Helix Energy Solutions Group Inc (HLX) 2002 Q1 法說會逐字稿

Good morning and welcome to the Cal Dive International's first quarter earnings conference call. All participants will be able to listen only until the question and answer session. Today's conference is being recorded at the request of Cal Dive international. If you have any objections, you may disconnect at this time.

I would like to introduce your speaker for today's call, Mr. Jim Nelson, vice chairman of Cal Dive International. Mr. Nelson, you may begin.

Thanks to everyone who's participating in this first quarter conference call. Those that are listening in on this conference call as well as those of you that are listening over the World Wide Web where it's being broadcast also. With me today of course, is Owen Kratz our chairman and chief executive officer, Martin Ferron our president and chief operating officer, Wade Purcell our chief financial officer.

New to our group is Jim Connor, who became the general counsel of the company effective May 1, Andy Becker a long-time general counsel, retired the last day and the office was a week ago Thursday. We let Andy have a couple days off, but then we brought him back on the second. So he is also out there with a little buzzer. He can't do a to tell us when so he's got a buzzer.

The material that I'll go through today is what I hope all of you have had a chance to look through. It's as usual a five-page document which consists of a two-page first quarter shareholders' report and appendix which gives our thoughts and guidance on the second quarter. Then the press release and summary financial statements that went out over the newswires. This material was filed as an 8k, so it is available not only through our...

We've now got our general counsel taking phone calls. Excuse me for that. So anyway, you've got that information in front of you.

In terms of format, I will go through and just highlight some of the pieces that are in the first quarter report to shareholders. Then Martin Ferron will talk a little bit about some of our first-quarter activity as well as some of the margins that we experienced. Martin will then look at the vessel, give you an idea of our vessel activity outlook in the second quarter and second half. And in that, he'll discuss the deployment of the four new vessels that will be in the water and working during the second quarter.

Those vessels consist of the Eclipse which went into service on March the 20th, the Q4000, the Intrepid, and then the new ROV support vessel, the Northern Canyon.

After Martin does that, Wade Pursell will talk to you a little bit about our financing strategy. He'll talk also about where we stand on the process of selecting a new independent auditor, and then finally many of you have probably noticed we are considering moving to an equity offer in new common stock. And we will talk a little bit about that. Because of the imminence of that offering, we're going to - we will probably be a bit restricted on the types of questions that we can respond to, so this conference call might be a little bit shorter than others.

Having said that, let me turn to the first quarter report to shareholders. I guess a key highlight is that our topline revenues held up reasonably well in the period. The subsea construction markets were certainly in the . Revenues were within 3 percent of those of a year ago. You may recall a year ago when we had - when our gas operation was realizing an average price of $6.50, our gas and oil operations contributed 50 percent of our revenue, and 73 percent of our profitability.

Our ability to cover some of the shortfall coming from the decline of commodity prices was a function of new assets that are beginning to roll out. In the first quarter specifically, most of the increase in our contracting business was provided by the new robotics company, came in offshore. As I mentioned, Martin will talk a little bit about margins in our contracting business. They weren't where we would have expected them to be, and he'll talk specifically about that.

The key thing of course as I mentioned earlier is that the second quarter we will be completing the rollout of almost 400 million new construction assets and will be in the initial stages of 250 million related to production projects. So we're at an interesting point in the evolution of the company, and I'll talk a little bit about some of the other things that we see in the year 2002.

Financial highlights: our net income was 6 percent of revenues, our EBITDA 20 percent. Both of those we would match with any of the companies that focus upon sub-sea construction in the Gulf of Mexico. If you look at the margin side, 21 percent was pretty much in line with our forecast although the mix change is the 15 percent that we realized. And our contracting business, as I mentioned, Mark and I will talk a little bit about that - it's below where we expected it to be.

