Jack Jurkoshek - IR Jay Collins - President and CEO Marvin Migura - SVP and CFO

Max Barrett Brad Handler Neil Dingmann - Wunderlich Securities Stephen Gengaro - Jefferies and Company John Donald Chris Glaseem Jim Crandell Waqar Syed Daniel Burke

Good morning my name is Maryann, I'll be your conference operator today. I'd like to welcome everyone to Q2 Oceaneering 2010 Earnings Call. At this time I'd like to welcome Mr. Jurkoshek. You may now begin.

Good morning everybody and thanks for joining us on our 2010 Second Quarter Earnings Conference Call. As usual a webcast of this event is being made available through the StreetEvents Network Services by Thomson Reuters. Joining me today is Jay Collins, our President and Chief Executive Officer, who will be leading the call and Marvin Migura, our Chief Financial Officer and Bob Mingoia, our Treasurer. Just as a reminder before we start, remarks we make during the course of this call regarding earnings guidance, business strategy, plans for future operations and industry conditions are forward-looking statements being made pursuant to the 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 second quarter earnings per share of $0.98 were considerably above our guidance range. This was primarily attributable to the amount of deepwater vessel, ROV and ROV tooling work BP awarded us relating to the Macondo well incident. In addition to better results from operations, our second quarter included some non-recurring items as noted in the press release which on the net basis increased our earnings by about $0.03 per share. Our first quarter results included a vessel impairment charge which decreased our earnings by about $0.06 per share. On April 22, the day after Macondo well incident, we began working at a site for BP with one vessel and two ROVs and has had a substantially greater involvement in BPs spill controller and relief well effort since then. As of yesterday we were providing two vessels, 13 ROVs, ROV tooling Iwax services and engineering and project management at Macondo. Over 300 Oceaneering employees are supporting the project, hopefully to a positive final outcome in the near future. On the basis of our expected level of services and products to be provided at the Macondo well site and an overall improved outlook for Subsea Products we are now expecting a better second half of 2010 in addition when we issued our revised guidance on June the 7th. Our new outlook combined with our second quarter performance has lead us to raise 2010 annual EPS guidance to a range of $3.20 to $3.40 from $2.80 to $3.10. This is 35% EPS improvement midpoint-to-midpoint consist of $0.13 per share higher earnings in the second quarter and $0.22 per share improved second half outlook. Most of our Q2 for out performance out of…

(Operator Instructions) Your first question comes from the line of Max Barrett. Your line is open.

Thanks, good morning guys.

Hey Max.

First question pertaining to Subsea Products, just looking at the various OIE product line, specifically the non-gov mix portion I was wondering how that performed Q2 versus Q1?

I would say our performance in the Subsea Products was broad based across all in cost product lines. I think all over our goods performed well. So I think it was pretty broad based.

And then on the last call I think you talked about 40 ROV contracting opportunities remaining on your rigs. Could you give us an update on how many contracts are written in Q2? And then how many remain.

Sure I'll be happy to, Q2 was a very good quarter for us. During the quarter five jobs were awarded, five ROV contracts were awarded and we won four of those. During the quarter we put three ROVs or all three new rigs that replaced in service. Cumulative since 2007 we put ROVs on 33 of the 36 new rigs that had come to work or 92%. And overall our cumulative total win loss record on all new build floating rigs since 2007 including those not yet working has been 45 out of 72 or 63%. I'll put a write-down on that is our win loss record with TMX the work over three, win loss record for Petrobras is 12 out of 29 a 41% and with all other operators it's 33 out of 40 or 83%.

Thanks, that does it for me.

You bet.

Your next question comes from the line Brad Handler. Your line is open.

Thanks, good morning guys.

Good morning.

Good morning.

Could you just speak to -- a little more to the I guess the optimism you have in products for the second half of the year relative to where you were just I guess a couple months ago, just breaking it down a little bit further between, kind of what is Macondo related? And then where you're seeing some of the other improvement?

Well just to repeat it

Yeah.

