Suzanne Spera - Director of Investor Relations. Suzanne Kevin McEvoy - Chief Executive Officer Marvin Migura - Senior Vice President Alan Curtis - Senior Vice President and Chief Financial Officer.

Ole Slorer - Morgan Stanley Chase Mulvehill - SunTrust Robinson Humphrey Jim Wicklund - Credit Suisse Kurt Hallead - RBC Capital Markets Waqar Syed - Goldman Sachs Dave Wilson - Howard Weil Marc Bianchi - Cowen and Company George O'Leary - Tudor, Pickering, Holt & Company Ian Macpherson - Simmons & Company Ken Sill - Seaport Global Securities David Smith - Heikkinen Energy Advisors Darren Gacicia - KLR Group Edward Muztafago - Societe Generale.

Good morning. My name is Kirk and I will be your conference operator today. At this time, I would like to welcome everyone to the Oceaneering 2015 Fourth Quarter Earnings and Annual 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] Suzanne Spera, you may begin your conference..

Thanks you Kirk. Good morning and welcome to the Oceaneering fourth quarter and full year 2015 results conference call. Today’s call is being webcast and a replay will be available on Oceaneering’s website. Joining us on the call are Kevin McEvoy, Chief Executive Officer, who will be providing our prepared comment.

Alan Curtis, Senior Vice President and Chief Financial Officer and Marvin Migura, Senior Vice President.

Before we begin, I just like to remind you that the remarks we will be making 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.

Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our fourth quarter press release. We welcome your questions after the prepared statements. I'll now turn the call over to Kevin..

Good morning, and thanks for joining us. We appreciate your participation today and your continued interest in Oceaneering. 2015 was a tough year and global market conditions are not likely to improve over the course of 2016.

While we cannot affect the macro environment we find ourselves in today, we are focused on the reality of the current market and are making changes necessary to manage through the downturn.

So rather than beginning my comments outlining the reasons why our earnings in 2015 were less than the record we achieved in 2014, I would like to briefly highlight our cash flow generating capabilities and liquidity which we feel set us apart from many companies in the oil field service space.

Despite declining earnings, our annual free cash flow increased year-over-year as we reduced organic capital expenditures and working capital. In 2015, we generated free cash flow of $360 million or 127% of adjusted net income, exceeded the $335 million we made in 2014.

We had $385 million in cash at the end of the year and $500 million available under our revolving credit facility. I will talk more about our 2015 cash flow later during the call.

Moving on to our earnings results, our fourth quarter adjusted earnings per share was $0.58 excluding the $45.9 million impact of pre-tax adjustments in foreign currency losses and was within the guidance range we gave last quarter.

Annual adjusted earnings per share excluding the $81.1 million impact of pre-tax adjustments and foreign currency losses was $2.87 a share, down 28% from our 2014 results. We have undertaken a series of initiatives to align our operations with current and anticipated declines in activity and pricing levels.

Given these conditions, we unfortunately found it necessary to reduce our workforce, incur unusual expenses and make certain accounting adjustments. With our limited market visibility on how 2016 may actually be, we are not prepared to quantify the magnitude or the duration of the decline or give annual and quarterly EPS guidance.

Looking at our business operations on an adjusted basis for 2015, compared to 2014, ROV operating income declined 32% on 24% less revenue driven by lower demand for drill support services and an 11% reduction in average revenue per day-on-hire. Our annual ROV fleet utilization is 69%, fell from 83% in 2014.

Our days-on-hire decreased by 15% to about 83,800 days. Average revenue per day-on-hire of $9634 was down due to an unfavorable change in geographic mix, a weakening of about 22% in the average Norwegian kroner exchange rate relative to the US dollar and lower pricing and customer discounts.

During the year, we added 16 vehicles, retired 36 older systems and transferred one to Ad Tech; the net effect of this decreased our fleet size to 315 vehicles compared to 336 at the beginning of the year. We retired a large number of vehicles during 2015 due to low market demand and limited prospective future work.

Due to actions we took to control costs, operating margin only dropped to 27% from 30% in 2014. We believe we continue to be the largest ROV owner with an estimated 31% of the industry’s work-class vehicles at year end. We remain the primary provider of ROV drill support service at the end of 2015.

Of the 216 floaters under contract, we had ROVs on a 118 or 55%, which is nearly three times that of the second largest supplier. At the end of 2014, we had ROVs on a 162 of the 275 contracted floaters or 59%.

The calculated 4% decline in our market share of contracted rigs year-over-year was not due to competitors replacing us on contracted rigs, it was simply a function of which rigs were idled during 2015.

Subsea Product’s operating income was down 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. Umbilical revenue as a percent of our total subsea product’s revenue in 2015 was 33%, about the same as the 32% in 2014.

Our year end subsea products backlog was $652 million, down from $690 million at the end of 2014. This backlog decline was related to tooling at subsea hardware. Products book-to-bill ratio for the year was 0.96.

For subsea projects, considering the oil price environment and the current global oversupply of vessels, operating income held up relatively well during 2015 due to an increase in diving activity offshore Angola and in the Gulf of Mexico and a higher profit contribution from our data solutions group.

The decline of 12% was due to lower deepwater vessel activity and market pricing offshore in Angola and in the US Gulf of Mexico. Within subsea projects, during 2015, we commenced work on a two-year multi-service vessel charter with Shell Offshore for the use with the Ocean Alliance in the Gulf of Mexico that started January the 1st.

