Tidewater Inc.
Q1 2013 Earnings Call Transcript

Published: 8 Aug 2012

[Operator:]

Good morning. My name is Alicia, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Fiscal 2013 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Joe Bennett, you may begin your conference.

[Joe Bennett:]

Thank you, Alicia. Good morning, everyone, and welcome to Tidewater’s fiscal 2013 first quarter earnings results conference call for the period ended June 30, 2012. I’m Joe Bennett, Tidewater’s Executive Vice President and Chief Investor Relations Officer. With me this morning on the call are our President, and CEO, Jeff Platt; Jeff Gorski, our Executive Vice President and Chief Operating Officer; Quinn Fanning, our Executive Vice President and CFO; and Bruce Lundstrom, our Executive Vice President, General Counsel, and Secretary. We will follow our usual conference call format. After the formalities, I’ll turn the call over to Jeff for his initial comments, to be followed by Quinn’s review of the financial details for the quarter. Jeff will then provide some wrap-up comments before we open the call for questions. During today’s conference call, Jeff, Quinn, I, and other Tidewater management may make certain comments that are forward-looking statements and not statements of historical fact. I know that you understand that there are risks, uncertainties, and other factors that may cause the company’s actual future performance to be materially different from that stated or implied by any comment that we may make during today’s conference call. Additional information concerning the factors that could cause actual results to differ materially from those stated or implied by the forward looking statements, may be found in the risk factors section of Tidewaters’ most recent form 10K. With that I’ll turn the call over to Jeff.

[Jeff Platt:]

Thank you, Joe, and good morning to everyone. Earlier this morning we reported fully diluted earnings per share for our fiscal quarter of $0.65 which compared to $0.48 a year ago. These results were consistent with our expectations and reflect continued progress in the turnaround for the offshore supply vessel business. In last quarter’s conference call, Dean Taylor, our former CEO and current Chairman pointed out how we could see progress in the industry’s recovery if you looked at our vessel revenues for the full year by its halves. In the first half of fiscal year 2012, our quarterly revenues averaged about $250 million. During the second half of fiscal year 2012, our vessel revenues were averaging about $280 million per quarter. In the quarter we are reporting today we generated $290 million in vessel revenues, which was once again a step up from the prior two quarters. In this quarter, just as in the March quarter, our financial results reflected revenues coming in at the middle of our guidance on the last conference call while operating expenses were at the low end. Both trends are positive and reflect improving industry fundamentals along with continued diligence in managing our business. The safety culture at Tidewater that our two previous CEOs Bill O’ Malley and Dean Taylor nurtured during their terms will continue to receive my highest attention, and that of the rest of the Tidewater management team employees. As has been said many times before, safety is important not just because it’s good for our customers and our business, but because we owe it to everyone who comes to work each day to return home safely at night. Tidewater’s safety record for the first quarter reflected a total recordable incident rate of 0.25 with no lost time accidents incurred. I thank all of our employees worldwide for their continued diligence in operating our fleet safely. I’m sure most participants in this call remain very interested in an update regarding our situation in Angola. Our ongoing negotiations with Sonangol, our joint venture partner continued. You are probably already aware that our existing Sonatide joint venture agreement with Sonangol has been extended to December 31, 2012, allowing ongoing JV restructuring negotiations to continue. In regards to recent vessel activity in Angola, during the six months ended June 30, 2012, the company redeployed five Tidewater owned vessels from its Angolan operations to other markets. With each of the vessels redeployed at day rates comparable to or higher than the respective expiring contracts in Angola, reflecting we believe the strength of the markets outside of Angola. During the quarter ended June 30, 2012, the joint venture entered into seven short-term vessel contracts, four of which have now expired. The remaining three contracts will expire on or before December 31, 2012. I will also note that Sonangol has recently expressed the willingness to consider additional contracting activity via the Sonatide joint venture, and we look forward to continuing to work with Sonangol in this regard. The conclusion of the situation is still very much uncertain at this time. So we continue to explore opportunities to move vessels from Angola as need be to other markets. I would like to point out that we move vessels from one market to another in the normal routine of our business, taking full advantage of the global infrastructure, Tidewater has developed over seven decades of existence. To head off questions later, this is the extent of what we are able to tell you about the status for negotiations, other than to say there is much hard work being done by both Sonangol and Tidewater to reach a mutually beneficial outcome. When we have a material change in the Angola situation, we will update our shareholders at that time. With that being said, let me turn the call over to Quinn to discuss our financial results for the quarter. Quinn?

