Oceaneering International, Inc. (NYSE: OII) has reported record quarterly earnings for the second quarter ended June 30, 2014.
On revenue of $927.4 million, Oceaneering generated net income of $110.3 million, or $1.02 per share. During the corresponding period in 2013, Oceaneering reported revenue of $820.4 million and net income of $98.8 million, or $0.91 per share.
Summary of Results
(in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, March 31, June 30,
2014 2013 2014 2014 2013
Revenue $ 927,407 $ 820,372 $ 840,201 $ 1,767,608 $ 1,538,924
Gross Margin 218,215 201,864 189,491 407,706 362,239
Income from Ops. 161,311 146,337 132,862 294,173 254,627
Net Income $ 110,295 $ 98,811 $ 91,225 $ 201,520 $ 173,660
Diluted Earnings
Per Share (EPS) $1.02 $0.91 $0.84 $1.86 $1.60
Year over year, quarterly EPS increased on profit improvements from Subsea Products, Remotely Operated Vehicles (ROV), and Subsea Projects. Sequentially, quarterly EPS rose on higher operating income principally from Subsea Products and Subsea Projects.
M. Kevin McEvoy, President and Chief Executive Officer, stated, "Our quarterly EPS was slightly above our guidance, and was up 21% over the first quarter of this year and 12% over the second quarter of 2013. EPS for the first half of 2014 was 16% higher than the first half of 2013. We achieved record quarterly operating income from Subsea Products, and for the first time Subsea Products operating income exceeded that of ROV.
"Our outlook for the second half of this year remains positive and unchanged overall from last quarter. Given this outlook and our year-to-date performance, we are narrowing our 2014 EPS guidance range to $3.95 to $4.05 from $3.90 to $4.10. Relative to the first half of 2014, we expect to generate higher income from each of our operating segments during the second half, led by ROV and Subsea Projects. We continue to forecast year-over-year operating income growth for all of our oilfield segments in 2014.
"Compared to the first quarter, Subsea Products operating income rose on the strength of increased revenue and profitability from tooling and subsea hardware. Subsea Products backlog at quarter end was $850 million, compared to our March 31 backlog of $894 million and $902 million one year ago. During the quarter we announced one large umbilical contract for offshore Indonesia.
"ROV operating income was essentially flat, as operating margin declined due to higher repair and maintenance expenses, unanticipated startup costs associated with placing new systems in service, and lower fleet utilization. Revenue grew on increases in days on hire and revenue per day on hire. During the quarter we put 13 new ROVs into service and retired 4. At the end of June we had 323 vehicles in our fleet, compared to 296 one year ago.
"During the second half of this year, we expect to place at least 13 new ROVs into service, and we have contracts for all of these. When these new vehicles are placed into service depends upon the actual commencement dates of new drilling rig and vessel project work. We now anticipate adding 40 or more new systems to our ROV fleet in 2014.
"Sequentially, Subsea Projects operating income increased largely as a result of adding a vessel, the Bourbon Evolution 803, to our Field Support Vessel Services contract with BP for work offshore Angola and a higher profit contribution from the Ocean Alliance in the U.S. Gulf of Mexico. The Ocean Alliance was out of service for much of the first quarter undergoing a regulatory drydock inspection. Asset Integrity operating income improved slightly due to a seasonal increase in activity in Europe and the Caspian Sea area. Advanced Technologies operating income declined due to execution issues on certain U.S. Navy and industrial projects.
"For the third quarter of 2014, we are projecting EPS of $1.10 to $1.15. We expect sequential improvements in income from all of our operating business segments, led by ROVs.
"Our liquidity and projected cash flow provide us with ample resources to invest in Oceaneering's growth. At the end of the quarter, our balance sheet reflected $103 million of cash, $80 million of debt, and $2.2 billion of equity. During the quarter we generated EBITDA of $217 million, $403 million year to date, and for 2014 we anticipate generating at least $855 million.
"In June we increased our regular quarterly cash dividend by 23% to $0.27 from $0.22 per share. This underscores our continued confidence in Oceaneering's financial strength and future business prospects.
"Looking beyond 2014, we believe that the oil and gas industry will continue its investment in deepwater projects. Deepwater remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development costs. With our existing assets and opportunities to add new assets, we are well positioned to supply a wide range of services and products to safely support the deepwater efforts of our customers."
