Helix Energy Solutions Group Inc (HLX) 2007 Q4 法說會逐字稿

Good morning and thank everyone for holding. At this time I would like to inform all participants that their lines will be on listen-only mode throughout today's conference call until we're ready to take questions. Also today's conference call is being recorded. If you have any objections you may disconnect at this time. Now I would like to turn the call over to Mr. Wade Pursell. Sir, you may begin.

Thank you. Good morning everyone. Welcome to our fourth quarter 2007 earnings call. Appreciate you joining us today. With me here today is Owen Kratz, our CEO; Bart Heijermans, our COO; Robert Murphy, President of Helix Oil and Gas; and Lisa Johnson, our General Counsel.

Hopefully everyone has access to the press release and the slides which is linked to the press release. If you don't you can go to our website Helixesg.com and on the IR page, click on the presentation there.

We're going to do things a little different this quarter. You can look at the outline on Slide 3. I will summarize the results and then turn it over to Owen for our 2008 outlook and strategy discussion and then we will go to Q&A.

A lot of the more detailed segment slides that we typically put in have still been included for your reference toward the back but we will not go through them on the call. So before we get started, looking back to Slide 2, Lisa has a very important announcement for you.

As measured 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 as amended by a subsequently filed Form 10-Ka.

Also during this call, certain non-GAAP financial disclosures may be made. Our slide presentation together with a reconciliation of non-GAAP financial measures to comparable GAAP financial numbers is available on our website. Thank you.

Thank you, Lisa. So I'm going to start on Slide 4. During the fourth quarter we had several large unusual items come through, primarily a large gain from Cal Dive's acquisition of Horizon offset by oil and gas impairments. I will go through those items with you.

For the quarter revenues were a little over $500 million or 26% more than last year's fourth quarter as demand for our services continued to strengthen particularly in the deepwater and our oil and gas production was up 16% over the fourth quarter of 2006 level. Adjusted EBIDAX of $233.1 million grew 28% compared to last year's fourth quarter and EPS without the unusual items I referred to was $0.87 compared to $0.71 in last year's fourth quarter excluding the unusual IPO gain in that quarter.

Summarizing the full year 2007 results, EBIDAX totaled $824 million 22% more than the 2006 level. For contracting services which contributed 43% of the operating cash flow the year was highlighted by escalating demand in the deepwater and our adding capacity on the shelf through Cal Dive. For oil and gas which contributed the other 57% of operating cash flow our level production was below our expectations but we did have significant success in exploration which is a nice segue into Slide 5.

You see on Slide 5 some of the key stats from year-end reserve report. Despite producing 65 Bcf equivalent, selling 29 Bcf equvialent and revising down a net 9 Bcf equivalent, we still were able to grow year-over-year proven reserves 26% to 670 Bcf equivalent. This results in a PV-10 value at December 31, 2007 of a little over $4 billion. And that is at $93.98 oil and $7.17 per gas.

Moving onto Slide 6, as I mentioned earlier we had several large unusual items come through during the fourth quarter. Last year you might recall we reported a $96.5 million gain net of tax on the sale of a minority interest in Cal Dive through the IPO. This year during the fourth quarter Cal Dive closed the acquisition for Horizon offshore and since they used stock in the transaction and we consolidate the results we realize a gain for the markup in our investment to reconcile to their equity balance. We also recorded $61.4 million of charges net of tax primarily related to oil and gas impairments and dry hole activities.

Slide 7 breaks down the components of that amount and here on this slide these are pre-tax numbers. We recorded $59.4 million of oil and gas impairments during the quarter relating primarily to Devil's Island as a result of an unsuccessful development well and also wells which experienced massive water encroachment late in the year resulting in loss of (inaudible) reserves. We also wrote off $9 million of value that had been assigned to certain shelf prospects the leases for which were higher during 2008 and we have no plans to drill them.

The 12.5 million of accelerated DD&A relates primarily to one of the properties which were impaired in the above $59.4 million and also our deepwater Tiger field which began experiencing water much sooner than we had anticipated resulting in an impairment of the reserves and accordingly acceleration of DD&A. We also wrote off a well which had been previously suspended naming it non-commercial and that made up most of the $10.1 million.

