TWST: Could we start out with a history and overview of Cal Dive?

Mr. Kratz: The original Cal Dive of the 1960s, through mergers and acquisitions, became what is today Oceaneering. In 1980 the management separated from Oceaneering and re-formed Cal Dive. Cal Dive was sold to a Minnesota gas utility company, Diversified Energy, in 1983. The current management came into leadership around 1987/1988. Current management lead an 11-to-1 LBO in 1990 to acquire the company (from Diversified Energy). Merrill Lynch was our financial partner at the time, providing all of the holding a 45% equity position. We bought Merrill Lynch out in 1993, and then sold 50% of the company to First Reserve Corporation in 1995, to raise the capital to launch our deepwater program. From there, we bought the Balmoral Sea, Witch Queen and the Uncle John, the first DP vessels in the Gulf of Mexico. Cal Dive went public in 1997, further expanding. I think that pretty much brings us up to date.

TWST: How would you describe the business today?

Mr. Kratz: Cal Dive is a very unique contractor. I would characterize us as a niche contractor in the oil and gas industry. We have three primary segments. One is the man diving in shallower waters, the outer- continental shelf construction work. Second, we have the deepwater program, which starts off with our core capability of construction, along with the current building of a strong well intervention completions team for deepwater. The third leg is something very unique to Cal Dive, which is ERT, our production company.

TWST: How does the business break down among the three parts?

Mr. Kratz: It varies, depending on where we are in the industry's cycle. We got into producing by way of our abandonment services in 1988. Cal Dive is an abandonment contractor in the shallower waters, the OCS. We take leases, instead of contracting for the abandonment of the marginal fields, or sunset properties, on a turnkey basis.

Mr. Pursell (CFO): This year, projections show each of those three segments contributing close to one-third of Cal Dive's total revenues with the deepwater segment outpacing the other two beginning in 2002.

TWST: Typically, who are the customers who you service?

Mr. Kratz: On the production side, most of our deals have been with the majors. On the deepwater contracting, it is both with the majors for life-of-field type services, and then primarily with other contractors in support of EPIC construction development work. On the continental shelf over the past few years, we have evolved to being more of a general contractor, working directly for the producers.

TWST: Do you have competition in these businesses.

Mr. Kratz: Throughout our history, Cal Dive has a track record of innovation. We are constantly forward-looking at client needs for market niches that are unoccupied. We then acquire assets that derive their base utilization from niches we are currently in, but also have the capability to move into those new niches. As a result, in our core work we, of course, have competition, but often we are cutting new ground into new areas. For instance, on well intervention in deepwater, right now we stand basically unopposed. Cal Dive is the solution in deepwater. The Uncle John, for instance, is the only vessel of its kind in the Gulf of Mexico, and the Q4000 is certainly a revolutionary new vessel. But to get more to your point, among the contractors that compete in the Gulf of Mexico, Stolt Comex is probably our prime competitor.

TWST: How big is this market?

Mr. Kratz: The forecast certainly has the fundamentals showing to be stronger than perhaps ever in our history. It is estimated that $15-$18 billion will be spent developing just the deepwater Gulf in the years 2001-2004. I think over the last couple of decades, though, there's been a great loss of infrastructure in our industry that's going to take time to rebuild before we fully see the demand for our services . That spells good things for us. For example, since 1982 personnel in the industry have dropped from 700,000 down to something like 300,000. So there's been a huge loss of people. That takes time to rebuild. Additionally, the sector's assets were primarily all built in the 1970s and early 1980s. With the new dynamics in ultra-deepwater, a new class of assets is required. We're now building the Q4000, but there's going to have to be others. Right now, you have over 140 discoveries in the Gulf of Mexico that exist and that are undeveloped. It's a huge backlog. Some factors that are holding them up coming into production include technology that is just now coming to the forefront to be able to go into the deepwaters. The capital reinvestment rate of the producers is still historically low, and just now starting to tick upwards. Wall Street is expecting a higher return on capital for producers today, and therefore the capital allocation has been going more toward stock repurchasing and balance sheet repair. The last five years has seen a tremendous amount of merger activity among the producers, and that's created a certain stagnation on projects. The commodity price is coming off of a period where there was a lot of doom and gloom. There is still a lot of uncertainty about whether or not it's going to remain high, and that's caused a lot of delay. So I think the ramp-up, in our view, is not going to be the hockey stick traditionally seen in our industry, but more of a slow, progressive build-up over the next three to four years.

