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Oceaneering reports fourth quarter and full year 2015 results

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Oilfield Technology,

Oceaneering International, Inc. has reported net income of US$27.5 million, or US$0.28 per share, on revenue of US$722 million for the three months ended December 31, 2015. Adjusted net income was US$57.4 million, or US$0.58 per share, excluding the US$45.9 million pre-tax impact of asset write-downs, provisions for certain reserves, restructuring expenses and foreign currency losses recognised during the quarter. During the fourth quarter of 2014, Oceaneering reported net income of US$102 million, or US$0.99 per share, on revenue of US$919 million.

For the year 2015, Oceaneering reported net income of US$231 million, or US$2.34 per share, on revenue of US$3.1 billion. Adjusted net income was US$284 million, or US$2.87 per share, excluding the US$81.1 million pre-tax impact of asset write-downs, provisions for certain reserves, restructuring expenses and foreign currency losses recognised during the year. This compared to 2014 net income of US$428 million, or US$4.00 per share, on revenue of US$3.7 billion.

Despite declining earnings, annual free cash flow (defined as cash provided by operating activities less purchases of property and equipment) increased due to reductions in organic capital expenditures and working capital. Free cash flow for 2015 of US$360 million, or 127% of adjusted net income, exceeded the US$335 million generated in 2014. Reconciliations of annual free cash flow to cash provided by operating activities are shown in the table Free Cash Flow shown below under the caption Reconciliations of Non-GAAP to GAAP Financial Information.

M. Kevin McEvoy, Oceaneering’s Chief Executive Officer, stated:

“The severe deterioration in oil prices and the resulting slowdown in deepwater activity since last year impacted our fourth quarter and full year results. We have undertaken a series of initiatives to align our operations with current and anticipated declining activity and pricing levels. Unfortunately, these restructuring steps required us to reduce our workforce, incur unusual expenses, and make certain accounting adjustments.

“Although substantial restructuring progress has been made, we remain focused on organising more effectively, managing costs, and improving our opera tional performance, while continuing to provide safe, innovative and cost-effective solutions that improve our customes’ returns in a lower commodity price environment. We believe our liquidity (including US$385 million of cash at year-end), demonstrated cash flow generating capabilities, and US$500 million revolving credit facility provide us with ample resources to manage our business through the current environment of reduced demand for our services and products.

“In addition, our financial strength should enable Oceaneering to enhance shareholder value by continuing to invest in our current and adjacent market niches, and returning cash to our shareholders in the form of cash dividends and potential stock buybacks. While we face a high degree of uncertainty in the offshore markets in which we participate, we are confident in our cash flow generating capabilities. We presently intend and expect to continue the current quarterly cash dividend of US$0.27 per share throughout 2016. We may, however, revisit our quarterly dividend should market conditions deteriorate to the extent that our projected annual net income would not exceed the current annual dividend.

“During 2015, we generated adjusted operating income of US$417 million on revenue of US$3.1 billion. Compared to 2014, these results represent a 34% drop in operating income on a 16% decline in revenue. On an adjusted basis, our 2015 consolidated operating margin of 14% compared to the 17% margin achieved in 2014.

“On an adjusted basis, ROV operating income declined 32% year over year on 24% less revenue, driven by lower demand for drill support services and an 11% reduction in average revenue per day on hire. Our total ROV days on hire declined by nearly 14 500, or 15%, to about 83 800 days for the year. During 2015, we put 16 new ROVs into service (4 during the fourth quarter), retired 36 vehicles (25 during the fourth quarter), and transferred 1 to Advanced Technologies. At year-end, we had 315 vehicles in our ROV fleet.

“Subsea Products operating income, on an adjusted basis, declined 27% in 2015 relative to 2014, on a 23% reduction of revenue due to lower demand and pricing for tooling and subsea hardware and lower umbilical plant throughput. Products backlog at the end of 2015 was US$652 million, down from US$690 million at the end of 2014. This backlog decline was related to tooling and subsea hardware. Products book-to-bill ratio for the year was 0.96.

“Considering the oil price environment and the global current oversupply of vessels, Subsea Projects operating income held up relatively well during 2015. The decline was due to lower deepwater vessel activity and market pricing offshore Angola and in the US Gulf of Mexico. In 2015, Asset Integrity operating income declined precipitously on lower global demand and pricing for inspection services. Advanced Technologies operating income for the year was lower due primarily to execution issues on certain theme park projects. Unallocated Expenses during 2015 were lower mainly as a result of educed performance-based incentive and deferred compensation expenses as plan targets were not achieved.

Spending and investments

“Total capital allocation spending was US$650 million in 2015, compared to US$1.1 billion in 2014. We invested US$200 million in organic capital expenditures and US$244 million on acquisitions and other investments. We also paid US$106 million of cash dividends and spent US$100 million on the repurchase of 2 million shares of our common stock.

“For 2016, we are expecting lower demand for our services and products, and continued pricing pressure and spending cuts from our customers. Consequently, we are projecting that all of our oilfield business segments will have lower operating income in 2016 than in 2015. With our limited market visibility on how weak 2016 may actually be, we are not prepared to quantify the magnitude or duration of the decline or give annual and quarterly EPS guidance ranges.

“In the current market environment, we intend to continue taking actions to restructure and integrate our service and product offerings to reduce our operating expenses and better serve our customers. For 2016, we expect our organic capital expenditures to total between US$150 million and US$200 million, approximately US$75 million of which is expected to be maintenance capital expenditure.

Deepwater to continue to play a critical role in supply growth

“Longer term, deepwater is still expected to continue to play a critical role in global oil supply growth required to replace depletion and meet projected demand. Major deepwater projects remain key long-term growth drivers within international oil company portfolios. In the medium term, we believe there will be an uptick in demand for products and services to extend the producing life of existing offshore fields and to perform decommissioning work. Consequently, we intend to continue our strategy to maintain or grow our market position and be prepared to expand our services and product line offerings should suitable opportunities arise.”

Adapted from a press release by Louise Mulhall

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