Helix Energy Solutions Group Inc (HLX) 2004 Q2 法說會逐字稿

Your lines will remain on listen only until the question and answer session of today's conference. Today's conference is also being recorded. At is time, I would like to turn the call over to Mr. Wade Pursell. Sir, you may begin.

Good morning. Welcome to the second quarter earnings call for Cal Dive International. My name is Wade Pursell, I'm the Chief Financial Officer. With me here in Houston is Martin Ferron, our President and COO; Jim Connor, our General Counsel and joining us from the UK is Owen Kratz, our Chairman and CEO. You might remember from last quarter's call Owen saying that he was going to the UK to start up our oil and gas production business there. Owen will update you on his progress later in the call.

As far as the format for the call, I will walk you through a quick financial overview, and then I will turn it over to Martin for some operational highlights and then Owen will discuss oil and gas production and wrap it up with a strategic overview and outlook, followed by the Q&A segment. Hopefully, everyone has access to a copy of our press release and the slide presentation, which is something new for us this quarter. The slide presentation is linked to the press release linking to our web site. If you have not already done so, you can go to our website -- www.caldive.com -- in the investor relations page and click on the webcast presentation there. We will be referring to these slides as we go through the call today. Before we get started, Jim Connor has a very important announcement to make.

Good morning. As noted in our press release and associated presentation, certain statements therein in our discussion today are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a complete discussion of risk factors, we direct your attention to our press release and to our annual report on form 10-K for the year ended December 31st, 2003, filed with the Securities and Exchange Commission.

Thank you, Jim. Referring to the slides, I am going to begin on slide three, if you are following along. 47 cents of diluted earnings-per-share is an all-time record for Cal Dive International, and essentially doubles last year's second quarter output, represents a 31 percent improvement over the first quarter of this year. Revenues of 127.7 million were 25.9 million higher than last year’s second quarter, driven primarily by increases in our oil and gas production along with higher quantity prices. Gross profit margin of 32 percent was 8 points better than that achieved in the second quarter of 2003 and 6 points better than last quarter. This was due primarily to the commodity price increases and improved utility and rates for the Seawell in the UK. You might also note that bottom-line margin of 14 percent versus 9 percent a year ago, which is near a level that we target and a level that is rarely seen by our competitors.

SG&A, 12.7 million for the quarter, was 4 million higher than last year's second quarter due to the improved profitability of ERT and the incentive compensation that's associated with that, and the new Marine contracting compensation system. This level represents about 10 percent of revenues, which is about where we planned.

Equity and earnings -- we reported 1.3 million for the quarter for our share of Deepwater Gateway's earnings, which represents the kickoff of earnings in our new production facility second quarter. This represented demand fees at the Marco Polo TLP. Production began in July, so you will see tariff income in the third quarter on top of those demand fees.

Turning to the balance sheet real quick, generating 56.2 million of EBITDA and receiving 30 million from the final tranche of the convertible preferred enabled us to reduce our total debt to 183 million, which is 28 percent debt to book capitalization, and also built an unrestricted cash balance of 67.3 million as of June 30th. So that translates to a 20 percent net debt to book cap. Net debt at June 30 was comprised primarily of the Marad (ph) facility, which was 137 million. That is the 25-year term debt which is still floating at about 1.35 percent currently, and also 32 million related to the term loan which was for our share of the construction of the spar at Dennison. That facility is also floating at around 3.5 percent.

CapEx for the quarter was 16 million, primarily related to Marco Polo completion, Gunnison completion and ERT well work. Our budgeted CapEx for the second half of the year is a little over 40 million, bringing our total for the year expected to be around the budgeted (indiscernible) of $80 million. I will turn it over to Martin Ferron for some operational highlights.

Thank you, Wade. I'm going to cover the green Marine contracting and production facilities segment, then hand over to Owen to cover the oil and gas production segments. So starting on page 4 with Marine contracting. Compared with quarter one this year, revenue was essentially flat, while our gross profit margin was up by 5 percent mainly due to seasonal pickups in shelf divings here in the Gulf of Mexico and well operations in the North Sea. Compared with quarter two last year, revenues were down by 9 percent, while the gross profit margin declined by 2 percent, mostly due to much tougher market conditions in the Gulf of Mexico where demand for a marine contract and services was patchy sheet at best with May hopefully marking the low point of the present cycle.