TWST: But doesn't that give you time to adjust and be ready for it?

Mr. Kratz: Oh, I think it's a very good thing for Cal Dive. We're a relatively small contractor with big aspirations. So the slower the build-up, the better for us.

TWST: What are the plans for the next couple of years in terms of getting ready to meet these needs?

Mr. Kratz: Obviously, our focus on deepwater is where the greatest growth potential is expected. But we also don't want to forget our core business. As others are turning their back on the shelf, we're actually expanding our presence there. Abandonment, right now, may be a little slow because of the higher commodity prices, but we do expect that to reverse, and it will be an avalanche of backlogged work. So we are going to be focusing on maintaining our position in the shallower waters. In the deepwater, I think we have some clear goals. Number one, we want to be a life-of-field contractor. It's the less-cyclical and the longer- duration work in the deepwater. When you look at life-of-field, you're talking about well intervention. It's our aspiration with our new assets to not only be a leading construction contractor, but also focus on well intervention and completion. Right now the industry is going into a big development construction phase. Most of that contracting is done on an EPIC basis. We don't view ourselves as an EPIC-style contractor. We are a supporting contractor of other construction contractors, as well as uniquely participating in support of drilling.

TWST: Now, define 'EPIC' for us.

Mr. Kratz: EPIC stands for Engineering, Procurement, Installation and Commissioning. A contractor takes greater responsibility for the design and engineering of development projects. We are not an engineering house, and we don't wish to expose our balance sheet to taking on the risks involved with projects of that magnitude. So as a result, our participation in this current development phase will be more of what we call a contractor's contractor ' providing support to the larger contractors that don't have the available assets in the Gulf of Mexico, or, more often, when Cal Dive is the cost-effective solution.

TWST: Are there opportunities beyond the Gulf, or is that where you're going to really concentrate your attentions?

Mr. Kratz: Our view four years ago was that geographic expansion is three-dimensional, not two-dimensional. We were going to develop the deepwater methodologies first before going global. The reason for that is if we were to expand globally right now, we would just have to steal market share, which I think is a very low-margin way to grow. By developing the new methodologies in the ultra-deep, where the Gulf of Mexico is becoming the leader, we'll then have a differentiated product line to then seek global expansion. That next step is actually coming a lot faster than we anticipated. With what we've done in the Gulf of Mexico to date, people are starting to solicit our involvement, both in West Africa and Brazil. So with the Q4000, I think you could see that develop very rapidly into a global strategy.

TWST: You've mentioned the Q4000. Is that a new vessel that you're putting together?

Mr. Kratz: Yes. It's a $150,000,000 dynamically-positioned semi- submersible. Very similar to the Uncle John, which is the premier construction vessel in the Gulf of Mexico, yet on a much larger scale. It's the first vessel that's specifically been designed to do well intervention as well as construction work in a full 10,000-foot water depth.

TWST: Nobody else has that capability?

Mr. Kratz: Not right now. You have seen Coflexip with the Deep Blue, they're coming out at the same time, but that vessel is primarily for pipe lay, whereas our vessel concentrates more on completion and well intervention work. Then you have Saibos, with their field development vessel, which again, is primarily a pipe lay asset. So, right now we're running alone. Prior to the downturn that we've been in the last two years, there were a lot of concepts on the board. We were the ones that pulled the trigger and began construction. Everyone else pulled back, so I'd say that's allowed us to have at least a two-year head start here. In addition to that advantage, Cal Dive has operated the Uncle John with well intervention capability for the past four years as essentially a trial horse. What we have learned in that time is invaluable. I might mention this: the Q4000 is being built in Brownsville, Texas, under a US flag, which is probably unique for a vessel of her type. She is due for delivery in July and we plan to have her working by the fourth quarter. We will be earning revenues starting in the fourth quarter. The capital budget was $150 million ' it was that four years ago, and thank goodness it's still that today.

TWST: Any additions on the boards for construction?

Mr. Kratz: We currently have the Sea Sorceress, which is another vessel, in the Bender shipyard in Alabama, undergoing conversion to full DP. Up until now we've had the Uncle John, a semi-submersible, working with the Witch Queen, a monohull, which is a very good tandem. When you view the Q4000 coming out as a new semi-submersible, the Sea Sorceress is a 380- foot long, 110-foot wide monohull, so it will make a great tandem workhorse along with the Q4000.

