Oceaneering International, Inc. (OII) Q4 2010 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. My name is Martina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jack Jurkoshek. You may begin your conference.

Good morning, everybody. We'd like to thank you for joining us on our 2010 Fourth Quarter and Year End Earnings Conference Call. As usual, a webcast of this event is being made available to the StreetEvents network service by Thomson Reuters. Joining me today are Jay Collins, our President and Chief Executive Officer, who will be leading the call; and Marvin Migura, our Chief Financial Officer. Just as a 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 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 a call. It's a pleasure to be here with you today. Our 2010 earnings of over $200 million and EPS [earnings per share] of $3.65 were the highest in Oceaneering's history. These were remarkable accomplishments as most oilfield service companies are reporting 2010 results substantially below their peak earnings. For example, the EPS of the other 10 OFS companies that have reported 2010 results as of Tuesday this week were down on an average, more than 40% from their recent highs. Our performance in this environment was largely attributable to our business focus on deepwater activity and our successful efforts to control expenses. These enabled us to maintain the 16% operating income margin we attained in 2009 and 2008. Our 2010 EBITDA of $464 million was also a record high. Our EPS guidance range for 2011 of $3.45 to $3.75, with a possibility of another record year, is unchanged from our last conference call. For our services and products, we anticipate international demand growth may more than offset lower demand in the Gulf of Mexico. Our assessment is that deepwater drilling and field development and production activity will increase, particularly in West Africa and Asia. The major uncertainties we face in 2011 are when, at what pace and at what level permits for the Gulf of Mexico deepwater drilling project will rebound in light of additional environmental and safety regulations that have been implemented by the U.S. Department of Interior as a result of the Macondo well incident. We are experiencing a slow start but still expect a strong finish. Compared to 2010, in 2011 we are forecasting a lower profit contribution from our ROV services in the Gulf. In the event the Gulf of Mexico permitting is significantly lower than we expect, we believe more floating rigs will be moved to other geographic areas and that our ROV systems will stay onboard and work at their new drilling locations. I'll provide the details of our current ROV status on the rigs in the Gulf of Mexico later in my opening remarks. Our overall fourth quarter EPS result was slightly above the range we gave last quarter, on the strength of higher than forecast demand for our deepwater vessel services for IRM [Inspection, Repair and Maintenance], work and excellent execution on a lump sum umbilical installation project. EPS of $0.88 for the fourth quarter of 2010 was above that of the fourth quarter of 2009, due to an improvement in Subsea Products operating income. This was attributable to higher umbilical plant throughput, increased demand for field development hardware, ROV tooling and IWOCS services. During the quarter, we also secured two large umbilical contracts with combined revenue value of approximately $95 million. Year-over-year, we experienced fourth quarter ROV and Subsea Projects operating profit declines. ROV operating income decreased as expected due to the drilling moratorium in the Gulf of Mexico. During the quarter, we put 10 vehicles into service and retired two. Our fleet mix usage during December was 76% in drill support and 24% in construction and field maintenance. The situation in the Gulf of Mexico deepwater remains dynamic while we wait for the first new well drilling permit to be issued. At the end of December, we had ROVs onboard 26 Gulf of Mexico floating drilling rigs, and we were receiving full-day rates for ROVs on 11 rigs. Partial rates on six rigs and zero day rate on nine. This is better than at the end of September when we were receiving full rates for ROVs on only seven rigs. Of the 11 rigs with customers paying us full-day rate, seven were working, five on completions and two on water injection wells. Three were on standby, waiting for orders, and one was in the shipyard preparing to mobilize to drill a water injection well. None of the full rate increase, from seven to 11 rigs, was due to new rigs coming into the Gulf of Mexico. It was all due to status changes on existing rigs. As of yesterday we were on partial rate on one additional rig. Since our last call, drilling contractors have announced that three more Gulf of Mexico floating rigs are being relocated to other market areas Brazil, French Guiana and Libya. We have ROVs onboard these -- the rigs being moved to Brazil and French Guiana, and we'll keep our vehicles working on them in their new locations. This brings the total announcement of floating rigs leaving the Gulf to eight since the Macondo incident. We had ROVs on seven and have contracts to remain on them. Year-over-year Subsea Projects operating income declined in the fourth quarter, on a lower profit contribution from our Mobile Offshore Production System assets. The Ocean Legend's operating profit was lower than fourth quarter 2010 due to a reduced day rate and higher costs. We now expect the contract for the Ocean Legend to end early in the