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Welcome to Tidewater’s 2018 Second Quarter Earnings Conference Call. My name is Paulette and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Jason Stanley. You may begin.
Thank you, Paulette. Good morning, everyone and welcome to Tidewater’s earnings conference call for the period ended June 30, 2018. I am Jason Stanley, Tidewater’s Director, Investor Relations and I would like to thank you for your time and interest in Tidewater.
With me this morning on the call are our President and CEO, John Rynd; Quinn Fanning, our Chief Financial Officer; Jeff Gorski, our Chief Operating Officer; and Bruce Lundstrom, our General Counsel and Secretary. Following a few formalities, I will turn the call over to John for his initial comments to be followed by Quinn’s financial review. John will then provide some final wrap up comments and we will open the call for your questions.
During today’s conference call, we may make certain comments that are forward-looking and not statements of historical facts. There are risks, uncertainties and other factors that may cause the company’s actual future performance to be materially different from that stated or implied by any comment that we make during today’s conference call. Please refer to our most recent Form 10-Q for additional details on these risk factors. This document is available on our website. Also during the call, we will present both GAAP and non-GAAP financial measures. The reconciliation of GAAP to non-GAAP measures is included in last evening’s press release.
Finally, while we are continuing to plan for the integration of GulfMark, our comments related to the transaction will be limited to our prepared remarks. If there are updates related to the deal, we will announce them broadly.
With that, I will turn the call over to John.
Thank you, Jason. Good morning, everyone and thank you for joining the Tidewater call. For the second quarter of 2018, we reported net loss of $10.9 million or $0.44 per common share on revenues of approximately $106 million. EBITDA for the quarter ended June 30 was $16.2 million, which includes $3.2 million of stock-based compensation expense, $6.8 million of foreign exchange loss, $1.5 million of professional service costs related to our proposed combination with GulfMark, and $4.9 million of dividend income related to our Angola joint venture. In a few minutes, Quinn will discuss our financial results in more data.
Strong execution of our team in the June quarter as reflected by industry leading safety and similar metrics and positive quarter-to-quarter trends in active and overall utilization, vessel revenues and vessel operating margin all contributed to better results relative to the March quarter. As I stated on our last earnings call and as demonstrated by our results in the June quarter, we continue to feel we maybe in the early stages of the market recovery. Commodity prices and service price remain constructive, which we believe will provide a helpful backdrop as key customers kickoff their annual budgeting process this fall and begin to determine the 2019 offshore spending plans.
In recent months, the working offshore rig count has generally been trending in a positive direction and recent contract awards, tendering activity and customer dialogue, all point to higher demand for offshore capital equipment, including rigs, OSVs and FPSOs. The overall OSV market however remains highly fragmented and it continues to be burdened at least on paper by excess capacity. With few exceptions, OSVs onerous balance sheets are stressed, industry-wide costs are too high and access to capital is very limited. At Tidewater, our progress in rightsizing our business and balance sheet has prepared the company to successfully manage through the ongoing challenge of the OSV business and to be in a good position to respond as opportunities and market conditions warrant. ur fleet is young. Our operating footprint is the broadest in the business. In our financial position both in regards to leverage and liquidity is strong.
Looking at our operating results by segment, recent awards in Eastern Canada and Mexico as well as a more robust seasonal spot market in the Gulf of Mexico drove quarter-to-quarter improvements in vessel utilization and average day rates in our America segment. Vessel revenues in the Americas segment was up approximately $6.5 million or about 25% quarter-to-quarter. Average active vessels in the Americas segment were comparable in the June and March quarters. However, active vessel utilization at 82%, was up approximately seven percentage points quarter-to-quarter and average day rates at approximately $16,000 per day were up about 10% quarter-to-quarter.
