Suzanne M. Spera - Oceaneering International, Inc. Roderick A. Larson - Oceaneering International, Inc. Alan R. Curtis - Oceaneering International, Inc..

Sean C. Meakim - JPMorgan Securities LLC Vaibhav Vaishnav - Cowen and Company, LLC Joseph D. Gibney - Capital One Securities, Inc. George O’Leary - Tudor, Pickering, Holt & Co. Securities, Inc. Kurt Hallead - RBC Capital Markets LLC David Christopher Smith - Heikkinen Energy Advisors LLC Waqar Syed - Goldman Sachs & Co. LLC J.

David Anderson - Barclays Capital, Inc. Coleman W. Sullivan - Wells Fargo Securities LLC.

Hello. My name is Amy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to Oceaneering's First Quarter 2013 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.

With that, I will now turn the call over to Suzanne Spera, Oceaneering's Director of Investor Relations. Please go ahead..

Thank you, Amy. Good morning and welcome to the Oceaneering first quarter 2018 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 Rod Larson, President and Chief Executive Officer, who will be providing our prepared comments; Alan Curtis, Chief Financial Officer; and Marvin Migura, Senior Vice President.

Before we begin, I would just like to remind participants that statements we make during the course of this call regarding our future financial performance, business strategy, plans or 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 first quarter press release. We welcome your questions after the prepared statements. I'll now turn the call over to Rod..

Good morning, and thanks for joining the call today. I'd like to start by saying we were pleased with our overall quarterly operating results. For the first quarter, our reported loss per share of $0.50 included the impact of $8.3 million of pre-tax foreign currency exchange losses and $2.4 million of tax provisions related to discrete tax items.

Excluding these items, adjusted net loss per share was $0.41. Our operating results met our expectations and reflected the seasonality and timing of projects within our energy-related businesses. It is noteworthy that each of our operating segments maintained positive earnings before interests, taxes, depreciation and amortization, or EBITDA.

And our adjusted consolidated EBITDA of $25.2 million was in line with consensus published estimates. During the quarter, we generated $5.6 million of cash flow provided by operating activities and utilized $25.7 million of cash to organically grow our portfolio of services and products.

Our recent $68.4 million acquisition of Ecosse Subsea that was funded from our cash balance reflects our commitment to expand our service line capabilities, grow our market position within the offshore renewable energy market and provide our customers with proven tools to optimize installation projects.

We recorded a $5.9 million tax provision during the quarter that included the previously mentioned $2.4 million of discrete items primarily related to accounting for share-based compensation.

Our tax expense varied from our guidance due to geographical mix of operating revenues and results that generated taxes in certain jurisdictions that exceeded the tax benefit from losses and credits in other jurisdictions. Now, let's look at our business operations for the first quarter of 2018 by segment.

Compared to the adjusted fourth quarter, ROV operating income was down as expected. Excluding the impact of the fourth quarter equipment sale, average ROV revenue per day on hire decreased, due primarily to a shift in geographic mix. Our average daily cost increased due to additional costs associated with reactivating and mobilizing ROVs.

Therefore, ROV adjusted EBITDA margin declined to 29%. Days on hire increased 2%, as our fleet utilization improved to 44% from 42% in the immediately preceding quarter. The quarterly improvement in the utilization percentage of our ROV fleet was attributable to increased international drill support activity.

At the end of March 2018, our fleet size remained at 279 vehicles. Our fleet use mix during the quarter was 70% in drill support and 30% in vessel-based activity compared with 66% and 34% mix, respectively, at the end of the fourth quarter 2017.

At the end of March, our drill support market share improved to 58%, with ROVs on 85 of the 147 floating rigs contracted. This compares to having 56% drill support market share with ROVs on 82 of the 147 floating rigs contracted at the end of December 2017.

During the quarter, we were on nine of the ten rigs that received contracts and six of the ten rigs that had contracts expire or terminate early. Turning to Subsea Products, compared to the fourth quarter, first quarter operating income declined less than expected on a 19% reduction in quarterly revenues.

Our better-than-expected operating results were achieved by manufactured products being able to pull forward certain projects into the first quarter. Our Subsea Products backlog at March 31, 2018, was $240 million compared to $276 million at December 31, 2017.