The highlights came overseas where our market seemed to be recovering quicker with the Seawell and the Eclipse both enjoying higher utilization and rates. Although the latter actually experienced repair-related downtime in April.

The outlook for quarter 3 is much the same, however we are starting to see an increase in bidding activity and awards for projects commencing in late quarter three and early quarter four. Also, we have improved visibility for 2005 projects. We continue to possess considerable upside leverage in this business segment pending a market recovery.

Now for some specific comments on this each subsector within the marine contracting, starting on page 5 with Shell contracting. Shell's utilization was up by 16 percent compared with quarter one due to seasonal improvements and down by only 1 percent compared with quarter two last year, despite this being the fewest (ph) quarter following our termination of the long-standing alliance with Horizon Offshore. Poor weather conditions in April caused a slow start of the quarter which otherwise met our expectations.

(indiscernible) saturation and surface diving operations was good, but the general diving market was very slow, which was surprising in a period of high natural gas prices. Our customers don't seem to be as focused on inspection and repair maintenance work this year. Project performance was excellent and the business unit completed the entire quarter without a single recordable safety incident. We expect quarter three to turn out as budgeted subject to the prevalence and extent of hurricane-related delays. Historically, September has been hit hard hit by hurricane interruptions.

Moving onto deepwater and robotics on page 6. The manner is mixed (ph) in the Gulf of Mexico spot markets with May being especially slow. Overall fleet utilization was down by 40 percent, compared with quarter one and 21 percent compared with quarter two last year. Highlight projects were the Tomahawk and Raptor pipeline and tie-in (technical difficulty) which provided over 100 days of combined utilization for the in fact Mystic Viking and Uncle John early in the quarter, while repair work at the Mars GLP (ph) brought some unexpected good employment for the Mystic Viking in June. The Witch Queen remained cold stacked throughout the quarter and the Merlin was stacked at the end of April, which obviously contributed to the decline in utilization. The Eclipse underwent an engine room repairs in April and resumed work for the rest of the quarter at good rates. The Northern (indiscernible) 50 pipeline burial spread performed 46 days of work in the North Sea after transiting from the Gulf of Mexico in April. Otherwise, the robotics group also suffered from a slack market condition in the Gulf.

The Gulf of Mexico market overall seems to be following a similar pattern to 2003 when a mid-year lull preceded a pickup in activities from August onwards. As I mentioned earlier, the levels of bidding activity and awards to tie-back (ph) projects support this thinking.

We're encouraged by demand for pipeline burial services, both in the Gulf of Mexico and international waters. We have been successful in convincing some Gulf of Mexico customers of the cost-effectiveness of burial for insulation purposes.

Moving onto well operations, on page 8, we have two vessels in this segment and there was quite a contrast in their quarter two fortunes. Seawell utilization improved by over 30 percent compared with quarter one, while the Q4000 utilization fell by over 40 percent. Seasonality in the North Sea market was a big factor. The trading conditions in the Gulf of Mexico were at their lowest ebb. As in quarter two last year, the Seawell enjoyed almost full utilization -- 96 percent on both (indiscernible) and then decommissioning work. Barges (indiscernible) four months and a slight improvement in rates.

In contrast to quarter three last year when the Seawell was employed mostly on low margin diving support work, she is fully booked with well intervention work far into quarter four. Our successful penetration of the Norwegian market has greatly helped the situation. We will start over 90 days work for Stadt (ph) Oil (ph) later this month.

Meanwhile, the Q4000 returned to the Gulf of Mexico from the North Sea in April and sat idle for most of May, then she worked the rest of the quarter on a pipeline commission project at poor (ph) rates. The outlook for the Q4000 for quarter three is better and we hope to achieve greater than 60 percent utilization compared to less than 50 percent in quarter two with the main project involved in the disco (ph) spore (ph) for DP (ph) on the Mad Dog field developments. That work will get underway next week and could last for the rest of the quarter.

That finishes marine contracting; moving onto production facilities on page 9. The equity in earnings contribution for quarter two were $1.3 million, trailing tied (ph) from monthly demand fees which commenced while under mechanical completion of the Marco Polo platform at the end of March. Quarter three will see the start of (indiscernible) following the beginning of production of the POP (ph) in mid-July. Although this secured slightly later than we anticipated, the production ramp-up is ahead of target and so we should achieve our earnings expectations for the year. 2005 should see the commencement of production from a nearby K2 and K2 north fields, which will take out most of the available oil production capacity, over 120,000 barrels of oil a day. Deepwater Gateway is also pursuing deals to bring incremental gas to the TOP during 2005. We're (indiscernible) actively pursue additional production facility transactions and still hope to close a deal by the end of the year. With that, I will hand over to Owen for oil and gas production comments.