[Quinn Fanning:]

Thank you, Jeff. Good morning, everybody. First, I’ll call to your attention the earnings press release that we’ve put out this morning prior to the market’s opening. I’ll also note that we expect to file our quarterly report on Form 10-Q through the EDGAR filing service sometime before the close of business today. Turning to financial results as of and for the three period ended June 30, 2012, as usual, I will provide a recap of the quarter just completed, offer a few perspectives on what’s driving financial results, and then provide our near-to-intermediate-term outlook. I’ll conclude my remarks with a review of capital commitments and available liquidity. As Jeff noted in his introductory remarks, we reported diluted earnings per common share of $0.65 in the June quarter versus diluted earnings per common share of $0.66 for the March quarter. I believe that the consensus of analysts’ estimates for the June quarter for Thomson First Call was $0.60. For your period to period comparisons, I’ll highlight just a few items in the June quarter. Vessel revenue in the June quarter was about $290 million versus about $288 million for the March quarter. For the deepwater class of vessels, which represents about 45% of first quarter vessel revenue, and which at least for Tidewater is primarily a deepwater PSV story, results were flattish quarter-over-quarter, reflecting the somewhat offsetting effects of downtime on a few high day rate vessels that were either in dry dock or between charters and a deepwater fleet that is generally rolling on to charters at rates respectably higher than the charters that those vessels have most recently completed. As a result reported results for the June quarter for our deepwater class of vessels may fail to capture what we believe to be a continuation of the strong fundamentals for the deepwater asset class, really across geographic markets, which we have seen in recent quarters. Without preempting guidance, we think a positive trend in deepwater day rates will be more evident in future quarters even if the natural quarterly rollover – rollover of charter agreements will result in average deepwater day rates continuing to lag current leading edge day rates. When we get to guidance, our outlook assumes continued high utilization and a positive trend for day rates as well as an increase in our deepwater fleet count. As for the towing supply and supply class equipment, which is likewise about 45% of vessel revenue, June results benefited from a 5 percentage point increase in utilization and a $315 a day increase in average day rates. While Tidewater’s utilization of marketed towing supply and supply vessels has probably been better than industry wide utilization within this asset class, this is a welcome positive move in day rates. It’s also notable that we finally appear to be getting a bit of traction in this class of equipment. If the trend for working jack-up rigs remains positive and based on the recent earnings conference calls that seems to be the view of the larger drilling contractors, we would expect that industry wide utilization of non-deepwater LSVs to continue to move up and day rates to follow. Vessel revenue for the June quarter also reflects about $5 million of incremental revenue from the delivery of five new vessels that were added to the fleet in the March quarter. We had three additional new vessels that were delivered in the June quarter, but these vessels made no meaningful contribution to vessel revenue in the June quarter. These vessels were delivered from Asian shipyards at various points in the quarter but they collectively spent most of the June quarter mobilizing to their first assignments offshore Africa and offshore Latin America and will begin generating revenue in the second fiscal quarter. Offsetting the contribution from new vessels was a corresponding amount of lost revenue from seven newly stacked vessels and one crew boat that was sold out of the active fleet in the June quarter. Relative to the March quarter, incremental lost revenue due to vessels and dry-dock was about $4.5 million in part reflecting a couple of dry-docks that were deferred from the March quarter to the June quarter. To complete the bridge of March and June quarters vessel revenue a strengthening U.S. dollar during the June quarter, particularly relative to the Brazilian reais, devalued foreign currency denominated revenues by about $3 million in the June quarter, though I will note that we have a reasonably effective natural hedge here in the form of local currency denominated costs. As a result, the impact of FX movements on overall operating results was immaterial. Vessel operating costs for the June quarter were about $166 million versus about $169 million in the March quarter. Crude costs and repair and maintenance expenses which are our two largest cost categories were each flat quarter-over-quarter. Insurance costs were up about $2.5 million quarter-over-quarter, largely reflecting some positive adjustments to case-based reserves and other insurance costs in the March quarter and the fact that we’re too early in the new fiscal year to adjust conventional accruals for possible losses, even if our safety results have continued the recent positive trend. Offsetting higher insurance costs – excuse me offsetting higher insurance loss costs, fuel, lube oil, and supplies costs were about $4 million lower in the June quarter than in the March quarter reflecting a fewer