We experienced a reduction in pricing and work for BP Offshore Angola including the release of the Bourbon evolution 803 that occurred at the end of April. We secured a two-year subsea field support vessel services contract with an oil and gas company in India for use in the Island Pride.

With this contract which commenced in November, we expanded our international subsea projects business while reducing our vessel charter exposure to the Gulf which is predominantly as spot or callout demand market.

Last April, we acquired C&C Technologies, recently renamed Oceaneering Survey Services, a global provider of survey and satellite base positioning services. Included within this acquisition were customized state-of-the-art autonomous underwater vehicles or AUVs capable of deep ocean survey mapping. The purchase price of $224 million was paid in cash.

Due to the deteriorating market condition, the contributions from Oceaneering Survey Services had not been what we initially expected. However, we believe having in-house survey capabilities are complementary to our existing service offerings and will be very positive in the longer-term.

Asset Integrity operating income fell precipitously compared to 2014 on lower global demand and pricing for inspection services. Advanced technology’s operating income for the year was substantially lower due primarily to execution issues on certain theme park projects.

Unallocated expenses during 2015 were lower mainly as a result of reduced performance-based incentive and deferred compensation expenses as plant targets were not achieved.

While 2015 was an extremely challenging year for the industry and Oceaneering, we have taken actions to do more than just survive in this current market, but drive and emerge even strongly than we are today.

These actions focus on reducing our costs, and establishing strategic partnerships with suppliers to create innovative cost-effective solutions to maximize the value of our customers that our customers receive.

We are also working on ways to further differentiate ourselves with integrated solutions that offer greater customer value, especially in the areas of life of field inspection, maintenance and repair work and decommissioning projects. Since our comparisons have been on an adjusted basis, I would now like to address the adjustments for the year 2015.

Our results included $81.1 million of pre-tax adjustments including $15.4 million of foreign currency losses that were primarily attributable to Angola Central Bank devaluation of the kwanza.

The remaining $65.7 million of adjustments reflect our assessment of a weaker future business outlook, given the prospect that a depressed oil price environment could be for long. Of this, $25 million was the restructuring expenses incurred principally as a result of workforce reductions and facility rationalization.

About $12 million of these expenses were incurred prior to the fourth quarter, and were not identified earlier as being non-operating in each quarter as these were not significant. Of the $65.7 million, $56 million affected the ROV and subsea products results.

Other than restructuring expenses, the ROV-related charges consisted of a $16 million inventory reserve, due mainly to having excess ROV umbilicals based foreseeable market demand and a $3 million write-off of residual book value of retired ROV systems.

For subsea products, in addition to the $9 million second quarter inventory charge taken as a result of our decision to exit the subsea BOP controls manufacturing business we also reserved about $11 million of other items associated with our umbilicals business.

Of this, $5 million was an allowance for a doubtful account and about $6 million was related to non-income tax credit carry-forwards in Brazil that are now doubtful to be realized, due to the reduced level of expected business going forward.

Turning next to our sources and uses of cash, as mentioned previously, we had $360 million of free cash flow in 2015 as we generated $560 million of cash provided by operating activities.

This amount represented the total of $231 million of net income, $241 million of depreciation and amortization, $88 million of cash reductions in working capital, less $200 million of organic capital expenditures. Our total capital allocation spending was $650 million, compared to $1.1 billion in 2014.

We invested $200 million in organic capital expenditures and $244 million on other investments. We also paid $106 million in cash dividends and spent $100 million repurchasing $2 million shares of our common stock.

These uses of cash were funded by our cash from operating activities, a decrease in cash of $45 million and an increase in debt of $50 million. Looking ahead to 2016, and for illustration purposes only, at an earnings level of $1 per share, we would generate about $100 million of net income after $240 million of depreciation and amortization.

Before considering any changes in working capital or other sources of cash, our cash provided by operating activities would be $340 million. Assuming organic capital expenditures ranging from $150 million to $200 million, our free cash flow would be $140 million to $190 million.

This should be more than adequate to fund our anticipated $106 million in dividend payments, and make additional investments or stock repurchases.

For modeling purposes, we believe it is fair to assume that for every $0.10 of EPS above or below the $1 EPS is used in the foregoing illustration, the impact on free cash flow would be approximately $10 million.

For 2016, our organic capital expenditures are expected to range from $150 million to $200 million and includes $75 million in maintenance capital and some uncompleted project CapEx carried over from 2015.

The carryover relates mainly to the completion of the Jones Act vessel Ocean Evolution, several of the spoke ROVs of which we have firm contracts and additional equipment for our IWOCS service fleet. In addition to funding our organic capital expenditures, we expect to continue the quarterly cash dividend of $0.27 a share.

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. I would like to reiterate the keywords to this statement.

We wrote in our earnings release and we are saying again today, we may revisit our quarterly dividend amount of $0.27 per share if our projected annual net income amount does not exceed this annualized dividend amount. We did not write nor did we say that we will lower our quarterly dividend rate in such instance.

We simply stated that we might revisit the quarterly dividend amount if our annual projected earnings fall below the implied $1.08 a share. We chose our words carefully understanding this might be one of the focal points of our earnings release in this call.