Right on the call there, we've talked about outlook being $0.22 better for the second half of the year, half Macondo $0.11, and $0.11 on other businesses and with Products being a primary area. I think again that is broad based across our business in general. I think all of our businesses really are anticipating a little bit better business than we anticipated in our previous conference call. Our Subsea field development business particularly in where we are providing a Subsea equipment for West African projects or large OEM customers that we have continues to do well, Multiplex continues do a little bit better. I think it's been a generally broad based area.

Okay. Should I think of it in terms of the took packages and the Iwax kind being Gulf of Mexico related and the field development is international?

I think that is generally true. And then let me just say we were very pleased that we were able to supply BP with a tooling a Iwax services and also with regard to vessel and we talked in our quarterly guidance you see this huge whole in our business in the Gulf of Mexico and I'm just very proud that our people have been able to move this quickly as we could to supply products and services to a customer that really needed them. But when I talked about our 300 feet through the year people have been working 24x7 to be able to provide these services and products and particularly on tooling and the Iwax and as well as the vessel support and all kinds of engineering support that's been going on. So I think agree with your characterization tooling and Iwax being mostly Gulf of Mexico. But I think it's just not a normal or accident that we were able to accomplish this much for our customer during this previous quarter.

Sure. Just one more sort of unrelated follow-up, I guess. In terms of the guidance and how that plays out by quarter there's clearly a step down in the fourth quarter relative to the third and I guess it make sense as the relief well hopefully take hold. What's your visibility on the fourth quarter? Perhaps maybe what's the opportunity for products sales to be meaningfully higher than what you can see today? I am not trying to force there, I am just curious for the range that you might be able to see in the fourth quarter?

I think, looking at the second half as a whole which I think is the most reasonable thing to do right now. I think we've given you a realistic range that wouldn't encourage you think outside of that range necessarily. Clearly we always have some time some decline from Q3 to Q4. This year we've got Q3 continue to be at least up a little bit by continued Macondo work. And then we have the more toward in the Gulf of Mexico which will certainly depress Q4 as drilling rate would normally being working on our build going to ideal, we just expect our assumption for our Q4. So I think the extension what is a normal step down couldn’t be even more than normal.

Right. And they are recognizing it’s quite early and then I will hop-up the line. But can we you give us any color at all on sort of the moratorium has certain implications for construction work in the Gulf of Mexico clearly as you think about 2011. How quickly can that turn around for you in 2011 if the moratorium lasts six months and we try to get back to work can that 2011 wash out I suppose is what I am trying to get from ROV construction perspective or how much opportunity can there be to get back to work?

I'll tell you it's difficult to have visibility on that. I think we're just going to stay away from 2011 forecast right now if you don’t mind. That’s the question we are all talking to our customers and trying to understand that and we will be over there next few months. So hopefully we'll be in a better position to address in our next conference call in three. Months.

Yeah that makes sort of sense, alright. I will turn it back. Thank you very much.

Your next question comes from Neil Dingmann. Your line is open.

Good morning Jay.

Hi Neil.

Say just a quick question I know on the permits obviously you don’t know anything there. I am just wondering give your assumption are you assuming that some of the permits are coming back this year, next sort of built in Subsea Products area? Or is that just on what you're seeing as of now?

Yeah we are just trying to make our best guess. We tried willing for sure how many rigs will be more rig or less rigs working. We try to make sort of overall best guess. I guess our view is that the permits are not going to float quickly or easily. I’m hoping that Q1 -- Q4 is the bottom and there by Q1 of next year we have more rigs running that we do in Q4 that there is no assurance for Q1 couldn’t be flat with Q4 in terms of drilling rigs. But I’m really hoping that Q1 is the bottom but we're trying to be very realistic and cautious at some point I think its going to be spring loaded for rebound but that’s not sure into our current numbers.

I think our product segment is closely tided to permitting as our ROV drill support. I think there is much more of a lag factor. So if permitting started a month early I don’t think you would see any effect in products in 2010.

That’s what I was just going to ask permit I guess if that does come back obviously the ROVs will come back pretty quickly what about the products how soon would you assume that some of that starts to come if the permit come.

Keep in mind our products business a lot of that is longer term business where we are providing tooling for a big project in West Africa, multiplex sales where we are bidding six to nine months ahead of job we are going to be delivering or even year ahead of time. So a lot of that business is not real short terms I would say that’s not really big effect on 2010.