As to our near-term outlook average active vessel and active utilization remained relatively stable in the Americas segment, the rates in Mexico in particular remain under pressure. Overall, vessel revenue for the Americas segment in the September quarter is expected to be down a couple of million dollars again reflecting high and stable active utilization, but generally lower average day rates with Mexico being the most significant near-term driver in regards to rates. Activity in the North Sea increased in the quarter as anticipated resulting in improved utilization has began the typically stronger summer drilling season. However, as best as we can tell, the OSV industry only saw modest increases in average North Sea day rates year-to-date, in large part due to an overall increase in available supply.
Vessel count during the January to June period, 23 previously stacked vessels reactivated and 18 vessels returned to the Northeast from other regions. And of the six vessels that left the traditional North Sea region the active North Sea fleet increased by 34 vessels or approximately 20% year-to-date. Tidewater’s active vessel in North Sea found relatively consistent deployment in the June quarter. But again incremental available supply limit the quarter-to-quarter improvement in average day rates to just about $1,000 per day or approximately 11% during the June quarter. Utilization of our active North Sea fleets have remained strong through the third quarter and we remain optimistic that we receive reasonable i.e. a couple of thousand dollars or 15% to 20% quarter-to-quarter improvement in average day rates in the September quarter.
In the Mediterranean Sea, our active vessel count was up a couple of vessels quarter-to-quarter and the quarter-to-quarter trend in active utilization was also positive. Average active vessels, average day rates and the utilization for active fleet in Med should remain relatively stable trough the September quarter. Overall, active vessels and active vessel utilization in the Europe Mediterranean Sea segment should also be relatively stable in the September quarter relative to the June quarter. Average day rates are expected to be up plus or minus about 5% quarter-to-quarter and vessel revenues should be flat to up modestly in the September quarter relative to the June quarter with the benefit of the higher average day rates in the North Sea, somewhat offset by modest and lower average day rates and scheduled payers in regards to vessels operating in the Med.
Moving to our operations in West Africa, utilization at approximately 80% in the June quarter was up almost 7 percentage points quarter-to-quarter. But average rates at approximately $9,000 per day were down approximately 5% quarter-to-quarter. Vessel revenue for the West African segment was up a couple of million dollars quarter-to-quarter, largely reflecting relative stability in Angola and modest improvement in average day rates in Nigeria and an up-tick in vessel utilization for operations in and around the Gulf of Guinea.
As to the outlook, we should see more of the same in September quarter. In particular, vessel revenue that we have generated along the African Coast is expected to be flat in the September quarter relative to the June quarter. Active vessel utilization maybe up a bit quarter-to-quarter, particularly in Nigeria, but somewhat counter-intuitively term rates remain modestly lower than spot rates to spot a general sense that the West African OSV market is tightening. As a result in the near-term upside or downside in vessel revenue from our Africa operations will likely be driven by better or worse than expected utilization and our average day rates on the vessels working to spot market along the African Coast excluding Angola and Nigeria which are generally term markets for Tidewater.
As to the catalyst for a movement in term rates in Africa and elsewhere, historically rates move once customers have difficult in securing on a prompt basis, an acceptable vessel that is current with regulatory certifications. Once that begins to happen, it is possible that term rates could move up very quickly. For the Middle East Asia-Pac segment, which is primarily driven by our Middle East operations, investment revenue in the June quarter was up approximately $4 million quarter-to-quarter due in large part to a number of our towing supply vessels returning to work following dry dockings as was discussed last quarter. Active utilization at 81% was up almost 20 percentage points quarter-to-quarter and average day rates at approximately 7,600 per day were down approximately 6% quarter-to-quarter. Somewhat similar to the story in Mexico, we expect a relatively stable active fleet in the Middle East and relatively high utilization, but average day rates have remained under pressure given the large influx of equipment relocating from the Asian markets into the Middle East in the last number of quarters. Based on known and expected contracts, vessel revenue should be flat to down a couple of million dollars in the September quarter with the upside largely tied to shorter term construction-related contracts. Our vessel count activity in average day dates in Southeast Asia, have remained relatively flat and we expect that to be the case for the rest of 2018.
