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Weak Oil Prices Clobber Oceaneering International's Earnings

By Matthew DiLallo - Apr 26, 2016 at 8:11AM

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The offshore company was able to remain profitable in each of its operating segments.

Image source: Oceaneering International.

The oil market is going through one of its most challenging periods in decades, with the offshore sector especially hard hit. That's putting a lot of pressure on offshore oilfield service and equipment maker Oceaneering International's (OII 0.80%) financial results. The company's first-quarter results, released after the market closed on Monday, showed a steep slide in both revenue and earnings across all five of its operating segments.

Oceaneering results: The raw numbers

Metric

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Revenue

$708.3 million

$786.8 million

(23%)

Net income

$25.1 million

$69.5 million

(64%)

Adjusted EPS

$0.26

$0.70

(63%)

Data source: Oceaneering International.

What happened with Oceaneering this quarter? 
Oceaneering continues to be affected by the slowdown in the offshore drilling market.

  • While revenue was weak across the board, the biggest decline was in the remotely operated vehicles (ROV) segment. Revenue was down 33% year over year to $147.6 million because of 28% fewer days on hire and a 7% reduction in revenue per day on hire. That weak result was par for the course yet was a slightly better result than Helix Energy Solutions' (HLX 2.43%) robotics division, which saw its revenue drop 49% because of weaker ROV asset utilization.
  • Oceaneering's asset integrity segment was also weak, with revenue down 29% to $69.6 million because of lower demand and pricing for inspection services. That drop caused earnings in the segment to crater, with the company earning just $593,000 during the quarter, nearly 90% less than the $5 million it earned in the year-ago quarter.
  • Finally, the company's subsea products, subsea projects, and advanced technology segments were also weak, with revenue down 19%, 16%, and 10%, respectively, over the year-ago quarter. Even so, subsea products is holding up relatively well because of the company's strong contract backlog, which stood at $576 million. However, that segment's revenue and earnings will erode during the year as that backlog is worked off -- it's already come down $76 million from the end of 2015.

What management had to say 
CEO Kevin McEvoy summed up the quarter: "While our results for the first quarter reflect the challenging times we face in this low oil price market environment, we are pleased that each of our operating segments remained profitable, and our EBITDA margin of 17% held up relatively well when compared to others and our own full-year 2015 EBITDA margin of 20%."

Oceanering's financial results are challenged right now, but the company has been able to remain profitable in all of its segments. Still, those profits could continue to erode as the company works off its backlog in subsea products and battles to maintain its ROV market share. In the earnings press release, McEvoy addressed that battle: "Our drill support market share during this period was 57% of the 193 floating rigs under contract, compared to 58% a year ago. In spite of the current shrinking available market, we remain focused on maintaining our market share of ROVs on contracted rigs and high-specification third-party vessels."

That's going to be increasingly tough to do, given the weak industry conditions, which have led to significant declines in asset utilization. Oceaeneering's ROV utilization dropped to just 56% during the quarter from 73% in the year-ago quarter. Meanwhile, Helix Energy Solutions saw a 39% decrease in ROV asset utilization year over year. Having so much excess capacity sitting on the sidelines will probably lead to further price reductions to keep vessels working, which will cut into margins.

Looking forward 
Oceaneering still has no visibility into 2016. Instead, the company is focused on maintaining its liquidity and generating cash to position itself for the eventual market recovery. The good news is that it's currently sitting on $1.4 billion in cash, against just $800 million in long-term debt. That gives it ample liquidity to be defensive right now, while putting it in a strong position to go on the offensive when conditions start to improve.

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Stocks Mentioned

Oceaneering International, Inc. Stock Quote
Oceaneering International, Inc.
OII
$12.57 (0.80%) $0.10
Helix Energy Solutions Group, Inc. Stock Quote
Helix Energy Solutions Group, Inc.
HLX
$4.64 (2.43%) $0.11

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