Turning to Slide 8 in our outlook for 2008, and before I turn it over to Owen, for 2008 we're budgeting internally EPS of $3.36 per share. This slide shows you a little bit of how we get there starting with what I will call pure operating earnings, that is before interest expense, intercompany profit, deferrals and the impact from oil and gas interest sales which we do consider operating but we do acknowledge the lumpy nature of it. We're budgeting $3.33 which compares to $3.34 for 2007.

Backing off interest expense and intercompany deferrals, which would be the number if we did no sell-downs in 2008 you would get to $2.21 per share. And with the sales we're budgeting incremental earnings of $1.15 per share and this would include the gain and also the impact of reduced interest expense and reduced profit deferral offset by whatever production from 2008 was sold. So the resulting $3.36 compares to a normalized $3.05 for 2007. With that I will turn it over to Owen.

Just staying on Slide 8 for a second, just a comment -- essentially we're calling for a conservative estimate on the same asset base which is essentially flat year over year. You can see that at the top line and the comparison of the bottom two lines. I will say that that's flat year-over-year in spite of what you see there, the interest rate increasing as well as the intercompany profit deferral.

If you switch over to the next page in the '08 outlook where you see a breakdown, one thing I think you'll notice is that there's no ranges this year or complex variables. This is basically just a look at what we consider a very conservative internal budget and we will be focusing on beating it throughout the year.

In general though we're looking at weakness on the shelf offset by growing strength in the deep. We're looking at production flat with shelf decline offset by deep contribution. Some upside contribution from new assets both on the service side and production will begin to make their presence felt by the year-end.

The transition towards the deep I think from this you can see is starting to become apparent for both the services and the production. As I said before interest and expense and eliminations went up this year. That is an area that we can work on and that gives us sort of a built-in upside to tap going forward besides all of the new assets that we have the potential of bringing online.

Just a comment on margins. There's nothing alarming in the market drop in Q4. There was mainly an impact of taking the production impairments, the [Q4000] being out for a full quarter while it goes through its upgrade to drilling. And a large third party content in deepwater contracting for the quarter which although that drops margins all of these were (inaudible) decisions based on return on capital.

Moving on to the next slide just to give you some background so you can fill in on the '08 budget assumptions. I think from this we've given you a view of some of them and you can see that it is the conservative estimate. The margins, we're calling for a slight decrease in margins. This may be conservative but we do have a lot of new international work that is starting up and we just thought it would be prudent on the contracting side.

Assets coming into service, I believe these are conservative dates and we will be working hard to beat those. And internal profit deferral -- I might mention our budget is based on an assumption that we will be selling down some interest in deepwater properties. On the previous slides you saw profit deferral of $50 million. Without those sell-downs it would have been $60 million and there's probably further upside in recapturing this value if we consider any further sell-downs.

On the oil and gas side, I mentioned to sell-down. It is basically something that was always planned and we're just playing a little catch-up here and I will get to that when we talk about the strategy a little bit. But the commodity prices at 750 and 75 oil is roughly the same as last year and I believe improved out to be conservative there and will going forward.

The production of 69 Bcf again that's assuming no sell-downs. The actual budgeted production is about 64.5 Bcf so there is not a great impact on the production from the sell-downs but it's all been netted out in the budget assumptions.

Other than that, I think the only further note -- well two notes. The exploration dry hole of $40 million, $13 million of that was already taken and will be taken in double (inaudible) in the first quarter. But the remaining $27 million I believe is conservative if you look at the drilling program that we have for the remainder of the year. The new field startups startup dates again, hopefully these are very conservative and we can move these up.

Flipping slide now to strategy, tried to capture just in a few bullet points the essence of what's been going on. Let me just say the long-term strategy for the Company remains the same. For the last two years since the Remington acquisition there has been an opportunity emphasizing E&P to really create some value. We have created value both in the portfolio that we acquired from Remington as well as making an aggressive investment in new service additions. So there's a lot of inherent or intrinsic value in the Company.