second quarter of 2011. Our fourth quarter results of 2009 included a $1.9 million gain realized on the sale of the Ocean Producer. Our 2010 annual EPS increase of 7% was largely attributable to record operating income performances from our ROV, Subsea Products and Advanced Technologies businesses. Our ROV operating income rose for the seventh consecutive year, to nearly $212 million, despite lower demand in the Gulf of Mexico. This was accomplished by slightly increasing our average revenue per day on hire while maintaining our operating margin through good cost controls in a tough market. Our days on hire were flat with 2009. During the year, we grew our fleet to 260 vehicles, up from 248 at the beginning of the year. We added 22 new vehicles and retired 10 older systems. In 2010, 26 new floating drilling rigs were placed in service and we had ROVs on 18 of them, with two on one rig for a total of 19 vehicles. Of these 19, six were existing ROVs. At the end of the year, we estimate that we continue to be the largest ROV owner, with 35% of the industry's work-class vehicles, 2/3 more than the size of the next largest ROV fleet. We remain the primary provider of ROV drill support service, with an estimated market share of 60%, 3x that of the second largest supplier. Our Subsea Products operating income increased by nearly $48 million or 80% on a $61 million or 13% increase in revenue. Operating income was 13% higher than in 2008, our previous annual peak performance, on the strength of higher subsea field development hardware and IWOCS service sales. We are quite proud of this accomplishment. Compared to 2009, the profit improvement was broad-based. It was attributable to manufacturing processed improvements and cost reductions, improved umbilical plant throughput and higher demand for subsea field development hardware, ROV tooling rentals and IWOCS services. Operating margin improved to an all-time high of 20% versus 12% in 2009 and 15% in 2008, mainly due to a change in product mix and better execution. Our year end Subsea Products backlog of $384 million was up $63 million or 20% from $321 million at the end of 2009, primarily due to two large fourth quarter umbilical orders, I previously mentioned. Of the $384 million, about $338 million, or almost 90%, is expected to be converted into revenue during 2011. Our Advanced Technologies operating profit improved due to increased work on entertainment industry contract, U.S. Navy engineering services and Department of Defense manufacturing projects. Subsea Project operating profit and operating margin decreased in 2010 due to lower demand for our services on hurricane damage projects and our phased exit from the Mobile Offshore Production Systems business. Inspection results were similar to those of 2009. In summary, we believe our annual 2010 earnings performance and cash generation were excellent, particularly in light of the market conditions. During the year, we continued to invest for the company's future earnings capability. Our capital expenditures were $207 million, of which $109 million, over half, was spent on expanding and upgrading our ROV fleet. $44 million was spent on Subsea Projects, including the construction of a new dive support vessel to replace the 37-year old Ocean Project; the acquisition and subsequent modifications of a vessel, the Ocean Patriot, for dedicated saturation diving service and purchase of a new saturation diving system. $42 million was spent on Subsea Products, including the asset acquisition of a Canadian manufacturer of metal-to-metal seal clamp connectors, check valves and universal ball joints. We also made investments in ROV tooling, IWOCS equipment and modifications to our Brazil umbilical manufacturing facility. We generated $464 million of EBITDA during 2010. At year end, we had $245 million of cash, no debt, $300 million available under our revolving credit facility and $1.4 billion of equity. Looking forward, we are reaffirming our 2011 EPS guidance with a range of $3.45 to $3.75 based on an average of 54.6 million diluted shares. The big picture of the annual 2011 versus 2010 changes, we envision occurring, can be summarized as follows: ROV operating income is projected to grow on an increasing days-on-hire as we benefit from an increase in international demand for drill support services and continue to expand our fleet. We anticipate adding 15 to 20 vehicles to our fleet in 2011 and retiring about five. For the Gulf of Mexico, we are projecting fewer days on hire in 2011 compared to 2010. Regarding the pace at which Gulf deepwater drilling recovers, we do not claim to have any more visibility than others. As I mentioned earlier, we currently have ROVs onboard 11 rigs at full rate and seven rigs at partial rate, compared to 31 rigs at full rate before the Macondo well incident occurred. At the midpoint of our EPS guidance range, we have assumed that we will be at full rate on 20 to 25 rigs working in the Gulf of Mexico at year and. We continue to believe that permits for new exploration wells will be granted in 2011. In this regard, we're encouraged by a statement made by Michael Bromwich, Director of the Bureau of Ocean Energy Management, Regulation and Enforcement, here in Houston last Friday, stated that he expects deepwater permits to begin to be granted before the end of the second quarter this year. Once the first few are let, we expect that permitting process will accelerate and the number of working floating drilling rigs in the Gulf will rise. We expect our ROV operating margin