Okay. And then just last question I know you had I think you deserve just a handful you said that of your ROVs are on a full day rate in the Gulf that are not on the Macondo. Are you just assuming that I guess those play out in whatever contacts they're on and then you don’t assume anything further than that that’s sort of built into the guidance?

I think within the range it considers a number of those possibility.

Okay, got it. Thanks guys for the clarity.

You bet.

Your next question comes from line of Stephen Gengaro. Your line is open.

Thank you, good morning. I guess two questions; the first just because it was so different from my expectation Adtech what happened in the quarter and sit down in the third quarter was something special there?

Yeah we had a great quarter but really its mostly timing they are going to have a good year they really are compared last year. I think the second half of the year will be down compared to this Q2. So this is not a new run-rate for them although they are going to have a big year they just have bunched up in the second quarter. So mostly timing although they are going to have a good year.

Okay, thanks. My main question what do you think about rig leaving the Gulf and we sort of think about the food chain of advance which gave impact Oceaneering I mean obviously if the oil rig goes with it you're okay from that perspective. But sort of from an overall company wide revenue perspective over the course of field development how bad or neutral is that for you?

We do provide more services in the Gulf of Mexico then product or in any other location in the world. We would better of to have this Macondo bigger Gulf of Mexico. So if we look back at 2011 and say the average some number rig you pick the number 25, 20, 30 whatever number it is some number lower than 35 and there will be some fewer project and some ultimately fewer demand for construction projects and vessels and other products in the Gulf of Mexico. So we want to stronger, bigger Gulf of Mexico and to the fact that it's pay at word some period of time that is negative for us.

But is it its hard to sort of quantify that the rig barring obviously hard to quantify, but net-net it's certainly better for the non-ROV services if it did involve.

Absolutely your on the rig and your following these two rigs to the Macondo and Egypt and so that will be a wash. But it reduce some chances as well as to do some other follow-on projects.

Stephen, I think it really effects our Iwx business and ROV tooling and our product segment and then the follow-on will be IMR and the insulation work in our Subsea Projects vessel base business. But as you said most of our ROVs -- while tooling and Iwax does have global reach as well as all our other services is do. I mean in Gulf of Mexico is just a nice little place to have lot of work compared to rest of the world.

Okay. Now that’s helpful, thank you.

Your next question comes from line of John Donald. Your line is open.

Good morning. I have a question regarding Macondo work flow you were pretty detailed with vessels cruse that to got after working right now. I’m wondering how that works go make change as the well is currently cap now and how that might change presuming that their relief well gets completely here in next week or two?

I think our vessel based work is committed work and we will expect the rigs drilling the relief well and I move on I think there is going to be some continued involvement in Macondo through out the third quarter

Okay. Then working beyond the number of employees and equipment to got working there now presuming that Macondo is more or less done by the end of third quarter or big assumption is there any well I guess what the visibility incremental work for them beyond that at this point of time is that kind of driver the bid decline in your group.

That is clearly several people on our drilling rigs and in no rigs stand by or they will move to some other locations that will be like other rigs in Gulf of Mexico and move on to other project more reliable basis where you need support

Then also as on the share repurchases you did in the quarters is that we can expect similar rate going forward here paid down as much debt as you did in third quarter?

Well we are really pleased and we are able to buy 1 million shares back at every good prices we have authorization for 6 million shares now we have completed 1 million of that so we have 5 million share authorization outstanding. So our Board will continue to access that, we don’t have regular of plan of buying shares back and our board will continue to asses that and by back that whenever we think it’s a right opportunity. So cant promise you that by any share in the quarter but we will just be very opportunistic on that.

Yeah we are not going to fore cast our treasure share activity for a long report on a quarterly basis.

Okay. Fair enough thanks for your time guy.

You bet.

Your next question comes from Chris Glaseem. Your line is open.

Thanks good morning.

Good morning, Chris.

Understanding that the regulatory environment is about as clear mud right now its here to take the assumption but the liability capital is moved in deepwater for Gulf of Mexico the province and so is the IOC and activity instructs only way your going forward is there I point that you would in vision relocating the deported vessels and secondly relocating your instruction related ROV.