The backlog decline was largely attributable to Manufactured Products' low umbilical order intake. Our book-to-bill ratio for the first quarter was 0.71 and for the trailing 12 months was 0.72. Sequentially, Subsea Projects revenue and operating results decreased, resulting from timing of projects and lower seasonal U.S.

Gulf of Mexico demand for vessels, offset somewhat by increased vessel activity offshore Angola. In Angola, the Ocean Intervention III started a five-month fixed-term work scope in January 2018 under the Field Support Vessel Services contract for BP.

Under the terms of the contact, we are also supplying remotely operated vehicles, subsea tooling, inspection and survey services. In the Gulf of Mexico, our charter obligation for the use of the Ocean Alliance expired in March 2018. We continue to supplement our fleet with vessels of opportunity from selected suppliers.

Asset Integrity operating income was near breakeven, as projected, on slightly low revenue due to seasonality. For our Non-Energy segment, Advanced Technologies, first quarter 2018 operating income declined compared to the fourth quarter 2017 due to lower government-related work, as expected.

However, we did not achieve the improvement in operating income that we projected in the first quarter, due to unanticipated costs in our automated guided vehicles commercial business.

For clarity, these automated guided vehicles, or AGVs, for which we have had recent difficulty in achieving our contract milestones or profitability expectations are not related to our entertainment business. We have taken corrective actions and we believe execution of existing and future AGV contracts will improve.

In addition, as expected, unallocated expenses were higher in the first quarter 2018 compared to the fourth quarter of 2017 due to higher estimated incentive plan compensation. Overall, our first quarter performance did not vary substantially from our expectations.

We believe we are prudently managing our liquidity as we generated $25.2 million in adjusted EBITDA and ended the quarter with $335 million in cash and cash equivalents. We also have a $500 million unsecured, undrawn revolving credit facility and no near-term loan maturities.

Approximately $250 million of the cash on our balance sheet at March 31, 2018 was in the United States. We believe Oceaneering's financial profile provides us valuable optionality to grow the company while managing our business through this cycle. Moving on to our second quarter outlook.

Sequentially, we anticipate quarterly operating profitability and improvements from all of our business segments, with the exception of Subsea Products. For ROVs, we are projecting an increase in days on hire to drive improved results. For Subsea Products, we are expecting an operating loss on lower revenue to the timing of projects.

For Subsea Projects, we're anticipating our operating results to improve, driven mainly by an increase in utilization in the U.S. Gulf of Mexico Deep Water Vessel and Diving Services.

For Asset Integrity, we are also expecting results to be up, driven by an increase in seasonal activity levels as we continue to respond to the needs of our customers for more cost-effective method of ensuring integrity and availability of their critical infrastructure.

For our Non-energy segment, Advanced Technologies, we are projecting operating income to improve as a result of continued increased commercial activity in our Entertainment business, execution improvements within our Automated Guided Vehicle business, and additional work for the U.S. Navy.

For our full-year 2018 outlook, we are reaffirming our prior guidance for 2018 based on our first quarter results and our expectations for the remainder of the year. Overall, we anticipate generating $140 million to $180 million of EBITDA, with positive EBITDA contributions from each of our operating segments.

While we expect our recent acquisition of Ecosse to be accretive in 2018 to cash flow and earnings, we are maintaining our prior 2018 EBITDA guidance range.

However, we are no longer providing guidance as to our 2018 effective tax rate due to the short-term nature of much of our work and a continuous shifting of geographic mix of our operating revenues and results. These conditions do not allow for a meaningful effective tax rate forecast.

Directionally in 2018, for our operations by segment we see, ROVs we are continuing to project the increased days on hire as we maintain or slightly shift our 2018 fleet mix towards drill support utilization.

We continue to estimate overall ROV fleet utilization to be in the low 50% range and our ROV EBITDA margin to be in the low 30% range for 2018 overall. For the remainder of 2018, we are expecting to grow our ROV drill support market share from 58% to the low 60% market range.

At the end of March, there were approximately 56 floating drilling rigs that have contract terms expiring during the balance of this year, and we have 39 ROVs on 33 of them, or 59%. Of the 56 floaters, 24 are rolling to new contracts. There are 20 additional floating rigs set to begin new contracts during the same period.

