Helix Energy Solutions Group Inc (HLX) 2007 Q3 法說會逐字稿

Welcome and thank you for standing by. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now I will turn the call over to your host, Mr. Wade Pursell.

Thank you. Good morning, everyone. Welcome to the third-quarter 2007 earnings conference call for Helix Energy Solutions. We appreciate your joining us this morning.

With me here today in Houston is Martin Ferron, our CEO; Bart Heijermans, our COO; Robert Murphy, President of Helix Oil and Gas, and Alisa Johnson, our General Counsel. And joining us on the phone is Owen Kratz, our Executive Chairman.

Hopefully everyone has access to a copy of our press release and the slide presentation which is linked to the press release. If you do not, go to our website at www.HelixESG.com the Investor Relations page and click on the Webcast there.

This morning I will summarize the results and walk through a quick financial overview and then turn it over to Martin for the quarterly highlights in both our Contracting Services and Oil and Gas segments. We will follow this up with a Q&A segment.

But before I get started, turning to slide two, Alisa has a very important announcement for you.

Thank you. As noted in our press release and associated presentation, certain statements therein and in today's discussion are forward-looking statements. A number of factors could cause actual results to differ materially from those forward-looking statements. For a complete discussion of risk factors affecting the Company, we direct your attention to our press release and to our annual report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (inaudible) by a subsequently filed Form 10-KA.

Also during this call certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slides of our presentation materials should provide a reconciliation of certain non-GAAP measures to comparable GAAP financials. The presentation together with the reconciliation is available on our website.

Thank you, Alisa. Looking at slide four now, for the third quarter of 2007, we reported net income of $82.8 million or $0.88 per diluted share. That represents a quarterly earnings record for Helix in terms of earnings and cash flow. This compares to $57 million of net income or $0.60 per share for the third quarter of 2006. The highlights of the quarter involve continuing improved performance and results in contracting services, particularly the deepwater, and Martin will get into the details shortly.

On the Oil and Gas side, we were able to monetize a 30% working interest in the Phoenix oil field resulting in nearly $19 million of operating income in the third quarter. This sale will also most likely result in another $21 million of operating income in the fourth quarter.

Consolidated revenues of $460.6 million represented a 23% increase over last year's third quarter with the increase driven entirely by the Contracting Services revenues. Slide five shows this better. You can see Contracting Services revenues, the maroon boxes, increased about $118 million or 47% before intercompany eliminations due primarily to the continued strong market demand for our services in the deepwater pipelay and robotics areas, as well as well operations.

Shelf contracting, Cal Dive, benefited from additional capacity compared to last year's third quarter. Gross profit of $166.3 million was 27% better than the $130.5 million achieved in last year's third quarter. Gross profit margins of 36% were slightly better than the year ago quarter of 35% as this year's results included nearly $12 million of charges net of insurance proceeds for the cleanup and removal of facilities damaged during the 2005 hurricanes, while the 2006 third-quarter results included about $16 million in charges for two deep shelf dry holes.

Regarding the hurricane charges, obviously things were much worse than we expected once we finalized this process, and remaining expenses should be much, much less. The worst is behind us we think, and most of this will be taken care of in the spring of 2008.

SG&A of $42.1 million increased $11.8 million from the same period a year ago due primarily to increased overhead to support the Company's growth over the last year and increased incentive compensation accruals this year. This level represents 9% of revenues comparable to 8% in the third quarter of 2006.

Equity and earnings. Another highlight of the third quarter was the well-publicized Independence Hub beginning production. Total equity and earnings of $7.9 million reflects $2.6 million from our share of demand fees and tariffs at Independence Hub and our share of Deepwater Gateway's earnings for the quarter related to the Marco Polo facility, which was $5.3 million.

Regarding the tax rate for the quarter, 33% was 2 points less than the 35% of last year's third quarter, due primarily to increased earnings in our lower rate foreign jurisdictions and also increased deductions relating to increased Oil and Gas sales.

Turning to the capital structure, just on slide six, totaled consolidated debt as of September 30, 2007 was about $1.4 billion. This includes $117 million under Cal Dive's revolving facility. That is the blue box. That facility is nonrecourse to Helix. We also had $86 million outstanding under the $300 million Helix revolver which is the black box. The other components are primarily the Term B facility, which was $827 million, the convertible notes, which was $300 million, and then the [Mirant] debt, which was $127 million.