number of new vessel deliveries and a relatively lighter quarter for vessel mobilizations. Overall vessel level cash operating margin for the June quarter was $124 million or 42.8% of vessel revenue. And it was up about 100 basis points quarter-over-quarter. Looking at the geographic spread of our operations, the Americas, Asia-Pacific, MENA and the Sub-Saharan Africa regions respectively contributed 27%, 18%, 11% and 44% of vessel revenue. Profitability across the four reporting segments generally track revenue contribution at least in terms of vessel level cash operating margin. G&A for the June quarter at about $41 million was flat quarter-over-quarter and $1 million or $2 million lower than guidance, largely reflecting the (inaudible) revaluation of equity based long-term incentive compensations, lower than expected professional services fees, and a modest foreign exchange benefit. Gains on dispositions net at about $1 million was well below our historical run rate of $4 million to $5 million a quarter and in part reflected asset impairments, which were largely taken in connection with a regular stacked vessel impairment review of about $3 million. The effective tax rate reflected in June results was 24% and was consistent with guidance that I provided in May. In regards to overall fleet count, day rate, and utilization trends, our active vessel fleet averaged 261 vessels in the June quarter, which is down four vessels quarter-over-quarter. Average active new vessels were up three vessels quarter-over-quarter to 216 vessels. Average active older vessels were down seven vessels quarter-over-quarter to 45 vessels in the June quarter. Somewhat noteworthy we are now down to 25 active older or less (inaudible) in the Tidewater fleet, the remaining 20 active older vessels are a mix of crew boats, tugs, and other specialty vessels. At June 30, the average age of 217 then active new vessels was 5.6 years, and the average age of the 41 active older vessels was 27.6 years. Overall, the average age of the 258 vessels that were active at quarter end was 9.1 years. As for relative financial contribution, 91% of vessel revenue and 98% of vessel level operating margin was generated by vessels added to the Tidewater fleet since we began our fleet renewal and expansion program in fiscal 2000. At June 30, the stacked fleet totaled 66 vessels, and was down 1 vessel quarter-over-quarter, reflecting seven vessels being stacked in the June quarter and 8 vessel dispositions from the previously stacked fleet. As I mentioned earlier we did sell one vessel out of the active fleet, so a total of 9 vessels were disposed in the June quarter. Overall day rates at $14,275 a day were up about 1% quarter-over-quarter. Reported utilization for the fleet, which includes the drag associated with stacked vessels was up 3 percentage points to about 68%. Utilization for the active fleet, i.e., excluding stacked vessels, was about 86% for the June quarter. Deepwater day rates were basically flat quarter-over-quarter at about $24,400 a day in the June quarter. Utilization was down 2 percentage points quarter-over-quarter to about 83%. Making a provision for required time in dry dock, the marketed deepwater fleet for all intents and purposes. Within the deepwater vessel class, utilization of our 11 newer plus 10,000 brake horsepower AHTS vessels was up about 6 percentage points quarter-over-quarter to 94%. Utilization of an average of 55 new deepwater PSVs was about 86% in the June quarter, which is down about 4 percentage points quarter-over-quarter. Average day rates for the deepwater anchor handling vessels at about $28,900 a day in the first quarter was up about a $1,000 quarter-over-quarter. Day rates to the deepwater PSVs at $24,100 a day was down a couple of hundred dollars per day quarter-over-quarter largely reflecting downtime on a few high day rate vessels. For the non-deepwater towing supply and supply class, day rates at about $13,100 a day were up about 2% quarter-over-quarter and reported utilization was up 5 percentage points quarter-over-quarter to about 60%. Excluding stacked vessels, utilization in the June quarter for the towing supply and supply class was approximately 87% were up about 6 percentage points quarter-over-quarter. Turning to our outlook, we expect that the newer vessels within both the deepwater and towing supply and supply classes of equipment will continue to experience high utilization. Day rates are also generally trending positive albeit in a deliberate rather than a dramatic fashion. Again, this partially reflects the fact that only plus or minus 15% of vessel charters rollover each quarter. In addition, we took delivery of three new vessels in the June quarter and expect to take delivery of at least 10 vessels in the remaining quarters of our fiscal 2013, five of which should be in the September quarter. As is typically the case, meaningful financial contribution will lag delivery dates by a quarter or two and fiscal 2013 new vessel deliveries should start to have a positive impact on finance results in the third and fourth quarters of fiscal 2013. In particular, based on current leading edge day rates, current contract cover and anticipated additional new vessel deliveries. We expect that average deepwater day rates will improve from the first to the fourth quarters of fiscal 2013 by a percentage order of magnitude of high single digits to low double digits. For the towing supply and supply class equipment, we’re really