President, Chief Executive Officer, Director Chief Financial Officer, Senior Vice President Analysts Scott Gill Dahlman Rose & Co. Waqar Syed Jefferies & Company Michael Marino Capital One Southcoast, Inc. Tom Escott Citadel Investment Group Victor Marchon

Good morning. My name is Amber and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Jurkoshek, you may begin your conference.

Good morning everybody. And I would like to thank you for joining us on our 2008 first quarter earnings conference call. As usual, a web cast of this event is being made available to the company board room services Thomson CCBN. Joining me this morning is Jay Collins, our President and Chief Executive Officer who will be leading the call; Marvin Migura, our Chief Financial Officer and Bob Mingoia, our Treasurer. This is the reminder, remarks we make during the course of this call regarding our earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements made pursuant to Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. And I'm now going to turn the call over to Jay.

Thank you, Jack. Good morning and thanks for joining the call. It's a pleasure to be here with you today. Our record first quarter EPS is $0.74 was near the top end of the guidance range we gave last quarter. Earnings of $41 million were nearly 25% more than the first quarter of 2007. To put this in even larger historical perspective, we earned more net income in the first quarter of 2008 than we earned during the entire calendar 2004 just three years ago. ROV achieved record quarterly operating income and Inspection's quarterly operating income was more than double that of the year ago. We continue to expect to achieve fifth consecutive year of record EPS in 2008 and our overall guidance range of $3.50 to $3.80 remains unchanged. The anticipated EPS increased from the $3.24 we earned in 2007 is attributable to our business focus on deep water and sub sea completion activity. Year-over-year, ROV operating income increased over 50%. This was accomplished by improving our average operating income per day-on-hire by 40% through 19% increase in pricing and growing our days-on-hire by 7%. Sequentially, ROV revenue and operating income were essentially flat. Operating income margin during the quarter was 29%, up from 28% last quarter and 27% on average last year. The improved margin was primarily attributable to our success in increasing our average pricing per day-on-hire and outstanding operational execution. The increase in year-over-year average revenue per day-on-hire includes the cumulative effect of all price increases made during the past 12 months and should not be misconstrued to be improved pricing during this quarter. Likewise, a disproportionate number of systems had rate increases effective in the first quarter of this year. So we do not anticipate continuing to achieve sequentially... sequential quarterly increases of our average…

Thank you, Jay. Good morning everybody. If you add depreciation back to our net income, we generated nearly $68 million in cash flow in the first quarter, 23% more than the first quarter of 2007. If you add depreciation back to our operating income, you get $91 million, up 21% from last year. Anyway you want to measure our cash generation, you'll find a considerable increase over the last year's results. Capital expenditures, including acquisitions during the quarter, totaled $88 million. We invested $49 million in our Subsea Products business. This included approximately $45 million to acquire GTO Subsea, a rental provider of specialized dredging and excavation equipment, to expand our ROV tooling fleet. We also invested $31 million to upgrade and expand our ROV fleet. At present, we anticipate spending about $200 million in capital expenditures in 2008. The remaining projected expenditures of approximately $112 million consist mainly of additional ROV fleet growth, organic growth investments in Subsea Products and maintenance CapEx. Above and beyond this expected level of capital expenditures, we continue to look for additional accretive acquisitions and organic growth opportunities with better than cost of capital return. Primarily, we intend to use our strong cash flows and balance sheet to further grow our earnings. To the extent we do not find suitable investment options, we intend to pay down our debts. Our balance sheet remains in excellent condition. At the end of March, we had debt of $245 million and equity of $967 million. Our debt-to-cap percentage was 20%. Thank you. Now I'm turning the call back over to Jay.

Thank you, Marvin. In summary, our first quarter was in line with what we had anticipated and we're looking forward to achieving record EPS performance in 2008 for the fifth consecutive year. Our focus on providing products and services for deepwater and Subsea completions positions us to participate in a major secular growth trend currently underway and that will fill services in product industry. Looking forward, we believe deepwater is one of the best frontiers for adding large hydrocarbon reserves with higher production flow rates of relatively low finding in development cost. Specific signs of a healthy deepwater market that would drive demand growth in 2008 and beyond for our services and products were evident at the end of March 2008. About two-thirds of the deepwater field discoveries around the world were not yet in production. Over 95% of the existing floating rigs in the world were under contract and over half of these are contracted to 2009. 79 additional floating rigs either have been or scheduled to be delivered during 2008 through 2011, 57 of these have been contracted, 22 ROV commitments have been made on this contracted rigs and we won 21 of these jobs and we will provide 25 vehicles on these 21 jobs. Our assessment is that 15 new floating rigs will be placed in service during 2008, all of which are contracted. We won 12 of the ROV contracts awarded on these and we'll provide 15 ROVs on these 12 jobs. We're in advanced negotiations on one of the remaining three rigs and the other two are going to work for Petrobras and we will bid for these jobs up on issuance of the bid documents. During the quarter, one new floating rig was placed in service and one of our ROVs was on board.…