Of the total 44 floaters receiving new contracts, we have 39 ROVs on 39% of them, or 75%. It is noteworthy to observe that we are expecting to hold the number of our ROVs on floating contracted rigs flat while the number of floating contracted rigs is expected to decline.

In addition, we anticipate that there will be some incremental contracting of rigs based on current bid activity.

As we have repeatedly said, although we endeavor to maintain and increase our drill support market share and place more ROVs on vessels, we need a sizeable increase in our customers' offshore activity and spending levels for there to be a discernible increase in ROV fleet utilization and profitability.

For Subsea Products, we are continuing to project our operating margins to be in the low to mid-single digit range until we see an increase in Subsea Products' backlog and throughput.

We are still expecting an increase in offshore activities and contract awards during the second half of 2018, which should result in a Subsea Products' book-to-bill ratio exceeding 1.0 for the full year. For Subsea Projects, we are still expecting a pickup during the summer months due to seasonal activity in the Gulf of Mexico.

The Ocean Evolution is currently conducting sea trials and we expect to take delivery of the vessel and place it into service during the latter part of the second quarter of 2018. For Asset Integrity, we project operating income to be relatively flat and margins to be in the low to mid-single-digit range.

For our Non-Energy segment, Advanced Technologies, we are continuing to anticipate increased activity within our entertainment group supporting the theme park arena. We expect a stable level of activity for our government businesses.

For the remainder of the year, we are expecting unallocated expenses to be within our prior guidance of the upper $20 million range per quarter. Turning to our CapEx expectations, our estimated organic capital expenditure total for this year remains between $80 million and $120 million.

This includes $40 million to $50 million of maintenance capital expenditures and $40 million to $70 million of growth capital expenditures, including the final payments to complete the Jones Act Vessel Ocean Evolution and well intervention equipment. On a macro basis, it has been more than three years since the offshore down-cycle began.

We believe we are closer to the market bottom and a recovery. Several experts have called the bottom, but we don't predict significant recovery in the second quarter. Meanwhile, the foundation for a turnaround in the offshore energy industry appears promising.

As seen by the IEA reporting, the global supply and demand for oil is expected to be largely balanced by next year, improving oil prices, oil companies migrating to portfolio rationalization and ongoing technology developments.

Based on IEA data, we are encouraged that there has been a rebalancing of supply and demand over the last five to six quarters, and storage levels have decreased and are approaching their five-year averages once again.

As reported by the IEA, the continued lack of investment remains a source of concern and more investments will be needed to make up for the declining oil fields as the world needs to annually replace 3 million barrels per day of supply lost from mature fields while also meeting demand growth.

That is the equivalent of replacing one North Sea each year. During the quarter, we saw Brent oil prices rise above $70 per barrel, and many analysts believe the market has potential to continue this rally as high as $80 a barrel.

We're encouraged by the reshaping of the offshore energy markets and the fundamental changes in the way operators are approaching offshore projects, which is making them competitive with many onshore developments. As a result of offshore projects being reworked, breakeven points are being lowered and once-deferred projects are now moving forward.

This positive trend in FIDs serves as an important indicator for activity in many of our businesses. In closing, while 2018 is going to be challenging, we believe we are well-positioned to manage our business through this cycle and take advantage of the eventual upturn in offshore activity.

Our focus continues to be looking for opportunities to grow our company, defending or growing our market share in each of the markets we participate in, engaging more directly with our customers to develop value-added solutions that increase their cash flow, driving efficiencies throughout our organization, controlling our costs and maintaining a strong balance sheet.

We appreciate everyone's continued interest in Oceaneering, and we'll now be happy to take any questions you may have..

Your first question today comes from the line of Sean Meakim of JPMorgan Securities. Your line is open..

Morning, Sean..

So, starting with a little bit more on the guidance, with respect to the Ecosse numbers to be embedded in that number, could you give us a sense of what the ballpark could be in terms of the impact there? Has the guidance stayed unchanged? And I guess, thinking with the overall picture, in which segments do you see the most risk in terms of upside and downside to that midpoint of $160 million of EBITDA?.

So, let me start with the first question. I would just say that we do expect Ecosse to be accretive, and you could probably surmise that, since we haven't spiked it out, we kind of expect it to sort of be within the realm of the other ups and downs.