Excluding nonrecourse Cal Dive debt at the end of the quarter, about half of our debt is fixed at a blended rate of 4.8%. This level of debt amounts to debt to cap of 44% as of the end of the quarter and with the $772 million of trailing 12-month EBITDAX, which excludes the IPO gain from last year. This represents 1.8 times trailing 12-month EBITDAX.

Summarizing CapEx, total capital invested in the first nine months of 2007 was about $685 million. With 59% of that in Oil and Gas segment, primarily drilling successes at NOONAN and Danny, the Phoenix development and shelf prospects. The Contracting Services capital related primarily to the Well Enhancer new build and conversion costs on the Helix Producer 1, the Caesar and the Q4000 upgrades.

Finally, in the area of breaking news, you might have noticed Anadarko's release last night regarding deepwater royalties. The US district court ruled in favor of Anadarko who claimed the Department of Interior had exceeded its congressional authority by requiring Kerr-McGee to pay royalties based on price threshold provisions. This included the Gunnison discovery, which Helix owned 20% of. I direct you to Anadarko's release if you want further information. We are obviously pleased with this outcome and will be following further developments closely.

With that, I now turn it over to Martin for the quarterly operational highlights.

Thank you and good morning to everybody. Before I get into specific quarterly commentary, I would like to share the observation that at recent investor conferences there has been a consistent theme that many service companies talk about their leverage to the secular growth story in the international deepwater services marketplace. Most offshore E&P companies displayed their leverage to the escalating oil price through deepwater activity.

At Helix we offer investors exposure to both of these growth drivers. On the burgeoning nature of our performance in the deepwater services segments, it is particularly evident in the record quarter-three results.

Overall revenues increased by 47% year-over-year and by 62% in the deepwater service businesses alone. Since the acquisition of Remington, there has been intense focus on our production numbers. The details behind these record quarterly results should demonstrate that we're much more than just a production company, and we ask to be judged on our overall earnings performance.

Okay, moving onto the slides now. Starting with slide seven through 13 on Contracting Services, as expected, the services growth profit margins returned to 35% plus levels, and services provided 74% of the overall gross profit of the group.

Cal Dive had a very good quarter, showing continued earnings growth two years after the peak workload caused by the 2005 hurricanes. They will discuss their results on a conference call scheduled for 11:00 today Central time, and you can listen in if you wish.

We were awarded two very significant international deepwater pipelay contracts with a combined value in excess of $150 million. Importantly, we won that work with our usual profit margin, which hopefully will display pricing leadership for this type of work.

Our robotics group, Canyon, followed up their record quarter two with quarter three profit higher by an impressive 63%. They have six vessels on charter during the quarter and are earning premium margins through the high-tech nature of their construction support capabilities. If you see the graphic of the new 2000 horsepower Super Trencher shown on the images of the quarter slide nine.

Likewise, the Seawell had a sequential record quarter in the North Sea. Our margins continued to improve despite the high third-party content associated with well intervention. The Q4000 here in the Gulf of Mexico performed well before coming into port for the extensive marine and drilling upgrade program.

On the production facilities front, the much anticipated startup of production at the Independence Hub occurred in mid-July, and the rate is already around 640 million a day with a Bcf a day cost by the end of the year.

The long-term prospects of this hub were also boosted recently when producers spent over $150 million on new leases around the platform.

In contrast, the production at Marco Polo is ramping up at a slower pace, but the longer-term outlook should be boosted by the enhanced recovery of the claim 2 to 4 billion barrels of oil in place in the area.

On slide 13 -- this is a new one -- we show the recent exciting growth of EBITDA in our deepwater services segments. Essentially we have doubled the EBITDA contributions since quarter one '06, which was the time we announced the Remington acquisition, and there was meaningfully more to come from asset additions, less plant maintenance and increased production facilities throughput.

Just looking at these numbers in a bit more detail here on slide 13, you see the Canyon performance in blue. Their EBITDA in first quarter of '06 was $6 million. It was $22 million in this quarter. Likewise with well intervention, $7 million in '06 and $23 million in this quarter. So we are growing the contribution from these segments pretty rapidly, and you can see on the far right of the slide that there's a lot more to come in future growth through new assets, new production through the hubs and less maintenance next year. So we are pretty excited about what we're doing in deepwater.