to be slightly lower due to a change in geographic mix and our fleet utilization rate to be slightly higher in 2011. Subsea Products operating income is anticipated to be approximately the same as increased throughput of our umbilical plants is offset by lower sales of IWOCS services in the Gulf of Mexico. We anticipate securing enough 2011 orders for ROV tooling to replace the Macondo well site tooling earnings of 2010. This tooling includes higher flow rate hot stabs, hot stab receptacles and valves, ROV Accumulator Reservoir Skids and Backup Accumulated Bottle Skids. We recently tested one of our new Subsea Accumulator Modules, a Backup Accumulator Bottle Skids, and closed a BOP Ram in less than 25 seconds, in 4,300 feet of water. Considerably faster than the API recommended time of 45 seconds. We are anticipating that Subsea Products operating margin will be lower in 2011. This is attributable to our expectation of a change in product mix, to more umbilical, less IWOCS service revenue. We believe the 20% we achieved in 2010 is not sustainable and anticipate that an annual Subsea Products margin in the 15% to 18% range is likely. Subsea Project operating profit and margin are expected to decline due to the completion, in 2010, of Macondo project work and a reduced level of Subsea activity in the Gulf of Mexico. Our Inspection segment profit contribution is forecasted to be slightly higher on increased service sales in the United States and abroad. ADTECH performance is expected to be flat, unallocated expenses are estimated to be slightly higher. During 2011 we anticipate generating at least $435 million of EBITDA. Our balance sheet and projected cash flow provide us with ample resources to invest in Oceaneering's growth. Our CapEx estimate for this year is $150 million to $175 million, of which, approximately $100 million is anticipated to be spent on upgrading and adding vehicles to our ROV fleet. About $30 million is for Subsea Projects which includes the completion of the Ocean Patriot renovation and adding a third SAT [saturation] system. While the longer-term impact of the Macondo well incident is uncertain, we are convinced that our strategy to focus on providing services and products to facilitate deepwater exploration and production remains sound. We believe the oil and gas industry will continue to invest in deepwater, as it remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates. Others must share this belief. Since our last conference call, 21 new floating rigs have been ordered. Furthermore, renewed industry and regulatory emphasis on safe and reliable operations is providing us additional opportunities to demonstrate our capabilities. With our existing assets, we're well-positioned to supply a wide range of the services and products required to support the safe deepwater efforts of our customers . We believe Oceaneering's business prospects for the long term remain promising, our commanding competitive position, technology leadership, strong balance sheet, and cash flow enable us to continue to grow the company, and we intend to do so. Our first quarter 2011 EPS guidance range is $0.65 to $0.70. This is consistent with the fact that our first quarter earnings are customarily lower than the fourth quarter of the previous year. At the midpoint, this would equate to 19% of the $3.60 midpoint of our annual guidance range. This is within our usual historical first quarter performance range and, actually, at exactly the same percentage we reported in 2010. I might add that over the last nine years, we have averaged 19% of our earnings in the first quarter with a band of 17% to 21% for the year. Our first quarter 2011 guidance is slightly down compared to the first quarter of last year. We're expecting a strong first quarter profit contribution from Subsea Products to partially offset declines in operating income from ROV and Subsea Project operations. Compared to the fourth quarter of 2010, our first quarter guidance is lower based on the substantial reduction in operating profit from Subsea Projects and lower Subsea Products and ROV profit contributions. Given the low level of activity in the Gulf of Mexico and improving fundamentals internationally, we believe Q1 of 2011 should be the bottom of our earnings as we resume the up cycle in deepwater activity. In summary, our results continue to demonstrate our ability to generate excellent earnings and cash flow. We believe our business strategy is working well for both the long term and the short term. We like our competitive position in the 2011 Oilfield Service market. Our technology gives us the ability to prosper in challenging times. We're leveraged to what we believe will be an inevitable resumption in growth of deepwater and subsea completion activity. The longer-term market outlook for our deepwater and subsea service and product offerings remains favorable. The renewed industry and regulatory emphasis on reliable equipment and redundant safety features on deepwater operations has caused our customers to be even more focused on recent risk reduction. This elevates the importance of the utility and reliability of our ROV services and related product line offerings, and reinforces the benefit of our value sell. In 2011, we're anticipating our EPS performance will be comparable to 2010, with the possibility of another record year. We think this distinguishes Oceaneering from many other oilfield service companies. We appreciate very much your interest in Oceaneering and now we'll be pleased to answer your questions.

