Helix Energy Solutions Group Inc (HLX) 2005 Q1 法說會逐字稿

Good morning. Welcome to the Cal Dive International Incorporated first quarter 2005 earnings conference call. At this time all participants are in a listen-only mode. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I will turn the meeting over to Mr. Wade Pursell, Chief Financial Officer. Sir, you may begin.

Thank you. Good morning, everyone. Joining me today as usual are - Owen Kratz, our Chairman and CEO; Martin Ferron, our President and COO; and Jim Conner, our General Counsel. The format of the call this morning will be similar to that of the last few quarters. I will walk through a quick financial overview and then turn it over to Martin for operational highlights, including a discussion of the recently announced Stolt and Torch asset acquisition potential, and then to Owen. He will discuss the oil and gas production and wrap it up with a strategic overview and outlook. Then will follow that up with the Q&A segment.

Hopefully everyone has access to a copy of our press release and the slide presentation, which is linked to the press release. If you haven't ready done so you can go our website, www.caldive.com. On the investor relations page, click on the webcast presentation there. We will be referring to these slides as we go through the presentation this morning.

Beginning with slide three, Jim Conner has an important announcement to make.

Jim Conner, III: Good morning everyone. As noted in our press release and associated presentation, certain statements therein and 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 31, 2004 filed with the Securities and Exchange Commission.

Thanks Jim. Now turning to slide four. Earnings for the first quarter of 2005 came in at $0.64 per diluted share. This includes a $4.5 million charge, or $0.06 per share, relating to the expensing of seismic costs included in the recent production contracting acquisitions. Just to add a little color, the SEC has recently become quite rigid interpretation of the accounting for seismic costs such that the companies that use successful-efforts accounting, which is what Cal Dive does, costs of obtaining the seismic data even when acquired in an acquisition generally should be expensed immediately. That is what we've done. This represents a timing difference, which will benefit the future earnings of these projects through reduced DD&A. Without this charge, earnings doubled the results of the first quarter of 2004.

Revenues of 159.6 million were 38.9 million higher than last year's first quarter driven not only by the higher commodity prices, but also by a significant improvement in marine contracting revenues driven primarily by the improved market conditions across all of our business groups. Gross profit margin of 33%, which was 35% before seismic charge, was seven points better than that achieved in the first quarter of 2004 due not only to the increases in commodity price, but also the improvement in marine contracting across all business groups. I might also note the bottom line margin is 16% versus 11 a year ago and the EBITDA margin of 44% versus 39% a year ago. SG&A, 12.5 million for the quarter, was 1.7 million higher than last year's first quarter due primarily to our improved financial results and the related increase from our incentive compensation programs. With this increase SG&A was 8% of first quarter revenues compared to 9% a year ago.

Equity and earnings, 1.7 reflects our share of Deepwater Gateway, L.L.C.'s earnings for the quarter. This does reflect a 51% decrease from the fourth quarter due to the expected falloff in production from Marco Polo reservoir and also to the early retirement of Deepwater Gateway's term loan, which resulted in a $1.2 million charge, 600,000 to Cal Dive, for the write-off of deferred financing charges.

Looking ahead for the rest of the year, last quarter we indicated with the fast start to the year, we predicted earnings closer to the higher end of our range, which was given at the range of $2 to $2.70. We are now increasing our range to $2.30 to $2.90 primarily due to the higher commodity prices, but also due to the stronger marine contracting business than we budgeted for late last year.

Turning to the balance sheet real quick – I'm on slide five now. On March 30, 2005 we issued 300 million of convertible senior notes. We utilized 72 million of those proceeds to fund our portion of the early retirement of Deepwater Gateway's term loan. Total debt-to-book was 44% on March 31, 2005, offset by 362 million of unrestricted cash. The remaining proceeds should be utilized to fund acquisition opportunities including the Stolt Torch assets, if completed, and the several development properties we've recently announced. Looking at the slide, net debt as of March 31, in addition to the 300 million, was 136 million for the MARAD (ph) debt, which is the 25-year term debt, which is still floating at around 2.75% and then about 9 million primarily capital leases with a fixed implied rate of 3.29%.