Our S/G/A actually came down a bit if you exclude the acquisition of Canyon, so as always the case here at Cal Dive, we focus very hard on cost control in periods of uncertainty. Our EBITDA of $11 million if you combine that with the $37 million of cash we had at the beginning of the year and $60 million of borrowing. A lot of that in the new revolving line of credit funded ongoing construction of the three vessels and then also the Canyon acquisition.

Wade will talk a little bit about our financing strategy.

Operational highlights: I'll just run through a couple of the items on the second page of the shareholders letter. In our deep water contracting businesses, 92 percent utilization, I think, is excellent when you look at the first quarter and the weather that we faced. The Uncle John in particular continues to work virtually everyday the vessel is available.

Martin, will come back and talk about the other vessels and where we see them deployed in the second quarter and the rest of the year.

s mentioned throughout this report, Canyon Offshore, the robotics company that we acquired, that owns 15 work-class ROVs and four trenching units, and operates another eight trenching units on behalf of others, was acquired effective the 4th of January. We were extremely pleased with the way Canyon came out of the box of delivering over $11 million of revenues, and giving us, again, the geographical dispersion of our revenue-based that we were seeking. On the balance sheet you can see a number of times related to the acquisition. If you recall from the press release, we're expecting that the total acquisition cost will range between $66 and $74 million. That's a function of the fact that 15 percent of the stock is held by prior management - it's held by the management and is subject to it or not. The transaction resulted in roughly $45 million of goodwill being recorded on our balance sheet. And the piece that the management owns, you'll see on the liability side of the balance sheet, and I think it's called redeemable stock.

Shelf contracting, it's a tough time on the shelf. A year ago margins were high and had a fair amount of demand, because of commodity prices that were so high. This year, as you can see, the revenues from those vessels that operate solely on the shelf declined by 17 percent in margins or declined across the board, because there was an awful lot of competition for the work that was there.

Production partnering, again, if you look at the hedge of our business while ERT was in a period of declining commodity prices, the company performed extremely well. Production of 2.9 DCF equivalent was at the high-end of our forecast, and that reflected the fact that many of you will recall that we did a fair amount of well exploitation work last year and actually shut in some of that production waiting on higher natural gas prices. And when those came in March, we did open up the choke in a number of those wells.

With the decline in natural gas prices, you can see that oil represented a mores significant piece of our revenue, 40 percent for the first quarter, doubled 20 percent a year ago. And it represented 34 percent of our total production volumes.

We did complete three small acquisitions to simply increasing our ownership in existing properties. It added to two DCF equivalent. We are and continue to be looking at just a number, a significant number of mature property acquisitions. And that, I would like to think in the second quarter you'll see some of those finally fall through and come into the property base.

Something that is in the forecast that many of you probably noticed, with the uncertainty on commodity prices, we did elect to hedge some of our future production. If you look in the appendix you'll see under commodity prices that we hedged approximately 33 percent of our second quarter natural gas production at just under 350 MCF and then 17 percent in April, up to 33 percent in May and June of oral production at an average price of just under $26 a barrel. I believe those prices in that hedge - those hedge positions are in place in third quarter also.

With that, Martin, why don't you step in and talk a little bit about some of the things

OK, Jim. I just wanted to, maybe, explain why our margins on the subsidy side were lower than expected. Jim pointed out, our utilization was good. On the DP side, utilization was 92 percent, which compares with 96 percent in quarter four, but only 64 percent in the corresponding quarter last year. On the shelf, our utilization of our assets was 60 percent, which compares with 65 percent in quarter four, 65 percent in the corresponding quarter last year.

So why then without level utilization were our margins disappointing? There are some specific reasons in the long-term tend here, particularly related to the project. As we reported in earlier calls, we had to subcontract the plate of our project to a third party, due to the late delivery of the Intrepid. That led to over $3 million of past due revenues, which was 16 percent of our revenues in the quarter. If you add to that fact that we had a breakdown experience with the Merlin, which had a effect on the third party plate vessel. That incident, unfortunately, cost us nearly $1 million in profit. So if you take away those two factors, our margins would have been over 20 percent, which, I think, you've come to expect from us.

