1998 FIRST QUARTER REPORT May 4, 1998

To Our Shareholders:

In recent years only 15% - 18% of annual revenues were realized in the first quarter due to a number of factors: (i) harsh winter weather conditions, (ii) customer inactivity due to annual budgeting and bid package preparation, (iii) our offshore hands off to the mountains and seashores resting up after a long busy season, and (iv) CDI scheduling regulatory inspections and preventive maintenance programs while the boats are at the dock. To minimize the impact of these factors, we began operating a fleet of DP vessels and expanded into the acquisition of mature offshore oil and gas properties. Everything came together in the first quarter of 1998 as there were a number of subsea construction projects available and CDI demonstrated its belief that dynamically positioned vessels can effectively operate in the winter months by taking the weather risk on certain turnkey jobs. As a result, the number of days worked by the DP fleet were higher than in any quarter of 1997.

Financial Highlights

Net income of $5.2 million in historically our slowest quarter exceeds what CDI earned in any quarter of the prior two years and was almost three times the net income reported in the first quarter last year.

First Quarter
1998 1997 Increase
Revenues $33,157,000 $18,444,000 80%
Net Income 5,243,000 1,885,000 178%
Diluted Earnings Per Share 0.35 0.17 106%


  • Revenues: Increased by $14.7 million with the improvement generated by the Uncle John (which spent half of the first quarter of 1997 completing the installation of its derrick), new assets (the Marianos charter and the Merlin for one month) and the two 4-Point saturation vessels, offsetting a slight decline in oil and gas revenues.
  • SG&A: Represented 8.6% of first quarter revenues in contrast to 12.0% last year. This 3.4% improvement in operating margins was accomplished even though SG&A of $2.8 million increased $600,000 or 28% over prior year levels due to across the board wage increases and to the hiring of expensive technical personnel for the Deepwater services group.
  • EPS: The 106% increase in diluted EPS does not track with the net income improvement due to the additional shares issued in the IPO as the funds generated by that offering have been invested in assets (i.e., Sea Sorceress, Merlin and Aquatica) that are expected to contribute appreciable earnings in the future. That said, we had $12 million of cash on hand and no debt at the end of April so our expansion powder remains dry.
  • Accounting Change: Effective January 1, 1998, CDI adopted the industry wide practice of amortizing drydock related expenditures over the 30 month period until the next required regulatory inspection. This change to a preferable accounting policy added approximately 3% to first quarter gross margins and $800,000 or $0.05 per share to first quarter results.


Operational Highlights

  • Market Drivers: Overall vessel utilization was 574 days in the first quarter in contrast to 428 days last year. This level of activity, while running completely counter to falling worldwide oil prices, reflects strength in the three primary drivers of our business: (i) customers exposed the highest level of dollars per block in history at the central Gulf of Mexico lease sale in March, (ii) the offshore mobile rig count continues to run at full practical capacity, averaging 170 units throughout the quarter, and (iii) natural gas prices remained strong in the $2.00 - $2.50/mcf range.
  • Witch Queen: The vessel performed extremely well on a complicated turnkey project for Forcenergy which involved setting risers, installing hot taps and tying in six High Island pipelines. CDI took the weather risk and the vessel responded by working effectively through 12 to 14 foot seas.
  • Uncle John: Enron engaged CDI to conduct a subsea abandonment of a gas well which had 3500 psi shut-in tubing pressure. The scope of this turnkey project involved the abandonment of the subsea tree and production flow line to the host platform in accordance with Minerals Management Service regulations. Alliance partners played a significant role in this endeavor: Coflexip provided supervisory personnel from the Stena Seawell to oversee the subsea well intervention and Schlumberger provided cementing and down hole wireline services. The Uncle John retrieved a subsea tree to the vessel deck, a Gulf of Mexico first, in a cost effective project accomplished in lieu of using a conventional drilling rig.
  • Traditional Subsea Services: Rough seas resulted in a barge dragging anchors through a number of Gulf pipelines. This generated a significant amount of good margin, emergency response repair work for our two 4-Point saturation vessels, the Cal Diver I and II. Shallow water demand also remained strong in the first quarter. For example, General Diving operations (whereby CDI provides diver/tender teams to work off of platforms and/or third party vessels) generated revenues of $1.5 million in contrast to $500,000 in the same period of last year.
  • Salvage Operations: Since the Cal Diver Barge I is our most weather sensitive vessel, there was little utilization the first quarter of either year. Energy Resource Technology delivered Q1 bottom line results spot on the 1998 Business Plan. However, oil and gas revenues declined $1 million from year ago levels when natural gas prices averaged almost $3.00/mcf in contrast to $2.17 this year.
  • Management Transition: As we move to the end of a three year management succession plan this is the last report to shareholders which will be signed by the three of us. Exactly eight years ago we organized an effort to acquire Cal Dive, hoping most of all to save our jobs and those of some loyal and longtime Cal Dive employees in Morgan City. Jerry's steady hand at the rudder helped guide us through the rough waters of the early years, particularly 1992, and put CDI in a position to implement Owen's Deepwater strategy. Jerry is ready to retire and Owen is poised to lead CDI into the unchartered deepwater Gulf, so the baton gets passed in May. Jerry's one remaining goal relative to Cal Dive is to look back three years from now and see a stronger and much larger company, an outcome we all believe CDI is positioned to achieve.


Respectfully Submitted,

Gerald G. Reuhl
Chairman		 Owen E. Kratz
Chief Executive Officer		 S. James Nelson, Jr.
Executive Vice President

Forward looking statements and assumptions in this report and press release that are not statements of historical fact involve risks and assumptions that could cause actual results to vary materially from those predicted, including among other things, unexpected delays and operational issues associated with turnkey projects, the price of crude oil and natural gas, weather conditions in offshore markets, change in site conditions, and capital expenditures by customers. The Company strongly encourages readers to note that some or all of the assumptions upon which such forward looking statements are based are beyond the Company's ability to control or estimate precisely and may in some cases be subject to rapid and material change.