While we continue to feel the market has stabilized and we maybe experience beginning of a slow recovery, our commitment to expense management has not changed. G&A remained below our quarterly target of $25 million and G&A excluding stock-based compensation expense of $3.3 million and professional service expense related to the proposed combinations with GulfMark of $1.5 million was less than $20 million in the June quarter. Since our financial reorganization was completed last year, our focus remains on streamlining our operations and rationalizing our shore-based footprint, all while remaining dedicated providing a safe environment for our employees, high-quality service to our clients around the world and of course best position in the company to capitalize on an OSV market recovery.
Our recently announced agreement to combine with GulfMark is intending to accelerate our progress towards these goals. The combined company’s fleet would provide enhanced access for customers to moderate high specification vessels, while maintaining a strong commitment to safe operations and superior cost effective customer service. As we highlighted at the time of the GulfMark merger announcement, the combined company will have the largest OSV fleet in the world, with strengths in key markets that we think will be attracted to shareholders of both companies. The combined company will have skill positions in the Americas regions, which covers operations from Canada North to Brazil in the South, the North Sea, the Med, West Africa and the Middle East.
Importantly, Tidewater’s global operating footprint also presents possible opportunities for improved utilization by redeploying elements of GulfMark’s America based fleet. We understand the scale matters in this market and we remain focused on ensuring that our fleet is best suited to support the needs of our customers. We are confident that the combination of Tidewater and GulfMark will benefit all stakeholders, including employees, customers and shareholders. As the industry recovers, we also need to maintain our focus on efficiency and agility and the proposed combination with GulfMark supports that goal.
As we have reported for the past several quarters, rationalizing our fleet is an ongoing process and we continue to make progress with dispositions. We expect this process to continue at a combined Tidewater GulfMark. In particular, Tidewater has disposed 25 vessels year-to-date, 16 of which were sold as scrap and additional 13 Tidewater vessels are in the process of being sold. In the last 5 years, the company is exposed of 161 vessels, 57 of which were sold as scrap. Our operations team remains focused on ensuring we are prepared to reactivate additional vessels from our stacked fleet as market conditions support.
As you will hear from Quinn, we continue to maintain our strong financial position, which will enable us to fund these reactivations with existing and available cash. It is worth pointing out that we structured the GulfMark acquisition to preserve our strong balance sheet, enabling the combined company to strategically consider both organic and inorganic growth opportunities in the future. We continue to feel that our strong liquidity position, increased scale and diversification across the Geo markets will be a competitive advantage for Tidewater. As noted at the beginning of my remarks, access to capital for many vessel owners remains quite limited in the current environment. That should not be the case for Tidewater or Tidewater combined GulfMark.
And now, I will turn the call over to Quinn to cover our financial performance during the just completed June quarter.
Thank you, John. Good morning everyone. As was highlighted in our earnings press release and 10-Q concurrent with the completion of our financial restructuring, the company adopted fresh start accounting and will continue to report its financial position and results of operations through July 31, 2017. As predecessor activities, we will report our financial position results of operation subsequent to July 31, 2017 as successor activities. I will also call your attention to the financial tables included in last evening’s press release. Financial results, balance sheet data with selective operating statistics are presented covering five quarters or equivalent periods straddling both predecessor and successor activities. Similarly, operating and financial detail is presented by asset class and based on our core geography based reporting segments. We have also included consolidated EBITDA as a non-GAAP performance and liquidity measure as well as reconciliations to the most directly comparable to GAAP financial measures.
Now turning to our financial results for the quarter, as John noted operating results improved quarter-over-quarter, primarily due to better utilization of the active fleet which at 81% was up approximately 11% quarter-over-quarter. The improvement in active utilization was most pronounced the Americas segment driven by New Work and Eastern Canada and in the Europe, Mediterranean Sea segment driven by the seasonal pickup in activity in the North Sea. Better active vessel utilization in the Middle East, the Med and West Africa also reflects vessels returning to work following schedule dry dockings during the March quarter. Average day rates at approximately $10,000 per day were basically flat quarter-over-quarter with some of the positive trends in leading edge day rates offset by lower term rates in select markets, most notably in Mexico and Saudi Arabia and to a lesser extent along the African coast.