Do you want to go on then, Martin, and talk about the outlook and that sort of thing.

The outlook for quarter two, I'm expecting utilization to be similar to quarter one, you know, over 90 percent with the DP vessels - and that's with more DP vessels, and I'll come on to that in a second, you now, with our new additions to the fleet - around 70 percent, maybe, with surface diving vessels. So an improvement there as the weather improves. But without those one-time hits, hopefully profitability will be back to normal.

Just to talk about our new vessels, we all seem very excited to be in the middle of introducing these assets. The Q4000 went to work on April the 2nd. We had three short jobs for and Exxon, which enabled us to shake the bugs out of our systems. We tried our deployment systems, our RVs and on the DP systems, and they all worked extremely well and customers were very happy.

The vessel is now on its way down to Brazil. And we're hoping that, apart from the two jobs we've already booked down there, that we'll pick up another 30 to 40 days with . We're in advanced discussions with them right now. And then, we have some work in Trinidad on the way back. So if all pans out the way I'm hoping and expecting, that vessel could be out in the Gulf until September time.

The Eclipse went to work in mid-March and has performed extremely well in diving projects since. She's had full utilization since her introduction. We do have a potential short-term hole coming up for her which we will hopefully fill, and that's because, as we say in the report, one of our big projects for the year, down in Trinidad, has moved to the right by six weeks. So while that revenue is not going to disappear in the year, we just maybe got to scramble to fill up some utilization with our vessel.

The Intrepid will go to work in late May. We're going to mobilize May 15, start work probably May 20. She's going to finish off for us. The normal third-party work to do on that project now, just our own, so profit will be good.

And then, after that, we have our ERT project, our recently announced project in East Cameron area.

And finally, we have a vessel which Canyon are going to introduce in early June. We take delivery on June 1. That's the northern Canyon. She'll be used for ROV services on oil and gas projects and telecommunication cable projects in the North Sea Mediterranean area. So again, we're pretty excited by that new addition to the fleet.

You might mention that we also referenced the fact that some of Canyon's work is shifting around a bit also.

Yes. You know, when we did our plan at the back end of last year we tried to guess when certain projects were going to happen. They move around, especially on the telecommunications side. Some of our customers have been slow in putting our ROV assets and plows on the vessels. So we're seeing some work maybe slipping out of the second quarter into the third. But again, you know, that work will happen and not really concerned about that.

Thank you.

In terms of our forecast, you can see we're looking at a range of 17 to 21 cents, and that does include the impact of some of the shifting work, particularly and some of the Canyon projects.

We are still comfortable, when you look at the way the market is shaping u8p, that our guidance for the year of 85 to 95 percent - 85 cents to 95 cents is still a target that we think is something that we are comfortable that we'll reach.

If you look at the year 2002, it really is shaping up as an intriguing transition year. We've got the volatility of commodity prices. You can see we - although we've got an awful lot of natural gas in storage, prices are fairly high, and because we couldn't quite understand all of those mechanics, we elected to hedge some of our production for the second and third quarters. Oil prices have got a piece of the war premium in them.

So you've got extreme volatility in commodity prices. You've got a number of service companies that are really getting hammered by the slow market that began over a year ago. You've go the companies, particularly the independents whose cap ex budgets have been restricted, and they really are still looking at trying to reach the tea leaves on how commodity prices are going before they change all of that.

So it is a year that has an awful of things bouncing around, and we could certainly wait until the year 2004, when the impact of this expansion program, $650 million of new assets that we're placing in service, will come to the bottom line, but we don't want to miss some rather increasing opportunities, so we needed to look, first of all, at our financing strategy and our financing capacity.

So, Wade, why don't you talk a little bit about that and some of the other things that I asked you to go through.

Sure. Thank you, Jim.

