in hydrocarbon demand. Consequently, we are forecasting 2010 EPS to be relatively flat with 2009, in the range of $3.25 to $3.55. Our 2010 forecast assumptions include unit volume growth and increased operating profits from ROVs, improved operating efficiencies and results in Subsea Products, declines in Subsea Projects activity levels and operating income, and a lower contribution from MOPS due primarily to the expected retirement of the FPSO Ocean Producer.

"For 2010, we anticipate generating in excess of $300 million of cash flow, simply defined as net income plus depreciation and amortization. This projected cash flow would provide ample resources to invest in Oceaneering’s growth, either organically or through acquisitions.

"Looking longer term, our belief remains unchanged that the oil and gas industry will continue to invest in deepwater to counteract high existing reservoir depletion rates. Deepwater is one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low per barrel finding and development costs. Therefore, we anticipate demand for our deepwater services and products will remain promising."



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