With that context, we reported a net loss for the three months ended June 30, 2018 of $10.9 million or $0.44 per common share. The net loss includes $1.2 million or $0.05 cents per share and non-cash asset impairments that resulted from impairment reviews undertaken during the just completed quarter. After impairments recognized in the June quarter were related two vessels that were stacked as of June 30 and at least in my view do not suggest of a lot of negative trend in the secondhand vessel values. In fact, the secondhand vessel market has become more active in recent months and pricing seems to be moving in a generally positive direction.
Financial results for the June quarter also reflects $6.8 million or $0.27 per common share of foreign exchange losses, $5.8 million or $0.23 per common share of which is included in equity and net losses of unconsolidated companies was related to our Angolan joint venture. As noted in our press release also included in equity and net losses of unconsolidated companies was a gain of $4.9 million or $0.20 per share representing dividends received from Sonatide of $12.3 million which exceeded the company’s pre-dividend investment balance of $7.3 million at quarter end. Given the fact the dividend received at June 30, we carried our equity investment in Sonatide at zero. Our due from Sonatide net of due to Sonatide was approximately $106 million at June 30 or down approximately $24 million since March 31, largely reflecting USD collections in excess of Angola related revenue during the quarter. Also note that at June 30, we have included amounts due from and due to our Nigerian joint venture DTDW of approximately $44 million and approximately $16 million respectively in the due from and due to balances on the face of our balance sheet.
The net due from DTDW have amounts due to DTDW was approximately $29 million at June 30 and was up approximately $3 million quarter-over-quarter. At present, we do not have the same USD liquidity issues in Nigeria that we have experienced in Angola in recent years. The net due from DTDW is also expected to be relatively stable in near-term, if not trend down in the second half of 2018. Also noted in our earnings press release was an updated mix of common shares and Jones Act warrants outstanding, which reflects continued progress in the conversion of Jones Act warrants into common shares.
As discussed on our last earnings conference call, we consider the Jones Act warrants each of which is exercisable to acquire a share of common stock at a price of $0.01 to be the economic equivalent to common shares. As of June 30, the sum of outstanding common shares in Jones Act warrants was $30 million. I call this to your attention in part the highlight that the reported loss per share is based on weighted average common shares outstanding of $24.7 million – of which was $5.3 million Jones Act warrants due to U.S. citizenship restrictions on exercising such warrants.
Returning to operating results, vessel revenue and vessel operating margin for the quarter ended June 30 was $104.2 million and $36.2 million respectively. As a percentage of vessel revenue, vessel operating margin for the quarter was approximately 35%. Vessel operating margin was up approximately $10 million quarter-over-quarter and vessel operating margin as a percentage of vessel revenue improved by approximately 5 percentage points quarter-over-quarter.
As John noted, consolidated EBITDA for the 3 months ended June 30, 2018 was $16.2 million. EBITDA on the June quarter excludes $1.2 million in asset impairment charges, but includes $3.2 million of stock-based compensation expense, $6.8 million of foreign exchange losses, $1.5 million of professional services costs related to our proposed combination with GulfMark, and finally $4.9 million of Sonatide related dividend income. For comparison purposes, consolidated EBITDA of the 3 months ended March 31, 2018 was a negative $9.9 million. EBITDA in the March quarter excludes $6.2 million in asset impairment charges, but includes $3 million of stock-based compensation expense and $15.2 million of foreign exchange losses. Tables reconciling EBITDA to our net loss and cash provided by or used in operating activities were on Page 26 of our press release.