So, we just haven't called it out because we don't think – even, as we mentioned before, it didn't drive us out of the range. So, we just left that as something that's in the mix. But to your other point, what are the ups and downs and which segments are they going to come from? I would say the ups are likely to come from our callout businesses.

So, you might say, hey, that's in the service part of our Products business and thinking about well intervention and things like that. That doesn't just affect that Products business. It also would mean pull-through for the Projects business and the ROV business and maybe even, to a lesser degree, the Inspection business.

So, that's likely to touch all of those. And that's based on that call-out stuff that's more likely to happen in the second and third quarter due to seasonality. So, that's the upside.

And on the downside, it's what we've been talking about with the absorption in the manufactured Product side, is we need to get those FIDs in, we need to keep the backlog up, and so we need to have that to make sure that we get the absorption we need. Otherwise, that could be the surprise to the low side..

Yeah. Timing of project is something that we are constantly focused on..

Understood. That makes sense. So, thinking about ROVs specifically, just curious about as we're coming into the middle part of the year, just your confidence in that utilization target above 50%. You highlighted that you plan to grow market share. Just curious if there's a floater rig count estimate that's a macro hurdle to get to that number.

Just curious, are thinking about the type of environment that will allow you to hit the numbers that you're targeting?.

No. We haven't planned in any sort of big bump in floater count. If you look at what's really going on, it's within the current drill support market. We talked a little bit about increasing market share, also where they are working and then how many days they're going to work.

The contracted rigs actually getting those days working, which results to more ROV days. That's likely to happen in Europe and Asia. And then, on the other side, vessel activity goes up for us. So, we get more days on the vessels in the middle of the year, too.

So, those are the things that drive those ROV days up without really having to depend on seeing a big spike up in contracted rigs..

Got it. Great. Thank you for the feedback..

Thanks, Sean..

Your next question comes from the line of Vaibhav Vaishnav of Cowen & Company. Your line is open..

Hey. Thanks for taking the question. First, a clarification question.

When you say $140 million to $180 million of annual EBITDA, are you assuming that $16 million reported EBITDA in 1Q or the $25 million adjusted EBITDA?.

The adjusted $25 million..

Thank you. That's helpful.

As I think about the 2Q, is it fair to think about a low-single digit positive EBIT for all the energy segment except for the products and maybe mid-single digit EBIT for Advance Technology? Is that a fair way of thinking for 2Q?.

For all the energy businesses, Vebs?.

Except for Subsea Products. Subsea Products, as you said, it would be negative EBIT..

Can you repeat the question, Vebs?.

What I'm saying is, if I think about ROVs, if I think about Projects and if I think about the Asset Integrity, I should be thinking low-single digits EBIT positive. For Subsea Products, it would be negative EBIT and maybe advance technology because you had some cost issues, it should recover to mid-single digits EBIT.

Am I in the ballpark?.

Yeah, I think you're in the ballpark..

Got it.

And just on Advance Technology, can you help us think about how much was the cost impact in 1Q?.

I don't think we're breaking that out at this point in time, Vebs..

All right. That's all for me. Thank you..

All right..

Your next question comes from the line of Joe Gibney of Capital One. Your line is now open..

Yeah. Thanks. Good morning. Just a question on Products outlook in the back half of the year on the order side, that conviction in greater than 1x book-to-bill. I know umbilicals is inherently lumpy to predict and major product flow through is still your main driver there.

I was curious on other pieces of the business there on hardware, if you're seeing some incremental uptick that gives you conviction there in that number, like is Grayloc or some of the Valve business doing well or some green shoots there perhaps that are helping that book-to-bill conviction? Just curious on some color outside of umbilicals, which are always hard to predict on timing..

No, it's really driven by the umbilical business. You have to see those larger FIDs happening and turning into contract awards this year. We do see Grayloc being very steady, as it has been quarter-after-quarter. We do see a little bit of an uptick on our valve order intake with the increase of tree awards over the last 12 months.

But that, alone, is not material enough to move us above the 1 itself. We do need to see umbilical and the associated hardware pick up and orders happen in the next three quarters..

Got you. Okay. And then, just one question on the Evolution. You said it's on sea trials, comes into late 2Q.

Do you have any work in the second quarter for it, or will it enter the spot? Just trying to understand if it's a nominal contributor at all to 2Q?.

