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[CAL DIVE INTERNATIONAL, INC. LETTERHEAD]
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2000 THIRD QUARTER REPORT
November 1, 2000
TO OUR SHAREHOLDERS:
We extend a warm welcome to those new shareholders who joined our merry band as
a result of the successful Secondary Offering of Coflexip shares. Our hope is
that all CDI shareholders experience the same type of investment return as our
friends at Coflexip. The $151 million gain which Coflexip realized from its
ownership of CDIS represented a 330% return over the three-plus years that
Coflexip held the Cal Dive stock. Placing that 24% ownership block into the
market, when combined with the recently announced two-for-one stock split,
should achieve our objective of significantly improving the liquidity of CDIS.
Another benefit of the offering is that the number of research analysts
following Cal Dive increased from seven to nine as Geoff Kieburtz of Salomon
Smith Barney and Gary Russell of Frost Securities picked up coverage.
FINANCIAL HIGHLIGHTS
While performance did not match the all-time record established in the third
quarter last year, our bottom line at 15% of revenues represents the exact same
level of profitability in a much tougher contracting environment. $7.7 million
of net income more than doubled that of the second quarter.
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
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2000 1999 (DECREASE) 2000 1999 INCREASE
----------- ----------- ---------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES $49,707,000 $58,470,000 (15%) $129,717,000 $118,580,000 9%
NET INCOME 7,686,000 9,017,000 (15%) 14,560,000 13,745,000 6%
DILUTED EARNINGS PER SHARE 0.47 0.58 (19%) 0.90 0.90 -
</TABLE>
* REVENUES: Contracting volume decreased by $16.6 million from a year ago
when two significant Deepwater projects (Diana and Cooper) were in full
swing. We also had two major DP vessels out of service a combined 105
days in Q3 this year. This variance was partially offset by an $8 million
improvement in gas and oil revenues.
* GROSS PROFIT: We delivered almost the same gross profit ($17 million) as
Q3 last year, as margins increased from 31% to 35%. This accomplishment
in the face of lower revenues highlights the contra-cyclical impact of
our production business; i.e. strong commodity prices drove ERT margins
to 61% while the profitability of CDI contracting operations remained at
the depressed levels of Q2.
* LIQUIDITY: EBITDA improved to $20.8 million or 42% of Q3 revenues, a
level almost unheard of for a service company. During the quarter we
closed the long-term MARAD financing for construction of the Q4000 and
made an initial draw of $40.1 million. Since we had already funded almost
$67 million of the newbuild vessel's construction costs out of cash flow,
the $25 million net balance from this first draw is available for general
corporate purposes. Balmoral Sea insurance proceeds and the $15 million
which CDI received from exercise of the Secondary over allotment option
lifted cash balances over $50 million at the end of the quarter.
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OPERATIONAL HIGHLIGHTS
* GULF MARKET: The industry came to "full stop" when oil fell to $10 per
barrel in mid-1998. That prompted a reassessment of Deepwater projects
and spawned the super-major mergers, which further extended the
commissioning process. While the queue of significant fields coming into
production from late 2001 through 2004 is on track to generate a level
of demand which is expected to outstrip construction vessel supply,
there is little Deepwater activity in the market this year. One of the
strengths of the CDI fleet is the ability of our DP vessels to generate
solid returns working on the Outer Continental Shelf. A surprise is that
historically high natural gas prices have not as yet produced
significant construction activity on the OCS, a basin which provides 30%
of the natural gas consumed in the United States. Despite a 44% increase
in Q3 drilling activity, year-over-year U.S. gas production fell 1%
following declines of 2% to 3% in the first half of the year. Rather
than wait for the impact of this drilling activity to flow through to
the construction sector, we opted to move our two most significant
assets (the Uncle John and Witch Queen) to Mexican waters in Q4.
* VESSEL AVAILABILITY: While the re-engining of the Uncle John went
smoothly, installation of the new power management system delayed the
return of the vessel to work until late August. A design flaw in the
propulsion motors of the newbuild Dove put that vessel out of service
from mid-August through the end of the quarter. While this is a warranty
item we had to absorb fixed costs while at the dock.
* CONTRACTING OPERATIONS: The Uncle John spent September performing coring
and geotechnical investigation procedures at Mad Dog and Horn Mountain
(4,500 to 5,400 foot water depth). The Witch Queen, working in tandem
with several of our core vessels, completed a CDI first when it laid
6-inch pipe in conjunction with a full field job for Newfield
Exploration. CDI subcontracted the Pacific Horizon and American Horizon
on another full field project: installing and commissioning a braced
caisson for Cockrell Oil and Gas. In mid-August, the Sea Sorceress
mobilized for her first GOM job, a two-month project for Enron
recommissioning an abandoned pipeline. Activity in the shallow water
market served by Aquatica remained flat with the prior quarter although
margins were reasonably good.