TWST: If we put all this together, what kind of growth should you be able to generate over the next two or three years?

Mr. Pursell: What we're looking at right now, and where the analyst consensus is, is close to $1.00 per share this year. Next year, we're showing about $1.50 with the increase coming from the addition of the Q4000 and Sea Sorceress for the full year. The following year, 2003, the analysts have us up to $2.50, and some a little higher than that, primarily because of production from the Gunnison prospect coming online which we should spend a little time talking about.

TWST: Since that's coming on, what is that about?

Mr. Kratz: The concept that we developed with ERT, our production company in the shallow water, was to take production equity positions when there is associated contracting work. We wanted to try to apply that concept as an enabler to derive contracting work in the deepwater. We took the concept to a select number of clients that if we could combine interests by being an equity partner in the reservoir, the common interest would then be to maximize the value of the reservoir and avoid the traditional adversarial relationship. The producer could then feel confident about giving us the contracting work. Kerr-McGee allowed us to do this. We took a 20% working interest in a 3,000-foot water depth project with them called Gunnison. In return, we get the contracting work for a major portion of the development work. It was a tremendous success. The estimated net income from the production in its first full year of producing is estimated to be around $40 million. So that's a huge influx of growth capital for Cal Dive. You can see it also gives us sort of an in-house financing means to consider future additions to the Q4000-type fleet.

TWST: So a new approach seems to be working.

Mr. Kratz: Yes. It also gives us a degree of confidence about the Q4000 being profitable as soon as she comes out, because all of the Gunnison work becomes a natural backlog for the vessel.

TWST: Are there other projects like that available to you?

Mr. Kratz: When we went into it, we certainly tried to set it up as a repeatable model. Cal Dive doesn't take exploration risks. We formed a limited partnership to fund the exploration side of the cost, while shielding shareholders from exploration risk. Cal Dive only steps in once the reserves are proven, and there's a known development cost. Out of the proceeds that the exploration partnership gets, there's a 15% set-aside of those revenues to be used by ERT again in pursuing other exploration opportunities like this, but providing shielding for the Cal Dive shareholders. We certainly do see it as a repeatable model. Personally, I think if we could do one of these about every other year ' well, you can take the $40 million in net income and extrapolate what the results would be, because it's cumulative.

TWST: It would be interesting.

Mr. Kratz: Yes. We're looking forward to it. And certainly, with what we've done on Gunnison, it's created a lot of attention, and we have a number of producers that are talking to us.

TWST: Do you have any interest in growing through acquisition at all, or are you just happy doing what you're doing at this point?

Mr. Kratz: I think it's a rare day that one plus one ever equals three, much less two. So our preference for growth is organic. I think that's what we've shown to be best at. There are benefits to a strategic acquisition right now, but it would have to be the right one at the right price. The benefits would include a larger balance sheet which would expose us to a broader range of project opportunities, and it would also allow us to maybe accelerate our growth plans to better capitalize on current opportunities.

TWST: Are there some businesses you would like to be in that you're not in today?

Mr. Kratz: I think eventually we need in-house robotic capability. We have minimal capability right now. That would be one area. Other than that, I think we've got a pretty nice toy box right now.

TWST: You mentioned the balance sheet a couple of times. What does it look like today?

Mr. Pursell: We're presently at about $350 million total assets, with a couple hundred million of shareholders' equity. We only have $40 million of debt outstanding right now. Regarding the Q4000, part of the advantage of building it here in the United States is that we were able to get very favorable financing through the Title XI Program of the Maritime Administration (MARAD), such that we have a commitment from MARAD to finance 87.5% of its total cost over 25 years at very favorable rates, which are presently in the 6.5% range. To date, we've spent over $100 million on the construction cost of the vessel, and we've only drawn down $40 million of the debt available, and we presently have more than that in cash on our balance sheet. So we believe our balance sheet is in good shape right now.

TWST: So that works for you.

Mr. Pursell: Yes.

Mr. Kratz: Martin might speak more about the future. Martin could probably bring you up to speed on what we're seeing specifically during this year.