Amber? Question and Answer

Operator: [Operator Instructions] Your first question comes from Scott Gill Scott Gill - Simmons & Company International: Yes, good morning, gentlemen.

Good morning, Scott.

Good morning. Scott Gill - Simmons & Company International: Jay, I know you get to ask this question a lot but you just went over the Quest numbers for umbilical orders. Why do you think we're yet to see that type of forecast flow through into your orders and backlog at Subsea Products?

That is a good question, Scott. I ask it to everyone that I see around the industry as well and I get various different answers. I think one is that while the tree orders get placed... first of all I think these projects are slipping to the right. But I think tree orders get placed earlier and I think the umbilical is placed closure to when it's going to be actually installed. Somewhere in there I think is the truth of the situation. I think that some of these new projects keep being technically reevaluated up into the very last minute and they put off the umbilical orders as long as they can. They seem to be on the way. Scott Gill - Simmons & Company International: Okay. You see no signs of market share loss or anything along those lines, just it's more of an industry wide umbilical issues more than anything, is that correct?

I have to say I was somewhat pleased to see the Quest numbers come out and show that '07 was actually a down year in umbilical orders because we were experiencing orders sliding to the right and then according to their numbers that was an industry-wide situations. So no, I see no fundamental change. I will say that the first quarter bid activity for multiflex was very high. One of the highest... really the highest that we have seen in the last year and a half. Scott Gill - Simmons & Company International: Okay. That's interesting. And then Jay when we look at the ROV market, what did you guide a number of units being added to the fleet for Q2 would be?

We don't do it on a quarterly basis. We've said we will add about 30 for the year but we've also said that over 20 of these will come in the second half. So it's pretty much of a second half. Again, these rigs are doing the same thing. They are sliding to the right as well coming out of these shipyards. So, well, we think we'll add 30 systems and will go into work, more than 20 of those will be in the half the year. We said we only added two in the first quarter. Scott Gill - Simmons & Company International: Okay. Is it safe to assume somewhere around five to seven in Q2?

I am not going to predict Q2, sorry. Scott Gill - Simmons & Company International: All right. Thank you.

You bet.

Your next question comes from Neal Dingmann.

Good morning, Neal. Neal Dingmann - Dahlman Rose & Co.: Good morning guys. Say, two quick questions on staying with ROV, is there anything as far as... utilization obviously looked to be down just a little bit. Is that more of just transport, just sort of typical business operations in the first quarter, should we read anything into that?

I think it just relates to... we have looked and our assessment is that it just slow construction start in both the Gulf of Mexico and the North Sea and we all know the weather was pretty bad, but I'm not sure... I'm not in the construction business, I don't know what causes their projects to start and be delayed a little bit. So I think it was just a slow start in the construction market, that's our best answer. Neal Dingmann - Dahlman Rose & Co.: Okay. So that doesn't change you thought as far as utilization or anything on sales going forward?

It's just a very short-term situation. Neal Dingmann - Dahlman Rose & Co.: Okay.

We did say that we expect utilization for ROV fleet to be very comparable to that of 2007 for the remaining nine months of 2008. Neal Dingmann - Dahlman Rose & Co.: Right, Okay. Perfect. And then lastly, on the Subsea products, you did mention in your... in the comments and then in the press release as far as the lower margin due to the mix and the Multiflex, we just wanted sort of... as you see going forward, how does that mix look or what type of products are you seeing in there going-forward, are you back to close to where we saw last year and then how does sort of Multiflex look this year and next year kind of on a further out [ph] basis?

I think as we go forward, we will see more... we certainly see Multiflex activity picking up as we get into the second half of the year. So I think that mix will slide a little more in their favor in the second half of the year, otherwise no significant change from on an annual basis?