So, we do have work for that. But, again, that work, some of the pre-work for those projects has been done on some of our spot hire vessels. So, it's not something that spikes out. It's basically, we'll be using the Evolution to cover the work that we've been spot hiring other boats for in the interim.

So, it will have work to go to, but it won't be a noticeable spike up..

Okay. I appreciate it. Thank you..

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

Good morning, guys..

Good morning, George..

Good morning..

You guys have been relatively acquisitive as of late and the balance sheet is certainly in a good position to continue that going forward. Just curious what the opportunity set looks like there, and then what your desires are in terms of businesses to get into versus what the opportunity set looks like.

So, might there be a good set of opportunities that are intriguing to you, or is there a bit of a mismatch in terms of what you're looking for and what's out there?.

No, I think there's a good set. We probably – I don't know that we've been busier looking at things than we have just of late. So, there's a lot of things on the market. There's a lot of things that fit what we'd like to do and trying to get the bid/ask right is one of the main things.

But you asked what we're interested in and kind of stick with what we've said, we've thrown some of our business drivers out there with robotics and automation, the pipeline services; you've got the light well intervention we like. We want to continue to do more in those things.

The renewables still looks attractive to us, and Asset Integrity is all on the list. Those are things that, number one, we think have the ability to grow, outpace sort of the traditional offshore service market and, also, are a more stable business from the sense that a lot of those have a strong OpEx component.

And so, those things give us exposure to more stable markets. So, it's what's we're looking at and I would say that there's a good opportunity set there..

Great. That's very helpful color.

And then, just on the intervention side, can you talk about the outlook there and maybe frame that even versus just a quarter ago? And I'm just thinking of, it feels like, given what some other folks in the intervention space have talked about, given there's the potential for that piece of the business to drive you towards above the mid-point of your EBITDA guidance range, that that's a piece of the offshore market that's getting better.

And just curious if there's any color you can provide on either bidding activity, anything like that, and kind of the now versus Q4 2017, what that looks like..

Sure. So, number one, as the season comes in, people get more serious about what they think they want to do and what they're going to be able to do. So, we've got that seasonal uplift in activity and interest; I would put it that way. And then, the other side is oil price.

And when we see the oil price up, that's directly related to what's their return on investment. So, getting these things out and working with a little higher crude price, that drives interest as well; and, obviously, that's the most important one..

Great. Thank you, guys, very much for the color..

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

Hey. Good morning..

Good morning, Kurt..

Hey. Thanks for the color so far. I want to follow up on something I think that came out in the prior conference call. And I just want to circle back around to it.

I think Marvin might have answered this question, was that when you look at the revenue per day for the ROVs that you have on hire, what kind of legacy exposure do you have to ROV rates, let's say, when offshore rig rates were $600,000 a day?.

Those were the good old days. I think most of that has worked its way through the system. We've repriced and those contracts have expired. So, we're pretty much living on either recently contract or leading-edge price now..

Okay. Great. Appreciate that. And I know you mentioned in a prior call as well with respect to your 2018 outlook that – and reiterated your comments about utilization and EBITDA.

Can you give us an update on what you see happening in terms of trends on pricing for ROVs on rigs? Has pricing stabilized or is it still very competitive and do you still expect some pricing decline?.

I'm going to call it stable. We see right now, there hasn't been a lot of comeback. There are people that are starting to show a little more interest in longer-term pricing.

I don't know that they're taking a lot of that yet, but it just gives us the feel that people out there anticipate that we're kind of getting to that flat point, that bottom spot where they might want to be starting to think about locking in longer-term pricing. So, that's a good indication to me that we're at a pretty stable point..

Okay. Got you. Now, some other conference calls that we've heard, there's been a much more positive take on overall what's going on in international in offshore activity and talk about potential for 25 to 30 FIDs coming to fruition for this year up from 20 last year.

So, when you think about the Subsea Product book-to-bill being in excess of 1, are you guys lined up in that thinking of 25 to 30 FIDs coming to fruition and that's how you're coming to the viewpoint of that book-to-bill exceeding 1 potentially for this year?.

Definitely, Kurt. I don't know if it will be 25 or 30, but we do see FIDs increasing for the year, which should bode well for our book-to-bill this year. And I think while the number FIDs is increasing, one thing we do see is that the dollar value may be a little bit smaller in times than what some of the past awards have been.