We are now looking to capture some of the value that we created in the Remington portfolio. Basically it means taking a few chips off the table, laying off some of the risk and laying off some of the CapEx going forward.

As I mentioned before our budget does assume that we're going to be selling down some interests in our fields, that is basically in line with the strategic plan for the Company. We have had a tremendous year. We took some chances. We had some tremendous success and we need to be happy with that and start to play a little catch-up here on the sell-down of the portion of ventures that we own.

We will then use these proceeds from the sales and our cash flow to complete the CapEx projects currently committed to both for the service side and the production developments that are underway and this will take us through the remainder of '08 probably to accomplish. At that time going into '09 we will execute going forward in accordance with our strategy and we will also focus on net debt reduction.

But for right now we need to focus on the execution of the remainder of our CapEx projects and focus on the quality performances we bring these new assets into the service. We will be giving a lot of serious consider to the best options going forward for unlocking value.

I think everybody knows that there's a lot of value in this Company. PV-10 on reserves is $4 billion. We have another 4 Tcf in (inaudible) risk reserve potential; reserve additions of 244 Bcf going from 536 to 677. Our service assets are world-class. We arguably have the most capability of any subsea contractor in the deepwater.

We've got a global footprint well-established in select global markets and are positioned well to grow there. As a contractor we're smaller and more nimble and quite honestly we perform better than our competitors. You'll often see write-ups on our competitors about contractual disputes and losses on projects but quite honestly I can't remember the last time anything was written on us in that light. The quality of this Company is just next to none.

Our people are just plain out of the box of just standard. They're just extraordinary. And our growth potential is tremendous.

But with all of this value, I think their needs to be some rationale to how we go forward. We don't need to promise to put the value of all of our production on the bottom line tomorrow. Taking production equity is just one of the differentiators for us as a contractor. It's an adjunct to our contracting. It doesn't need to be the key driver of our growth. We had great success with deep prospects this year. We took some chances and are really happy that we did. But we are as a Company risk averse to the risk of E&P.

Having said that, there are ways of capturing the value of our portfolio in support of our service growth without the E&P risk profile. It is simply not necessary for a contractor with the quality of Helix and as well positioned as we are to be putting ourselves in unacceptable risk situations.

What we do quite honestly is just not that complicated. It will be my go through the year to simplify this and to come up with formats where this becomes a lot more transparent and easier to understand. The emphasis going forward will be absolutely focused on unlocking the value that's currently in the Company. With that, I will open it up to Q&A.

(OPERATOR INSTRUCTIONS) Jim Rollyson, Raymond James.

You mentioned just on your guidance kind of setting the bar as a conservative base so you can get things on track. Can you maybe just put this in reference to the last couple of years of guidance? How conservative do you think you are this year versus when you put out numbers a year ago or two years ago just relatively speaking?

Jim, I'm just going to leave the guidance as the guidance and I think that I am really going to be pushing to have people judge this Company again on our results rather than what we might say our potential is.

Understood. Obviously one of the things you mentioned, just the timing of some of the vessel deliveries, you think the dates are (inaudible) conservative. They all same in a lot of cases to have slipped a little bit. Can you maybe talk about kind of why some of the delays if that's impacted cost etcetera?

We have throughout the year seen continual slippage. We have firm dates and in our budget we are actually putting the dates a bit to the right to add some contingency. But I might let Bart speak to some of the reasons and specifics about which vessels are late and why.

This is Bart. I mean it's an industry trend. We are not isolated from that trend. We have seen some delays in the shipyards quite often because of delayed engineering work, output from engineering firms that is needed by the shipyards to complete the conversion of these vessels. We hope that the dates that we put in here that we can achieve these dates and we see the light at the end of the tunnel on several of these projects.

Understood. If you look at -- you've got Newton, Phoenix starting up late '08, you've got the Caesar coming in kind of later part of '08, Helix Producer I, Q4000 comes back in. It will be going into '09 for hopefully all of '09 and then you get your well intervention vessel. It seems like you got a lot of inherent growth built in going from '08 to '09. Any stab at just ballpark what kind of step-up you might have from these events?