Asset Guardian Solutions Ltd (AGSL), which specializes in protecting companies' process critical software assets, announced that it has been awarded a key contract by a major North Sea operator in Aberdeen, Scotland.
The contract requires AGSL to provide Asset Guardian, a process software management tool that helps to secure the integrity of process software and the mission critical processes that it controls.
Protecting integrity of process critical software on North Sea assets
AGSL will install Asset Guardian software on all of the operator's assets in the North Sea. Asset Guardian software provides a multifaceted, single point solution to manage the process control software it uses to operate these assets. It also ensures that the company complies with all relevant regulatory standards and government directives on process critical systems, such as IEC61508, 61511, ISO 9001, CPNI and HSE KP4 among others.
By using Asset Guardian, the operator will operate with a single secure repository in which all software and data for its North Sea assets is stored. By doing so, critical information is centralized, providing authorized personnel – both onshore and offshore - with access to one source of data, dramatically enhancing workflow.
In addition to preventing unauthorized access to process software, Asset Guardian makes it possible to retrieve back-up files and data required to update or replace system software that has been corrupted or failed, quickly and efficiently. As a result, negative impact upon production is dramatically reduced.
Improving communications enhances operations
Because these assets operate in the rugged, often stormy North Sea, communication links between the assets and onshore cannot always be relied upon. "To address this, we are also providing AGSync, a software solution that we developed especially for the oil and gas industry that makes it possible to synchronize data and files between locations," said Sam Mackay, Managing Director of AGSL.
In addition to providing Asset Guardian software, AGSL will also assist this customer with the migration of files and data from existing systems into Asset Guardian and provide full training to both Users and system Administrators using the recently launched Asset Guardian Computer Based Training (CBT) program.
Since 2007, AGSL has been supplying the oil and gas industry with the Asset Guardian toolset. The award of this contract follows on the heels of several others, including those from Woodside, Inpex, Stena Drilling, BP, Marathon, and nuclear energy provider EDF Energy
The board of directors of Aker Solutions ASA ("Aker Solutions") has in accordance with the strategy disclosed April 30 resolved to propose to the company's shareholders that Aker Solutions be split into two companies. The board has also determined to write down the value of some assets in the Aker Oilfield Services unit of Akastor, one of two companies that will emerge from the separation.
Aker Solutions Holding ASA ("New Aker Solutions") - a subsidiary of Aker Solutions ASA established for the purposes of the demerger and which will apply for listing of its shares on the Oslo Stock Exchange - will through the proposed demerger assume Aker Solutions' activities in the following areas of operation: Subsea (SUB), Umbilicals (UMB), Maintenance, Modifications and Operations (MMO) and Engineering (ENG). New Aker Solutions will operate under the Aker Solutions name from the first day of listing.
From the first day of listing of New Aker Solutions, the existing Aker Solutions ASA will change its name to Akastor ASA to form the Akastor Group together with the other subsidiaries that have not been transferred to New Aker Solutions. The Akastor Group will, among other things, continue Aker Solutions' activities mainly related to Drilling Technologies, Process Systems, Surface Products and Aker Oilfield Services, as well as Business Solutions, some financial assets and real estate.
On completion of the demerger, consideration shares in New Aker Solutions will be issued to the shareholders of Aker Solutions. Each share in Aker Solutions will give the right to one consideration share in New Aker Solutions. The consideration shares will constitute 100 percent of the outstanding shares in New Aker Solutions as of completion of the demerger.
The demerger is subject to approval by the shareholders of Aker Solutions at the Extraordinary General Meeting to be held on August 12, 2014, and depends, among other things, on the approval of the application to list New Aker Solutions shares on the Oslo Stock Exchange.
Based on external and internal valuations, the board of Aker Solutions determined an allocation of Aker Solutions' share capital so that 35.2 percent of the share capital would be allocated to Aker Solutions (to be renamed Akastor) and 64.8 percent to New Aker Solutions. This is in accordance with the allocation of net values between the two companies as a consequence of the demerger. The allocation is mainly based on internal and external evaluations of future cash flow and also takes into account the businesses' risks and prospects. Aker Solutions has as part of the demerger plan adopted an interim balance sheet that is included in the demerger plan.