Turning to slide six, I included the general terms of the convertible notes that several people have had questions on. I won't read through all of it. It's here for your perusal. The one item I will note, though, that several people have asked about – the net-share settlement feature. What that means is that Cal Dive will settle the 300 million in cash. The only dilutive impact – the only shares issue will for value above the conversion price, which is $64.27 per share. What this means from an accounting standpoint is that we will not have to include any shares in our diluted EPS calculations until our share price is trading above 64.27. I have given you an example of a dilution impact. If this were converted to $100 a share, it would be 4% dilutive.

With that, I'll now turn it over to Martin Ferron for some operational highlights.

Thank you Wade. I am going to start with Marine Contracting on slide seven. Overall we were very pleased with our performance in first quarter. Revenue did decline slightly from Q4, but that was mainly due to lower procurement revenue in the Well Operations division and normal seasonality for shelf services. However, revenues increased 40% year-over-year and almost doubled from quarter 1, 2002. Gross profit margins improved 5% sequentially, 15% year-over-year due to very strong execution and better market conditions. We were very pleased to achieve 21% gross profit margins this early in the marine construction up-cycle.

Turning to slide eight, the outlook. Normally quarter one is our slowest quarter due to seasonality and the timing of maintenance activities. This year, quarter two is likely to be the low quarter for financial performance due to dry-docking activity. We are definitely going to dry-dock the Seawell and the Mystic Viking and the Cal Diver II. We might still have to dry-dock the Q4000. So we'll get those activities out of the way in the second quarter and hopefully get back on track with gradually improving market conditions in quarter three and quarter four.

Turn to slide nine and talk about the shelf. Utilization did drop from the record level of quarter four due to a lower volume of hurricane Ivan related work and the normal seasonality. The market saturation diving services from the Cal Divers I & II remains very strong. We are starting to see the pickup in surface diving (ph) activity that we expected. That is linked to normal expansion, repair, and maintenance work.

Talk a little bit about the consolidation efforts that we are in the midst of on slide 10. We expect the Stolt transaction to close in quarter two. The deal is expected to be neutral (indiscernible) during the remainder of this year mainly because we are going to be deeply involved in integration and also because we are chartering back two of the main assets to Stolt at nominal rates for the remainder of the year.

Turning to Torch, we announced earlier in April that we had signed an asset purchase agreement for the entire fleet for $92 million. We did amend that agreement yesterday whereby we are going to pick up five of the shelf vessels and the deepwater pipeline vessel, the Midnight Express, for 80 million. We did that after discussions with the main creditors. The bankruptcy court approved that agreement yesterday. We are all set for an auction in early June where we'll be the stalking horse for the assets I mentioned. We can still bid on the other assets, but in the normal way. I'll answer any questions on that in the Q&A session. So the existing shelf assets that we have today – those acquisition from Stolt and any picked up in the Torch auction will be placed in a new subsidiary as we stated in our press releases.

Turning to deepwater robotics on slide 11. Deepwater vessel utilization was flat with quarter four despite a gradual decline in hurricane Ivan related work. Market conditions are improving therefore. The decline in utilization from quarter one last year is misleading because the Merlin skews our comparison. It worked in quarter one last year and obviously it was stacked (ph) in quarter one this year. The dry-docking of the Intrepid was completed in January. She has an important sideways (ph) pipelay project in 5,800 feet of seawater during the remainder of the quarter. That was a very important job for us because it showed her true capability for ultra-deepwater work and it places her well off for the jobs we expect to come along later in the year and certainly next year.

The Robotics Group Canyon had a great quarter – a record largely due [to volume] and robust demand for both ROV support services and pipeline burial in the Europe Africa Med region. Asset utilization was over 95% in our area compared to 63% across the Group.