Looking at the fleet, the average number of vessels in our fleet for the June quarter was 205 vessels, which is down 12 vessels from the average number of vessels for the 3 month period ended March 31, 2018. Average active vessels in the June quarter were 141 vessels, which is up 3 vessels quarter-over-quarter. The stacked fleet at quarter end was 66 vessels or down 4 vessels quarter-over-quarter reflecting 3 vessel dispositions, 1 newly stacked vessel and two vessel reactivations. We maintained the view that sustained improvement in day rates will require higher industry-wide utilization. With utilization improving in several markets with seasonally higher activity levels, rates have the potential to move higher, particularly given the number of currently inactive vessels that are still current with relevant class certifications and that are otherwise available to work on a prompt basis.
In regards to the quarter end balance sheet, as mentioned on our last earnings conference call and again at the top of my remarks today, balance sheet values as of June 30 reflect the de-levering associated with our plan of reorganization, emergence consideration paid in connection with the plan, and fresh start accounting adjustments. With $464 million of cash, net debt at June 30 was negative $20 million and net working capital excluding cash was approximately $170 million. Cash provided by operating activities during the 6 month period ended June 30 was $17 million. Investing activities generated approximately $7 million of cash during the 6 month period ended June 30 as year-to-date disposition proceeds exceeded additions to property and equipment. Financing activities used approximately $13 million of cash and primarily reflects cash paid to creditors during the March quarter pursuant to our now completed financial restructuring.
As noted on previous earnings conference calls, we have no significant debt maturities until 2022. At June 30, we had unfunded capital commitments of approximately $2 million, which we are satisfied with the delivery of our final vessel under construction, a 5,400 deadweight ton deepwater PSV on July 31. Looking at long-term assets, net properties and equipment, which primarily reflects the carrying value of 204 ships owned at June 30 was $787 million which equates to approximately $4.6 million per active ship and approximately $2.2 million per a stack ship. With additional data points I will further note that on average the carrying value of our 41 deepwater PSVs with cargo carrying capacity about 3,800 deadweight tons is approximately $8.6 million per vessel. 21 of those 41 vessels are less than 5 years old and have an average carrying value of approximately $9.5 million.
On average, the carrying value of our 66 5,500 to 10,000 brake horsepower AHTS vessels was approximately $2.2 million. 44 of those 66 vessels are less than 10 years old and at June 30 at an average carrying value of approximately $2.5 million. In sum, our leverage is low, our liquidity position is strong, our assets are carried in aggregate value we believe to be significantly less than both replacement costs and current market values and we are generating both positive EBITDA and cash from operating activities. Shareholders equity at June 30 was approximately $1 billion or approximately $32.50 per common share and Jones Act related warrants outstanding. Based on our closing price last evening of $31.57, we currently trade at the modest discount for our standalone book equity, which obviously catches none of the value and we believe – that we believe can be secured through our proposed combination with GulfMark.
And with that I will turn the call back over to John.
Thanks Quinn. As I have mentioned we are encouraged by signs of the market recovery with improving commodity prices which are reflected in new contract awards and increased optimism that we are hearing from our customers. While these are positive indicators, we continue to look at 2019 and beyond for significant improvements in demand and further rationalization of the global OSV fleet to sport higher utilization and average day rates. We have taken several steps including reducing cost and most recently announcing our plans to combine with GulfMark in order to better position the combined company for an industry recovery that seem to be slowly getting some traction or ensuring that we have the right balance sheet and the right global operating footprint such that we can both weather the inevitable down markets of the energy service industry and also prosper during equally inevitable stronger markets.
Our near-term objectives continue to be focused on maintaining our strengths, competitively fleet, global operating footprint and competitive cost structure and the financial profile that is characterized by low leverage and a strong liquidity position. I am confident that the combination with GulfMark will build on these strengths and our teams will be working together over the coming months to formalize plans to integrate the companies to quickly and fully realize the expected synergies and to create significant long-term value for our respective shareholders.
Thank you for joining us on the call today. And Paulette, we can now open the line for questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Turner Holm from Clarksons Platou. Please go ahead.
Hey, good morning gentlemen.
How are you doing?