just now converging on sufficiently high utilization to see any traction in day rates. As a result, our expectation for improvements and average day rates between now and the fourth fiscal quarter is mid-single digits. In sum, high utilization constructive day rates and day rate trends and the steadily increasing new vessel fleet capital. We’re cautiously optimistic, but not exuberant as to the expected near-term trend in vessel revenue. We also expect that operating cost will trend higher in 2Q and 3Q with an anticipated heavier dry docking schedule and the addition of five new vessels in the quarter. Repair maintenance costs for both the second and third quarters of fiscal 2013, will likely be at least a couple million dollars higher than the June quarter and then likely taper off in the March quarter. And while dry dock space seems to be coming a bit more scarce in certain markets, shipyard access for repairs and shipyard costs do not yet seem to be reflecting that development and thus have not yet driven our internal forecasting process. Nor have we yet seen across the board pressure on crew costs and we do expect crew costs to be up by at least a couple of million dollars quarter-over-quarter. As previously noted, part of the expected trend in crew costs is an assumed increase in overall vessel count. We are also expecting to mobilize a number of vessels from relatively lower cost markets to higher cost markets including the U.S. Gulf of Mexico, Australia, and possibly Brazil in the next couple of quarters. These molds should contribute a higher crew costs, but they should also contribute to higher average day rates as well. Within this context, we expect that Tidewater’s quarter-over-quarter revenue progression will be positive for the September quarter and as of today internal estimates pegged the September quarter’s vessel revenue somewhere between $300 million and $310 million. Based also on what we know today, OpEx for the September quarter should fall within the range of $175 million to $180 million. Based on our guidance ranges in regards to vessel revenue and vessel OpEx, vessel operating margins for the September quarter should be between 40% and 42%. The December and March quarter should also show nice quarter-over-quarter improvements in vessel revenue and operating margin, possibly continuing a theme that we saw in fiscal 2012, i.e., in retrospect financial results for the second half of the fiscal year will compare favorably to the first half. A reasonable estimate for general and administrative expenses for the September quarter is $43 million or $44 million. As discussed in our May call, this should be a reasonable estimate for quarterly G&A costs in fiscal 2013, with the (inaudible) so that we expect to recognize settlement loss in December quarter in connection with Dean Taylor’s retirement. Finally, our estimated effective tax rate for fiscal 2013 as mentioned earlier is currently 24%. As always the geographic mix of pre-tax earnings and margin trends can cause the tax rate to be volatile on a quarter-to-quarter basis. Turning to the balance sheet, capital commitments and available liquidity, cash hold from operations for the first three months of the fiscal year was about $69 million versus $27 million in the same period of fiscal 2012. CapEx and proceeds from asset dispositions for the first three months of fiscal 2013, $77 million and $6 million respectively. We also acquired $1.4 million Tidewater shares during the June quarter at an average price per share of $46.43 for total consideration of $65 million. For reference, we utilized a total of $100 million of the $200 million buyback authority during the 12-month period that ended on June 30, 2012. As previously disclosed, the Tidewater board authorized the company to repurchase up to $200 million of additional stock in the 12-month period running from July 1, 2012 to June 30, 2013. New vessel commitments made in the June quarter, totaled $118 million for a new four vessel construction program at an international shipyard. These vessels are 4,100 deadweight ton deepwater PSVs. Subsequent to the close of the June quarter, we also entered into a contract to build two additional deepwater PSVs and we further committed to purchase two deepwater PSVs from another operator. Cargo carrying capacity for these four vessels ranges from 3,000 to 3,200 deadweight tons. Total capital commitments related to the vessel commitments made subsequent at the end of June quarter totaled $88 million. In total, unfunded vessel commitments at June 30, approximated $412 million including 24 vessel construction projects and two vessel purchase commitments. Including commitments made subsequent to the end of the June quarter, unfunded vessel commitments approximate $500 million, including 26 vessel construction projects and four vessel purchase commitments. Total debt at June 30 was $950 million and cash at June 30 was about $240 million. As a result, net cash at quarter end was about $710 million and net debt to net book capital at June 30 was about 22%. As the funding needs, CapEx in the September quarter is expected to be about $85 million based on June 30 commitments. Also note that we have no remaining debt maturities in fiscal 2013 beyond a $60 million note maturity that was paid in mid-July. Total liquidity at June 30, including availability under committed bank facilities, was approximately $700 million. And with that, I’ll turn the call back over to Jeff.

