Tidewater Inc. (NYSE:TDW) Q2 2019 Earnings Conference Call - Final Transcript
Aug 13, 2019 • 11:00 am ET
John T. Rynd
have increased after having consistently declined since the onset of the downturn in 2014. The utilization decline is largely attributable to having 784 active days at a service, due to dry docks and reactivations, an increase of 394 days over the first quarter. This difference of 394 days amassed approximately 2.6 percentage points in active utilization drag relative to the first quarter, resulting in active utilization that is otherwise slightly ahead of the first quarter, but for the additional dockings.
We continue to highlight the significant drydock obligations for ourselves and the industry as a whole where we estimate that approximately 450 currently active OSVs have or will come due in 2019 for a special survey, and another approximate 425 will be due in 2020. We are not immune to this impact and we'll continue to experience elevated drydocking cost and downtime as we position our fleet to meet our customers' global demand.
Excluding vessels that are currently stacked and anticipated to be reactivated, we anticipate 1,025 and 300 vessel days out of service due to drydocks in the third and fourth quarters, respectively. These estimates may move between quarters based on our customers needs, but represents our current best estimate. However, in spite of the elevated drydock schedule, we are committed to being disciplined with our capital and we only reactivate or maintain active vessels against contract coverage whose projected margins provide a full payout with a reasonable return on our investment. Overall, this may result in near-term cash outlays as we invest in vessel dockings. However, the overall cash-on-cash returns and long-term strategic positioning of these assets will be meaningful to our shareholders.
As an example, we have recently authorized the reactivation of two deepwater PSVs against multi-year contracts and are currently in discussion with a separate customer to reactivate a third deepwater PSV, whereby they pre-fund a significant portion of the drydock, which will be earned out over the firm term in addition to an above-market average vessel operating margin. These are vessels that were previously projected to be stacked, but the returns warranted the investment.
To further illustrate, as part of our disciplined approach to investing in vessels that will best serve our customers and ultimately our shareholders, in excess of 85% of these vessels that we have projected for drydock this year, have a term contract, and for the remaining 15%, we may elect to have those vessels stacked until adequate visible contract coverage is realized.
Our continued focus on high-grading of fleet and maximized overall cash generation as opposed to operating a large fleet, is a prime objective, will result in us aggressively moving vessels from active service and responsibly disposing of vessels that no longer meet our return objectives. As a result, it is likely that our active vessel camp will continue to trend down throughout the remainder of the year as lower specification vessel contract coverage winds down or as we reposition vessels to more strategically important markets.
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