Yes. I am doing well. So John you talked about in your prepared remarks day rates that historically have been driven by the prompt availability of vessels and as I look at the quarters numbers, active utilization jumping up to 81% which is I guess the highest it’s been since 2014, do you think that you are getting close to being able to pull that lever on higher day rates, is that 80% kind of a fair measure of what your prompt availability is, is that a fair proxy for the industry, how do you kind of look at it from that perspective?
I think yes or no, I think it depends on what market we are in. They are all different, so it’s about globally you cannot have one answer. So I think we do see some tightness in certain of our geo-markets, others still have excess capacity like we mentioned in our prepared remarks in the Middle East with the influx of the Asian tonnage and the Asian market is woefully oversupplied. So we think we do have some potential pricing power in certain of our markets as there is utilization and prompt availability just where it needs to be.
I think another point, Turner, is financial distress amongst a lot of our competitors provides a semi-perverse incentive for them to take term rates that may even be below spot rates despite the fact that we think that the market is trending in the right direction. So, obviously, if consensus view as rates are going up, there is limited incentive, unless it’s a customer relationship driven issue to lock in rates if we are going to be better tomorrow, but that’s what we are seeing today and I think one of the factors that drives that is that some of our competitors are more focused on debt service than they are on value creation.
Okay. Thanks for that, Quinn. You also touched on something I thought was interesting in the prepared remarks, do you think that the underlying asset value in Tidewater is probably higher than what it probably looks? Is there some way you frame that, you mentioned about different classes of vessels and where they are on your books and we compare that to an asset transaction that’s out there or is there any way you can kind of get a context for where you think your secondhand market value of the assets is compared to where it’s in the books?
Well, again, I think the second and vessel market is moving in the right direction both in regards to depth and pricing. I did try and provide at least a couple of examples that I thought you and people like you could translate into where we carry vessels relative to the current market value. As example I mentioned the relatively new deepwater PSVs of what I think most people whether it’s 3,800 or 4,000 deadweight ton, I think people would say that, that is kind of the most desirous equipment, particularly in a market that is expected to trend up in terms of drilling activity, but we are obviously carrying that at $9.5 million. And my sense is that secondhand vessel values while it’s still significantly below new construction pricing is probably in the high-teens to low 20s, so probably 2x of what we are carrying those vessels at on average. Obviously, like its lost in the average, but I would point you to the examples I provide in my prepared remarks to give you a sense of where we carry a ship versus where it’s valued at and obviously we occasionally decide to scrap or sell into a non-class market, one of our stacked vessels, but if you look at the average carrying value of our kind of Chevy-Tahoe-type AHTS vessels, a couple of million dollars clearly in the secondhand vessel market for a vessel that can support jack-ups should be 2x or 3x and that’s a significant premium. Sorry, Paulette go ahead.
And our next question comes from Ceki Medina from Southpaw Asset. Please go ahead.
Hello, Ceki.
Good morning. Thank you very much. Hi there and good quarter. Congratulations.
Thank you.
A few questions on my end. One, do you see a difference between the UK and the Norwegian markets?
Yes, we do. I think it’s the Norwegian market is a little tighter band of providers on the equipment in the UK sector tends to garner the most capacity, so I think it tends to be a little more oversupplied. Of course, you have got one key customer, Norway, who has changed their contracting strategy from historically a term contract method to go in on spot. So, yes – and it’s also that Norway is little higher cost in the UK.
Got it. Okay. And Quinn was just talking about the value of the vessels, can you give some color of any activity you are seeing in the AMD market for vessels, do you see more transactions, do you see more interest, any buyer or seller at the type of color will be great?
Yes, I couldn’t give you individual examples in terms of who is buying other than what you see in the public obviously standard did a couple of transactions and we have spent onesies and twosies elsewhere, but we are active participants generally from a disposition perspective sort of trends in the secondhand vessel market are obviously relevant to us, but we certainly hear the chatter around the value around North Sea in terms of where people are prepared to transact. I think we saw high-teen deepwater PSV transactions that we have some specific familiarity with and we are aware of the fact that there has to be some operational that’s probably a couple of million dollar incremental investment, so that is a data point that I believe has a deepwater PSV of the U.S. market with the two handle on it. I think transaction – one of that got done a couple months ago is somewhat abhorrent and kudos to Todd Hornbeck because I think the value that they have got for what they paid was a very good transaction. But I don’t think that’s what the market is today.