Mr. Ferron (President & COO): We've gotten off to a good start. Our earnings for the first quarter exceeded estimates. And what's driving that is a very quick ramp-up in activity both on the shelf and shallow water and in deepwater. I think it's caught most people by surprise how quickly projects have come to the fore. Therefore, utilizations for our vessels have followed suit. Certainly on the shelf, the signs are extremely encouraging ' with gas prices at $5.00, customers are looking to develop reservoirs quickly. We saw last week in the lease sale that there's a very keen interest in shallow water blocks. Customers said that the reason they were taking that interest was they felt that they could very quickly bring on production. So that should be good for us. If a customer decides to develop a reservoir within three to six months, that means that we can get earnings within that period. In the deepwater, we're seeing a ramp-up in projects, although their lead times are much longer. We're in the bidding phase for some huge projects, which are going to kick in next year and the year after. When I say 'huge,' some of these projects are going to be $100 million-plus type jobs, which are perfectly suited for the assets that we're building, Q4000 and the Sea Sorceress. But in the meantime, in deepwater, we're still managing to make a good living, both on the well intervention and the construction sides of our business. Mexico, in particular, has been a very good market for us last year and this year. A lot of development work is going on in that area, which will sort of dovetail into the pickup in demand here in the Gulf. So, overall, the increase in activity is very encouraging.

TWST: You're giving all this good news. Is that reflected in the stock price at this point?

Mr. Kratz: Of course not. I think our stock has been beaten up here lately.

TWST: Why?

Mr. Ferron: There was a genuine large decline in the OSX (the overall index for all service companies). There are concerns about OPEC compliance, and the prospect of reducing Asian demand is a big issue, and just the general concern in the marketplace for investments right now. I think the OSX has previously held up there pretty well. Wide volatility is what we're seeing right now, I think.

TWST: Do you think the market understands your potential over the next two or three years?

Mr. Kratz: Not fully. We've been trying over the last couple of years to very slowly enlighten the investment community as to what it is that we do, because it is so unique. The concept of production contracting is not brand new. There are a lot of companies that do similar kinds of contracting, but they're very quiet about it. We are probably the first to really come out and say 'this is what we're trying to do, and why we're trying to do it.' But it does represent what could become a new contracting standard. We've garnered a lot of acceptance from those fund managers that know us fairly well, and, in fact, I think if you look back when we first started production contracting back in 1992, we have a long track record of successfully pulling it off. We have delivered a 29% average return on invested capital over the last eight years. It was very misunderstood at that time, when we took the abandonment liabilities in exchange for the properties. That has now become the standard method in our industry for how abandonment work is done. You have several of the abandonment companies doing that. It would be my prediction that five years from now, what you've seen us do on Gunnison and what we'll continue to do could well become a standard five years from now.

TWST: If you were sitting down with some potential longer-term investors today, what two or three reasons would you give them to take a look at your company?

Mr. Kratz: Cal Dive is an innovative, groundbreaking company, which would imply risk. But I think if you look at the strategic way that we go about our incremental growth, it's very risk-averse. A lot of our strategies have to do with hedging our bets. In fact, the reason we got into abandonment and production in the first place is as a hedge. Production, for instance, works as a revenue-smoother through the downturns, which you've seen this last year. It provides us the financial strength and balance sheet to avoid 'bad contracting,' for no other way of putting it, that you might see here at the beginning of an upturn, where there's excess capacity, and everyone's scrambling for the same jobs. So we're risk-averse; we're hedged. We perhaps give up some of the explosiveness in the upturns, but we're a very defensive play in the downturns. But the growth potential for Cal Dive, when you consider what production contracting can mean, combined with multiple paths of the Q4000 in deepwater, and particular well intervention and completion ' we have not one path for potential large-scale growth, but several. Just compare Cal Dive's return on capital with our peer group.

TWST: Thank you. (TM)

OWEN KRATZ Chairman & CEO A.WADE PURSELL SR. VP & CFO MARTIN FERRON President & COO Cal Dive International, Inc. 400 N. Sam Houston Parkway East Suite 400 Houston TX 77060-3500 (281) 618-0400 (281) 618-0501 - FAX

Each Executive who is the featured subject of a TWST Interview is offered the opportunity to include an Investors Brief or other highlight material to be provided and sponsored by and for the company.

Copyright 2001 The Wall Street Transcript Corporation All Rights Reserved