[Jeff Platt:]

Thanks, Quinn. As I said at the outset of the call, our quarterly results reflect the improving environment for the offshore vessel industry and for Tidewater in particular. It may be difficult to discern that the business is improving, given the daily headlines about the political chaos in Europe, the sluggish economic recovery in United States, turmoil in the Middle East, and growing concern about China – China’s economy, experiencing a hard landing. A global oil demand continues to rise and the need to find and develop new hydrocarbon supplies increases. Rising energy demand globally is putting a floor under oil and gas prices with the recent supply gluts in North America beginning to disappear. Our clients continue to demonstrate their desire to expand the reserves and increase their production. As a result, they continue spending on exploration and development and their commitment to reserve production growth is being reflected in the growth of the offshore drilling rig fleet and as a corollary the need for additional support vessels. The June quarter included an approximate 25 rig increase in the working offshore rig count globally with nice expansion in both the jack-up market and the deepwater-floater market. At the present time, there are just under 200 offshore drilling rigs either under construction or on order split almost equally between the deepwater floater market and the jack-up market. The recent contract announcements by offshore drilling contractors for some of the new build rigs, are confirmation of the commitment by our clients to increase their pace of offshore exploration and development. This pace of new rig construction over the past several years and in the new orders for rigs signals that the offshore drilling industry will likely add as many rigs this decade as it did in the 1970s, the greatest growth period this industry experienced in its 60-year history. A growing worldwide offshore rig fleet with its continued focus on both deepwater and mid-shallow water drilling means the vessel industry must add to its fleet and must add more sophisticated vessels with greater capabilities. Tidewater continues to invest in a variety of new vessels as we prepare to meet our clients’ future needs in all water depths. Our strong financial footing and significant liquidity position allows us to grow through the additional investment in our fleet. Importantly, we expect all of our investments to generate solid returns for our shareholders. As our present and past investments begin to generate these solid returns, we will be prepared to return excess capital to our shareholders in a most efficient manner. Last quarter, as Quinn mentioned, we repurchased 1.4 million shares under our prior share repurchase authorization. In May, the Board of Directors approved a new $200 million share repurchase authorization for the 12 months commencing this July, that approval was confirmation that as we enter the next growth phase for the industry and for Tidewater we will consider all options to grow the company’s business while also considering every available option to reward our shareholders for their long term loyalty. In conclusion the recovery in the global OSV industry continues driven primarily by an increase in offshore rig count. As we have stated in the past the recovery is not expected to be quick or smooth. With Tidewater’s vessel contract coverage, which averages around 50% of vessel days booked for the next 12 months, it takes a little time before improving global leading edge day rates are fully reflected in our financial performance. We have discussed for a few quarters now, how tight the deepwater PSV market is reflected in the steady, high utilization and growing leading edge of day rates of that vessel class. With the recently improving jack-up rig count our shallow and mid water towing supply and supply fleet began gaining traction in the June quarter with nice improvements in both utilization and average day rates from recent quarters. As the global jack-up rig market continues to improve the market for the vessels supporting this activity should also continue to improve as well. With our widespread global infrastructure we will continue to move vessels to areas, where we can achieve the best returns that may include moving vessels from Angola or any other region to other improving markets, such as the U.S. Gulf of Mexico, Brazil, East Africa and the Middle East. We are excited about the improving global marketplace and the continued addition of new vessels into our fleet to take advantage of such recovery. Alicia, we are now ready to take questions.

[Operator:]

(Operator Instructions)And your first question comes from the line of Gregory Lewis from Credit Suisse. Your line is now open.

[Jeff Platt:]

Hello, Gregory.

[Gregory Lewis:]

Hey, thank you, morning. I guess my first question is looking at the Americas utilization in the quarter, can you sort of provide a little bit more color or detail into maybe why that trended down a little bit, was that specific to any region in the Americas whether it was the Gulf, Mexico, Brazil, South America.

[Quinn Fanning:]

I think I wouldn’t read too much into a trend there but in the June quarter it primarily reflects contract gaps in the Brazilian market.

[Gregory Lewis:]

Okay, perfect. And then just you touched on the two PSVs that you were actually able to acquire from another operator. Could you talk a little bit more about that, what made that possible, is that other additional opportunities like that maybe that Tidewater is going to be able to take advantage of.

[Jeff Platt:]

Gregory, we’re always looking to add to the fleet and certainly we do that with a mix of new builds, Tidewater new construction projects, our bias certainly would be to buy the right new equipment that others have already committed, that are already in the marketplace, so we don’t add to the overall supply, but again you have to have a willing seller and a willing buyer. In this particular case, we were able to close the gap and I think make a deal that certainly make sense for Tidewater that’s why we did it, but again we’re always looking for that opportunity, but we have to again have the right valuation to make sense from our perspective.

[Gregory Lewis:]

Can you provide any color on the seller, was that seller a traditional operator, was it someone that was maybe in the market on spec.