Martina, we're ready for questions now.

[Operator Instructions] Your first question comes from the line of John Donnell [ph].

I had a question here on the ROV day rates. It looked like those were up again, sequentially, during the fourth quarter. I know you all talked, last quarter, about some crew mix involved with that. I was wondering if, that was something that got repeated again here in the fourth quarter and if that's something that we should be looking to as we move forward, if that increased day rate is sustainable.

John, I think it's more to do with mix. We had quite a bit of construction activity in fourth quarter. It really depends upon mix and the quarterly variations are pretty insignificant.

And I know that you've talked about the incremental ROV tooling opportunities here. I know that, that flows into the products but does that require any additional work from the crew that's on ROV while it's on the rig that would maybe give the potential for increasing those rates as well?

No. We routinely run all kinds of tools with our ROV, so this is just part of our standard operation, to run the kind of tools that we would rent for the special BOP operation.

There's no extra pull-through for that.

I was wondering if you can just give an update on the number of deepwater rigs that still don't have ROV contracts on them compared to the total amount that are out there to be delivered?

Well first of all, I guess there are 255 floating rigs in the world and 86% of those were under contract at the end of the year. There's 60 floating rigs on order, by our account, that are scheduled to be delivered through 2014. These are year end numbers now, so what's happened since then, we're not counting yet. But 60 floating rigs were on order, 35 of those had a contract, and these are all long-term contracts for seven years or longer. ROV contracts had been let on 23 of these. We won eight of them. So there are still 37 ROV contract opportunities left.

Your next question comes from the line of Joe Gibney.

I was just curious, Jay, you've referenced the lower operating run rate there on Subsea Products, understandably with higher umbilical throughput. I was just curious, are you going to have a little bit higher pull-through, on the umbilical side in, say, first half of the year? Is it a little bit more glutty in 1Q? Just curious on the timing of that as we think about margins within the Subsea Products as it progresses through the year.

I think it's pretty well spread out throughout the year, Joe. I don't recall any particular clumpiness in that. I think it will be pretty well spread out.

Joe, remember that we use percentage of completion on our umbilicals. So delivery date doesn't affect it that much. That's always subject to when the customer wants the product and how fast we have to run, but right now I wouldn't say it is anywhere front-loaded or back-loaded.