Okay. Turning now to the Oil and Gas reporting on slides 14 to 21, our production was negatively impacted by actual and forecast tropical weather systems. This particularly hampered our field startup efforts, and we estimated that shut-ins and stand-ins cost us at least 2 Bcfe of production. So we're not saying we would have hit the high-end of our range, but we have certainly would have been within it if it was not for this excessive downtime due to the storms.

I think operators during the quarter were very prudent when it came to reacting to forecast, and that was a kind of change from what we have experienced in past years. I think the prudence was very justified.

In addition, this is a very heavy quarter for repairs and well P&A activity related to the 2005 hurricanes. This added around $14 million to our cost structure. But, as Wade mentioned, the bulk of that work is now behind us.

Quarter four production should be meaningfully higher, and we will provide an update when we talk about 2008 earnings guidance in mid-December. We have also clearly learned a lesson that our 2008 production guidance must be made on a basis of more conservative assumptions.

Slides 18 and 19 show the status of our main shelf and deepwater development projects. With the top four shelf fields now online -- and I would like to point out East Cameron 339. We have 100% working interest in that field, and it is producing 2000 barrels of oil a day unhedged. It has been on line since the 15th of September. So that will be a nice increment for '04 -- sorry for quarter four on its own. I did mention I think there's no change to the deepwater field startup schedules.

Our increasing leverage to oil right than natural gas is really apparent when you look at the deepwater production portfolio, and this was boosted by recent success of lease sale 205. We were successful with nine out of 10 bids, and subject to MMS approval, we will secure all three oily deepwater leases that we targeted. This demonstrates our ability to protect our deepwater niche even in the present very competitive environment.

The relative location of the new leases is shown on slide 20. I would also like to use this slide 20 to reinforce the point that we aim to create considerable value from the 100% owned prospects as we have done at Phoenix and Danny and NOONAN this year. The value can then be realized through the production of Oil and Gas or the sale of reservoir interest. Such sales will be conducted on a opportunistic basis to mitigate risk, share F&D costs and reduce profit deferrals from our services group. Such sales will likely result in operating profits just as production does.

Also, in the good news category, we secured a drill rig opportunity to drill a development well at NOONAN, which could not be addressed by the Q4000s. We expect this well to enhance both production and reserve estimates with a production startup being concurrent with that from the first NOONAN well as updated on slide 19.

We may also be able to secure a rig to sidetrack and complete our deepwater Devil's Island PUD, in which cash production could also be achieved by the end of 2008.

For a hedging update, please see the new slide 21. It is significant to note that we have less than 10% of our expected year-end 2007 P1 reserves hedged at approximately $9.00 per Mcfe for a minimum value at the floor of the collars of $579 million.

To conclude my remarks with some commentary on quarter four earnings guidance, we expect our Contracting Services performance to be seasonally slower, and the Q4000 will likely be out of service for the whole period. However, we expect higher production and lower well P&A costs. All things considered, we expect earnings to fall in the range of $0.85 to $1.05 with production volume and natural gas price being the main variables.

We look forward to the next conference call on formal 2008 guidance in mid-December. With that, I will hand it over to Owen for any remarks he might like to make.

I don't have very many. I would just like to, first of all, congratulate everybody at Helix on not only a good quarter but in the way that the whole team is pulling together to stage something for the future growth.

Just a few takeaways from the presentation that I observed is, first and foremost, just the continuation of meaningful sustainable growth. I think it is also pretty apparent that we're very much a strong service company, 70% of revenue, 75% of gross profit. And the staging I was referring to is the ongoing capital investment projects. We have incurred debt in the Company. I think we have a comfortable balance sheet, but we incurred debt at what I believe is the right time and are well along on a lot of projects with highly visible returns approaching. Such as the upgrade of the Q4000 with this drilling package, the Caesar for deepwater pipelay, the Well Enhancer and Well Ops Helix Producer I for production facility, the robotics coming, and that is not even touching on all of the deepwater production developments underway. It is a pretty exciting time.