I think the comment that we make where we expect margin to be slightly up year-over-year, 2008 over 2007 really is the best indicator of product mix, I mean, we explained that the first quarter of 2007 had a unusual amounts of [inaudible] activity at very high margins and that was the... really the difference. It wasn't the product mix in '08, it was the product mix in '07 that was the bigger issue because of variance. So I think, year-over-year, we expect product mix to be kind of comparable, margins up slightly with more Multiflex Umbilicals throughput. Neal Dingmann - Dahlman Rose & Co.: Good, Thanks. Look forward to all the activities.

You bet.

Your next question comes from Waqar Syed.

Hi. I have a question on the backlog, the backlog number that you gave for the end of the quarter, I'm assuming that excludes the $30 million contracts that you announced yesterday?

No, actually that is... that includes those contracts. So, we are up 4%, we had said last quarter that we thought it was going to be flat and so, okay, we're up 4% and it includes both of these contracts.

Okay.

So, I will say since you've asked about backlog that we talked about big jobs slipping from '07 into '08 and maybe even out of the first quarter. And we do have a letter of intent now for a project almost $40 million with authorization to begin spending money on the job and we anticipate that purchase order closing in May or at the late as June. So, that was one of the orders we thought would actually book in 2007. So it just indicates the orders are there and they will come but they are sliding.

And this $40 million job order that's not part of the backlog or is that --?

It's not in our backlog now. We don't put anything in unless we get a PO. So, we usually don't talk about something like letter of intent but since it's such a large number and we've been talking about order sliding up, I would make an exception in this case.

Okay. Great. Thank you very much. That's all I have.

You bet.

Your next question comes from Stephen Gengaro. Stephen Gengaro - Jefferies & Company: Thank you. Good morning gentlemen.

Good morning.

Good morning. Stephen Gengaro - Jefferies & Company: Really two things, One on the ROV side and I know you mentioned the numbers and the numbers are obviously very positive as far as your market share awards. Have you seen some of the non-traditional drill rig support guys, the ROV companies on the construction side, worker get more aggressive on the drill rig support side of the business?

We have not seen it at all, frankly. We do see some vessel guys deciding to put vessels on... ROVs on a vessel. But we haven't seen those people coming after something in the drill support side. Stephen Gengaro - Jefferies & Company: And then as a follow on to that, have you... are the terms under the contracts changing at all as far as duration is concerned on some of these ROV contracts so that people out there looking for longer deals that are locked in place or is that not an issue?

I don't think we've seen any change in terms. We... on some of these longer-term rigs, we are happy to lock-in the equipment rates overtime but we retain the right to increase personnel rights as cost go up. But generally, no real change in the market on that. Stephen Gengaro - Jefferies & Company: Very good. And then just one final sort of small financial question. When you look at your debt-to-cap ratio, is there an optimal number you shoot for and if it's below that number, would you look at share repurchase as an option for an aggressive use of cash?

Yes, we will. We really don't have any right now, Stephen, I think the plan as we said is to grow earnings and to reinvest our cash flow, debt is actually going up, it's just that equity is going up faster and we are okay with that. If we find that repurchasing shares is a better use of our money that is the next best alternative in our opinion. Stephen Gengaro - Jefferies & Company: Okay. That's helpful. Thank you.

You bet.

Your next question comes from Michael Marino. Michael Marino - Johnson Rice & Company: Good morning, gentlemen.

Good morning, Michael.

Good morning. Michael Marino - Johnson Rice & Company: Marvin, I guess my first question is for you. I look at, at least my estimate anyway for the products group was well below which you have actually reported and I want to get a hand on where you were internally. I know you lowered your guidance for the products business by $5 million but versus my estimate the first quarter was $10 million late. Was I just too high or have you actually increased your outlook for Q2 through Q4 based on the bidding activities on Q1?

Michael, I'm not going to go ahead and comment on your model or on anybody's model. I think what we do, we find it very difficult to project product activity quarter by quarter and what we looked at for the year is it was going to be $30 million to $40 million and we took $5 million out of that. And since the first quarter was flat, we are expecting to get the balance over the nine months. So I think, I guess in comment, it was lighter than what we expected and we do see the projects slip into the right. So we thought the $5 million adjustment in our forecast was a prudent thing to do. But we do believe it's achievable, otherwise we wouldn't have done that. Michael Marino - Johnson Rice & Company: Based on the first quarter, not on any change in your outlook for Q2 through Q4?

Correct. Michael Marino - Johnson Rice & Company: Is that fair?

Yes. Absolutely. Michael Marino - Johnson Rice & Company: Okay. I guess just to follow up on a backlog question someone else asked. Jay, you mentioned expectations for an increase in backlog at the end of Q2.