I believe they begin on page 10, but let me just walk through some of the bullets and gave a little extra color to them. On page 11 with the shelf -- as you remember, our budget assumptions included a decline in our current shelf production, but our people continue to excel at enhancing the existing production and we are seeing opportunities to add reserves. We have made no acquisitions as of yet in '04, but we are seeing them.

Moving onto Gunnison, we did have issues with two wells on Gunnison in the second quarter, which caused the rates from Gunnison to be less than what our assumptions were in the budget. This was offset by the increase in the production on the shelf. Just a little more on that -- I believe Kerr McGee already covered it in their announcement, but I guess the anticipation is that both of these wells will be back on by the end of this quarter, which means by the end of the year, we will have all of the wells on Gunnison up and running. The impact of that, we see more as a timing issue. And right now, we see no reason to think that there is any impact to the reserve estimates on the field.

Outlook going forward -- it's highly likely that (indiscernible) that we're going to see (indiscernible) the rest of the year are net of our hedging are going to be well above our budgeted assumptions. So good things should continue. What pricing that is, we are not in a position to be able to guess. We are seen opportunities to add acquisitions as I mentioned before, and this would come in both puds and mature properties. I would like to note that the high pricing environment is making it difficult to close deal with acceptable economics, especially on the mature fields, which now with the high prices, are cash flowing nicely.

I think everything else is pretty apparent in the slide, so I'll just move to a few comments about where we are strategically and what the outlook is. In summary, I think everything is going pretty well right now. As far as I can tell, we are hitting on at least six of the eight cylinders and everything is going according to plan. Just to clarify a point that was in our press release. We did make a comment on the range that we gave and our policy at Cal Dive is going to be to let you know what the range of earnings are that we are projecting at the time we do our budget, and then just report through the year as to how things are going relative to the assumptions we had on our budget and let that be our guidance.

Having said that, obviously, things are going much better than what we had assumed in our budget. In our press release, we said that that would mean that we would the near the top end of our range that we were given -- we gave at $1.70. I just wanted to point out that near could very well be over that range. I'm not saying that the year could not come in under $1.70, but right now, my guess is that if things continue to go as they are, if you remember $1.50 the middle of the range that we gave at the beginning of the year, we said was back loaded. Assuming that we are able to deliver on the budget, then that would put us over the $1.70 mark.

Anyway, moving on, the high commodity prices are obviously a big part of this. But I have to say that I am really pleased in the results of last year’s reorganization efforts. We revamped our compensation program and procedures and really tried to establish a good, strong cost culture that's held up (ph). And I think the results of the contracting are encouraging, but I think it is more due to the culture and efforts of our people than the market right now. But, we are seeing the market indicators look very promising on a go-forward basis. Our challenge this year, though, was to establish an efficient deal making capability. We are at the point where our cash flow is increasing significantly. Once our debt is reduced, and I might note here that we really -- our debt is high-quality debt. I am not sure if we're not already at the point where we are about as far as we can go on the debt reduction, which means that we really need to put a deal making capability in place and make sure that we get exposed to a broader number of deals so that we can make sure that we are able to close just the good deals.

We are working on a new credit facility to go in place. We are going to be moving away from being asset lending based and moving into a facility that will give us much more flexibility and the ability to close deals rapidly. When we do find the great deals, it is important that we are able to not make our offers contingent upon finding financing. Therefore, we needed a facility in-house that would allow us to do that.

We are broadening our exposure to the deals primarily right now by expanding our presence in the North Sea on the back of the success of our wells ops and canyon groups that have been up and running here for the last two years. Our goal this year we stated earlier was to add at least one proven and undeveloped reserve and one facility deal this year, as well as lower our direct operating costs. And then another key goal was to avoid incidents -- and by incidents, I'm talking about HIC incidents as well as commercial -- and we're on track to achieve all of these goals at this point.

These things, combined with the inherent growth in earnings coming from a continuation of the ramp-up on Gunnison and Marco Polo means that we should expect to see sustainable growth in '05 over the '04 levels. Should the market conditions in the construction sector come back a little bit, I think the potential for that extra growth would be significant.