[Jeff Platt:]

No, I think again I don’t want to drill too much into it, again it was obviously a good deal from their perspective or they wouldn’t have made it, but it was not necessarily a speculative owner, but again I think it was a deal that made sense for both sides and really I’ll speak to the Tidewater side, that’s why we did the deal.

[Gregory Lewis:]

Okay, great. And then, just one follow-up, one final question on the new builds that are going to be delivered over the next couple of quarters. It looks like the bulk of those are, if not all of them are going to be being built in Asia, actually there is – anyway we’re talking the majority of those that are being built in Asia. Can you sort of give us some guidance and where we expect the majority of those boats to end up I mean, is it going to sort of be what it was last quarter where they sort of go into Latin American and West Africa, just sort of if you could – sort of give some thoughts about maybe where those boats are going to end up?

[Jeff Platt:]

No. again, I think, Gregory, we’re seeing the strength worldwide, okay. And certainly the markets you’ve referenced, the Latin America market and the African market, both on the East Coast and the West Coast are high potential for those vessels. But as is Australia, Australian markets high as well. So, again, can I tell you that they’re all going to Sub Saharan Africa or the African market and Latin America. No, I can’t, those regions I think, certainly will see some of it, but there will be other areas as well.

[Quinn Fanning:]

(inaudible) I will also mention, Gregory, is that preponderance of our deliveries recently and in the near term are going to be deepwater PSVs and I would say it’s a general matter and there are multiple contract opportunities for those vessels and we’re really just picking the best spots for our company.

[Gregory Lewis:]

Okay, perfect. Thank you for the time.

[Operator:]

And your next question comes from the line of David Smith from Johnson Rice. Your line is open.

[David Smith:]

Thanks, good morning, guys?

[Jeff Platt:]

Hi, David. Good morning.

[David Smith:]

I want to make sure I understood the foreign exchange impact in the quarter correct. Did I hear correctly that the foreign exchange rates, the devalued the revenue base by about 3% in the first quarter?

[Quinn Fanning:]

$3 million.

[David Smith:]

Oh, $3 million, okay. And that would be – that was offset on the coast line?

[Quinn Fanning:]

Offset on both the operating expense line and G&A, so primarily on the operating expense line. So if you net the positives and the negatives, it was essentially a push.

[David Smith:]

Perfect, so good natural hedge there. We’ve seen some really good growth in the average backlog per rig for the global jack-up fleet over the last year or year and half. I wanted to ask if you’re seeing anything different in the term duration of your new contracts, this year relative to last year, particularly in the towing supply and supply fleet?

[Jeff Platt:]

David, again we are, and have grown some of our Middle East opportunities and that’s with Saudi Aramco those are longer term than some of the shelf operators, say in West Africa. So to that extent we have, but again we haven’t seen a whole lot of change other than what you would expect when you have contracts with state oil companies versus IOCs.

[David Smith:]

Okay. Thanks. And could you please remind me what might be a good rule of thumb to estimate the portion of your vessel contracts that roll each quarter?

[Jeff Platt:]

15% to 20%.

[David Smith:]

Perfect. Thanks a lot guys.

[Operator:]

And our next question comes from the line of Todd Scholl from Clarkson Capital Markets. Your line is now open.

[Todd Scholl:]

Good morning guys, nice quarter.

[Jeff Platt:]

Hey, Todd. Thank you.

[Todd Scholl:]

I have got a couple of quick questions here. First, was the uptick in the utilization in the Asia-Pacific region mainly related to vessels going to work in Australia for you guys?

[Jeff Platt:]

No, Todd, I think actually the Australian market, it’s relatively smaller, it’s bigger equipment typically, but we may have had one or two boats go to work there, but overall to move the numbers it’s actually activity outside of the Australia but in the Asia-Pacific region.

[Todd Scholl:]

Okay.

[Quinn Fanning:]

(Inaudible) a small benefit that we’re getting from dispositions of the stacked fleet which are coming out of the denominator of available dates.

[Todd Scholl:]

Okay. And then can you guys talk a little bit, I mean right now the North Sea seems to be in oversupply and I know you’re not a big player there, but with 15 PSVs that we see currently on the spot market another 18 anchor handlers, I mean is that potential threat to other markets, vessels potentially moving from the North Sea to maybe West Africa, maybe to Brazil, or is the move just – does that prevent that from happening?

[Jeff Platt:]

No, Todd. I mean, it’s always been that way historically when the North Sea if it gets very soft, certainly the owners there look outside but I’ll tell you, they like their home cooking and when you move from the North Sea and you look at operating in Africa or you look at operating in Brazil I mean you’re not in your home country anymore and it’s a whole different set of problems and challenges that face you. So, yes, certainly the overcapacity, it’s always a potential for those vessels to move into other markets, but again there’s certain natural barriers and certain natural events for the operators in the North Sea, they like to stay with that home cooking as I said before.