And, Jay, just on the Product side, you reiterated kind of the replacement of some of the post-Macondo revs on the hardware side and the continued traction on accumulator modules and skids. Has that market gotten any better since the last quarter? It would product roughly $100 million in revenue kind of was your ballpark estimate. Is it continuing to get better, from what you're hearing from the inbound customer demand on this?

I wouldn't say much different, Joe. I think it's still the same kind of market. Some people were early movers on renting equipment and making commitments. Others are waiting to see these final rules and regulations from the BOEM. So I would say, it hasn't really changed that much. We're still very active.

Your next question comes from the line of Mike Urban.

It sounds like the guidance on the ROV side is again, more a function of, as you said, days on hire on the drill support side. It sounds like, in Q4 you did see a little bit of pickup in construction activity and I think also, if you look around the world, there seems to be a pickup in construction activity set for, maybe later this year and into 2012. Is that potential upside? Or do you see that as something that is a little further out as it pertains to Oceaneering?

Well, I think when we talk about improving international business for the ROVs, we include the -- what we're seeing, increasing vessel activity in the field support maintenance, as well as construction in the world, and I think that is happening in 2011 as well as 2012. So I don't think it's necessarily upside for 2011, but I think the pie is definitely growing and I think it's certainly upside for 2012.

So the construction support activity that you see out there is kind of baked into the forecast for '11.

That's correct.

And along those lines, if you talk to construction companies, to the drillers, really everybody, it seems like there's been a real surge in project inquiries going on out there, planning, things like that. Is that translating into inquiries that you're seeing in the umbilical side or any other part of the business?

I think, in particular in the North Sea, where you have a lot of tie-back possibilities. We are seeing quite a bit of quote activity in that market right now. So I would say on that part we're able to confirm that.

Your next question comes from the line of Michael Marino.

Just a follow-up on that last question about, kind of your outlook for the international market. But, I guess maybe to get inside your guidance a little bit. It hasn't changed since last quarter. Have you all, maybe internally, are a little bit more pessimistic on the Gulf now and a little bit more positive on international? And that's kind of why the guidance doesn't change or is -- really it kind of playing out like you thought, in the Gulf?

I would say, so far, it is playing out like we thought. We expected a slow start in the Gulf of Mexico, in the ROV business, and that's certainly what we're getting, we're about where we thought we were going to be on that. Certainly, there's been nothing positive, I would say, in the Gulf and weather has been normal, kind of not good weather in the first month of the year. So I think that's been normal. We anticipated things were going to be pretty good internationally. So I would say it's about like we thought. There are some good news out there in international and I can say there's no real good news at all in the Gulf of Mexico. So I would give you a slight yes, but mostly it's playing out like we thought.

And Michael, I think the fact that we were able to move up the number of rigs paying us full day rate or customers on rigs in the Gulf of Mexico paying us on full day rate is the one encouraging thing that did happen in the Gulf of Mexico. And we talk about 11 on full day rate and those on partial day rates on the seven rigs, and moving that to back-end loaded at the end, having 20 to 25 rigs working isn't as far of a leap as it is when you measure seven or eight rigs working going to 20, 25. So I don't think we've gotten more pessimistic in the Gulf of Mexico, because we expected a very slow start.

On that front, how were you able to push customers to pay you the full day rate? Was it a contractual. . .

Well, I think we just negotiated terms. I think, our customers view our ROVs and the guys onboard as critical to their success. And people do believe they are going to get permits and go to work and they want to maintain these crews, and be ready to go to work when they get the permits. And so I think that's just the call of the oil company.

As you know, Michael, we have very easy cancellation for convenience, to terminate. So, no, there wasn't like, they had to go through force majeure, contentious negotiations or conflict resolution. I think Jay hit it spot on.

So is it conceivable you could see more full rate on your ROVs without additional rigs going to work? As you all just kind of lean on your customers?