I think the best ones was business plenty work in the government going forward for the Gulf of Mexico deepwater and you think that will continue to grow on normal any scenario that you want two vessels of course international vessel and we could be if we wanted to but I would tell we would speculate on the move those vessels out

We do a lot of deepwater work for the IOC. I mean that they are a big customer even though and so that is a possibility issued a spot market or a long term project become available in the international market we don’t se that right now.

Okay. And secondly turning to you mentioned the ROV contract awards won can you comment on the pricing that you have seen on those of any different from those experienced in the last six months? And secondly did you comment on available contract opportunities going forward if so I missed it can you quickly rehearse that?

Okay. I think ill try to do pricing no change while your pricing continue to I think have what have become more pricing on these jobs forward with regard to new contract going forward sure let me just opportunities via counters 69 floating rigs on order I think into this quarter 44 of those are contracted with operators and there is long term contracts all of the contracts have been laid on 33 and those 69 rigs and we want 10 of those 33 so 36 all the contracts that leaves 36 of jobs that are potentially available out there 11 of those have contracts at the moment we would further say that you think about 30 rigs are likely to be placed in service this year 13 went to work in the first half and we put ROVs on 10 of those 13 the remaining 17 we have already contracts on 11 of them competitors have ROV contract on the other six. Hopefully that helps you?

Absolutely. Thank you very much.

Your next question comes from the line of Anthony Walker. Your line is open

Hi this is Jim Crandell, good morning Jay.

Hey Jim, good morning

Sorry there’s some technical problems on your calls so I’m going to wave the asked question that were covered on the call . First of all your Subsea products business my passion what was the business we were doing quite well with exception of which had some problems I think go back a few quarters you described the improvement as broad based is now improving Macondo business? And if so what’s causing them

I think we did experienced better results in our multiplex in Macondo particularly compared to last year cost reduction efforts worked I think our execution was cleared in the second quarter. So again this is still supply with capacity in the market prices were still too low so I think from the possibility point of view its not where it needs to be but in terms of leading internal expectations what we thought what was going to happen it was a good quarter and I think its improving for that business we are starting to see few more bid opportunities in the feeling a little better about the business but still its away from where it needs to be in longer terms.

I know you are not projecting 2011 but if I sort of work to improve the condo by the end of the year thinking about the business for 2011 I should think about the margins probably being higher then where they were 1st half of 2010 because of the improvement that your siding right

So Jim when you look at the second quarter products margin you will see that improve 13% to 21% for over a year for the second quarter and I don’t know you caught that on opening of March do you indicate that it was large higher plans and increase operating efficiency and spending cards that multiplex that implements in 2009. So a lot of that improvement that had nothing to do with Macondo in Macondo do contribute higher revenue contribution margins from that we are pleased with our improvements in Subsea products just a lot of things upon what’s going to happen in the gulf of Mexico and the level of activity that products range but so being multiplexes outlook is improving

And again I think I'll pass on the 2011 characterization

Okay. My second question has to do with when did you expect another set of multi follow the type opportunity similar to the one that you lost recently to Subsea when might that occur

I don’t think we have any definite base on that very much there might be putting something like together but we don’t see a date or anything firm on that firm on that at the moment so I really cant tell you

You think that the aggressiveness shown by Subsea and Brazil have you seen that duplicated in the other international market during 2010

I remember they all wall used to penetrate and reduced pay them getting against those and some replaces in the world and they always sometimes they did aggressively so I think that in the jail seems to be particularly aggressive gear on that part I think that’s maybe more sale than you seen in places but when we see that all over the world

We have always have experienced you have always contended and almost always as 1 against them and but when they are 15 or 20% below you and prices make is difficult the offence then becoming more price aggressive and other international markets

Weather if I adjusted earlier date five are we contract awards made and effective quarter on new range we want four of them and the one that we lost was not 67

That’s our most Macondo. That’s the current data we have

And you don’t feel that your biting more aggressively with the anticipation that Subsea during more aggressively

No I think our value sales did pretty strong and the customer chose us because they think they make more money tying us and we believe that the case was hard on that basis

Okay. And my last question Jay apologies if you have covered this but I was cut off during the call the third question has to do with changes in the business that effect Oceanerring as a result of the Macondo acts things that will be either man dated by Wilson regulations or the procedures of the major IOC that will put through as a result that you think could have a positive impact on Oceanerring business going forward

