Tidewater Earnings Call Nuggets: MENA Strength and Vessels in the Gulf of Mexico

Tidewater, Inc. (NYSE:TDW) recently reported its third quarter earnings and discussed the following topics in its earnings conference call.

MENA Strength

Jeff Tillery – Tudor, Pickering, Holt & Co.: I wondered if you could provide a little more color just around the MENA strength, especially in the towing supply vessel and rate. It seems like maybe part of the rate was the mobilization piece, but could you just comment on that as well as just kind of sustainability of utilization at this higher rate?

Investors are making great returns as markets roar higher. Join the party. Click here to discover our Feature Stock Pick now!

Jeffrey M. Platt – President and CEO: I think we did mobilize some vessels into the region and the vessels that are in that MENA region these were relatively larger vessels than what has made up the previous fleet size there. It’s primarily in India and then we have a Libya project that kicked off. So what you’ve seen is actually the increase of some bigger spec – higher spec equipment certainly with the higher dayrates. That’s what’s moving the day rate usage. With respect to utilization, again, there is a lot of that equipment that’s in Saudi on term contracts. We do have a little bit of churn, but overall we’re pretty bullish on that market and I think that that will be fairly sustainable.

Jeff Tillery – Tudor, Pickering, Holt & Co.: And kind of a similar question Sub-Saharan Africa I guess the September quarter we saw a real bump-up in towing supply vessel utilization and that’s sustained here into December quarter. How do you see the next six to 12 months playing out on the utilization side in that region?

Jeffrey M. Platt – President and CEO: Well, I think again for the newer fleet we’re very high to almost full utilization when you take into account a little bit of mobilization in certainly the R&M. When you look at the rig growth that’s expected as projected with the new rig deliveries that I walked through in my earlier commentary, again we believe that utilization will continue to be in the mid-to-upper 80s. So we really don’t see a slackening in that.

Jeff Tillery – Tudor, Pickering, Holt & Co.: I know it’s early to ask for comments around the fiscal ’14, but just curious if you guys would provide just directional comments of how you see kind of drydocking CapEx for fiscal ’14, directionally, you thinking flat, down or up year-over-year?

Quinn P. Fanning – EVP and CFO: One point of clarification is, is the vast majority of our drydocks are expensed rather than capitalized.

Jeff Tillery – Tudor, Pickering, Holt & Co.: Sure, and I was trying to think about that from a utilization standpoint, I should have separated the question.

Quinn P. Fanning – EVP and CFO: But, we do in fact have – I guess as assumed frequently the case upgrades taking place, either four contracts or in conjunction with a normal drydocking that takes place, strikes me that we’re upgrading some of the deepwater PSVs as we speak, just in terms of mud mixing capabilities as an example. So I guess the crux of your question is beyond the March quarter; (because as a truth), we would expect things to moderate to some extent, we are getting more granular in that as probably pre-mature, because we were still at FY ’14 budgeting cycle. But as I mentioned on the call in November, we have a sense of the – or taken the pipe in terms of our drydocking schedule we thought it will be a more dramatic impact in the December quarter. Things have slid a bit to the right, and as a result we’ll probably have reasonably high dry-docking and therefore on our cost in the December and March quarter at which point we would expect it to moderate, to what extent, we’ll probably have to stay tuned on that.

Jeff Tillery – Tudor, Pickering, Holt & Co.: Just your initial thoughts around CapEx for the fiscal ’14.

Quinn P. Fanning – EVP and CFO: Our CapEx that is related to existing fleet tends to be reasonably modest. Our CapEx is more driven by vessel purchase commitments, or new construction commitments and I think we’re a little ahead of ourselves in that for FY ’14 since we haven’t presented a budget to our board.

Vessels in the Gulf of Mexico

Todd Scholl – Clarkson Capital Markets: Just a couple of questions; first, can you talk about your thoughts on the U.S. Gulf of Mexico and the thoughts about continuing to bring back vessels there? I know you have two new build U.S. flag vessels. Can you give me your thoughts on maybe expanding that program and making it a little bit larger, given the kind of strength we’re seeing there?

Jeffrey M. Platt – President and CEO: We actually have three vessels under construction in the U.S. right now. All the three are PSVs, all are pretty sophisticated deepwater boats too, which are very sophisticated and kind of, if you will ultra deepwater boats that are under construction. So we’re bullish as a lot of people are domestically certainly over the short-term or shorter term as we have the deliveries of those new builds which will unfold here in the next two of those in this calendar year and then one earlier next year is what the current schedule is. So, I think they are going to be hitting the market in a fairly opportune time. We do as we have in the past, look at our other vessels that are U.S. flagged, not in the U.S. market, and we actually have a boat that we will be mobilizing back. It’s got a contract. So that will be going on. We’re in discussions with certainly the operators here, primarily again in the deepwater Gulf of Mexico, certainly it looks to be promising over the next 12 to 18 months. I guess talking to our clients, you can put your finger on maybe 12 to 15 deepwater rigs, but I just want to put that in context. Of that there’s about 140 rigs on a worldwide basis that’s being delivered, so while the Gulf is certainly a positive, it’s a positive – that is just a part of the overall worldwide increase in the drilling activity. So to just kind of put that in context for everybody.

Todd Scholl – Clarkson Capital Markets: If you had to stratify it, though, would you say the US Gulf is the most attractive market you see right now?

Jeffrey M. Platt – President and CEO: Absolutely not. I think it’s a good market. But the deepwater segment, whether in the US Gulf, be in Sub-Sahara Africa, be it Australia, the deepwater market really across the board in a very strong market and rates have moved up across the board worldwide. So I absolutely would not put it as the most attractive market for us. It is just one of lot of markets that we think have potential. But again on the overall capacity, just to put it in perspective, we’re talking 12 to 15 incremental rigs domestically, which is a nice number, but on the context is 140 rigs being delivered over the next two years worldwide.

Todd Scholl – Clarkson Capital Markets: And then just one quick one for Quinn. It looks like the next two years you guys should be throwing off some pretty decent cash flow. Given what one of your peers has done with their dividend, have you guys had discussions about increasing your dividend?

Quinn P. Fanning – EVP and CFO: Yeah, that’s obviously a decision of our Board’s. We regularly look at all the tools in the toolkit, whether it’s incremental investment in market share, buybacks or dividends. I would agree with your point that if the market continues to develop as we anticipate, we can continue to invest rather assertively in the fleet and still generate free cash flow over and above that. How that ultimately is deployed, whether it’s in repatriation strategies with shareholders, which we’ve done in the past in material ways or in share growth or investment in adjacent businesses, I think is something we will evaluate both on an absolute basis and relative to each other.