I guess the first thing I would mention as a lead-in, if you look at where our borrowing stand at March 31, I think Jim mentioned $181 million total. The breakdown of that is is $116 million of it, our revolver at $46 million outstanding. We picked up $8 million of capital lease obligations in the Canyon transaction. And then the remaining $12 million is the project financing.

I guess the first thing you asked me to talk about was Marco Polo and the status of that. That is obviously not reflected here. That's still a work in process. We talked about it in the past. That's project financing for the construction of the TLP at Marco Polo. As you might recall, it's a $200 million construction. Half of that would be Cal Dive, $100 million. The financing is being driven by El Paso, it's pretty much the model they used on the project.

J.P. Morgan will be leading that facility. We are presently negotiating the term sheet with them. It's a traditional project financing where they fund the construction - actually, they fund 70 percent of the construction. We would put up 30 percent, which would be $30 million, approximately, of equity, then they would fund 70 percent, and then we would pay it back once the facility goes to work out of the proceeds over the following five years.

Next, I guess, just to give you an update of where we stand on our auditors, most of you are aware earlier this year we put the audit out to bid. We've received proposals from five firms, and we've gone through those and are right in the middle of conducting interviews with those firms.

I guess our plan is, we have a board meeting May 15; the plan is to narrow it down to a short list by that meeting and the day before that meeting have the audit committee actually interview the final candidates and then the plan would be to make a decision at the board meeting May 15.

And finally, Jim mentioned an equity offering. We plan to issue 4 million shares of common stock. The proceeds will be used to address our existing leverage and create capacity, as Jim said, to pursue a number of opportunities that we're looking at.

From a timing standpoint, we could be filing a registration statement as early as tonight; probably more likely Monday. But that's the time frame. And at present that's all I can say on that topic, other than the fact that this call is not an offering, that can only be done through a prospectus.

How was that, Jim?

OK. We're holding Owen in reserve for the Q&A.

And, , with that, we'll take some questions.

Thank you.

At this time we are ready to begin the question and answer session of the call. If you would like to ask a question, please press star, 1. You'll be announced prior to asking your question. To withdraw your question, you may press star, 2. Once again, to ask a question, please press star, 1.

Our first question comes from of UBS Warburg.

Good morning, guys.

Good morning, Jamie.

A question for you. Want to just talk a little bit about the Q4000 now that it's actually out working. The work that you're doing in Brazil, can you give us - can you describe to us the nature of the kind of work you're doing, give us a sense of where the pricing or day rate kind of is for this vessel, how does that compare to the Uncle John, and is there a difference between, you know, the work in Brazil versus Trinidad versus what you might do in the Gulf of Mexico.

OK, Jamie. The two jobs we have in Brazil are both surface lifting jobs. In other words, we're going to lift a compressor for one customer and a crane for another customer onto . Both those jobs required a crane above 300 tons, which you know the Q4000 has. So she was able to pick up that work at, you know, at reasonable rates, especially as the customer's picking up the transit to and from Brazil.

While we're down there, we're hopefully going to do some other work for Petrobras which is more traditional. We're actually going to do a, hopefully, a well test. That's installing a tree and then testing it, flowing it. And we're also going to install a manifold, a heavy manifold for Petrobras. So those are more traditional subsea deep water tasks.

The manifest manifold, would that involve using a tower?

Yes, that would involve using our multipurpose tower, which is one of the central deployment systems of the asset.

And then on our way back, on , we're again going to install a manifold, this time in shallower water. That manifold, again, is quite heavy by normal construction vessel standards, and only the Q4000 is capable of handling it.

So we've picked up work which is sort of aligned with the capabilities of the vessel which are over and above that of other construction vessels.

My understanding in some of this stuff on the lifting side, it's always been my understanding that lifting work is actually pretty lucrative work in terms of because of the lack of effective lift vessels in certain markets.

Yes. The customer did have an alternative to wait longer to get it done. So we weren't able to exact...