Turn to the outlook. The active deepwater vessels have good backlogs. The Witch Queen will recommence operations in the turndown (ph) market during this quarter. We are particularly encouraged that the deepwater tieback market is developing as expected. When we converted the Intrepid, drilling activity for tieback projects was at an all-time high. Demand for canyon services should stay at the same robust levels that we experienced in quarter one. We presently have four support vessels on charter with Canyon. Again, that is not reflected in our utilization numbers. Of note also is that our second high-power deepwater pipeline burial unit will add a service during this quarter. So we will have one active here in the Gulf of Mexico with the other one over in the North Sea. You might recall that we did three trenches (ph) across the Atlantic last year. We won't have to do that this year with adding two units.

Well operations (indiscernible) 96% utilization. Obviously it can't get much better than that. Q4000 had a record quarter for profitability and has now worked every day since early July last year. The Seawell was able to complete and start of our work season in early February without further incidents. You might recall that we suffered from weather downtime and mechanical breakdowns in quarter four. We avoided that in quarter one. So a much better quarter from the Seawell. She transferred back to the British sector of the North Sea for the rest of the quarter.

Outlook. I am saying here the dry-docking on the Q4000 has been delayed until quarter three to allow her to complete ongoing work commitments. We heard this morning that that commitment might finish a little early. So for those of you interested in quarterly numbers – we obviously focus on the entire year – you should note that the Q4000 dry-dock might actually be late in quarter two or start late in quarter two. Post dry-dock we have some good prospects and expect continued good performance from the Q4000. The Seawell did [end at] dry-dock in mid April. We expect to get her back to work in mid May. She is fully booked for the remainder of the year. In general, as I noted last time drill rig rates continue to rise and we are achieving improved pricing for both well and (indiscernible) assets.

Moving onto to production facilities on slide 15. As Wade noted our financial performance was impacted by unexpected decline in Marco Polo reservoir performance and also the early write-off of financial term loan. The outlook is a lot better. We've got the K2 field start production hopefully late this month and then the K2 north field starting production in quarter three. Anadarko also announced last week that they've had a discovery on the Genghis Khan field. They are fast-tracking that development. So that should have a boost to 2006 earnings. So we're on track with our expectation with upside from Genghis Khan.

Turning now to Owen for oil and gas production commentary.

On slide number 16, you see the results for the Oil and Gas Group. The results are a little bit mixed. Pricing was a little bit better than anticipated and production for the quarter was a little off of what was expected. On the shelf, we were expecting 7.3 bcf equivalent production. We achieved 6.7. The variance was due to some downtime related to repair and maintenance. For instance, one of our compressors had to be restaged for the declining pressure in the field. So we expect that to stay flat going forward.

Gunnison was producing a little ahead of our expectations. We were expecting to produce about 2.3 bcf equivalent out of Gunnison for the quarter. We actually did produce 2.3 for the quarter. We were ahead on the production rate. But there was some downtime related to pipeline capacity. That was a repair and maintenance issue, which impacted in – I believe it was February. But it's back up now. Average commodity price, as you can see, better than anticipated offsetting the decline – or the worse-than-expected production.

Flipping over to the next page, to go through a couple of the highlights. In the first bullet point you notice that we did take a charge of 1.7 million on East Cameron 38. That was due to a re-completion of one well. We were going after production in a deeper zone. We had junk in the well and could not mechanically get back to the deeper zone and therefore had to abandon the efforts after 1.7 million. The fact that we took it as a charge in the quarter is related to the fact that the reserves that we were going after were not on our reserve report. They were not booked reserves and therefore the accounting rules require us to take it as a charge. It's also the more conservative way of taking it.

Moving onto Gunnison. I think I've covered that. The rate was actually better than we were anticipating. For instance on oil, the January number was 68,000 barrels. February dropped to 53,000 as a result of the pipeline issues. March, when it came back on, is back up at the 64,000 rate. We do expect some decline in production from Gunnison just due to normal decline in the reservoir, which then will be bumped back up as new zones are re-completed and we move onto – I believe we've got two more development wells to drill, probably in July and August timeframe. Then we've also got a deep exploration well. There is nothing in our assumptions for the exploration well, though. Outlook going forward. We're very confident of the 40 to 45 bcf range. I think that will become apparent over the year as things unfold.