While today, we may not think this to be likely case in 2016, we’ve learned from other service companies and customers alike to never say never, especially when it comes to maintaining the dividend rate; at least not in this environment, when everyone including representatives of most of the sell-side firms listening today have continuously revisited and lowered the expected average price of oil in 2016 and the expected level of spending by our customers.

Today we are living in a time of almost unprecedented uncertainty. However, I think we have indicated our committeemen to our current cash dividend to the highest extent possible, or at least reasonable. Our other uses of capital maybe to fund acquisitions or buyback shares.

We will consider acquisitions that augment our service and product offerings or add technologies. With respect to share repurchases, at the end of 2015, we had authorization to repurchase an additional 8 million shares. We intend to continue our practice of announcing share repurchases, only after they occur.

Turning to our outlook for 2016, we are expecting lower demand for our services and products and renewed pricing pressure and spending cuts from our customers. Consequently, we are projecting that each of our oil field segments will have lower operating income in 2016 than in 2015.

Directionally for our business operations, we see ROV results being down on declining demand, notably in the US Gulf of Mexico, for drill support and vessel based work and lower average revenue per day-on-hire.

Subsea products’ results are expected to decline on lower pricing and the reduction in umbilical plant throughput and reduced demand for subsea hardware.

Subsea projects’ results should reflect lower deepwater vessel demand and diving activity offshore Angola, primarily due to the release of the Bourbon Evolution 803 in April 2015, and the recently announced release of the Bourbon Oceanteam 101 at the end of May 2016.

With respect to the financial impact due to the charter cancellation, we cannot comment on the confidential contract terms for any one vessel. This was only one part of the ongoing demand destruction occurring in this extremely low oil price environment.

Project management, engineering and vessel services work associated with the provision of the remaining charter vessel, Oceaneering Intervention III is expected to continue as previously contracted with BP Offshore Angola through January of 2017.

This year, in the Gulf of Mexico, the term charter for the vessel Olympic Intervention IV expires in July and the charter for the Normand Flower expires in December. We have options to renew these charters or let them expire and release one or both of these vessels.

Due to further shipyard delays deliveries of our subsea support vessel the Ocean Evolution, is expected to occur late in the fourth quarter. For asset integrity, we expect results being down on continued lower global demand and pricing for inspection services.

For our non-oilfield segment, Advanced Technologies, operating income should improve due to expected better execution on theme park projects and increased activity. On a year-over-year basis, we expect higher unallocated expenses due to provisions for increased performance-based incentives, and deferred compensation.

Turning to our first quarter 2016 outlook, we anticipate that our earnings for the first quarter will be down considerably when compared to the first quarter of 2015 and adjusted fourth quarter of 2015.

Compared to the first quarter of 2015, we expect each of our operating segments we’ll have lower income led by ROVs on declining demand and average revenue per day-on-hire. Subsea product’s operating income is expected to be lower on reduced demand and pricing for tooling, IWOCS and subsea hardware.

Subsea Project’s operating income is expected to be down mainly due to the releases of Bourbon Evolution 803, Offshore Angola at the end of April 2015 and the regulatory inspection dry-dock at the Ocean Alliance in the US Gulf of Mexico during the first quarter of 2016.

Compared to the adjusted fourth quarter of 2015, we expect each of our oilfield segments to have lower income led by subsea products on reduced demand and pricing for subsea hardware, a drop in demand for IWOCS services, and lower umbilical plant throughput.

ROV operating income is anticipated to be down on declining demand and average revenue per day-on-hire. For our first quarter 2016 outlook, we anticipate that unallocated expenses will be lower than the first quarter of 2015, but higher than the fourth quarter of 2014.

The sequential increase is attributable to accruals for 2016 incentive and deferred compensation plans, compared to the 2015 accruals which were adjusted downward.

In conclusion, near-term, we believe our liquidity and cash flow generating capabilities provide us with ample resources to manage our business with a backdrop of market uncertainty, falling energy prices, and reduced demand for our services and products.

Longer-term, deepwater is still expected to continue to play a critical role in global supply, oil growth required to replace depletion in 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 positions and to be prepared to expand our services and product line offerings since suitable opportunities emerge. We believe our seasoned management team, financial strength and cash flow generating capabilities position us well to manage through this downturn.

Thank you very much. We will now be happy to take any questions you may have. .

[Operator Instructions] And your first question comes from the line of Ole Slorer from Morgan Stanley. Your line is open..

Thanks a lot. And certainly a resilient performance.

When you think about your ROV outlook in 2016, is there any reason why, at least, the volume or activity volume, let's forget about prices for a second, should trend materially different to that of the overall global floater rig counts?.

No, I would say, not..

So no real changes in market share, so anything like that?.

Well, we don’t see that. I mean, really, what we’ve been seeing is, just a drop-off of contracted drilling rigs and if we are on them and that’s our mix and if we are not on them, then it doesn’t affect us.

But, I think the general trend needs to be that this certainly could continue to some extent through 2016 and what the real – what the new equilibrium number of contracted and working floating reason is going to be, I don’t think anyone knows yet..

And Ole, this is Marvin. I think the same thing applies to our vessel-based services. That seems to be dropping commensurately with rig activities. So we are seeing those significant shifts in mix and we don’t know where the bottom is yet..

And my follow-up will be, when you look at prices, you talked about price weakness, but, when I look at your revenues, it seems to in the fourth quarter have been relatively modest and offset by internal cost reductions.