Well due think there were some opportunities for sure with regard to interfaces with the BOP and the control panel you think these opportunities was to rib some might be more real bus tic equipment may be even provide some control panel that are more designed for all lead to have more real bust interface will be able to control BOP faster in addition that would in some places that would mean bigger backup control system as we can provide some of those some of that stuff to equipment accumulator or banks in some cases even a stand by ROV or BOP control systems you know it’s the end mutli capacity for product few functions some people might think to add more functions to the BOP so may be there’s opportunities for us there so the rules are already set and we cautious about buying things before we never know the rules are that we do think its, yes.

But do you think these could vacant meaningful difference in your sort of revenue per day on the rig?

I’m here to but everyday it helps so I think I just came that was also part of our comments but we get more specific information about that we will get real orders will be try to give some idea of that.

Okay. And I will ask one last question if I could FMC recently made the comment that they expected a pick up in Subsea orders over the balance of 2011 and the IOCs were having some kind of change in they are going to make sure projects are staying on schedule and thus they were a lot of opportunities for big jobs my question is does that apply to as well and would you expect to see note able pick up in opportunities over the rest of this year Larger jobs I don’t think we have seen anything need necessarily show up I mean we have seen some smaller jobs that have been delayed in UK are starting to come back not something at all expect 2010 resolves but that’s little bit encouraging.

Understand completely ascertained about how much market will be added by responding to the still the regulations and initiatives we have done so fourth whatever it is due to have an opinion on how much of that would be in Gulf of Mexico or most of it or would it be other markets involved

I think it will be start in Gulf of Mexico but I would anticipate that major worldwide operators if they decides a good idea in Gulf of Mexico they will put in their rigs in other places as well and then ultimately bodies will be lifting their if they want to air base these terms of rules. So I think international operators will not just be looking into satisfy just Gulf of Mexico regulations what will be looking to that they think is the having what they decide to do I think they will do it on other rigs as well.

So some of you will volunteer relevant when required?

I think I mean here we are trying to figure out how operators take the responsible and while they will certainly satisfy their rules I think they will also trying to satisfy themselves if there is something they can do to make satisfy they will definitely do it.

Okay. Thank you very much.

You bet.

Your next question is from the line of Waqar Syed. Your line is open.

Congratulations in the quarter

Thank you

Couple of questions first on business how is the market share changed you guys have awesome 12 months and secondly in general have you seen the utilization from or still remains relevantly in low level today

I think the market as pretty much remained about the same or there as been few orders our share might have got a little bit in the last year

I think you reconsider the project in the middle east and there was another large order that when you start calculating there were 3 large orders and we start calculating market share on numbers of orders Yeah our market share declined

I think its 12 month measurement. We have period before that when large shall order next order

Right.

Kind of leads in I would say pretty much stable I would say its been more capacity in the market

No is it share is it true margins for some of the other projects are generally better then in the bigger orders where people just come more heavily

I have covered like the generalization I need a regard is different like in most businesses big orders came to track will be more competitors everybody wants a piece of it and desperately factory up so possibly true but I would hate to generalize that people are because more job these days fill up the factory and then you have a better absorption where if your into it. So when it comes to you calculating large in for a job you rally have to look at over a long period of time and you can lower load of your factory then your mortgage is going to be better if its starting small project so I couldn’t make a general characterization of that at all

And then in terms of industry utilization has that picked up or still remains the low level

I will say still lot of way low level

Okay. And then its finally on the big forecast in bit midget oil company is putting together all spill response team investing like a billion dollars have they close to the service company and you see that giving a part of that response I think that’s going to finally be put together

Now you talking about in terms of providing service or bearing the cost?

No providing service.