So, there may be more and may it start to be more of a repetitive, we see more and more FID, but there may be mid-size in nature versus real large ones at times..

Okay. And one more, if I may. Last call, again, you referenced that you're going to invest for growth through the cycle. You aren't going to stand still and obviously some of that came to fruition in terms of Ecosse and some of the things that you're pursuing on the renewable front.

So, can you just give us an update there on strategy and execution? And I don't want to put you into a corner or anything like that, but what kind of incremental upside are you guys thinking about with respect to what you could do on the renewable front?.

I think, first and foremost, with Ecosse, we were already working Ecosse with our ROVs. So, we already knew the team there very well-respected team that we were glad to bring on board. But at the same time there are other things like our survey services that we can have pull-through effect on. So, there is more to it than just the plough and trencher.

We have project management services that we think will be instrumental in helping to grow that business line as well. We do see a geographic expansion with Ecosse. So, one thing they were always very focused in the UK North Sea, where renewables have been very prevalent.

One thing they did like about joining up with Oceaneering was our geographic footprint and the ability to service the offshore renewables in all areas of the world..

And the flipside of that is probably just as important in the sense that us making an investment in a renewables company who have given us more exposure to the contractors that are working in that space. And so, they see us as being serious about being there and that's increased our order intake on survey and ROVs as well.

So, it's a virtuous cycle for us..

Got it. Appreciate that color. Thanks..

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

Hi. Good morning and thanks..

Hi, Dave..

Thanks.

Sorry if I missed it, but did you tell us the split in products revenues between manufacturing versus service and rental?.

No. We didn't. That'll come out when we file our Q..

Okay. And I also want to make sure I caught this right.

In the prepared remarks, did you say you expect the Asset Integrity results to be flat in 2018 versus 2017?.

That was the expectation that we gave. Yeah. I think what we said was, I'm trying to look up the exact wording but, I think, it said 00:26:26 expectations and we gave a low to mid-single digit margin range..

Okay. But thinking about that business for the year, I just noticed you came into the year in Asset Integrity with more backlog. Though that plus the oil prices might help push the business in 2018 versus 2017. Yes. Thanks. I just want to make sure I got that comment right and it sounds like I did not. Thanks..

Yeah. We're projecting operating income to be relatively flat. That's why we showed margins to be in the low to mid-single-digit range for Asset Integrity..

Okay. Okay. All right. I'll follow up after. Thank you..

Okay..

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

Thank you. Good morning. Some questions here. First one, you mentioned that Ocean Evolution, you're receiving some revenues for that as you were renting out some other vessel.

Could you describe to us and let us know when did that program begin and when did you start getting some revenues for that project?.

On the Ocean Evolution?.

(33:50) yeah..

Well, we began recognizing or having revenues last year in 2017, I'd say basically in Q2/Q3 timeframe because there's various work scopes that we're working on for this project, some of which is the project management base, some of it was the umbilical, some of it is the hardware. So, there are a multitude of work scopes for the Appomattox field.

And the last is going to be where we're actually doing the work scopes in-field and doing installation of various components..

Okay..

That is ongoing through I think 2019 timeframe..

Right. So....

We'll be working on various campaigns for the next 18 to 24 months..

So, what I want to understand is when the Evolution begins, would there be a bump-up in revenues as well, or just a cost side will come down as you'll have your own vessel?.

There is going to be some activity due to just surges in the project, Waqar, because if we'll get into some more the heavy lift as we get further along, so those would be more days. But it's not like a big shift; it's just normal ups and downs with the project and with the weather and such.

But you're right that you should think about that project to sort of bumping along and the biggest change will be just the shift of picking up the depreciation on the boat and dropping the rental on the other boat..

Exactly..

Okay. That's make sense. And then just on the market itself, I apologize, I joined a little bit late, so I may have missed your comments before. But certainly, oil prices are higher and prospects of market improvement are there.

But in terms of your discussions with customers, are you seeing a change already, or you haven't noticed that as yet?.

I'm trying to understand the question.

The change in what, Waqar?.

In terms of, as you have discussions with your customers, are you seeing that they're becoming more optimistic and they're asking you for more tenders and more work, or is that still a hope that things will change for the better in the future because of higher oil prices?.