Do you think that will be more difficult to mitigate the price discounts going forward? Or price reductions relative to your own cost structure or should we expect them to continue to be relatively balanced?.

It’s going to be increasingly more difficult for us to find cost savings to offset the potential future discounts or rate-cutting that are being demanded by our customers. I think as their situation does not improve, they are getting directives from their leaders to go back and renegotiate some more. And so, we are seeing this pretty consistently.

I think everybody in our space is seeing this and so, we expect that to continue and until there is some stabilization in the price..

And that comment cuts across all of our oilfield segments to not just ROV..

Right..

I suppose the one difference between you guys and a number of the North American guys is that you are still making money, which is a good thing. But, with that, I'll hand it back. Thanks for the clarification..

Your next question comes from the line of Chase Mulvehill from SunTrust. Your line is open..

Hey. Thanks for letting me in. So, I guess, the first question, on the subsea products side, maybe you could help us with your umbilici’s exposure here and then how much of your 2015 subsea products revenues were generated from umbilicals? I think you give us that number last year..

We gave it in the call last year, it was 33% versus 32% last year..

So 33%, this year. Okay. .

In 2015, umbilicals represented 33% of the subsea products revenue and in prior year 2014, it was 32%..

Okay and the margin profile on the umbilicals, 2014 versus 2015 were there any material difference in margins for umbilicals?.

I mean, margins were everything. We were going down in 2015 relative to 2014 and we have previously stated pretty consistently that, the umbilical business has more challenging margins than the other sub-segments and the products segment. And so, yes, like everything, there is continued pressure on margins.

I mean, before the downturn, there was twice the capacity roughly than demand and that has gotten a lot worse. .

Okay, I mean, but umbilical margins are positive, right, from an EBIT basis?.

Yes. .

Yes. .

And that’s about all that we are going to say on sub-segment margins.

Got it, got it, okay.

And real quick, on ROVs, can you just talk to the competitive landscape on the drilling support side of the business?.

Well, I mean, we really haven’t seen much on the competitive side for the reason that rigs are dropping off and not much is coming on. So there really hasn’t been much to say there. It’s all directly with the oil companies coming back and wanting concessions. .

Chase, I think we addressed that on the call, when Kevin said that, we really hadn’t lost much market or any market share that the decline in the number of rigs that we are on as a percentage of contracted rigs was simply a function of which rigs were idled during 2015. .

Okay, all right. One last one and then I'll turn it back over.

Is there any chance you could give us D&A for the ROV segment for fourth quarter 2015?.

No, I don’t – we will do it for the year in the K and I don’t have that with me right now, Chase..

Okay, all right. I thought I'd give it a shot. Thanks..

Your next question comes from the line of Jim Wicklund from Credit Suisse. Your line is open..

Hey guys. Not a whole lot of things to ask other than how deep is the abyss and nobody knows..

Thank you for answering your own question..

There you go. So why don't you just put the company up for sale and say, the hell with it? Let consolidation take place, always happens at the bottom of the cycle and move on..

I’ll pass on that one..

Well, why don’t you answer that one too, Jim?.

Well, about one in three investors asked, when is Oceaneering going to sell and I remember at our Christmas lunch, Kev, we talked about how we couldn't come up with anybody who would make sense. But I just thought I'd ask the question in public and get it out of the way..

Okay..

Has the market become noticeably worse in the last two months? I'm getting the impression from talking to people, whether it's bank stress or activity and I'm hearing from board members the managements are always optimistic, but board members seem to be taking their liability much more seriously in the last couple of months.

Has there been a change or is this just because we are in 2016?.

Well, I mean, I think it’s important to separate out the segments we are talking about. There is doom and gloom everywhere. But there is a lot of stress, I think on the onshore side, generally across the board, whereas in the offshore segment, maybe it’s a lot more focused on things that float.

Not necessarily everybody else’s businesses is going down the tools or anything.

But I think there is – the longer that this goes on, the more negative discussion there is in the press about everything and so you are going to feel worse about it, but certainly anybody on a board of a company in this business ought to be paying attention to what is going on.

I mean, there are companies we can’t borrow more company, I mean there is all kinds of stress out there and that’s why we thought it would be prudent to highlight the fact that we’ve thankfully at this moment in time and as far as we can see at the minute, are not in that situation and should be able to weather the storm as I say..

Okay and unprecedented uncertainty, you guys were the last guys standing for the last year to give guidance.

Was it a decision that it didn't do you any good, or you couldn't come up with anything credible, I mean, too much uncertainty to even give broad guidance because in the past you've given a range?.

Well, I think that we – in last year, it was in October and I think things were really just starting to happen and we did not appreciate and I think many other people did not either at that time, which is when we historically gave the guidance for the following year. So, we just did not see what was coming. And so, - and you are right.

I mean, we certainly got no credit for it. We got beaten up for it lot more than people that didn’t give any guidance. .

True..

And I think, we – I mean, well anyway, and so, there did not seem to be any upside to try to give guidance. It would have been so broader range that no one would account for anything. And so the last point, it is pretty unclear out there what it’s going to be. I mean, we are primarily in a spot market kind of business and FID of new projects.

This is not really happening and so there is just a heck of lot of uncertainty. .

And we’ve seen the term contracts for rigs, boats whatever..

Don't mean much. .

Can put it on. So it would be really, I think the answer to your question was both..