The board determined to recognize impairments and a provision, which are reflected in the above-mentioned valuation, of about NOK 1.6 billion on some assets and goodwill of the Aker Oilfield Services unit of Akastor. The value of Aker Oilfield Services' investments in the Skandi Aker and Aker Wayfarer vessels will be written down and a provision will be made on future leasing commitments for the Aker Wayfarer vessel. The goodwill value of the business area Oilfield Services and Marine Assets (OMA), which Aker Oilfield Services belongs to, will also be written down.
The impairments and provision are based on revised business cases after the cancelation in June by Total in Angola of a two-year contract for the Skandi Aker vessel, as well as a generally weaker market that has created uncertainty about the value of the vessel and the goodwill value of OMA. An impairment charge of NOK 664 million will be taken on the Skandi Aker and NOK 306 million on the goodwill value of OMA. An impairment charge and onerous lease provision totaling NOK 662 million will also be taken on the Aker Wayfarer as some prior investments in the vessel have little or no value based on recently revised business cases and the current market outlook.
The after-tax effect of the impairments and provision is expected to be about NOK 1.3 billion. Most of the Aker Wayfarer impairment and provision will impact earnings before interest, taxes, depreciation and amortization (EBITDA). The Skandi Aker and OMA goodwill impairments will impact earnings before interest and taxes (EBIT). The impairments and provision, as well as other financial consequences of the demerger, will be incorporated in the second-quarter 2014 results disclosed July 17 by Aker Solutions.
The impairments and provision will have no effect on the new Aker Solutions since OMA will become part of Akastor. There will be no cash effect, no adverse impact on future funding through covenants and no consequences for the separation of Aker Solutions.
Indicative key dates for the demerger and the listing of New Aker Solutions shares on the Oslo Stock Exchange are as follows:
• Extraordinary General Meeting of Aker Solutions where the demerger proposal will be considered: August 12, 2014
• Application for listing of New Aker Solutions' shares on the Oslo Stock Exchange: on or about August 27, 2014
• Last day of trading of the Aker Solutions' share inclusive of the right to consideration shares in New Aker Solutions: on or about September 26, 2014
• Registration of the demerger with the Norwegian Register of Business Enterprises: on or about September 26, 2014
• First day of trading in Akastor shares exclusive of the right to consideration shares in New Aker Solutions: on or about September 29, 2014
• First day of trading in New Aker Solutions shares on the Oslo Stock Exchange: on or about September 29, 2014
ABG Sundal Collier, Barclays and Carnegie will act as joint lead managers for the listing process.
As part of the process, a listing prospectus for New Aker Solutions will be prepared and published in accordance with applicable laws and regulations.
Declining North Sea production and increasingly mature assets are expected to drive demand for offshore accommodation support, with the attributed maintenance, refurbishment and shutdown work requiring additional personnel-on-board and workshop capacity. However, the harsh met ocean conditions of the northern North Sea (NNS) ultimately limit Operator choice to two types of accommodation - jackup barges and semisubs – due to the greater stability and safety offered.
Despite growing demand for semisub units, the sector is plagued by constrained global supply and limited availability, placing upward pressure on day rates. This is having a significant impact on contract costs in the NNS, with day rates typically ranging from $200-350k. Additionally, Operators are placing contracts several years in advance to ensure maintenance or construction schedules are satisfied. This is forcing Operators to seek more efficient contracting practices, either through unit sharing agreements or securing units on an annual basis.
Notably; although costs continue to rise, a key emerging trend in the floating accommodation sector is employee welfare. IOCs are using their global footprints to help drive the adoption of the 'quality equals efficiency' concept. This is now being mirrored in the NNS, where several large Operators and service contractors have identified a trend between 'spanner time' – hours worked by offshore personnel – and the quality of worker accommodation. While this may incur greater costs in terms of unit day rates, the cost advantages gained from reduced downtime and improved worker efficiency could make this increased expenditure worthwhile.
The industry is screaming for offshore accommodation capable of working in harsh conditions. Although the market will see 11 new units delivered between 2015-2016, continued growth in demand for accommodation semisubs, intensified by unit retirement, will further constrain supply. We are already seeing the market respond with new orders; however, will this be enough to offset growing demand pressures?
Murray Dormer, Douglas-Westwood London
+44 1795 574736 or This email address is being protected from spambots. You need JavaScript enabled to view it.
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