I think another important takeaway from the presentation is the sell-down of Phoenix. I think like as you mentioned following the Remington transaction as the model maturity are capturing the value and production through sell-downs and the other methods that you mentioned, it is going to become a greater part of our model going forward.

We have strong visible cash flow, strong balance sheet as I mentioned. I just think we've got a large creative team of managers and employees right now that fully understand the benefits of our hybrid model. The consistent growth results in the bottom line, and I think this is going to continue full cycle due to the strength of the hybrid model.

The bottom line it is strong overall corporate performance that is well hedged to any cyclicality that we might see going forward. I do think that the biggest challenge for us, and again, Martin, you touched on this in the budgeting process, is going to be to accurately forecast the timing of all the good stuff that is coming in the growth ahead.

And with that, I will pass it back to you.

Thank you. I guess we are ready for questions then, please.

(OPERATOR INSTRUCTIONS). Bill Herbert.

Martin and Bart, apropos slide 13 with respect to the recent growth of deepwater services into two recent contract wins on the contracting side which are pretty significant and I think compelling given their sort of international breadth. How would you characterize the current bidding climate right now as you're looking at projects and bidding on projects and correspondingly what that means for the continued outlook here for deepwater contracting?

Well, Bill, thanks for your comment there. We are obviously very pleased with the two recent wins that we announced in the quarter, and we are bidding for further work internationally. I think you will see us show more wins in the coming quarters. Already the Intrepid and the Express are pretty well booked well into the future, and we're starting to add a lot of work to the Caesar. So your picture is very nice for the next several years. I don't know, Bart, if you want to add any additional comments.

Yes, I think we have strong teams in Perth and (inaudible) them to pursue opportunities in the North Sea and (inaudible) and Southeast Asia. We're seeing a lot of bidding activity, and I think also the weakening of the dollar, that strengthens our competitive position. So overall we are pretty excited about what we're seeing for late 2008, 2009 and 2010.

Is there any way for you guys to quantify basically the scope of opportunity that you are bidding on today with the mix of assets that you have and you are going to have relative to where you were, let's say, a year ago?

Yes, I think compared with a year ago, I mean Caesar was really not that advanced. We did not have the backlog for the Caesar. The Express was really Gulf of Mexico. I mean in October and November of last year we built the Reliance Project awarded. Since then we really have been put on the map for global debottle contracting services, and we have been successful in hiring the people that are needed to support that growth. So I think in the last year we have transformed the Company into a more global contractor, and I think we have the right assets for that type of work.

If you look at the Caesar, it is really focused on S-lay, and a lot of our competitors have been building real pipelay vessels. We like the escalator niche, and Caesar being a low-cost vessel, we should be able to generate the margins that are in line with our historical margins.

Okay, and I have got one for you. I'm not sure if I understood this correctly, but you said that the sale of the 30% working interest in Phoenix was going to yield an additional $20-something million in Q4?

Yes, that is the way it looks now. I will give you some color on that. The agreement provided that if certain events -- the agreement we signed in September -- certain events did not occur, i.e. we failed to include the other guys on certain development wells or exploration opportunities, then there was a potential for some refunds. So that amount of the cash proceeds we received, the gain portion of that was deferred.

But I can tell you that in the fourth quarter there is an amendment that has been signed that would remove all of those potential contingencies. So the rest of the operating income will probably be released in the fourth quarter.

Okay, so the rest of the operating income does not necessarily representative of an additional sale?

That is right.

Okay. So that is still part of the 30% interest that you sold?

That is correct.

Roger Read.

Really quick and I understand your caution on trying to put forecasts out there on the Oil and Gas production side, but what was the exit rate of production in the third quarter?

We were ramping up. As you can see on slide 18, you can see that in the month of September we brought on 339, as Martin said, and Brazos 436. So if you look at where we were right in the end or looking at October, you're just over 200.

Okay. That was kind of what I was thinking, the 170 average for the quarter.

Right. So there is a significant amount of production that has been brought on. Unfortunately the weather delays from the tropical activity did delay the construction services that were bringing these on.

Okay. So assuming you can maintain the 200 level, I mean you've got depletion but you've also got other fields coming online, I mean 18 Bcf equivalent or better looks like a reasonable Q4 expectation?