Okay, well, I think it's good that you all don't give guidance. Like I say you didn't get credit for it. Gentlemen, thanks, all the best..

Thank you..

Thank you..

Your next question comes from the line of Kurt Hallead from RBC. Your line is open. .

Hey, good morning..

Hey, Kurt..

Good morning..

Hey, I had a question on the ROV dynamics, specifically on the cost front. Can you give us some general sense as the variability on ROV cost, when I go back and look over time, there has been some upward movement in the working cost of the ROV over time.

But as activities coming down and there are fewer ROVs working, I’m kind of thinking that the ROV cost is going to come down as well.

So, just looking for some fixed versus variable on your ROV cost structure?.

Well, I mean, the cost structure is different dependent on a geographic area that we are working, because in some places you’ve got unions and the labor cost can be pretty variable. I mean the system cost is fungible. It doesn’t really care where it’s working. I don’t know if that answers your question or not..

Kurt, I think our cost relative to anything else, that we have – our cost – our ROV costs are variable, because all of the crew members go home when the rig – when the system is idle. So, I mean, that has always been a variable cost up or down and our NIM stops when the ROV, when the system goes idle.

What continues and becomes a bigger part of the cost in lower utilization is the onshore cost and depreciation. So that’s fixed.

So when you look at – I mean, we have a high degree of variability in direct cost as it relates to crew labor and depreciation, and the costs are much less variable when it deals with shore-based cost and depreciation is not.

In shore-based cost for example, I mean, we still have to keep the shore base open if it’s four systems running or 12 systems running. We can reduce the people, but you still got the rent, you still got the facility cost and you still have some people. So, I hope that addresses it..

Okay, yes, that's helpful, thanks. And then on subsea products, also wanted to get a handle on the resiliency in that business, because these elements of it - that are backlog-driven, right? And are elements projects that are still moving forward and you probably have some good sense on what margins are in backlog.

So, any color around the resiliency of subsea products or helping get a greater understanding and knowledge of how that business may fare as we go into a downturn here?.

Well, I think we gave the backlog number. .

Yes..

Which is primarily umbilical-denominated. The rest of it is pretty short cycle stuff and so, pretty hard to say what that’s going to be and obviously through this year and into next year, everybody is going to be looking at are there any new orders for umbilicals for project that A has maybe already been sanctioned or B or expected to be sanctioned.

Does that happen or not or that they continue to slide to the right or what’s going to go on there. So, I think it’s a moving target..

Okay. I appreciate that. Thanks for that, guys..

Your next question comes from the line of Waqar Syed from Goldman Sachs. Your line is open..

Thank you for taking my question.

Kevin, in the Advanced Technology business, should we think about the first half of 2016 to look similar to the first half of 2015, or things are different there, too?.

Well, we hope what is going to be different is, better execution on some of these theme park projects, but hang on one sec, we’ll just try to look at our….

Your first half of 2015 was actually pretty good..

Sorry..

First half of 2015 was pretty good – good for you guys, in Advanced Technologies..

Waqar, it looks like, our crystal ball tells us that, first half is going to be a little lighter and then the second half is going to be much stronger..

And I think that there is a mix if you will that for a lot more engineering works in the first half and then we’ll go into project execution in the second half which will generate more revenue..

Because, as Kevin mentioned on the call, in the prepared comments, we are expecting Advanced Technologies to improve for two reasons.

One is better execution and the second is increased activity and as Kevin said, that increased activity starts but in the beginning of a project that there is more engineering and then we actually get into the commencement of the work. That’s when you have more revenue recognition and process..

Okay. Now, on the ROV side, many of the contracts for the drilling rigs are being terminated early, but the drilling contractors generally as per contract receive early contract termination revenues.

Do you have any provision like that in your ROV contract especially for the ROV that you've built for new-builds?.

Generally, we do not, other than, the obligation for them to reimburse us for the cost of demobilization should we choose to do that. .

I think that’s consistent with most of the service companies that go on rigs, we are really tied to be whether or not the rig is working and termination seem to go to the real high capital asset intensive companies and we don’t fall in that category..

Okay.

And then, off your one-time items that you broke out, for the fourth quarter, could you guide us which item is allocated to G&A and which is to DD&A, and what goes to the cost of goods sold?.

Okay, Waqar I am going to try this from the top of my head. $3 million of the ROV write-downs for the retired systems went to DD&A.

The - whatever it was $5 million associated with the allowance for doubtful account with a small and independent operator in the North Sea on umbilical contract and that went to G&A, because it was not a performance issue, it was a collectibility issue.

And, the only thing that’s very hard to do is restructuring expenses – there were $14 million of it in Q4, it is spread all over the place. It is spread in not in DD&A but it is primarily in direct cost, cost of goods sold but there is some of that element in G&A and I can’t figure that out. I just don’t know. .

Okay..

I don’t have that detail.

So, what would your guidance be for G&A for first quarter 2016?.

We are not giving guide. .

You know, because there is just so many - we don't know what underlying G&A is for the fourth quarter 2015. So, it's a little bit harder to project for first quarter 2016. So that's why I am asking..

No, I appreciate that. Let me say it, I think from year-over-year we’ll be down. We’ll have lower G&A in 2016 than we had in 2015..

Okay..

I think that should, I mean that should spread pretty – not evenly, I don’t know that, but I am just saying, we are expecting that some of – I mean, we had cost in the numbers that were associated with the two things that I mentioned, restructuring and the allowance of doubtful accounts.