Flipping to the next page 18 gives you a summary of the four PUD deals that we've just announced. Tulane, which has a high probability of success, is actually a new sand and a producing reservoir, so it's not actually a PUD. But the other three, Devil's Island, Telemark, and Bass Lite – certainly are. You can see here what we have managed to accomplish is essentially doubling the reserves of ERT. That will require a capital investment over the next three years of about 300 million. If you do the math, you can see that we are buying these reserves for somewhere between $1.87 and $2.30 in mcf – so pretty good purchases. It also contributes 90 to 120 million in construction work to our backlog. This is roughly 10% of our total marine contracting for the three years. That includes the shelf. If you look at – since these are all deep – and you look just at the deep assets, then that number is much higher, which puts us probably about half way to realizing our goal of achieving 30% to 40% utilization from our own properties. So things are going pretty well.

Next page, slide 19, shows the effects of our hedging. Our hedges are all above our budgeted production number. So as long as the strip holds up as strong as it appears to, we should finish the year ahead of our budget.

Flipping over to slide 20, these are the stated objectives and goals we had going into the year. It's looking pretty good. Marine contracting, the revenues, we should – that one you can check off. Margins are obviously stronger than 15% right now. So that is looking good. As I mentioned oil and gas – we're very confident of being at the upper range of that 40 to 45 bcf. We've made our PUD acquisitions. We're still working towards a mature property acquisition. As you know, with the high commodity prices, that market is still pretty tight. But we are seeing a lot more deal flow and pretty confident that we will achieve that goal. Production facilities Martin covered. We have identified and progressed to the next opportunity. We've got Atwater Valley in the works. Then the financial earnings, we have adjusted our earnings guidance for this quarter going forward for the rest of this year. That is probably – it's a move that we've made under duress from a whole lot of people. I think you'll see us further refine that as we go through the year as we get a little better handle on the timing of some of this work that we've closed on in the first quarter. No equity dilution, although you can argue that the convertible is an equity dilution. From my point of view, I've got to be one of the most incentivized people not to see equity dilution. I was very, very pleased with the cash convert mechanism in this convertible. Then our safety record is well on track to achieve our total reportable incident rate of 1.8. Performance from our people has just been astounding this year. Martin just mentioned the deepwater pipelay job that we just did in 5,800 feet of water. That went flawlessly. No safety incidents and no performance incidents. No contractual disputes. And it finished ahead of schedule. So things are ticking along pretty well.

I am really gratified – just moving onto a few extraneous comments – I am really gratified to now see the model that we've worked for over a decade on starting to show its potential in the Gulf of Mexico. We've essentially doubled the reserves that we have in production. We're at least half way towards our goal of achieving 30% to 40% utilization on our marine contracting assets from our own work. We have strong liquidity, a lot more power to do more. We're progressing with the consolidation of the shelf in the Gulf of Mexico, which has been badly needing it for at least a decade, in my opinion. Plus we've been able to pick up some strategic additional assets for the deep marine contracting. We've got good future growth potential on the facility side of the Company. We've got now, with Bass Lite – an interesting adjunct to it is a really promising future application for the Q4000. The North Sea is progressing. We've got opportunities. We are being well received. I'd say we're on the verge of getting our model established in the North Sea, which was our next strategic objective. Following the North Sea, really looking out into the future, our next area where we will be concentrating after that will be Southeast Asia. But only as we get these areas up and running and where the model is basically on automatic.

Rates are increasing and the performance is improving every day. Not that it was bad to begin with. But it's astounding right now. I'd say our near-term objective is just to maintain the cost discipline culture that we have. Make sure that as we grow, we do so at a pace where we don't change our culture. Keep our people incentivized and focused on the model that we're working to and not necessarily the rest of the industry and what they are doing. Then I think near-term we're going to be looking at strengthening our deal assessment and closing capability so that we can maybe put a little more of the capital that we have access to work. We are seeing the markets improving to the point where I think that is very possible.