It can go either way.

Yes, I doubt it. We kind of got what we got and we need more rigs to work if we're going to get anymore revenue.

And just to follow up on the Products, in the Products segment, your IWOCS services. If you look out in 2011, obviously, you're predicting a weak year. Was Q4 reflective of that? Was IWOCS down in Q4 to the level where you think it kind of stays for 2011?

Well, Q4, IWOCS continued to have some good business in Q4. And, like I say, it was a key contributor to Macondo. So that is some work there that's not going to repeat, and completions are continuing to go in the Gulf of Mexico right now. So that work is continuing, just not at the level that it was in the Macondo world.

Just to re-emphasize that. We would not have been able to achieve 21% operating margins without a lot of service revenue in products and the service revenue comes predominantly from IWOCS. So we had a very good Q4 IWOCS. That's part of the drop off that we are definitely anticipating with lower margins. It changes the mix.

[Operator Instructions] Your next question comes from the line of Daniel Burke. Daniel Burke - Johnson Rice & Company, L.L.C.: Jay, I had noticed in the press release, when you addressed your international outlook, that you particularly highlighted West Africa and Asia. And I think, last quarter you talked about West Africa and Brazil, and I was wondering what that replacement signifies. Is it that as Asia has gotten stronger? Or is it more that Brazil, for whatever reason, looks a little softer for you all in the '11 timeframe?

Last year was a really great growth year for us in Brazil. So as we're putting together our early plans for 2011, we just sort of assumed that, that would be a big growth area for us significantly. But as we did our plan, we found out that our really expectations for Asia, growth rate-wise, were higher than Brazil. So I think it just reflects that we had a great year in Brazil, but that Asia is really going to grow faster for us in 2011 based on our current plan. Daniel Burke - Johnson Rice & Company, L.L.C.: What's the relative size of Asia versus Brazil for you then? Based on maybe 2010?

It is definitely smaller. I don't have a ratio on my head right now, but it's definitely smaller. But we're expecting both ROV business to be better out there. And Australia, I think is probably the key area; we're building a large umbilical for a customer in Australia. So I think that's probably making the biggest difference. Daniel Burke - Johnson Rice & Company, L.L.C.: And I want to go back to the idea of the ROV tooling market. I think you said your expectations for sort of ROV tooling hadn't changed, in terms of the contribution that would make in '11 versus your comments in October. But I wanted to more specifically press -- it wasn't clear to me, are you more positive? Are you seeing a ramp versus where we were in October, on the backup BOP skids? Where is your expectation there today versus where you were in the second half of '10?

I think it's essentially the same. We thought it was going to -- we had made sales, we saw other sales that were there. I guess we were trying to make the point that even though we did a lot of business with BP in Macondo, we saw that we were going to replace that business with Subsea Tooling specifically related to operations around the BOP, and we've continued to do that. So I would think it's moved just about like we thought.

Yes, nothing materially has changed from what we expected.

No, we haven't invented some new tool that we didn't even know about then, and we don't have any new customers we didn't know about. So I think it's pretty much the same, going along well and as we anticipated.

Your next question comes from the line of Brad Handler. Brad Handler - Crédit Suisse AG: I just want to try to understand a couple of facets of 4Q a little better, please? Even though I think some of these changes might seem relatively kind of small. On the ROV margin side in the fourth quarter. Would you attribute the -- are we talking about mix that pushed the margin down a little bit sequentially?