[Todd Scholl:]

Okay. And then just one final question, with kind of post the Presidential election in Mexico, is that a market that you’re taking a hard look at now, with the potential opening up of the petroleum industry there, is that something that maybe in two to three years you could see a significant increase in your vessel count?

[Jeff Platt:]

Well, Todd, you know we’ve always taken a hard look at the Mexico, we take a hard look at all the markets we’re in. Certainly, I think if you step back from the political landscape when you just look at the production declines that Mexico has the seen over the last five years, Mexico has to, in our opinion certainly be and have a very robust market certainly when politicians get involved not just in Mexico, but anywhere in the world they can tend to mess things up a little bit if you will and potentially slow things down, but overall the Mexico market is one that we’re very bullish in. We’ve been in Mexico for a long time and as Mexico opens up we’re going to have the right equipment, the right people and we’re going to be enjoying that market.

[Todd Scholl:]

Great. Thank you.

[Operator:]

And your next question comes from the line of Richard Sanchez from IHS Petrodata. Your line is now open.

[Richard Sanchez:]

Good morning, gentleman. Richard Sanchez, IHS. How are you doing today?

[Jeff Platt:]

Doing good. Richard, how are you?

[Richard Sanchez:]

I’m doing great. I wanted to ask, if you guys anticipate mobilizing any more vessels back to the U.S. Gulf over the next few quarters.

[Jeff Platt:]

Richard, we look at mobilizing vessels every day, be it to one market or another, we’re continually looking at where is the best contract for that piece of equipment to best meet our clients’ needs. So, the simple answer to you is, everyday we’re looking potentially at opportunities in the Gulf of Mexico as in all of our markets. Would it surprise me that we move something back to the U.S. Gulf? Absolutely not. The Gulf market is certainly one that has improved and appears to continue to be strengthening. So, again do we plan on it? We don’t sit down any one day and say today we’re planning on moving a vessel from one market to the next, but as the Gulf market continues its relative strength, we have the U.S. flagged equipment or some U.S. flagged equipment that has applications for primarily the deepwater in the U.S., Gulf as we take deliveries of our international built deepwater equipment, and potentially freeze it up. So to answer your question, absolutely a possibility and one that we evaluate daily.

[Richard Sanchez:]

Thank you very much and congratulations on a good quarter.

[Jeff Platt:]

Thank you, Richard.

[Operator:]

And the next question comes from the line of Fotis Giannakoulis from Morgan Stanley. Your line is now open.

[Fotis Giannakoulis:]

Yes. Good morning and congratulations on a good quarter. I would like to ask you about – you talked about the improving deepwater market, can you please be a little bit more specific regarding PSVs and anchor handlers and what is your outlook comparing this to asset classes?

[Jeff Platt:]

Well, Fotis, again, when you look at the deepwater, we have been very bullish, and I think the market has confirmed that the deepwater especially on the PSV side has been very robust and certainly continues to look that way to continue with the deepwater PSVs. And, I think if you look at the number of new builds and look, drill into the type of new build, rigs we’re talking about, you see that there’s roughly 200 total rigs on order. 50% of those are deepwater floaters, if you will, the other percent are jack-ups for the shelf market. And, when you look at the floaters, I think roughly all, but two of those are dynamically positioned rigs. So, the deepwater market at least for the rig classes, the rigs that are being added in the market are all dynamically positioned. That in effect drives the demand for the PSVs. The larger deepwater anchor handlers, that’s a market that Tidewater for some time we have not been nearly as bullish and we have some vessels, a small amount, that can certainly service the top-end on the deepwater moored rigs, but that is not where we’ve been investing and we are not nearly as bullish on the deepwater anchor handlers. Deepwater PSVs, again we think the market has been good and we think it will continue down the road.

[Fotis Giannakoulis:]

All right, thank you for that. Can you also please comment about the other segments? We saw that the rates for crew boats and tugs they declined slightly. Do you expect that as the lower end of the market is improving, this market will also improve or you are not that bullish for this sector?

[Jeff Platt:]

Fotis, from Tidewater’s perspective, when you talk about crew boats and tugs that you mentioned, we are and we have some equipment, but that is a small percentage of the Tidewater portfolio. If you look at other than the deepwater from Tidewater’s perspective, as Quinn made reference and I did earlier, it’s that towing supply and supply which really addresses for Tidewater, the jack-up market, the shelf drilling worldwide. And again we have seen that market on the rig side continue to build and we saw in this most recent quarter, the 5% increase in utilization on a towing supply and supply and the over $300 a day, day rate. So, from our perspective, we’re starting to see traction in other than the deepwater PSV side.