Sorry, I got distracted there. We weren't able to exact the ultimate leverage, but we'll certainly have a reasonable price, plus it gets us down into a marketplace which is going to be good for the vessel. You know, Petrobras are very excited about the Q4000, and I think they'll be a customer for her in the future.

Back in the gulf, Jamie was asking, you know, will she be doing Uncle John-type work and do we expect the rates - where do we expect the rates?

You know, until the deep water market really kicks off, I think, as I mentioned before, we will be showcasing the vessel on different projects, doing different tasks for different customers. And we will be working at, you know, high end Uncle John rates, but still making, you know, a reasonable margin for an introductory vessel.

OK. But kind of at the high end of Uncle John?

High end, yes.

OK. And can you just also talk about the Intrepid now that it sounds like it's finally ready to go to work? How confident are you in, you know, in the kind of performance that you're going to get out of the vessel? You know, are you nervous about, you know, the efficiencies on its first job?

Well, obviously any vessel that's been converted to the extent that the Intrepid has, we'll have some shakedown issue. But we're spending plenty of time on sea trials, you know, getting things right. You know, that's not to say that we aren't going to have some teething problems for a while, but, you know, we have prepared, I hope properly. We're going to take the vessel out to do some good work for Kerr-McGee to finish . And then we're going to lay some pipe on one of our own projects, for ERT.

So, again, you know, she's got some pretty interesting work which will test her capabilities right out of the blocks. So I'm encouraged by that.

And what was the final cost on the Intrepid?

We're including the system, which is on board her right now. We're up at $70 million.

And you only paid for half the system, right?

Well, that's including all of the system at present. Horizon have the option of buying half of it.

OK. That's it for me for now. Thanks.

of , you may ask your question.

Hey, guys. Couple quick ones here. Can you update us on timing reserves? Has anything really changed there or is it pretty much the same as it was last quarter?

Owen?

From the weekly reports that I've been reading and the sessions that I've been involved with, everything seems to be on schedule. Certain parts are ahead of schedule, but I don't believe that they're critical path components. So I'd say the whole project is still on schedule.

And could you refresh us, kind of the timing, you know, what they've told you in terms of ?

On the size of the reserves?

Yes. Size of reserves and kind of when work will get started, all that kind of stuff.

Well, the drilling, the development drilling is ongoing as we speak.

If I recall, there's going to be six developmental wells that are drilled this year.

Right. Now the reserves keep fluctuating almost on a daily basis, because, you know, they're cutting through new , but it's all been positive news to this point. I think I would defer to Kerr-McGee on what the reserve estimates are at this point, so I wouldn't repeat - I wouldn't say anything other than what they've publicly released at this point.

And I think you will recall, Marshall, in the annual report we said that a year from now, when we get to the year-end reserve assigned, that reserve that Kerr-McGee assigns at the end of 2002 to , I think that will be a number worth watching.

Yes. So that's a milestone to look for. OK.

I might add that, if you remember, our commodity pricing assumptions on our model are considerably conservative relative to the currency commodity environment.

Now where that'll be come the beginning of '04 with the first production is anyone's guess, but it is sure looking nice at this point.

I assume you haven't hedged any of that or sold really any of your interests off yet.

No, it's really not possible to do that, Marshall, until you have a producing .

Right. OK. Just to follow up on a couple of the other questions. We talked about Q4000, the Intrepid. But it sounds like, Martin, the backlog, you know, or at least the visibility on how busy you're going to be here for the next six to eight months, is pretty darn high. Other than the Intrepid, I guess, and Trinidad, any other holes in the scheduling?

WE often have one- or two-day holes that we have to try and fill, Marshall, but we are usually pretty successful about doing that. You know, we've got four new outfits now, so to try and find work for all of them is more of a challenge, of course. But I think we're up to it. I'm as happy at this stage of this year, certainly, as I was at this stage last year, you know, with our backlog in terms of utilization news.