Right. Michael Marino - Johnson Rice & Company: And you explained that a little bit with the $40 million LOE, are there other projects out there other than these big ones that you see breaking loose that could potentially be in the Q2 backlog number?

Well, I really can't comment on any particular job, but we're looking at orders all the time and we had a long list of things that we are bidding and so we have a pretty good detailed list of what we think is going to happen over the quarter. So, yes, we feel confident that our backlog is going to be up in the second quarter. So we do a lot of detailed work on the projects that we are bidding, but trying to predict when they close is difficult. So predicting backlog, I am reluctant to be in the backlog predicting business, but I seem to be doing it any way. Michael Marino - Johnson Rice & Company: Right. I understand that. But do you feel that these things are starting to break loose or getting close?

I think... I really couldn't say that. I think it's a one at a time type situation and I can't... I wouldn't give any comfort [inaudible] everyone to fight to the finish line. Michael Marino - Johnson Rice & Company: Okay, that's fair enough. One final question, can you give us some estimates may be on what you feel your market share is in Brazil on the Multiflex side in the OIE?

Jack, you have any numbers on that?

Yes, Michael, over time, we believe on the umbilical side, it's one-third. There's two other players down there, Prysmian and a company called MFX and over time Petrobras pretty much parcels the bids out equally to all the companies. Michael Marino - Johnson Rice & Company: Okay. Thank you.

Okay.

You next question comes from Joe Gibney.

Good morning, everybody.

Good morning, Joe.

Good morning, Joe.

Just wanted to follow up, Jay just... you haven't touched on Inspection business, obviously didn't see the normal seasonal decline, it was well ahead of my expectations. Sounds like it was ahead years, just look at a little bit more color about maybe what was the drag here relative to the abnormal seasonal strength.

I think we did better in West Africa than we thought and that tends not be as seasonal but I think some of the turnarounds and problems that we are working under the UK, those problems just probably started last year and I guess we're doing the Inspection, we keep finding more problems and the work keeps going on.

Yes, I think the big change was refinery turnaround work in the UK that didn't reflect seasonality because of the reasons that Jay just mentioned, Joe.

Okay. That's helpful. And I wanted to touch a little bit on the two support vessel, you alluded to the past couple of quarters, 165 boats in the new build cycle here coming through by 2011, 100 or so requiring one ROV. Any sense of how these stagger annually and I guess how far in front of vessel delivery would you sort of anticipate an ROV award on this work?

I really don't have staggered information for you. We got that information from [inaudible], so I direct you to them. They seem to be the expert on the vessel basis. And we usually talk into vessel people, six to nine months ahead of time seriously. So, maybe that gives you some help on the lead-time.

All right. That's helpful. Thanks guys. I'll turn back.

Your next question comes from Tom Escott.

Good morning, Collins.

Good morning, Tom.

I think you've touched on this already but just to confirm what I thought I heard. When you are bidding these ROV projects starting in '09 and 2010 and beyond, you are basically kind of locking in your margins or you've got pricing protection or inflation protection. Did I understand that correctly?

I think if somebody has a drill rig coming out in 2009 or even 2010 we know what our... we're going to be building ROV ahead in advance, a little bit advance of that. So we pretty much know what our ROV costs are. So we will negotiate a price, a firm price for the start of that job and then we we'll have the ability to escalate particularly the wage... the personnel rates as we go forward on those jobs. Most of those jobs are not much longer than a year or two. Some might end in two or three years but we think we have reasonable flexibility to continue to pass along, particularly wage cost, going forward.

Okay. Thank you. And then my other question was kind of Marvin question. The million dollars of other income in the period, was that foreign exchange or what was that?

Yes. Predominantly, the Reais shrinking against the dollar.

Okay. I see that was about a $0.01 right in there but sure that jumps around each quarter.

Yes, and we don't have much influence over that.

Okay. Thank you.

Thank you.

Your next question comes from Sunil Jagwani.

Yes. My question is more on, I guess in longer-term in nature over the next one to two years, is there any reason for the bulk of your business, which is in ROVs and Subsea Products. Is there any reason for those two businesses to not track the installation cycle for sub sea trees as well as the deep water rig deliveries, which basically will happen even though they are shifting to the right? Is there any reason for you to not to track those either get delayed along with their delays and grow over time that they will grow?