[Fotis Giannakoulis:]

Okay. Thank you very much.

[Operator:]

(Operator Instructions). And your final question comes from the line of Richard Sanchez from IHS Petrodata. Your line is again open.

[Richard Sanchez:]

Thank you. I just had a one last question about the U.S. Gulf of Mexico. Have you guys noticed a change in demand for dynamically positioned supply vessels since the deepwater horizon?

[Jeff Platt:]

Richard, when you look at the Gulf of Mexico, the shelf activity has really been down and that’s more a function of the price of natural gas and the success of the shale gas drilling. So, the shelf market has been relatively depressed. Post-Macondo, when you look at it certainly the work in the deepwater that has bounced back is deepwater floaters and I don’t think it’s naturally the result of Macondo, it’s a more a function of what rigs are working. These are big new expensive DP floaters working in deepwater and not necessary just for the gulf, that as a result looks at DP-2 equipment, so the requirements certainly for the deepwater side are high spec DP-2 PSVs.

[Richard Sanchez:]

So, are you saying that you have more of those sort of mid-water vessels with DP working for floaters that might normally be replaced with the big 3,000-4,000 deadweight ton PSV if it were available?

[Jeff Platt:]

Richard, I don’t understand. We have U.S. flagged deepwater PSVs that are currently not in the U.S. Gulf of Mexico, that are working internationally. So, those vessels could be freed up with some international built vessels and potentially move that equipment back. But we’re not – we have equipment that could absolutely service the deepwater requirements here in the Gulf of Mexico.

[Richard Sanchez:]

All right. Thank you.

[Jeff Platt:]

Okay. Thank you, Richard.

[Operator:]

(Operator Instructions). And we do have a question from the line of Cole Sullivan from ISI Group. Your line is now open.

[Jeff Platt:]

Hello, Cole.

[Cole Sullivan:]

Hi, how are you. On the Southeast Asia outlook, you’ve had a few competitors, at least one competitor talk about a little bit better conditions there overall. Your utilization ticked up there. Can you give me a little bit of color on what you’re seeing in that market, and if you are seeing that that supply picture kind of clear up a little bit better, the oversupply that is?

[Jeff Platt:]

Cole, you know certainly the rig activity there has been fairly robust. I think in terms of the jack-up market, that’s second to the Middle East, Med for us, or the Middle East primarily. But again kind offsetting that, it’s also the areas that are closest to where a lot of the new construction is. So you have that continued delivery and it’s nearby so a lot of the new construction – finds or tries to find homes in that Southeast Asia market, so again we are seeing some little bit of signs of optimism, but again it’s the first area that picks up all the new build on the OSV side.

[Cole Sullivan:]

Okay, thanks for that. And then I’ll ask one last question on the Gulf, have you guys looked into doing any stretch projects? it looks like you guys may have ordered a couple for the Gulf of Mexico new build vessels, but or at least they’re being built in the Gulf of Mexico, have you guys looked into any stretch projects and some of the, even the foreign flagged or the U.S. flagged vessels that are in foreign markets?

[Jeff Platt:]

Well, Cole again, and this is going back in history. Tidewater, this is going back six, eight, ten years ago, we went through and did a lot of stretches with U.S. flagged equipment. Some of that equipment today is still what we use as our shelf equipment, it’s DP, it’s serviceable equipment, it certainly is good equipment to work on the jack-up on the shelf side. We really don’t have equipment that I think would be really suitable for stretch equipment in the U.S. market. I know some of our competitors, Todd made mention of some class of vessels that he would be looking at. Quite honestly, I don’t think with the rigs that are here that a stretch candidate from the Tidewater side makes a whole lot of sense. We will be delivering to the market top end, high spec PSVs, that’s what Tidewater will be addressing the deepwater market here in the Gulf of Mexico.

[Cole Sullivan:]

Okay. That’s it for me. I’ll turn it back. Thanks.

[Operator:]

And we have no further questions at this time. Now I’d like to turn the call over to Jeff Platt, President and CEO for closing remarks.

[Jeff Platt:]

Okay. Thank you, Alicia. I want to thank everybody. This is my first earnings call and I can tell you just from the standpoint of it being over, I’ll have a little bit better day. But I thank everybody for listening in and I wish everybody a great day. Thank you.

[Operator:]

And with that ladies and gentlemen, this concludes today’s conference call. You may now disconnect.