Our next question comes from Joe Gibney from Capital One. Please go ahead.
Thanks. Good morning guys.
Good morning.
Good morning. I had just a question regionally, I appreciate all the forward regional view and color you provided. Was this kind of maybe some of that up a little bit on a quarter-over-quarter basis to go a worldwide fleet, so Americas are down a little bit with the Mexico term rates, you referenced your Med flat to up, Africa flat, Asia-Pac maybe flat to down, is sort of the net of that average utilization is slightly higher quarter-over-quarter, rates slightly lower and vessel revenues generally flat, I am just trying to ascertain sort of where you are triangulating for your quarter-over-quarter view on a worldwide basis?
It’s an excellent question and the reason we didn’t give a consolidated view on revenue or otherwise is that there are still a couple of moving pieces and I have tried to or John tried to pulling out, I should say that there are markets where we see a trend and we would point to Saudi and Mexico not necessarily from a demand perspective or from a utilization perspective, but from a rate perspective is trending negatively. So that will be a negative quarter-to-quarter and all things being equal that we have taken consolidated vessel revenue down a couple of million bucks per market. On the other hand you have got positive momentum it seems in rates in the North Sea and at least we see a relatively good market from a supply-demand dynamic perspective on the African Coast. I guess I would say the quarter-over-quarter on a consolidated basis would be flat to down, but very modestly, so with the ability to be flat to modestly up depending upon rates in the North Sea utilization and rates along the African Coast and there is a couple of specific projects that were involved where they could get extended based on customer’s drilling results. So I guess our perspective is what we know today that kind of known, unknowns that we know today give us a modest bias to a negative quarter-over-quarter revenue trend, but we can certainly point to three or four items that could result in that being a flat to modestly up. It’s not going to be dramatically up or dramatically down is our view and because we do have pretty good visibility on our contract cover through the end of the year and we also have pretty decent visibility on projects that were kind of around water cooler [ph].
Okay, understood. Any maybe just a little more color and thoughts around Mexico, some of the moving dynamics there as it pertain to thinking about the Americans maybe seasonally Gulf of Mexico maybe tightening off a little bit as we get into 3Q, but maybe help us understand some of the moving pieces on Mexico and what maybe is required to get that market moving outside of tendering pickup on the deepwater side that we are all certainly waiting for, just give us some perspective there, I appreciate it?
Thank you, Joe. We need to the IOC to get active. It’s really going to be the changer down there. Pemex re-tendered for a big chunk of their fleet. And given the condition around the world and the OSV market those rates were down, hence our guidance on the lower revenue side for Mexico. But I think again, strong commodity price backdrop also helps Pemex in their budgeting process as well as we see the IOCs move-in and start to drill the deepwater wells. I think it’s at kind of both at the combination of both that’s going to help to get that a little more healthy.
Yes. The political situation in Mexico has obviously changed for the last couple of months which is probably good news, bad news story in some regards, but Pemex has probably got a stronger hand with a more leftist government. But at least we are saying the right things in terms of the long-term commitment to deepwater drilling and IOC participation, but that hasn’t materialized and we hope it will. But actually other than the re-tendering exercise the impact of pricing, it’s good to see that Pemex seem to have budget authorization through year end and certainly with leftist government Pemex is probably going to be in a better position than they would have with the rightist government, so at least from the Chief CPU that we have.
And we are showing no further questions. I will now turn the call back to Jason Stanley for closing remarks.
Thank you, Paulette. Thanks again everybody for your time and interest in Tidewater. This will conclude today’s earnings conference call for second quarter. Thank you.
Thank you. Ladies and gentlemen, this concludes today’s conference. Thank you for participating and you may now disconnect.