Martin, we've got both the Mystic Viking and the Witch Queen now down in Mexican waters. How long do you anticipate that they'll be down there?

The Mystic Viking will be there at least through the second quarter working in support of Horizon. And the Witch Queen is actually going to do some coring work for , which will probably keep her out of the Gulf until, let me just check, into August. So they're both on full utilization contracts.

In very general terms, how far out would you think - you know, you have very clear visibility - are we talking two months, or is it more like six months?

I would have said it's about three to four months, which is pretty usual. As I've said, you know, we've got identified projects for next year. We already have some backlog for next year. And we've got several big bids out for next year and the year after. So while the last couple of years have been characterized by maybe just looking three or four months ahead, you know, our horizon now is a couple years ahead, in terms of looking a5t when projects are going to start.

And most of Martin's comments, of course, are addressing the DP fleet. On the shelf, you know, that's a spot market. And it'll be a little bit of a function where, as you know, Marshall, natural gas prices go.

Yeah.

Great. Well, I just want to get a feel for that, guys. Thanks. I appreciate it.

Kevin Simpson of Merrill Lynch. You may ask your question.

Thanks, and good morning.

Good morning, Kevin.

Hi, Kevin.

A couple of questions. First, I want to follow up, Martin, on the visibility you're beginning to see for longer-term work in deep water for the DP fleet. It looks like BP - and I guess they announced something with Atlantis yesterday, in going through, I guess, moving along some of the other projects - I mean, when would - I assume that they would be a target customer - and when do you think that you'd begin to have stuff that you can announce in terms of firm work? Or is it going to be - are they going to run off of frames? Or it's going to be something, you know, like they're doing with some of the hardware companies?

Well, we've actually got, you know, several bids into the teeth of some of these projects. The news on Atlantis this morning was very encouraging, I thought, to add to what they're doing. We're hoping to get some awards here in this quarter, so we'll obviously announce those as they occur.

Those projects are for our traditional subsidy pipeline completion work. We also have a lot of potential work helping pipeline contractors out with the export pipelines, you know, between what BP and El Paso are doing in our area. There's going to be a lot of support activity that will come our way

I have one question myself for you.

Good.

Is part of Mardi Gras?

I believe it is, yes.

OK.

It's certainly in our area, and it's viewed as, you know, one of the projects which make up .

Because there's a separate major bid that's out in terms of -, , or , or whatever it is.

The way they're deducting remain ambiguous for , but they have some optional pricing in for .

OK.

That's waiting on these reserve accords.

Thanks Jim. I appreciate the help on the questions. Also wanted to ask switching gears to ERT. You say you're working on a few - you've got a fair amount working in terms of opportunities. I just wonder whether things are changing with the big jump in gas prices relative to where we were when you held your last quarter's conference call

No.This is Owen. I'd say things are relatively the same. Just to characterize what's going on in the production side of things, the abandonment end of the business, the marginal field, the industry's getting to a position where you have a lot of properties that are basically upside down. So they come out of the price difference...doesn't seriously affect that to a great extent. The problem goes deeper than that. With that regard, the opportunities are still there, and actually growing on the abandonment side. The problem is coming up with the right solution for them.

On the product position side, like the one we recently announced with , the capital budgets are still skinny for getting a lot of these online, the reserves are on the small side on a lot of them that we're targeting. So the opportunities for product positions are still very strong for us, and in fact the economics start working better and better on the marginal ones that we look at. So I'd say it's roughly the same and we're actually seeing a little stronger deal float through CRT now than we were at the last call.

So Owen, you feel comfortable that, you know, while not being one of the tend to that as we go through the year, but, you know, there's going to be, you know, a lot more project activity for you than...

Yes, a high degree of confidence that we will be announcing additional acquisitions and production this year.

I might just jump in here. Many of the people that are listening in might not be weak. I make the assumption that people understand what we're doing at Marco Polo. And you see in the quarterly report that we talk about follow-up, types of opportunities. Martin, you might just for this briefing get up and summarize what we're doing at Marco Polo, and the strategic piece of it.