We will let you come up with your numbers, but I think from the slide 18 you see we still have some other things to bring on. But things happen. Right now we're going into the -- unfortunately it is not tropical weather. It is just called winter weather that can hinder your run time performance.

So I think in any type of projection that when we look at the months between November and March, there is a run time that you have a run time decrease. So if you take our exit rate that we're talking about at the end of the third, add the new projects in, factor in the depletion and the run time, we were in the ballpark.

Okay. And then as I look at the three items at the bottom piling 466 on down, the delayed 30 days is that delayed 30 days from a Q4 start, or it is an incremental 30 days or a delayed 30 days, and therefore, it is a Q4?

Roger, what is happening there is (inaudible) Cal Dive are the ones switching on the top tier during the construction work, the delays in quarter three have a knock on effect into quarter four, and we're allowing a bit more weather downtime. The reason Robert mentioned winter weather is these quarter four startups. And the bottom one, the main parts project, that is non-ALT situation. We're not in charge of the development. I'm just pointing out that that one is actually 275 days late.

Okay. So delayed 275 days, not 275 from a Q1 '08 start or something. (multiple speakers)

Right. The top, the blue is the estimated first production.

Current estimate.

Got you. That is what I want to make sure of. Switching gears to the offshore construction side, tremendous quarter there. In the Canyon segment, do you still have ROVs to add to that business such that we should expect continued growth there, not just sort of pricing gains but also volume gains as well?

Yes, if you look at slide 13 on the right-hand side, we're showing in blue what difference we're going to make to Canyon to further grow it. So we have new vessels coming on a chartered basis. The new time-share, we're going to do some real pipelay with Canyon and also support the Caesar operations and add new ROVs. So we're going to continue to grow this business as we have over the last 18 months or so -- well, over the last several years actually.

And how should I think about that in volume terms relative to sort of existing infrastructure there?

Well, when we give guidance for '08 in just over a month's time, we will put more color on that for you.

So you are going to make us wait?

We're going to make you wait.

Then just looking at the well intervention segment during the quarter, I know that Q4000 went down like late August, early September, but it had a tremendous quarter. Can you give us a little idea of the relative contribution of the Seawell versus the Q4000 there?

Have you got those numbers, Wade?

Yes, the Q4000 did about $12.5 million of revenues.

Okay. Great. Thank you.

Stephen Gengaro.

Thank you. Just to follow-up on the sale of the 30% interest in Phoenix. That $20 million-ish of operating profit expected in the fourth quarter, is that part of the guidance range you gave?

Yes.

Okay. And then the other questions -- I'm not sure how much you are going to want to answer this -- but when you look at the assets you're adding right now, can you give us any sense for the kind of overall revenue impact they could have in '07 versus '06 or even just those assets without regard to growth, what kind of revenue potential they have on an annual basis?

Again, I think we would rather wait until we give you our formal guidance for '08, and we will give you a lot more color on that because so many of these assets are going to hit the water during the '08 timeframe. But you can see from the growth on slide 13 that we are expecting a meaningful actual contribution from these assets.

Okay. That is helpful. I guess the final question is just in general on the deepwater Contracting Services side, you're obviously seeing a lot of activity. What is pricing doing in general? Are you seeing kind of continued uptick here? Is it settling at the high-level? Can you give us some sense for that?

Well, we continue to push margin where we can. I think importantly and I pointed this out in my remarks, we won the international pipelay work with our Gulf of Mexico margin. And I think that should be a good point to other participants in those areas. If we can continue to add international work on the same margin, we're going to be very happy.

Okay, very good. Thank you.

Michael Bodino.

A couple of questions. With the opportunistic rig that you picked up, how do we think about your full-year capital budget now, and how is it going to change for this year?

You know, we said before that our total capital for this year would be around $1 billion. And I still think we're going to be pretty close to that number, maybe a little above. The Oil and Gas side of that will be a little bit more than it would have been otherwise. I think last time we said it would be close to 50-50. That is the general answer.

Alright. With this opportunistic rig, how long do you have it beyond the NOONAN development well?

It is for one well. That is it.

That's it? And one of the things that we were thinking about relative to next year maybe you had a development well in NOONAN, does this impact your deepwater drilling program at all for '08?