No. There's definitely more interest and more people talking about picking up programs, some exploration work even. And we talked a little bit earlier in the call about more well intervention interest in people. I think the commodity price being up has definitely created more interest on the customer side..

Okay.

And in terms of the callout work in the Gulf of Mexico, when would you get some decent visibility in terms of how active you could be during the summer months?.

I think that's all in the mix right now. We've got pretty good visibility into what's going to happen over the summer. It's just what we don't know. If there's any surprise, we've got any customers that encounter any difficulties or things like that that we'll be able to capitalize while the weather is good. Those are things that still could come.

But right now, I think anything that we think could come we've already got in the forecast..

Okay. Thank you very much..

Your next question comes from the line of David Anderson of Barclays Capital. Your line is open..

Great. Thanks. A broader strategic question for you. As offshore development starts to pick up once again, it seems pretty clear this cycle is going to be a lot different than the last one we saw in light of the consolidation of the trend toward integrated projects.

So, if I think a few years out, I'm trying to understand your thinking about where Oceaneering fits in all this.

Do you feel that you need to tie up with another installation company or another offshore services company to compete on these integrated projects? Or does it make more sense for you to stay independent, preferring to work for those bidding on projects discreetly?.

I think, really, we haven't been that directly connected with the big construction projects. We've always come in and done some of the connective bits where we'll come in and do set jumpers and flying leads and things like that, the lighter end.

And so that doesn't seem to be a big push right now to consolidate that into the larger epic contracts where you start to see more it's the heavy construction tying up with the OEMs.

If that changes, I think what we would have to see and this has kind of been the story all along, David, is how many dance partners are there, as an unaligned player, do you have access to more markets as an unaligned player as it starts to tighten up, you've got to have to find that person to tie up with.

But right now, we see the greater I think kind of the greater scope of activity available to us as unaligned. But it is something to your point that we're very aware of..

So as you talked on umbilical and associated hardware has been the growth opportunity and you talked about the increasing FIDs. I guess we've seen, so far, a lot more of the E&Ps out there rather than the IOCs.

So I guess the question I'm wondering about is as we start to progress, is there a concern that more of that umbilical work is embedded in those integrated projects and doesn't give you the opportunity? Or once again are you kind of thinking about you guys can continue to service those independent guys out there rather than the IOCs who seemed to be shifting more to that FTI model along those lines?.

So, let me answer the question that I think I can answer or maybe I'll have to defer the other. But you asked, you asked about what about the availability in market to us with some of these things to be added as an epic contract. So, the biggest one out there, the one that we don't have access to and I'll put it that way is Technip FMC.

And so, Technip has DUCO for umbilicals and so now FMC is directly tied. I will tell you that we had very, very little, if any, sales of umbilicals to FMC prior to this and of course Technip. So that market hasn't really changed. I would say that, yes, I would call that off kind of off the table, but it wasn't really on the table before.

So that's not a big any sort of takeaway from the market for us..

It's not a change..

Yeah. It's not really a change. And so, we'd have to see some other alignment that would change that. And right now, we continue to sell to the people we sold to before..

Okay. Thank you..

Your next question comes from the line of Cole Sullivan of Wells Fargo Securities. Your line is open..

Hi. Good morning..

Good morning, Cole..

Good morning..

Can you help us think through how much of a revenue impact you saw in 1Q from the project shifts in products?.

I don't think we really quantified the revenue impact, Cole. But I think it will be safe to say that by our product guidance of a loss in Q1 to turning it into a profitability, I think that's probably the way I'd kind of measure it from the bottom line..

Okay. And then one on the ROV side. If you could help us with the ROV utilization pacing this year.

Is the midpoint of the guidance factoring in something maybe close to, say, 50% in the second quarter and then stepping higher in 3Q with seasonality and then stepping back down in 4Q as the vessel work dries up? Or do you expect the rig market share to offset some of the seasonality later in the year?.

I think you got it. We've got to see that lift above 50% in the Q2 and Q3 both to get us to that average for the year. So, we'll definitely see a seasonal decline in fourth quarter again. So, you got it..

All right. Thanks. I'll turn it back..

And there are no further questions in queue at this time. I turn the call back to the presenters for any closing remarks..

Since there are no more questions, I'd like to thank everybody for their interest and for joining the call. And that concludes our first quarter 2018 conference call. Have a great day..

This concludes today's call. You may now disconnect..