With that I'll turn it back over.

Operator, are you there?

Yes, I am sir. Are you ready for questions at this time?

We are.

Thank you. (OPERATOR INSTRUCTIONS) Roger Read with Natexis Bleichroeder.

Good morning gentlemen. I guess what I'd like to do is look somewhat at your deepwater prospects. I guess we could call them deepwater when we are looking at Tulane through Bass Lite. In terms of the timing on those and the potential risk of your accounting system with successful efforts. Tulane doesn't really have much of an issue, I guess, but definitely the other three. How would that be treated just in terms of risk? When should we be paying attention to the potential for one of those not to work?

I'll let Mark speak to the timing. From an accounts standpoint, we're comfortable. These are all – I guess Owen mentioned that, with the exception of Tulane, which is a high POS reserve, the others are PUDs. So the issue of having an accounting hick-up would be only if we had an issue with mechanical development of the reserves compared to what we're paying to develop them. You wouldn't see that happen for a few years depending on the timing of the transactions. Tulane is the nearest term, which I guess will be occurring over the next few quarters this year. We don't anticipate any issues there.

I am not trying to anticipate issues. I am just trying to understand if something happened what the timing potentially would be and what the risks might be.

Correct me I'm wrong, Wade. But we'll be booking reserves to Telemark, Devil's Island, and Bass Lite. Therefore I think the greatest risk there is that the reserves are less than what is anticipated, in which case the costs are still capitalized, but the DD&A rate would be increased over time. Tulane would be the exception. We're not booking reserves to Tulane, therefore it has a dry-hole risk component.

Right. And the issue on the other would be when we do reserve reports and quarterly analysis. If the reserves didn't support the basis, we would have to do a write-down at those times. It is no different than any of our other properties.

Right now the 300 million in CapEx is roughly – and this is real rough because we haven't actually scheduled everything and fine tuned it. It is roughly $100 million each year for the next three years.

Okay, that's helpful. And then, Owen back to your comments on the Marine Contracting business getting better and the comment in the handout that focused on specifically the tie-back market and the pipelay in the deepwater Gulf of Mexico being as good as it's ever been. Can you give us an idea of the rough size of that tie-back market relative – I mean, are we talking six backlog bids as opposed to historically two. Or is it some significantly larger than that that you are seeing?

I read recently that somebody has done a survey. There are 75 projects on the drawing board for the next couple of years just here in the Gulf alone. So that gives you a reasonable indication of the potential workload over the next few years.

I might add, though, as opposed to the rest of the world, the Gulf of Mexico does not typically let contracts under an epic contract. Therefore the backlog is a little harder to see. The pipelay market is more of a spot market nature. We've kept the Intrepid fully utilized this year. Look forward we're looking at the potential to keep more than just the Intrepid busy obviously.

Would that mean the Uncle John or the Q4000 in that market?

No. Obviously we've taken an interest in the Midnight Express. So that will deployed to tie-back work should we be successful with the auction.

And we're picking up the Kestrel in the----

And the Kestrel from the Stolt fleet would go into that market too.

Is the Kestrel one of the vessels that has to stay in Trinidad in '05?

Correct.

Okay. I appreciate it. Thanks.

Jim Rollyson of Raymond James.

Good morning everyone. Owen, you talked about – you are obviously making some good improvements in trying to consolidate the Gulf. Finally good to see that. Do you think that there is – assuming that these two deals close – do you think there is room for you to make any more consolidation moves? Do you have any plans to – there is still some capacity out there over and above what you are bringing in. What is your thought?

I'm getting a nodding from my corporate Counsel here. I'll (indiscernible). Sure, one of the reasons why we're going to be separating – or setting it up under a wholly-owned subsidiary is so that it could potentially be a consolidating entity for further consolidation.