No, it is really, you know, from a opportunistic circumstance, I think a lot of credit goes to the team that they could get it together this quick. But what we saw out there is a well that was very needed as we bring on that field next August. And the fact that the rig market is so tight that we think that what we're going to see over the next year is that we will see many of these opportunities come to us.

Do you have rig secured next year for any drilling activity in the deepwater or --?

No, we don't have any rigs under contract, but we have got the Q4000, which we plan on using quiet extensively.

So any wells that we cannot address with the Q, we will try and get opportunistic ones for. That is the way we will play it.

My last question this year obviously with the level of activity on E&P side, there has been a lot of usage of the fleet equipment on that segment. How are you approaching this business going forward? Are we going to continue to see a lot of work in-house, or are we going to continue to see a lot more third-party work going forward?

Well, I think next year with what is going on in deepwater, you will see the deepwater assets really swing into action, bringing NOONAN and Danny on in record time. Where we've got the Caesar earmarked to lay those pipelines, you're going to see other deepwater assets play a big role in bringing this production on. So you will probably see more internal work next year than you have this.

But as Wade is mentioning, we have 100% of Danny and NOONAN right now, and we might consider a sell-down there on right terms, Which would reduce the profit materially.

I understand. I will let somebody else get in the queue.

Joe Gibney.

Just a quick question for you. Most of my questions have been answered. I just wanted to follow-up relative to how we should look at Independence Hub and Marco Polo for you guys going forward and how that sort of fits into your overall asset mix as we look to 2008 just if we could get some update there. I would appreciate it.

Yes, I think we have been clear on the road recently that these two assets are no longer core to our future. So in the right circumstances, we might be sellers of those assets, and we have started the ball rolling in terms of trying to solicit interest. So on the right terms, we could sell these assets or even put them into our own MRP. We're running the traps on a lot of different ideas right now, and again in December we hope to add more color to that situation.

Michael Marino.

I had a follow-up on the Q4 guidance you all gave you said included the gain from the 30% interest in Phoenix. But does it also include some charges as it relates to clean up and removal and things on the shelf?

It does but to a lesser extent than we experienced in quarter three.

Okay. And then also just to kind of follow-up on the deepwater construction margins in the quarter were a little lower year-over-year. I just wanted to get a better feel for what is going on there. Is it mix? Is it kind of the investment increases that you all are making from personnel side and from an asset side? Is it the downtime of the Q4000? Is it execution? I just wanted to get some more color maybe on where those margins -- or why those margins are where they are and kind of where they are going, if we can expect them to go towards maybe where the shelf construction margins are.

Well, a lot of it is mix certainly in the deepwater. We have a lot more third-party content than we used to, especially with well intervention. I think you're going to see more third-party content on some of the pipelay awards too.

Also, obviously Cal Dive margins came down from the peaks that we experienced in 2006. So all-in-all we're pretty pleased with 36% in comparison to our peer group certainly.

I think also if you look at [Cuming], I mean they have six vessels on charter for the quarter, and because of the vessels, they have a charter and the margins are lower.

Third-party is one example.

Okay. So those chartered vessels were in the deepwater construction segment?

Yes.

That is what I was specifically commenting on is the deepwater construction. Just to be clear. Okay. Thank you.

Philip Dodge.

A question specifically on the Q4000. If I understand, that is not going to be used to develop NOONAN. My question is, is that something the change regarding the Q4000 that you are adding less capability or something that changed in NOONAN?

No, no, we always plan to draw NOONAN with a third-party rig.

Right. It's capability issue; it is a death issue.

Okay, understand.

We have plenty of other prospects that the Q can do. That is why we chose to do -- I don't know if you remember, but we chose to do NOONAN rather than the Bishop first. We can draw the Bishop with Q.

Alright. That is clear. Thanks very much, Martin.

Jim Rollyson.

One quick question. What was the oil/gas mix this quarter? I don't know if you gave that. I did not catch it.

It was 60/40. It will be a little more oily this next quarter.

And it seems like going into next year or the next year or two, as you bring on some of these deepwater fields, your mix is going to increasingly go towards oil?

(multiple speakers). Yes. Closer to 50-50 by the end of '08 on that one. '08, '09.

It is obviously too early, but thoughts on starting to look at hedging that, or is that more just kind of wait until everything comes back on and actually gets online and on track with scheduling?