So, guide should come out and then the cost savings of the steps we have taken to reduce our fixed cost or G&A cost, all cost, we should be able to notice that impact in 2016, But it really going to – part of that question is, what’s our run rate going to be and that’s why it’s really hard to give a more definitive answer, other than down..

Okay. And, how many ROVs are you planning to build in 2016 and I apologize if you already mentioned that in the prepared remarks..

The only ROVs that we are going to build are something that is bespoke, as we mentioned in the call notes that we have a specific contract to provide and we are talking mid single-digit numbers for something like that..

And how many do you plan to retire?.

We don’t predict it. I mean, I think….

Same number, 3% to 4% is the kind of standard answer, but again, it really is going to – you can tell that we retired a bunch more than that in Q4 and I mean, there is not much impact at all to retire a system. Usually, it’s fully depreciated and it hadn’t worked for a lot..

Okay, and, Kevin, in the past, you've mentioned that maintenance activity has been slow.

Are you seeing any signs that 2016 people will need to pick that up?.

Not yet..

Not yet?.

No..

All right, so that's all I have. Thank you very much..

Okay..

Your next question comes from the line of Dave Wilson from Howard Weil. Your line is open..

Good morning everyone. Thanks for taking my questions. Just some clarifications.

One on the initiatives and aligning the operations with the current environment, are you done with that and or - do you think that will be done in the first quarter? Is there more to go from here?.

I think, we are continuing to work on this. As the market continues to change downward or until that stops, I mean, we are going to have to keep doing it..

Gotcha..

What we can do..

I think that we’ve noted in Q4, we do expect most of those would be completed in Q1..

Okay, and then kind of a follow-up on the 25 ROVs that were retired in the fourth quarter.

Can you give us a broad breakout of when's the last time those ROVs were actually in service and working? I know, you said, previously it's been a while, but were any of those actually working in the fourth quarter that got retired in the fourth quarter?.

No..

No. We are going to ask you that question, Dave..

No..

Okay, great. And then, one final one and I apologize if I missed it and going over the limit here on two. But, the breakout between drilling support and vessel support in terms of percentages, I might have missed that if you all gave that..

We did, I think. Yes, Alan go ahead give it to, bear with one second. We didn’t give it. We did not give it. So, we will look that up. Go to the next question, we will come back to it..

For the year?.

Yes, for the year, got it?.

For the year, drill support was 68% and vessel support was 32%..

Okay, 68% and 32%.

Okay?.

Okay, I can figure out the rest. Thank you very much..

Yes..

Your next question comes from the line of Marc Bianchi from Cowen. Your line is open. .

Hey, good morning guys. On the - back to the line of question I think Kurt was asking on the ROV side, just trying to understand the operating leverage there a little better.

Just looking at the experience in the fourth quarter, is that - should we think about the operating leverage that was produced in the fourth quarter as sort of normal? So, with a sort of 12% decline in activity and flat sort of pricing would produce that kind of a margin change?.

Well, Marc, that’s a really difficult question, when we are talking about no visibility in the utilization as to knowing what – we always read about is how many rigs are coming off in the Gulf of Mexico over the next quarter or next six months, whatever and I mean, I don’t think – and as Kevin mentioned, renewed pricing pressure from everybody.

So, I don’t know it’s repeatable. I don’t know how to answer that question..

Well, I think Kevin also spoke to factors can be harder and harder to take the cost out..

Right..

To the basis of pricing, so, the answer is, it’s going to be difficult..

Okay. That's all I had. Thank you..

Your next question comes from the line of George O'Leary from Tudor, Pickering, Holt & Company. Your line is open..

Good morning guys. Just one from me, given all the questions that have been asked already.

Could you maybe help frame your prospects for 2016, and I know you are not giving explicit guidance, but just maybe compare and contrast the prospects you see for your ROV business and subsea projects and regarding the latter, is there potentially more pressure on that business, given the callout nature of the Gulf of Mexico business in particular?.

Well, I think, as long as we are continuing in this downward trend, there is going to be increasing pricing pressure, particularly the vessel-based activity that’s not on a term contract, I mean that’s a mark-to-market every time they pick the phone and call you and those margins are eroding as time goes on.

And there is an oversupply of vessels out there trying to get whatever work is available. So it is a very challenging market. .

So, maybe one tiny follow-on, that’s helpful color, thanks. And I said I have one, but just something popped up while you were talking.

So just generally, would you maybe are you - intervention type work is maybe at the margin under pressure more than drilling support or is it more just there is too much supply and too little demand out there?.

I think it’s the latter. .

I don’t think there is any pricing pressure for – your focus on ROV and Kevin was talking about projects and the intervention work ROVs are still reported in lot of vessel-based services in ROVs. And I think there is the utilization issue more than a pricing issue of any differentiation.

And the pricing pressure everywhere, but in the callout vessel-based business, it’s more function of utilization. .

Got it. Thanks, guys..

Your next question comes from the line of Ian Macpherson from Simmons. Your line is open..

Hey, thank you. Good morning. I am interested in the recent slope of the decline in activity for ROVs that was witnessed in Q4. Your days-on-hire were down 12% sequentially, which was a much bigger sequential drop than you’d experienced during the prior several quarters since we peaked and rolled.