Well I think, we -- that's a good question. Let me just indicate that, while our margin was only 28% and that's certainly the lowest that it's been in quite some time, there was a bad debt provision that we took during this fourth quarter. Without this provision, our margin would have been about 29%. This was a bad debt provision related to some services we performed earlier in the year for a customer that filed bankruptcy. So we were thinking that and 29% would have been the more normal margin and again we're reflecting the downturn in the Gulf of Mexico and the reduction in business there. Let me just go ahead and comment on that, and talk about Q1 as well. While we're really proud of making 32% margin overall in the business for 2010, it was a great result, we do anticipate lower margins in 2011. The first quarter we think will be the bottom and so it will continue to be a lower margin quarter for us. I would anticipate that, that would be about the same as the fourth quarter. So there we're talking about another 29% margin. After that, we think that margins will start to move up in the 30%, 31% range. Business fell off and I would say Q4 and Q1 are the bottom, we hope, we believe and then we think things will come back. Brad Handler - Crédit Suisse AG: So they come back, presumably on the back of better construction activity seasonally? So in 2Q and 3Q, that part of the business picks back up? Is that. . .

And better gulf of Mexico, Brad. Improving drill support.

And the gulf of Mexico is an important area for us, and so it's really wounded right, but we do believe it will come back. Brad Handler - Crédit Suisse AG: And then maybe just a follow-up on an earlier question with respect to the IWOCS activity. So it sounds like the fourth quarter was reasonably strong, maybe stronger than you thought, I guess that's working off some residual inventory of deepwater completions in the Gulf?

Well, certainly that's the case. I mean we did finish up the Macondo work within early Q4. And then, with the oil companies restricted in what they can do, completion is one of the things that people can do along with water wells and plug and abandonments, completions are one of the permits that you can get. And I know one of our customers indicated they had enough completion activity to keep going throughout 2011. So we are continuing to work off that oil company backlog of completions, and unfortunately that's not one of those things that you really can measure, just to find out from every oil company how many completion opportunities they have and how long they're going to last. So I can't give you a, how long is it going to be until that goes away, but that is what's happening right now.

But we do expect, I mean, it has slowed down, Brad, and we do expect 2011 to have considerably less IWOCS services than 2010. Brad Handler - Crédit Suisse AG: I was just wondering about the visibility on, I guess sort of working through that residual set of opportunities, I guess.

We've tried to figure that out, but it's difficult. Brad Handler - Crédit Suisse AG: I guess I'm just wondering if -- when you were thinking about the quarterly progression three months ago, when you first gave the guidance, was 1Q or rather is 1Q about what it would have been then had you given us 1Q? Is there anything that's changed on the margin there?

I think, at that point in time, nothing's really changed and, I guess, earlier, go back six months ago -- we're really not that much into the quarterly progression, but this is pretty typical. If we saw something that looked different than our historical norms, it would cause us to question, was it really real?

Brad, I mean -- and for everybody, I mean, I think it's very traditional, historical, that without an anomaly, you will always see 45% of our earnings in the first half and 55% in the second half, on average. And if we see something other than that, we look for the anomaly as opposed to the other way around. And so to get 45% in the first half, you usually start out with something less than 20% in Q1. We try to say that early and often and we go out in October, end of October and give next year guidance ahead of most people, and we don't comment on quarterly profile. But perhaps we should say that we don't expect any anomalies in our quarterly profile to keep the Street expectation in line with historical averages.

Your next question comes from the line of John Lawrence. John Lawrence - Tudor, Pickering, Holt & Co. Securities, Inc.: Just another question on IWOCS. Could you talk about the expansion in North Sea and just kind of quantify the opportunity there?

We are continuing to look at that market. I think the situation -- we built some equipment for the North Sea and we found better opportunities for it in West Africa, so we've got it employed in West Africa right now. We still believe there's some opportunity in the North Sea but right now we have found that -- pushed that equipment in another location.

Because North Sea remains -- since it's not very deep water, it remains very competitive for IWOCS services as well as other ROV services. It's never been a large profit center for us outside of Norway. John Lawrence - Tudor, Pickering, Holt & Co. Securities, Inc.: And then just on the project side. Just any way to quantify, as far as, how much will be off this year?

No, I'm sorry, we don't really give any segment forecast.

No, I'll qualify that. But we have well telegraphed that we expect it to be down significantly for the year.

[Operator Instructions]

Okay. Thank you very much, guys.

Pleasure to be with you.

Take care. Bye-bye.