Well, we have been pretty active on hedging in the last several weeks. We have added positions in '08 and '09. As we get more confidence about the startup of these projects, we will add some more. You know we certainly like the gas hedges we see out there, and we will look at the oil hedges from time to time also.

Yes, a lot of what we have added recently is oil, so you can see it on the slide.

Perfect. And then just the last follow-up here, can you characterize -- you kind of talked about and highlighted some of the international contracts you picked up during the quarter because you guys are now breaking some of that out or at least giving us a sense of backlog. Can you talk about margins and generally how pricing looks in some of these markets compared to what you have been seeing in the last year or two?

Yes, Jim, I mentioned that we're winning the international work on very similar margins that we are enjoying in the Gulf of Mexico. So we are very pleased with that. Because we expect that given the competition in those areas that margins might suffer. But we won these introductory jobs with similar margin, and therefore, we are hopeful we can continue with our success.

Stephen Gengaro.

Just two quick follow-ups. First, I think you mentioned the Q4000 contributed about $12.5 million in the quarter.

Yes.

Could you tell us, was that -- did it work two months out of the quarter roughly?

Yes, about two months.

Okay. And then my second question and I -- you have had just tremendous earnings growth for the last couple of years, and you have kind of hit a soft patch in '07. Just in general, should we expect a material reacceleration next year?

Well, we are going to give that formal guidance in December, Stephen, but I think we have sort of set our stall out in terms of the new assets that are coming on on the contracting side. Also, the new fields that are coming on on the Oil and Gas side.

So if you look at our investments, '07 has really been a transition year for us in terms of getting ready for the next step in the growth ladder if you like. We are very hopeful that we can show meaningful earnings growth next year, but we just ask you to be a little patient and let us set that out for you formally in December.

Okay. And just one final general question. You mentioned the storms had a material effect on production growth in the quarter. Do you feel comfortable right now that you have the staff and personnel in place on the Oil and Gas side where you really are sort of trying to see that strong growth occur in production in getting to your goals?

You know, I could not be happier with the effort that is being put into this production growth. I took some of the responsibility here for maybe setting expectations too high. You know I have pushed these people very hard to grow shelf production, and that has been a major challenge for us. I think the focus next year is going to be more on deepwater production, and that is where you are going to see a major difference with single projects maintaining in excess of 100 million a day to our production.

Michael Bodino.

Just a quick follow-up. I have got to ask the obvious question before we get off this conference call about acquisitions. What are you all seeing in both segments of your business, and is there anything out there that you all are hot and heavy over?

We were trying not to look I think is my answer to that. We are very busy fulfilling our organic growth program here. We don't need to make any more acquisitions. We are just delighted with the tools that we are adding to our contracting toolbox and also the prospects that we have internally on the Oil and Gas side. So we are not really looking for the acquisition market right now.

But we were happy with our acquisitions of the last lease sale. We felt -- (multiple speakers)

Oh, yes, lease sale. (multiple speakers) -- a whole lot of organic growth.

Right.

But you're really focused more on longer-term inventory, not shorter term inventory. I know there has been some discussions about maybe one of your partners, smaller partners on the shelf, exiting the shelf and things like that or obvious easy bolt-ons if the price is right.

Yes, it could be. We will obviously look at that on an opportunistic basis, but it is an interesting point on the lease sale results. We will be deliberately focused on trying to find oil prospects, and we bid on three deepwater leases, and we won all three of them. And we can address those oily prospects anytime we wish now. We have just got to make the drilling plans. All of them can be drilled with the Q4000, so we can switch attention to those new prospects if we choose to. So we are pretty excited about our success.

And then moving on more internationally, would you look at something internationally to accelerate your entry into some of these other international markets?

Owen, would you like to comment on that one or --?

Well, a pattern that we have established in the past is looking for smaller companies already established within a market with strong management and then using that where acquisition coupled with organic potential of the region to accelerate the growth. I think we have already made some acquisitions that give us enough to work with for the time being. Of course, you always keep your eyes open, and you are always talking with people for potential. But right now I would not say that there's anything immediately on the horizon.

At this time there are no further questions in the queue.

Okay. Well, thanks, everyone, for joining us today, and we look forward to getting back together in mid-December to discuss the outlook for 2008. Thanks, again.