And there have also been a few rumors out about whether or not you keep this internal or spin it out separately. Is that something that you think is likely? Or do you think this continues to play as your bigger theme, which was the marine contracting ties very closely with the production contracting.

I think you're right on a couple of issues. I think it's too early to say what our ultimate intention is on the entity with regard to spinning it out. Let me make a comment on the future consolidation. I don't think that is necessarily confined to the Gulf of Mexico. Having said that, you are right, the shelf contracting group is not as cored to our future strategy of deepwater PUD development as, for instance, our Deepwater assets. Therefore it makes sense to set it up as a separate entity because now you have two separate growth plans, which aren't – well, they are obviously different. One is growth by consolidation taking greater market share than more traditional service company growth plan, which is distinct from the parent company then, which is the unique Cal Dive mode.

On the production side, you seem adamant about the ability to meet your guidance. I would guess that falls into one of your initial goals of making a mature property acquisition some time later this year. Is that accurate?

In our planning for our production, we looked at existing production. Then we had a wedge in there for well work and then another assumption for some acquisitions. Between the two, with what we're looking at coming up plus what we've just acquired, we're real comfortable.

Great. Thank you.

Mr. Zang (ph) with Forward (ph) Research.

Good morning. Just a couple of quick questions on the slide 18, oil and gas production and development property acquisitions. First question is on the acquisition reserves. 130 to 200, is that the total number, or the number available for Cal Dive?

That is net to us. These are all net numbers.

On the acquisition direct development costs, these are also the costs for Cal Dive not the total number?

Correct.

Correct. The only thing not included in that number is – well, I guess it could be. There is roughly 13 million of abandonment liability that is being assumed in these four transaction. I am sure there is enough play in the 300 to 375 to include that.

The other point is, those numbers that are net to us 300 to 375, includes our marine contracting work of 90 to 120.

Including the 90 to 120.

Yes.

Okay, so the total is 300 to 375.

Correct. Net to us.

Net to Cal Dive, okay.

Right.

Could you break down between acquisition and development costs.

I don't believe we can at this point.

We're in a competitive situation for this type transactions. Plus we have some partner sensitivities. I think we'll leave it as we've stated that.

Okay, that's fine. Just one final question. What kind of gas price would you believe still makes economic sense to acquire these development properties? Maybe I could put the question this way. If the gas price dropped to what kind of level, would you stop doing these acquisitions?

It is a double-edged sword. The lower the commodity price, the more interested we are in making acquisitions because it is cyclical. If you look at our history, we've always been more aggressive during low pricing cycles, especially on the mature property side. On these, as I said before, if you do the math of the total CapEx and the reserves, we're looking at a purchase price of $1.87 to $2.30, I believe. That gives you an idea of how much room, how much margin – or how much room we have in the market and still make acquisitions at this pricing level. Of course, if the commodity price drops, then obviously we would probably be paying less than that.

Okay. Thanks.

Dan Barrett (ph) with Fortis (ph) Bank.

Good morning. Great quarter. Just a couple of quick questions and a comment. Number one, on K2-K2 North, can you give us a little more – maybe I missed it. Maybe you did say it. But a little bit more on the timing of when you expect production to get back up to where it was in Q4.

It will get higher than that. K2 the first well we're hopeful will flow by the end of this month, end of May. Then the other two in the two months to follow, so June and July. Then we expect the three K2 North wells to kick in starting October, November, December probably. It is a pretty wide range on production from each well right now. Our expectation is to get up to around 80,000 barrels a day by the end of the year. Then we have Genghis Khan new find coming in probably middle of next year hopefully.

Can you say that again. How much do you expect on production by the end of the year?

Around 80,000 I would say.

Right. On the Q4000, when is that going to be retrofitted and actually start doing some of that exploration drilling?

I don't think we're in a position right now of picking a time. It hasn't – we've been doing the engineering. The AFE is going to the board. Until the board sanctions it, I don't think we could pick a time. Our expectations are, our aspirations were to be able to do the modifications during the slow time of the year, obviously during the winter.