* ERT: A year ago we brought onboard some top-notch production talent,
people who have our offshore facilities purring on all eight cylinders
(not an easy task with Sunset Properties). Production remained at
roughly the 4.2 BCFe level of Q2, up 53% over the same period last year.
Average realized commodity prices of $4.31/mcf for natural gas and
$30.57 per barrel of oil compare to $2.62 and $19.60, respectively, in
the same period of 1999. Our product mix this year is running 72%
natural gas, 28% oil. During the third quarter we sold a platform and
interests in two fields. An ERT operating policy is that we will sell
assets (offshore leases, platforms, compressors, etc.) when the expected
future revenue stream can be accelerated in a single transaction. While
our objective is to continue to grow this business, the two fields were
in a non-core area and thus expensive to operate. When considered with
certain related adjustments, the net result of these property
transactions was to add approximately 7 cents to third quarter earnings
per share. A year ago property sales in the same quarter added 13 cents
to earnings. We have now sold 12 of the 49 leases acquired since the
inception of ERT.
* Q4 FORECAST: We have decided to initiate the process of publicly
disseminating a forecast of the coming quarter, partially in response to
the new Fair Disclosure regulations of the SEC. In addition to all the
cautionary language contained in the accompanying Appendix, please note
that the spot market nature of Gulf of Mexico contracting presents a
unique estimating challenge. That is particularly true in the fourth
quarter as winter weather fronts begin rolling through the Gulf in
November. As a general observation, a late 2000 construction season on
the OCS should improve contracting profitability. The well now drilling
at Vermilion 201 will take that field out of production, so we expect a
slight decline in ERT production. Accordingly, diluted earnings per
share are projected in a range of $ 0.36-0.44 (pre-split) which means we
have a shot at exceeding the all time CDI record for the fourth quarter
(36 cents in 1998).
Respectfully submitted,
/s/ OWEN E. KRATZ /s/ MARTIN R. FERRON /s/ S. JAMES NELSON, JR.
Owen E. Kratz Martin R. Ferron S. James Nelson, Jr.
Chairman President Vice Chairman
Chief Executive Officer Chief Operating Officer
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APPENDIX
DISCLOSURE OF FOURTH QUARTER ESTIMATES
This narrative sets forth current estimates of operating and financial data for
the quarter ending December 31, 2000. All of the assumptions upon which these
estimates are based constitute FORWARD LOOKING STATEMENTS within the meaning of
Section 27 A of the Securities Act of 1933, Section 21 E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Although we believe that these forward looking statements are based on
reasonable assumptions, a number of factors could affect the future results of
the Company or the offshore oilfield industry generally, and could cause actual
results to differ materially from those estimated.
Significant fourth quarter estimates and assumptions include:
o VESSEL AVAILABILITY: No regulatory inspections or significant
repair work is scheduled in the fourth quarter. The Sea Sorceress
is now in Mobile, Alabama, undergoing DP conversion.
o CONTRACTING REVENUES: Scheduled work and outstanding bids suggest
an increase of 5% to 15% over third quarter levels.
o WEATHER CONDITIONS: Unusually severe winter weather conditions in
the Gulf of Mexico could restrict anticipated vessel utilization.
o NATURAL GAS PRICES: An average between $4.40 and $4.80 per mcf is
expected. Prices in the remaining two months of the year will be
driven by market speculators and will fluctuate significantly
depending upon winter weather temperatures.
o OIL PRICES: $30-31.50 per barrel. Roughly 33% of fourth quarter oil
production is hedged at $31.25 per barrel.
o GAS & OIL PRODUCTION: 3.6 to 3.9 BCFe. The anticipated decrease
from the third quarter reflects Vermilion 201 taken out of
production due to the sidetrack and new well currently being
drilled.
o MARGINS: Assumed commodity prices should enable ERT to continue to
realize those margins experienced in the second and third quarters
(50-60%). We also expect a significant improvement in contracting
profitability.
o TURNKEY PROJECTS: Unexpected losses on fixed price contracts could
affect projected outcomes. However, the Uncle John and Witch Queen
will be working in Mexican waters on a dayrate basis throughout
much of the quarter.
o TAX RATE: 35%, consistent with prior quarters.
o SHARES OUTSTANDING: Increase to 16.5 million fully diluted shares
(pre-split) due to the new shares issued in the Secondary Offering.