Well, yes. Together with our partner, El Paso Energy partners, we're providing a PLP principally for to use on the Marco Polo reservoir. But together with , we're trying to define opportunities, because the upside economics for us are always based on incremental throughput by the facility.

So I'm pretty encouraged by what I'm seeing happen around Marco Polo both with is doing, and what ERT's doing. I certainly thing that by the time the facility becomes onscreen again, it'll be 2004, same time as and all that. But, you know, we will have some success on incremental pipeline. Plus, you know, we're working on several following opportunities based on same model, because it is transferable to other parts of the Gulf obviously.

Thank you. Kevin, I didn't mean to cut you off. Did you...

No.

need to know anything else.

I did actually, but just one other question and your lead-ins Martin there was actually where I was going in. You talk about a lot of opportunities out there which I guess is one of the driver firming up side of the balance sheet. And I wondered if you could talking more, another more potential TLP type work or are we talking something potentially more like what you did with and to that end I was wondering where you stand on these solutions for exploration.

Well, let's see. This is where Andy needs to get close to a buzzer. Owen, why don't you just talk strategically about - as you did the last time just where do you see some of the opportunities in general that might be where you'd like to see the company go?

It's always a dangerous proposition to ask me a question when I'm so enthusiastic about Teledyne's future right now. But...

You can practice for the road show.

Well, to repeat what I've said in the past, well let me preface it a little bit. I thank Cal Dive has enjoyed a very verbal reputation for some of the entrepreneurial step-outs that we've made with our business model. One question we often hear is the repeatability of things like Marco Polo, and obviously these are pretty high capital intensive type projects.

I think there's a lot we can do to better position Cal Dive for having access to these kinds of opportunities, clarify the mission as to what we're going to go after. Specifically, you know, and I'll repeat it, company-wide opportunities I see in shallow-water consolidation in nature. Deep water is a niche market acquisition. Well is a branding type of opportunity, and then to get specifically to your question on the production side, is still very much alive.

The refeed ability of Marco Polo is definitely on the agenda. With respect to , I don't have a solution to the exploration question at this point. We're still working that, but I think an equally opportunistic and exciting side of things is just the acquisition of which I do perceive in the near term.

OK, thank you. And that's it for me. Appreciate the answers.

of Morgan Stanley, you may ask your question.

Hi guys. I noticed that your alliance partner, Horizon Offshore, announced a couple of pipeline deals, one I think in Mexico and one off of Long Island, of all places. And I'm wondering if there's going to be pull through for your diving services on those jobs through your alliance with Horizon.

Well certainly on the Mexican front, as you know, we've been supporting Horizon down there. And we expect to continue doing that on this new award. On the Long Island job, we will not be supporting them. They'll be using union labor in that area, so just the Mexican one.

OK, but that is basically what we would expect given that you've been working with them down there regularly.

Exactly.

OK. I think that that's about it for now. Thanks a lot.

Geoff Keiburtz of Salomon Smith Barney, you may ask your question.

Good morning, it's

Hey, Andy.

Hey. Two questions. I want to know how much production you've shut in during the quarter, are you done with all your shutting in, and I'd like to get kind of an outlook on what production will look like for the year before and after the property.

Before and after the what property, Andy?

The East property.

Well, what did we have in the forecast? I think we had for 11/12 BCF equivalent for the year. You can see the forecast that we've got for the quarter, so I wouldn't change that a whole lot. We expect to have the Murphy property on line in the fourth quarter, and then it really gets down to whether or not we can close some of these acquisitions that Owen is referring to.

And how much was the shut-in production during the quarter?

It's really hard to tell. I really don't have a good answer for that.

OK. Second question for Martin. Just wanted to get an understanding of what the shelf prospects look like for the summer. I guess this is probably the third year or even fourth in a row where we've had commodity price moving up. There's high hopes for the summer; we've heard some good things from different operators and contractors like to see you what you think this summer's going to be shape up to be at this point.