I will close, though, by saying the chink in our armor right now probably is the utilization on the Q4000. It continues to be the greatest variable in our budget assumptions. But the vessel now has a really good track record. It has worked well and we are seeing the visibility improving, and the marketing of it, people are starting to recognize it. And as Martin said, we expect the utilization in the remainder of the year to be significantly improved. So having said that, I guess I will turn it over to the operator for a Q&A session.

(Operator Instructions). Jamie Stone.

Jamie Stone, UBS; good morning everybody or afternoon to you, Owen. My first question regards the outlook on the numbers. And at the end there, you kind of addressed things. But Martin, you said that your outlook on the marine contracting side for the third quarter was kind of more of the same of what you saw in the second quarter. But, I just wanted to explore that a little bit more. Because what I heard was the Seawell and the Q4000 ought to have better revenue and better profitability in the third quarter with higher utilization and better mix of work than what they had in the second quarter. I heard more bidding activity with projects starting up late in the quarter. And typically, the third quarter is kind of the seasonally strongest profit from a demand perspective, ex-weather. So help me understand where the flatness is or what is offsetting that relative to all of the things that hit you in the second quarter, with the Merlin being stacked and the Witch Queen being out and the engine work on the eclipse. Is it the Intrepid -- or what is the problem there? That's my first question, and then I will come back after that, I have a couple more after that.

I will leave this to you, Martin, but I will just jump in for a second and just say that we did have some negatives in the second quarter that were not anticipated. So moving forward into the remainder of the year, even though you don't anticipate them, you can provide for a contingency in case something happens. Martin, you might want touch on the intrepid.

Yes, I will just try and addresses the question as I heard it. I mentioned that last year in deepwater, there was a lull in midyear. We're in midyear right now and we have another lull, so May was particularly poor. June was good actually, but July is being poor also. The indications for the rest of August and September are reasonable. But we're just seeing some pickup in bidding activity and the project awards, but we won't see the impact of them until quarter four, probably, maybe late quarter three, but probably quarter four.

As Owen mentioned there, we've had an incident with the Intrepid where we're going to have to dry dock it for a couple weeks here in August. So these things happen in marine operations. So we're just expecting quarter three to be about the same as quarter two, but then improving in quarter four, Jamie.

Okay. Secondly, if you look at the contribution that Marco Polo made during the quarter, did you get a full 90 days of demand charge there in the quarter?

Yes.

That is the baseline basically on a quarterly basis, and the you'll add the production as production volumes ramp up, it's all incremental, it is not --?

Correct.

Thirdly, can you update us on two things? First, can you update us on where things stand with the ADP project in the Eastern Gulf of Mexico? And, secondly, can you update us on -- Owen, you have been spending the whole summer in the UK. How far or how close are you to something there?

Well, on the first part of the question, I think it is a little early to comment. I'd rather wait until next time around on that one. So I will hand it back to you, Owen, for the North Sea.

Alright. Well, I've been here since -- let's see, I got over here at the beginning of June, took a three-week vacation, believe it or not, at the end of June, but I have spent a lot of time learning the lay of the land and talking with a lot of people. The market over here, I would say it's definitely in a transition. The North season in transition, you all know that. A lot of people have likened it to the '80s in the Gulf of Mexico with the beginning of the divestment of the properties.

There's a few twists, though. The tax regime over here adds some complications and the securitization of this larger abandonment liabilities adds another level of complication. So it's a little bit of a confused market from my standpoint right now. There's a lot of people seeking opportunities here and a lot of different solutions being offered. The Cal Dive model and the ERT model definitely has value to add in the North Sea market. That, I am absolutely convinced of. It will take us a little while and some marketing effort to leverage our Gulf of Mexico credibility over here. We have been here for two years with well ops in canyon. Bad as Cal Dive and ERT, we are not as widely known of a commodity. I don't have a deal that I could even say, Jamie, was in negotiations. I have a lot of deals. Right now, I am in the process of trying to sort through them to separate the wheat from the chaff and get down to something that is meaningful. I do think that we have a big future here. We will deal (ph), not go out on a limb and try and guesstimate when that would be likely. But we should -- I am still hoping that by the end of the year, I will have a lot more positive things to talk about.

Thank you very much and I'll pass it on.

Bill Herbert.

Thanks. Good morning. I like the slides, thank you, they're very helpful. I guess sort of sticking with the marine contracting theme for a second and moving beyond Q3 and Q4, Martin, you made a comment which I found to be interesting, and that was that the visibility for 2005 was -- I think to use your words -- improving and encouraging. Could you amplify on that, please?