$1 billion fund. I think the recalls service company and vendors to provide that sold an equipment and also a regular where you sand by all of being another equipment so at this plate there could be opportunities for functionary I think the not quite yet I think it’s a little early to get some that announcement that there is going to be four main fund to having them contact suppliers such as other services via such as oceanering so I don’t think do you stand by the business but to my knowledge we have not been contacted yet

Thank you very much

Your next question on line is Daniel Burk your line is open

Good morning guys obviously its been a busy last quarter for you all but look at the free cash course you have been free consisting acquisitions are first use of cash for Oceaneering its just curious I just step back here and look at the event that go for next is it make you more or less optimistic that’s some opportunity in the Subsea. market like present themselves to you

I have just thinking haven’t seen anything come up because its not here were we perhaps its hard to generalize on that you know waiving around for people to get in distress I think that really doesn’t works its always imagined that’s going to happen that we were really does VMP deployed to business so that creates an opportunity it had nothing to do with the steal really so I would hard to say that the opportunities were because due to steal we are looking everywhere that all the time. No I think its changed our outlooks were more optimistic or less optimistic I think we are just looking just hard as you can.

Great. And then Subsea combination does that way change for you all?

No not really we try to sell our in applicable products to those guys and some other services its not a ROV competitor all they have all theses but they account Subsea as competitors I don’t it really makes much difference to us.

We were hoping going back to Jim’s question we are hoping that combination might bring more rational bidding in the third party services were all but don’t expected so I don’t see any difference

Does the combination win more big construction utilization projects in natural market what could be a positive.

They wont load a technique for issuses.

Is it less likely for sure?

I see one on well maybe you can address this have hand full of times here so I apologize for revisiting it but you reference structural changes may be cost based within your but you also referenced as well you know higher will put how relevant is that cost adjustments you made in terms of driving this improve profitability business

I think they both very important you see several hundred people out of that business and I guess we started in late '08 and in early '09 several hundred people are less in our few factories and sort of dam sized that business to be level of business we thought we would get and then we have achieved that level. So it is once you feel once you have factory and your open for business why would your cost is pretty much fixed as in material there is business from additional volumes that’s all.

I think its three thing volume lower fixed costs and improved executions I think we really have done a much better job eliminating waste from that product environment

Thanks. One last one the vessel sale in Q3 (inaudible) you wrote down of vessel so presumably there wont be a gain or a loss that we'll see in your Q3 result I’m just thinking ahead of second half guys

Presumably that is exactly correct.

Okay. I appreciate guys thank you for the time.

Your next question is at the line of Stephen Gengaro. Your line is open

Thank you. Just to revisit the ROV side one more time are you seeing any there are two questions one of these are you seeing in any change in sort of price in the Gulf of Mexico specifically because of the destructions we have seen

No not really we will get back to these from start by our count 35 rigs and we were 29 of them so its mostly about us so while those rigs running right now is mostly without us and not about competitors that are out of work so we have most of the market and so its really its our system so getting related to price change.

And there’s nothing in the nothing well if look at doing around the oil spill is there anything in that which would change the margin profile that we saw in the second or we should see in the third quarter

With regard to our ROV business no we are rigs that lead already spent so it really shouldn’t change

Okay. That’s all thank you

I think you were it could be utilization difference which is different.

Your last question is of line Brad Handler your line is open

Thanks guys we talked about Brazil I guess I just though I would ask if there are some other pieces of our products business that are? Benefit may be more specifically are there panders for I things like I walks but there is some disability about how are planning for those or are those shorts are going after something you need to focus on

We are looking to see how we can expand our businesses into Brazil. But I would say its slow and tedious process to enter those markets and I think we really have anything to announce at this point of time but we would like provide more services and products into that market but it is a slow process

And I guess maybe because it is a grab on some envelope of how big is there a frame agreement kind of structure with umbilicals. Is there the RS I am sure you know on the subsidiary side as they treated and some other aspect is there that kind structure in which case maybe where are you in the process there

Petrobrass did that every job and four competitors and every job is bid out and negotiated hard. There is no frame of being for envelopers globally

Any trends within Brazil just to stick with it in terms of steal to versus thermo plastic?

Getting heavier but indeed though that I live in that I think that’s the name

Which you don’t sense any I guess what I am wondering if there is any sense of maybe to that one but there is any trend that takes you away from thermo plastic

Its mainly thermo plastic market and still is may have more arming wire on their behavior it’s a mix I mean but the amount a trend.

Okay, thanks.

There are no further questions at this time. And I'll turn the call back over to you.

Thank you very much we appreciate all your questions.

Take care

Ladies and gentlemen this concludes today's conference call. You may now disconnect.