Oceaneering International (NYSE:OII), an advanced technology company that focuses on solutions for harsh environments, delivered outstanding third-quarter results this week. Compared with the same quarter in 2004, revenues were up 37% and earnings per share were up 32%. The company increased its guidance for 2005 and 2006, sending shares onward and upward. Margins improved, free cash flow increased, and during the conference call, CEO John Huff claimed the outlook "has never been more promising."

Although Oceaneering attracts quite a bit of attention with its Advanced Technologies division -- which makes robots for NASA and submarine rescue units for the U.S. Navy -- it makes most of its money by providing solutions to the offshore oil and gas business. The growth story is driven by three divisions: ROV (remotely operated vehicles), subsea products, and subsea projects. These divisions account for nearly 70% of revenue and were responsible for the majority of the growth in the most recent quarter. These businesses have benefited from the increased amount of deepwater oil and gas exploration, which requires highly engineered products from the subsea products group, such as flexible cables, hoses, piping, and valves. Working in water at a depth of 10,000 feet requires advanced ROVs, along with specialized control systems and operators. The subsea projects group helps bring it all together with engineering, project management, and execution.

Oceaneering has been making investments to increase its position in deepwater products and services. The ROV fleet, which is already the largest in the industry, is expanding. In addition, rates and utilization for the ROV group are increasing. The subsea products group is in the process of bringing a new facility in Panama City, Florida, up to full production. More deepwater work will drive more business for the subsea projects group.

So what's the downside of this report? Oceaneering's stock has recently advanced to more than $50 a share -- almost 20 times 2006 estimated earnings of $2.70 to $2.85 a share. While strong growth and outstanding prospects certainly justify a premium, I suspect current prices provide very little margin for safety.

Worse yet, shares outstanding increased 4% in the third quarter of 2005 over last year, with an additional 2% increase planned for 2006. Oceaneering does not pay a dividend, and previous share repurchase plans have been used to reissue the shares as employee compensation. Senior management routinely sells large blocks of shares. And why not, when they can just grant themselves another pile of options?

So although I think the company has industry-leading technology and excellent prospects, I'd like to see some improvements in shareholder friendliness before I increase my position.

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Robert Aronen own shares of Oceaneering International but no other company mentioned in this article. He often considers granting himself a pile of options. Please feel free to share your comments with him at [email protected].