Well, when we did our budget, Andy, we did second half of the year would be a lot stronger than the first. You know, we anticipated a slow first half and then a stronger second half. I'm still hopeful that will be the case, although maybe the extent of the upturn may be tempered some.

I'm seeing an upturn in bidding and therefore we have more bids than we did this time last year, quite a significant number more bids actually. But no, it's difficult to tell on the timing and will it be quick enough to have a real meaningful upturn. But that's reflected in our figures. So you know the guidance we're giving is maybe a bit more conservative than I've heard others talk about.

Is there anything that you see structurally that leads you to believe this year could be different, maybe you see more engineering? Maybe was focusing on more simple type activity. Maybe you see some more engineering, bigger-type projects, or is it really just too early to tell?

I think that's a good question given the last upturn that lasted a few months. Both the projects were just platform based, increased production type things. I think maybe the drilling this time around will actually lead to some construction work which would be nice, and that would have a more meaningful impact on us.

But nothing for the coming season like the next few months that you can see .

Well, because of the lead time involved in preparing for construction, you know if the drilling doesn't really kick off for a month or two, then we're going to be pushed off to the fourth quarter again. And that's the worst type for doing shallow water. So it's really a question as to when it starts as to when it's going to impact us.

I was referring to if there was any actual lag in drilling that has happened since a year ago when the recounts were so high. It just doesn't sound like you see a big demand from that.

No, Andy. If you look at that rig cut, you know it dropped like a rock in the second quarter last year. It dropped down to that level that it's been sitting at, 120 units and 70 percent utilization. And that's pretty low.

OK. Thanks very much.

Gary Russell of Frost Securities, you may ask your question.

Morning, guys. I too was planning to explore the shallow water market a little bit, but I think we've covered that pretty well. Couple other quick ones: the Northern Exposure. You're not planning on taking full ownership of that, but you're chartering that, is that correct?

Northern Canyon, Gary.

russell Northern Canyon, excuse me.

No, we've got that on a three-year charter starting June the 1st, Gary.

russell OK, and is that a DP vessel?

Yes, DP2. It's a new build ROV supporter.

russell OK.

270 foot, so it's quite a substantial vessel.

russell Right. OK. And no other - you mentioned you're done with the third party vessel for that one, for the on project, any more need for that going forward from here?

No, we just took that vessel on, because a lot of work occurred at the same time. And we wanted to keep customers happy. But we're done with that vessel is the right way of putting it.

russell OK. Any other surprises in the first quarter? Shift to your outlook here for the second quarter. It sounds like your visibility's still surprisingly strong here, deep and shallow. Is that correct?

It's good. I would say it's as good as it was this time last year, because we're trying to pick up work outside the Gulf in deep water. It's still next year in the , but between our efforts in Mexico and down in Brazil, we are managing to keep our assets busy. So you know that's a great testament to the skill of our team here.

russell Yes, especially in this environment, and then lastly there's been some concern recently with some people as it relates to receivables. You guys are paid by Horizon, is that correct?

We are, but I think the major difference there, Gary, is that Horizon are working on milestones, you know. So they have to finish particular activities before getting paid, whereas we're working on day rigs which are not limited to that receivable issue directly. So you know, we're just billing them on a monthly basis.

I think it's still in there. We have because of the significance of that alliance - we have extended terms with Horizon. We expect them to pay within 90 days, and they basically are current with that schedule.

russell OK. That's it. Just one comment. Owen, good work on CNBC last month, but don't let showbiz give you any ideas about quitting your day job.

russell Take care, gentlemen.

Once again to ask a question, please ask *-1. At this time, sir, there are no further questions.

OK. Thank you all for listening in, and stay tuned as they say. We'll talk to many of you again on this conference call in three months, others of you probably sooner than that on the road show. Thank you and goodbye.