This time last year, Bill, we were not seeing much at all happening for work this year. But even in June-July time, we're seeing some good bits coming through for some nice projects, especially tieback projects as we expected; good work for the Intrepid and our other survey-rated vessels, Northern Canyon II (ph) under 2750 (ph). So it's nice to the that there are some good projects on the board, even at this our lease stage in the bidding cycle.

And are you actively bidding on projects for '05 right now?

Yes.

Fantastic. Alright, second question relates to Gunnison. And you guys -- Owen, thanks for the update with respect to what was going on on those two wells; it sounds encouraging. Do you have any guidance that you could provide us, with respect to expected production Q3 and Q4 on Gunnison?

I will take a shot at that first. Bill, we've said that just talking globally first, we hit a range of 38 to 44 Bcf for the year, total production, and we're still comfortable with that range. I expect in the second half of the year, the mature properties to produce less and Gunnison to produce more, offsetting each other to the point where -- I think the recent run rate in total production will be pretty close the rest of the year. On Gunnison, it really depends on when those wells come online. But we are comfortable with our total production range for the year still.

I understand that. But just parsing it a little bit more finely -- assuming that the two wells that we had some issues with are not online until the end of Q3, we produced two Bs (ph) in the second quarter, and just what is the expectation for Q3? I assume higher, I just want to know if you had a sense as to what the range of possibilities are?

I think to answer your question, it is safe to assume it will be at least that level or a little higher; I'm just not comfortable giving any more guidance than that.

Let's move on, then. Can I ask you this -- in terms of -- what was the realized oil price on Gunnison sales in Q2?

On our side, overall, it was 3297.

But Gunnison on half (ph), right?

Yes.

What I'm trying to figure out, Wade, is that we've got transportation issues, we have crude quality issues and I'm just trying to understand what the net price was, vis-a-vis kind of a $38 WTI average spot for Q2.

Plus, Bill, don't forget, we have the royalty kickback there on Gunnison also.

Which, is above 32, you don't get any relief, right?

Right.

Right, so that's what I'm trying to understand. What was the net realized prize from Gunnison oilfields?

I will have to get back top you on that, Bill. I don't want to speculate what it is.

Okay, fine.

We are assuming the royalty, so it is netted for the royalty.

Just on that, Bill, this is more of an academic note, but it's interesting because that royalty relief issue is based on an annualized production or an annualized price realized. And I know there is not much chance of realizing less than 22 at this point. But if it did happen, then of course, the refund reverses -- the accrual we're making for the refund reverses for the entire year.

Good point. It is somewhat of a natural hedge we have. For the first half of the year, 4.4 million accrued for Gunnison-related royalties.

Okay, finally, two vessel related questions. On the Q1 call, I think we talked about that the Seawell had broken even for the first quarter, and then we were expecting about $3 million in gross profit for the balance of the year. Is that still a current assessment as to what the Seawell is likely to do in '04?

I think we're going to do a little better than that, Bill.

Okay. Q4000 -- can we ask how much she lost in Q2? I assume she did lose money?

Yes, she did; it's around 1.2 million.

Is the expectation --

Is that on the gross line, Martin?

That's on a gross line, yes.

Right, and the gross profit expectation for '04 is what?

Around breakeven.

Okay, guys, thanks a lot.

Jim Rollyson.

Raymond James; good morning, guys. One question, Owen. You talked about where your goals for the year, trying work on getting another facility in place. And you said you're on track to do that. What would you guess -- and I know it is probably early to tell -- just the timing of when that would start to -- the whole construction phase -- when does that start to impact you financially, in terms of CapEx, and then, obviously, your P&L? Is this next year CapEx and '06 kind of P&L impact, or what is the expectation?

Jim -- and jump in here, Wade, if you disagree. But I don't see getting into the new facility this year at all. I think we had more than enough cash to get through this year with even some optimistic projections on what we might be able to make CapEx like. So it wouldn't happen until next year. And the growth strategy that we have, the CapEx requirements for our growth strategy is pretty well in balance with our EBITDA generation, our cash generation. The facility is a fairly large facility, but the reason to have it is to take up -- to take advantage of any opportunistic deal that might exceed our current capital projections. But it's really want to provide us with the flexibility to be able to close deals quickly, versus finding deal, make the proposal and then go and find source a project financing.

