Cal Dive Won't Take Your Portfolio Under Water

By Eric Fox | January 20, 2009 AAA

Cal Dive International (NYSE:DVR) may see less impact from the downturn in energy due to a boost in business related to repairing oil and gas infrastructure damaged by the recent hurricanes in the Gulf of Mexico. This will offset a decline in its pipeline laying and construction business.

Cal Dive International is the world's largest commercial diving company with a fleet of 31 ships. The company also owns 10 construction barges used to lay pipeline and conduct other offshore construction activities. The history of Cal Dive is a little confusing. The company was started in 1975 and operated under the name Cal Dive until early 2006, when the company decided to change its name to Helix Energy Solutions Group (Nasdaq:HLX). The reason given was that the company had diversified into more than a diving company, and the old name did not reflect that. In December 2006, Helix Energy Solutions did an initial public offering (IPO) of part of its Cal Dive subsidiary, and now owns 59% of the company.

The company's main competitor is Global Industries (Nasdaq:GLBL), which owns 27 vessels.

Cal Dive has attempted to diversify its business activities by performing work in what it calls the early, middle and late phase of a well.

Early Phase - After the initial discovery of a reservoir, the company will use its fleet of dive ships and barges to install and bury pipeline, and construct platforms. This type of work is approximately 50% of Cal Dive's revenue. This business is drill bit sensitive and will vary with the level of drilling activity.
Middle Phase - During the life of a well, Cal Dive will perform repair, maintenance and construction of the infrastructure.
Late Phase - Cal Dive provides plugging and abandonment of wells, and pipeline and platform removal. The middle and late phase businesses of Cal Dive are less sensitive to the drill bit and may hold up better during a downturn. (For further reading, check out our Oil And Gas Industry Primer.)

Future Strategy
The company had 29% of its revenue from international business in the nine months ending September 30, 2008, and it has set a goal in 2009 to increase this percentage. Cal Dive is targeting Southeast Asia, Australia, Mexico and the Middle East.

Financials
As of September 30, 2008, Cal Dive had $355 million drawn on its credit facility. $80 million of this debt was classified as current on its balance sheet. Its cash was negligible at $22 million. The company's backlog jumped to $506 million, which it attributed mostly to work to repair damage from the 2008 hurricane season.

Risks and Rewards
Due to the expense and complexity of offshore drilling, Cal Dive is dependent on several large customers for a significant portion of its revenues. In 2007, Chevron (NYSE:CVX) and Apache Corp. (NYSE:APA) were 15% and 10% of revenues, respectively.

Capital spending by exploration and production companies is expected to be down 20-30% in 2009, according to the latest surveys. This decline will negatively impact the revenues of Cal Dive. Offsetting this negative trend will be the added business that the company gets from a busy hurricane season, as the company derives work from repairing the damage done to platforms and pipelines. The two hurricanes that made landfall in 2008 damaged 99 platforms in the Gulf of Mexico according to Minerals Management Services (MMS) and Cal Dive.

Cal Dive may fare better than its peers during the downturn in energy due to its strong business related to repairing damage from hurricanes in the Gulf of Mexico. This will offset its other business, which is tied more directly to drilling.

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