We don't see any reason. We put out rig utilization, tree orders, and sub sea completions as the three primary big term macro drivers, leading indicators of our business. So we see no reason that we won't follow the trend although maybe offset a little bit from tree orders seem to happen before umbilical orders do. But rig is going to work, I mean, that's a hard drive, direct drive for ROVs going on the rigs than or wells that are going to be drilled and create demand for Subsea Products. So I think it's right in the middle of fairway there.

Okay. Well then, my associated question then is, we've got visibility on ROV growth partially from day rate strength and we've got 30 ROVs being added this year, but beyond that is it kind of an implicit understanding that you would grow your ROV units also as these rigs get delivered?

Absolutely. We're trying to win every single job. As I've told you, there were 79 rigs on order accounting '08 through 2011 and we're trying to win every job. We missed one and we apologize for that, but we are trying to win them all.

I mean, and that's the part I am lacking the most data, I mean I can do some rough math but it is indeed too rough for even me to rely on it. So, I mean, what's the scope of the number of ROVs that are available for you to be bidding on? Because even the people do that kind of math for a healthy treat [ph] all the time where they look at how many need to be deployed over, say, five years and allocate some sort of a market share. I don't think I have those kinds of numbers for ROVs.

I think if you look at our presentation on our web page, you'll be able to see some pie charts that have market share for Oceaneering and kind of work that we do in drill support. We do about 54% of all the drill support in the world. You could say, our win runs on 21 out of 22 contracts is quite a bit higher. In the fifth and sixth generation rigs, there are about 35 rigs in the world today that our operating. They are called fifth and sixth generation. We are on 30 of those. So, we have a very high market share in the really deepwater drill support. All of these 79 rigs are deepwater oriented rigs. So, the great news for us is that the markets... the particular segment where we really have a high share is the market that has decided to grow so rapidly, to go from 35 and add 79 new rigs. So [inaudible] make some kind of projections there. What's that?

How many ROVs per rig would be a good number, like --?

One plus a little bit. We've got 21 contracts. We are going to provide 25 vehicles. So, basically one-to-one plus a little bit more.

And then how much, I mean... is there any sense of timing as to when these projects, even tender for... because we don't care about that and it seems to be a pretty opaque market, given that there is only a few participants. Just what kind of timings should you be associating with growth beyond the 30 that you're going to bring out in 2008?

Well, I would say, we really not predicting our own ROV fleet in multiple years into the future but again, I think on our web page and our presentation you see the delivery schedule projected for the rigs and that's very public information. So I think you could use that as a... to do your own analysis.

And it varies widely because there're some rigs being delivered... expected to be delivered this year that do not have ROV contracts yet. Yet, we have some of ROVs rigs to be delivered in future years. So that's a very difficult question to speculate on.

And I would remind you also that it's 65%, 35% mix, so 35% of our business just supporting constructing vessels and so that's the other part that we talked about. So, I won't say it's not... there is some complication there but I think you will be able to make a good analysis with the public information available plus what's on our web page in our presentations.

And my last question, the 30 that are coming on this year that already I was hoping for?

No. The answer to that is no.

No?

They are all on under firm contracts.

That's right.

Okay. Thank you.

But far by the time we get an ROV bill, we always have place for it. We don't have any sitting around available today.

Understood. Thank you.

Okay.

[Operator Instructions] Your next question comes from Victor Marchon.

Hi, good morning everyone.

Good morning.

First question was just on Multiflex as it relates to pricing. If the forecast you hold for this year and next as into order flow, at what point you guys see a positive inflection point on pricing for umbilicals?

Victor, I wish I knew that I would just say, at this point it still remains a competitive market. So we fight for every order. I wish our competitors would raise their prices so we could raise ours, but so far it is a very competitive... it's still a competitive market and I just don't know.

The second was just on backlog of the number that you guys have the $253 million, how much of that is going to be a worked off this year?

We said in our 10-K that of the $338 million most of it.

All, but $10 million.

All, but $10 million was going to be worked off. Okay? And that's really the only time that we specifically look at our backlog and try to divide it between what period the backlog is going to be worked off. And the other thing, Victor, is sometimes we get an order and it goes into our backlog because it's a firm order. But yet the customer continues to change engineering specifications, so we are delayed from start-up. And so, it really is a complex guess, but we do that once a year and so I mean if... of the $338 million, our best estimate was that all but $10 million. You can sort of extrapolate from that when it gets to $353 million, one quarter later.

Okay. That's all I had. Thank you.

There are no further questions at this time.

All right guys, thank you very much. I appreciate your interest.

Yes. Thank very much.

This concludes today's conference call. You may now disconnect.