Right. And then I guess just on those lines, Wade, right now, you said most of your debt's floating. What's your strategy on going forward, whether you keep that floating or fix it, or what is the thought there?

Currently, most of our debt is (indiscernible) and it's hard to -- we look at it at least weekly, but the difference between the floating rate there and the long rate is quite dramatic. So we are going to float a while longer there. We have 10 years to fix portions of that. The remaining debt -- we did -- the other pieces that we do have is the term loan, which I mentioned. We very well could pay that off early. So there is no thought to fix any of that currently, because it may not be around.

I will give you my philosophy on that. At the delta between the fixed rate and where it floats at right now, we've had a long ways to go before the floating rate came up to that fixed rate right now. My preference would be to try and think in terms of cash management and make a provision out of our cash flow for perhaps the eventuality -- letting it float for as long as we can with the intention not of fixing it at some point in the future, but taking it out.

We talked about Marco Polo and kind of Dobbs (ph) starting to ramp-up this year. Has there been any updates to the timing of expected additional tiebacks? And I guess along those lines, you have more prospects for doing the tie-in work for those tiebacks?

As I mentioned, K2 and K2 north will be tied back probably mid-next year and we are bidding to do our part in those tiebacks (multiple speakers) on the table right now.

Wade, you have some of your production for entire ERT hedged for next year, but it seems like a pretty small portion. What is the outlook for adding more hedges, given where prices are today?

We're looking at that. You can see on slide 12, we've listed the hedges we had in place currently. And we do have some of the first half of next year hedged. Those levels are probably only 10 percent of what we expect. So we're looking at putting more in place. Our strategy is always to hedge that to 50 percent of our proven, our PDP production. So we are closing it closely and getting comfortable with the production rates, frankly, because we never hedge based on what we think we're going to produce through well work or wells that have not come online yet. We only look at what we know we're going to be producing.

If I can add another little philosophical here, Jim. As we gain confidence in the Gunnison reserves, we will be hedging more, especially in the high commodity price environment. Trying to do deals, I think hedging becomes a much more strategic valuable tool to allow you to become a little more aggressive in that tough deal-making environment.

Sure, well it's certainly better than what you budgeted when you undertook Gunnison in the first place. Great quarter, guys.

Roger Read.

Natexis Bleichroeder; good morning and good afternoon, as the case may be. Looking, following up on the '05 outlook and given your general comments that the Gulf of Mexico is a stronger market -- or excuse me -- a weaker market than some of your international opportunities. Looking into '05, Q4000, does it go back to the North Sea if well intervention is strong enough to fully utilize the Seawell? And what are the opportunities? You stepped away the last couple of conference calls from talking about the Uncle John going to Mexico. Are there any opportunities to move that vessel or any other vessel back down there? And what else are you looking at on an international basis?

I will cover the North Sea anyway. We are beginning, at the very beginning stages, of starting to actively market the Q4000 for the North Sea and well intervention. I also think that you will see us having a much stronger presence here in the North Sea in the construction market as well. And I think the Q4000 could play a role there. So actually, if everything goes as I think it might, we actually would need more assets over here. So I could definitely see the Q4000 being the North Sea next year.

And the Uncle John question -- we are still looking for opportunities in Mexico, Roger, so it is entirely possible the vessel could go back there at some point.

I think I would add there, though, what we were talking about before was a long time multiyear accommodation contract at very low margins. I think we have sort of shifted away from that. That was more of a defensive line of strategic thinking. I think our preference right now is to explore ways to actively market it in Mexico in a construction role.

Any other international opportunities you look at at this point?

I think we'd rather be a little more -- a little patient and keep from putting too much on our plate at one time. Of course, we've been very active in Trinidad for the last three years and I think our efforts down there will continue.

And the Eclipse will probably continue in Far East.

One final question. Looking at the Marco Polo TLP and the comments Anadarko made off their call, is there a potential that you have to put more CapEx into that facility sometime in '05 in order to either bring more oil production on or to switch between oil or gas or whatever you might need to do there?

I'm afraid I didn't listen to their call, Roger, so I cannot really comment on that.

I think we could say what Martin said on our last call, though, is that we are exploring ways of trying to -- we have already debottlenecked it to one stage and we're looking again at what can be done to debottleneck it further, and of course, that would take capital.

Okay, thank you.

Will Foley.