And it was also a sequential drop that diverged from what the rig count did, the rig count didn't roll 12% quarter-on-quarter. And so, I am just trying to really gauge what's going on and I wonder if you would be willing to share any of your middle of Q1 results in terms of activity and how it's tracking from the end of the year until now.

Is it still falling sharply or has it been a little bit more stable through the first half report?.

Well, remember that this is a – historically a very seasonal business and I think that particularly in today’s market when people are trying to not spend any money, it maybe even exacerbating that phenomenon.

So, in terms of, I think, this is probably not a good place to go to try and compare to the fourth quarter of last year, because everything is just how different. I would say that, seasonality is going to be a lot more prominent in the first quarter than it has been and that’s really what’s going to drive it. People are trying not to spend money..

Okay, we'll wait and see. Can I have just two more quick follow-ups on model stuff? You said, your unallocated expenses for 2016 are expected to be higher than 2015.

Correct?.

Yes, because of the – long-term incentive..

Incentives and deferred comp plans..

Yes..

Okay. And then lastly, in your free cash flow construct that you provided in the opening remarks, you didn't mention free cash, sorry, release of working capital. I think we would expect that you would enjoy some release of working capital in this compressing market.

Is that too optimistic to assume that will be another free cash flow tailwind?.

No, we would expect that to happen. We are just trying to generalize and directionally give a positive accounting of what we have said..

What we did in the illustration, Ian is, talk about a dollar. In the working capital [Multiple Speakers] has gone, we just ignore it and just said, we don’t need that. But if the business continues to contract like, you just mentioned, then you would expect working capital reductions..

Got it. Thank you very much..

Your next question comes from the line of Ken Sill from Seaport Global Securities. Your line is open..

Yes, thanks for taking me. The use of the cash, great balance sheet, you've got access to liquidity.

You talk about kind of technology acquisitions, but, I mean, can you give a little bit more guidance on what - I mean, is this subsea or any new market potential or I mean, how are you guys looking at what tucks into Oceaneering out of the prospects?.

Well, I think we said, anything that complements our existing products and service lines, and technology, I mean, I think implied is that also that would complement what we are currently doing. I mean, we added the survey leg to the stool back in April, which was a major, I guess, complementary acquisition.

I would not look to see us do something way out of the fairway from what we have focused on is our core businesses. .

And Ken, we – are a big qualifier in there too should suitable opportunities arise. So, now we don’t have anything in the line up that we could talk about, we know that we are looking..

And I think the point was that we do have the capacity and capability to entertain such a thought, which is more positive than most folks enjoy it right now, I think..

I mean, not that you want it, but I think you could buy all of the offshore size companies in the world for about $500 million..

Yes, well, okay, if we wanted..

Okay..

Yes, so one other question then, and I don't know if it's too soon to say. So you've got Schlumberger buying Cameron.

You've got the - everybody is trying to look for ways to reduce the cost of subsea infrastructure that seems to produce these deepwater fields, where do you see Oceaneering fitting into that? I mean, Obviously, on the intervention, tooling and stuff like that, you can fit, but how do you guys plan or see yourselves participating there?.

Well, I mean, the ROV is central to everything that happens in subsea, but it’s just a tool. There is not much to do with it per se, I mean, we do have ways to reduce the cost of umbilicals and connection hardware, but that really is dependent on our customers being willing to reduce their self-imposed technical requirements in many cases.

I think the truth of the matter is that, we are a pretty small part of the cost of a field development and my perspective would be that all companies need to shorten the timeline from discovery too first oil and going to more standardized approaches for development in general as opposed to a particular piece of hardware, I can allow them to do that and working closer with contractors up and down the value chain in order to achieve that is also going to be part of it.

.

Okay. Thank you..

Your next question comes from the line of David Smith from Heikkinen Energy Advisors. Your line is open..

Hi, good morning. Thank you for getting me in towards the final minute.

Just regarding the cautionary comments about potentially revisiting the dividend, based on how it compares to projected annual net income? Just hoping to get a little color, including - does that refer to GAAP net income or should we just think about that compared to adjusted net income?.

We don’t have any adjustments in mind for 2016 and we don’t play for in any way..

We are not planning for and so otherwise we are out of crayons..

We are thinking there the same..

Right, right.

But just in case, just in case they warrant, I was curious to keep in mind, going forward, if we should think about that being a GAAP or adjusted?.

It will depend upon, when that happens on the type of adjustments that we are going to carve out. So, I mean, right now, it’s same, but the intent that, I mean, I think Kevin clearly underscored, that is we may revisit, but, pick one, I mean, I would say, GAAP..

Appreciate it. And just regarding the subsea projects, wondering if there were any particular cost items that stood out in the quarter, maybe related to the Island Pride mobilization, just otherwise the flattish cost would kind of suggest similar activity levels to last quarter..

Yes, during the Q3 as a Q4 comparative, we actually got have a dry-dock on an ocean intervention vessel. And lot of it was seasonality as well declining in demand for C&C survey during the quarter as well as decline in diving in the Gulf of Mexico as well as we talk about lower vessel pricing..

Okay, so, nothing particularly sticks out in terms of the charter –.

Other than dry-docking.

Got it. I appreciate it. Thank you..

Your next question comes from the line of Darren Gacicia from KLR Group. Your line is open. .

Hey guys, thanks for fitting in the end. Broad question that I am hoping to kind of get specifics with it.