Okay, great. Just one more thing. I hope you are getting a lot of fleet congratulations, Wade.

Thank you, Dan.

That's all for me. Thanks.

Will Foley with Sidoti & Company.

Good morning. First question, on marine contracting you talked about a bit of a slowdown in the June quarter. Can you give any sense of the magnitude of the pullback we should look for. Are we likely to see a quarter that looks a little bit like the September quarter from a revenue and margin perspective? Or just whatever guidance you can give.

I haven't those type of figures with me. Obviously with these vessels coming out of service for 30 to 40 days each has impact. I haven't got those numbers with me. I am expecting significant pullback in quarter two for those reasons, but then getting back on track in quarter three and quarter four.

Then excluding the Stolt assets – I don't know how your visibility is for the second half of the year. Do you anticipate that we'll see performance in the second half of the year something similar to the March quarter or perhaps better?

Similar, I would say. I am hopeful of that. In certain areas obviously price will improve so it might get a little better. If we can repeat quarter one in quarter three and quarter four, I would be pleased.

It's a little hard to say right now because we're already performing at better than anticipated levels.

Okay. And then in terms of the revised guidance that you've given, can you [give a sense of] the commodity prices that you are using particularly for the high end of the range.

We don't have a specific price. As you know, in the original guidance of 2 to 2.70, our lower end anticipated $5 and $37. I think you can clearly see the impact if you assume an additional $1 per mcf equivalent difference makes about $0.55 to $0.65 difference by itself.

So you're still being conservative. It sounds like your commodity price deck is still perhaps below where we are now.

I think the movement that we've made in our guidance right now is more indicative of the variance that we're seeing on the marine contracting side rather than the production side. I think it's a little too early in the year for us to make a further assessment on the production impact.

Okay. Wade, the 1.7 million charge in the oil and gas business, is that in LOE or DD&A? Where does that come out of?

That should be in LOE.

In LOE, okay. It looked like, if I just look at it on an mcf basis for LOE and DD&A, that those numbers were higher in the March quarter. On a go-forward basis, should we expect looking more like what we saw in the fourth quarter?

I think that's right.

Okay. Can you give us a revised sense of what you expect CapEx to be in '05. I don't know if you can give us a sense for '06 as well with all the various deals you have put together.

That has a range to it as well. I'll speak to the CapEx that we have in our budget as well as what we've recently announced. I anticipate CapEx for the full year 2005 to in the 220 million range. That is without the Stolt acquisition. So add the Stolt acquisition to that if we get that closed. That includes in it 45 million for the Independence Hub and then maintenance CapEx, including oil and gas properties, of 110 million. But that is not just maintenance. That is the well we're planning and additional acquisitions. So that assumes some things that haven't occurred yet. Then on the PUD side, I have about – from the ones we've announced, about 65 million total CapEx for those for the rest of 2005. So, add all of that up for '05 and you get a number of – if we do the Stolt deal – in the range of 340 million, which coincidentally is close to the amount of unrestricted gas we have on our balance sheet right now, I might add.

2006 – it depends on what we do. Just from the stuff that we know, Independence Hub will be another 20 million, maintenance CapEx I've got up in the 50 to 60 million range because I assumed some more for the Stolt assets if that closes. And then the PUDs, as Owen said earlier, about $100 million per year for the next couple of year. Hopefully that helps.

That definitely helps. The guidance you had given on the production facility, the 22 to 27 million, has that at all changed just based on where we are in terms of the ramp up in Marco Polo?

I don't think the range has changed. Maybe it will be more backend loaded than we had expected.

Okay. Last question, Wade. SG&A – do you expect the run rate going forward to be something similar to the March quarter?

I would assume that.

Alright. Thanks a lot.

There are no further questions.

Okay. Thanks everyone for your interest. We'll speak to you next quarter.

This will conclude today's conference call. You may now disconnect.