Sidoti & Company. Good morning. In your comments about pud our mature property acquisitions, I guess you talked about pricing perhaps being a little bit above where you guys would like to do something. Can you just give a little bit more color on that? How far is pricing away from a level that you guys would be comfortable doing something?

That is an excellent question and the topic of some meetings that we have internally scheduled going forward as to where do we see the price set going forward and where do deals need to be done. I don't know what that is until we have our meetings. But I think we are going to be raising the price set that we use on deals. I think consensus is that the price check is at a plateau at least higher than the one that we have been using to do deals. I will, though, it is a little bit of a double-edged sword. While the high commodity price means that people or the producers are less likely to divest their mature properties while they are still strongly cash flowing. That does reverse at some point and create an avalanche of deals. So patient's can be very worthwhile. On the other side, the pud high commodity price obviously means everyone wants to get more production into service. And that makes it not likely that they would divest puds, but the marginal puds that are non-budgeted the represent an opportunity for us to come in and provide an alternative means to get additional production online.

Are the mature or property deals becoming more competitive if there are some more players in that market now?

Certainly. There are, especially in the shallower waters. If you've noticed what we've done over the past few years is, we are -- our latest acquisition have been out in the deeper waters where there's still a little more meat on the bones, asset value wise. And we maintain our competitive edge out there.

On the facility deal, can you comment on your confidence level now versus the last time you talked about it, or how you feel about getting something done in the timeframe that you guys are hoping for?

Confidence level higher. As I mentioned earlier, we're hopeful of getting a deal closed by the end of the year. So hopefully, we'll have something positive to say next time around.

Good. That is all I had. Thank you.

I'll also just add one more note. In our goals that we set for ourselves at the beginning of this year, we said we wanted at least one pud and a facility deal for this year. But I would just like to point out that there was nothing in our budget assumptions for any earnings impact from those until subsequent years.

Okay, thank you.

Martin Malloy.

Martin Malloy, Hibernia South Coast. Just a quick question. Can you refresh us on the Marco Polo contribution to earnings, once it's full up, in terms of capacity?

I'm looking at our model for next year. This year, we expected equity in earnings of 10 to 13 million. I think we're on track to achieve that. But, obviously, we're not going to be full up this year. We haven't looked at our budget for next year, but I would certainly say that 40 to 50 cents of earnings is not out of the question for next year.

How full on average will you be for next year?

It depends on the timing of these tiebacks. The installation awards are not quite in place yet, so I cannot tell you exactly the timing. We will able to give you a lot more detail next time.

Okay, thank you.

Gary Russell.

Good morning, everyone. I wanted to -- afternoon, Owen. I wanted to touch back on the marine construction margins. They had good quarter over quarter improvement here in the second quarter. Can you talk a little bit to how much of that was cost absorption from better utilization versus improving price? And also, you probably got helped a little bit from the Mars, the work on the Mars TLP. So I'm also curious to know how much of your margin improvement might have been aided by that, versus how much of it is overall improving fundamentals? And then, also to that point, how much is coming out of international versus Gulf of Mexico?

A lot parts to that one, Gerry. I would certainly say the improvement was driven by more fixed costs coverage. If you look at the Seawell and North Sea, for example, we essentially broke even in the first quarter on the back of around 65 percent utilization. That improved 95 percent in quarter two. And obviously, profitability and margins were a lot better. On the Mystic Viking park, with the repair work -- that gave us unexpected extra utilization at reasonable rates. So that really helped us improve the margin overall for the quarter. Did I miss any parts -- international side? I mentioned the Eclipse work in the Far East. We had some down time (indiscernible) that again due to utilization and good rates gave us a pickup there.

Okay. And so you are referring to bid rates. It sounds like, then, you are getting better pricing for some of this work?

For some of it, yes.

There's a lot of leverage left in the market, though, Gary.

Then, getting a little more specific here, could we see 13, 14 percent kind of gross margins either in the second half of the year or 2005?

I would not say in the second half of the year, but you jump in here Martin.

Our target was 9 to 12 for the whole year. And I think that is still our target. Hopefully next year, it could be better with what we're seeing in the marketplace bidding-wise.

Okay, that is helpful. Are you guys doing any work for PMex right now?

No.

Okay. And then my only other question was about Marco Polo, but I think we've covered that thoroughly already. Thanks a lot, guys.

I'm showing no further questions at this time.

Okay. Well, I guess we'll wrap it up. I just want to say thanks to everyone and thanks for allowing me to call in from over here and I hope you have a good day.

See you next quarter.