Subsea projects, when you think about the fourth quarter, how many vessels were running, how many were owned, how many are leased in? And kind of I think I heard in your prepared comments that you could potentially – the leases on two of them expire.

I am just trying to get a sense of how to model out the earnings power of that business just based on what the assets are and if I need to make my own assumptions on what goes forward that's fine. But it's always a tough business to kind of breakdown in terms of its components, if you could help me out, that'd be great..

Darren, to clarify, you want to know how many vessels are owned and how many are chartered?.

Yes, and what was working in the fourth quarter and maybe if you have some thoughts on how that's progressed over the course of the year?.

Well, I mean, we give the utilization. No, we don’t get into which vessels, or we don’t even see – what we have, I mean, let me start with the easy part, we own the smaller two of our boats, the Ocean Intervention and the Ocean Intervention II and we charter in everything else.

Except for the Ocean Intervention III in Angola, and the Ocean Alliance in the Gulf of Mexico, everything is on a callout..

Island..

Or in Island Pride in India..

Sorry, forgot about that..

In Island Pride in India, so..

Everything else is callout..

So, and what worked in Q4, remember Q4 and Q1 particularly are the lowest level of activity for callout boats, because of seasonality.

So what works in Q4, it’s not very relevant to being able to model and with the uncertainty in next year, what we did point out is that if we find ourselves, one boat, too many in July, we can reduce our costs and then again in the very late part of the year, we have that other option to renew or not, whichever the last boat is..

The Flower – Normand Flower..

Normand Flower, yes, thank you. So, I don think we give you much more color on that..

Gotcha, okay. Well, I tried, it's a difficult business to follow given the fact that there can be so many things on and off. With regard to ROVs, a little bit more of a - less of a numerical more of just kind of a broad how the business works question. When a rig stops working, and you take the ROV off, you move it back to some central yard.

What happens in there? Is there a basic maintenance that happens there? And then if you were to put that same ROV back on hire, what's the lag time in terms of being able to do that? And so it's really a question about kind of cost to maintain idle ROVs, and then, time to put them back to work and what's required?.

Well, okay, let’s try this. If the rig is a rig that we think is potentially going to go back to work again, we will leave the system on there and the maintenance pretty much stops.

We can choose to send two folks out there periodically every couple of months or something to just to turn the life time and see things to work or whatever, but it’s di minimus cost there.

If we choose to de-mobilize it, typically we take it to one of our regional bases and it is same thing, we don’t have to spend lot of money maintaining them and the turnaround time from inactive ROV that was working when inactive to turning it back around again to be ready for a job is two weeks or something. It’s not very, not very much..

Gotcha.

Is there any perspective in terms of what is idle now, how much of you - how many have you kind of left on the rig versus how many is going to come back – gone back to base?.

I don’t have that number off the top of my head. I mean, generally, you can maybe look at it this way, when the rig owner says that they are cold stacking a rig, then generally that is high probability that we take our ROV system off of there. .

Gotcha, No, I appreciate the help. Thank you..

Yes..

And you next question comes from the line of Edward Muztafago from Societe Generale. Your line is open. .

Hey guys. Thanks for squeezing me in. Just two quick questions on the ROV business, just maybe to follow-up a little bit on what Ole was talking about. We are more or less seeing an ephemeral relationship between declining ROV utilization and the idling of rigs.

Under a recovery scenario, should we expect that relationship to be largely the same or is the dynamic such that we would see, kind of somewhat of a lead time between an improvement in ROV utilization and working rigs?.

I am not exactly sure what you are asking, but, I mean, it’s pretty much one-for-one when a rig goes back to work the ROV is working and if it’s on a short-term drilling contract, then, that will obviously impact the trajectory, but if rigs start going back on year plus charters, then you’ll be able to see the corresponding increase in ROV utilization..

And if our outlook for the medium-term, as Kevin said in his remarks, if the outlook is correct, that there will be an uptick in demand for products and services to extend producing life of existing offshore fields and performance decommissioning work, you will see, you should see a pick-up in vessel base activity before more rigs go to work..

Okay..

So that will help our ROV utilization without increased number of the drilling rigs..

Okay, so, some in the vessel base business; not so much in the rig base business.

Rig base is one for one..

Yes, okay, very helpful. And then just, the follow-up, you did highlight that it's pretty difficult, probably from here forward to kind of offset some of the pressures on pricing with cost reduction.

Is there any reason for us to think that the decremental margin performance for ROVs would be better in 2016 than it was in 2015?.

No. I don’t think so..

Okay. That's very helpful. .

Okay. .

Thanks. .

We have no further questions at this time. I’ll turn the call back over to the presenters..

Okay, very good. I’d like to thank everyone for joining us and just make a few short remarks. 2016 will likely be a very challenging time for the oilfield services industry. But we are confident in our ability to manage our business through this cycle.

We intend to stay focused on our operations, organize more effectively and further integrate our services and product offering for more cost-effective solutions, which better serve our customers. We have a strong balance sheet and are confident in our cash flow generating capabilities.

We have been and we will continue adapting and making changes as necessary. We have many initiatives ongoing. I would like to thank our employees and management teams for their dedication and support while embracing the challenges in a positive way and responding admirably.

So again, I appreciate all of you joining us this morning and thank you for your continued interest. This concludes our fourth quarter and full year 2015 earnings conference call. Have a great day. .

This does conclude today's conference call. You may now disconnect..