I could add up the return estimates from all of the E&Ps on these but quite honestly I haven't done it. As you can imagine I've been a little busy trying to take a look at everything for '08 from the bottom up. I'm just not quite at the point of being able to do that for you.

It would seem like you have got a pretty good step up in earnings ability next year versus this year with those things happening -- agreed?

I think the way I phrased it in my comments was that I think our potential for growth is just tremendous.

(multiple speakers) sometimes we focus only on these conversions and these new builds. The last year we added two charter vessels to our fleet and long-term chargers and also this year starting in April we'll add another DP2 charter to our vessels. So we are continuously adding vessels to our fleet. That is a good sign.

I might give you a little bit more flavor also is that although we're seeing some weakness in the shelf market, the only weakness we're starting to see in the deepwater is some of the third-party vessels that are owned by shipowners, the rates are starting to become a little more rational. That means good things for us because it means that's sort of behind the decision that we have made of adding fleet capacity to Canyon on the ROB side.

But the continued strength in the deepwater is really encouraging. I think if you go back and remember when we brought the Q4000 online we were ahead of the market and the market didn't -- we were anticipating the market there for 2000 and it didn't show up until 2002. This time it looks like our timing is a little better. The market is remaining strong for the introduction of these new assets.

Roger Read, Natexis Bleichroeder.

I guess I just want to understand a little bit here within the forecast you talked about I think it was 50 or $60 million of backed out profitability on the offshore construction piece. One number was if no sales. The other number was assuming some sales in the deepwater. Is that correct?

That is correct.

In terms of the oil and gas sales expected during the year, I mean is this a pretty well identified sell-down on your part now or just a general sort of budget number you anticipate getting to? And then the other part of that question is the timing of these oil and gas sales, clearly, if you do in the first quarter then the profit deferrals would be much less. But if they happen later in the year could the profit deferrals be at the high side?

I'm going to sidestep this a little bit with you. Obviously we've thought it through an awful lot so it would be a little misleading to say that we don't have specific ideas in mind. But we do have a fairly large deepwater portfolio now. If you notice our reserves now are roughly 50-50 shelf and deep. So it gives us some latitude on which options to explore and we are exploring numerous options.

On the timing we have taken our best shot on estimating what the timing is going to be. Of course that could move around a little bit so we're not going to really say when. But that's why our guidance is on an annual basis and given the variables I think we can manage to that.

Okay and then on the production volumes the 69 Bcf equivalent number that's little bit less than if I took the fourth quarter an annualized it, fourth quarter '07 number. Is that just a function of you're not going to be doing as much work in your shallow water areas for the depletion rates or simply eating into that or -- I mean because you explained pretty well kind of if with sell-downs the number is closer to 65, I'm just trying to understand what the moving parts are there.

Let me let the expert address that. Robert?

Well, it is a conservative number. We do fight the depletion rate on the shelf and frankly at year-end we had as you can see in the impairments we did have some wells that prematurely had water encroachment and one of them was a pretty high rate well off deepwater.

So we're just looking at it with the depletion and really from a timing standpoint. I think what we saw last year when you look at our projections versus our actuals, we had an aggressive timing on getting some developments on. We still have several. In fact we have got four shelf developments that didn't get on that were anticipated to be on last year. We just don't want to count on those coming on on-time. So the bottom line is that at Q4 we did have a couple of high rate wells that had water encroachment.

Okay, so that's not the right run rate to take going forward than?

No, what we put out is for the 64 versus 69 the sales in there. That's what I would use with the fourth quarter having anticipated increased deepwater production contributing.

Okay, thanks. That's helpful. I guess my final question the Q4000 you're converting it to a drilling mode. Owen, you mentioned sort of maybe I guess if I interpreted correctly a lower risk profile to your overall E&P. Is the Q4000 more likely to work this year in a well intervention mode or more likely to do as was kind of indicated before maybe a half-drilling/half-well intervention mode during 2008?

I will let Bart fill you in. We have had some pretty exciting developments on the Q4000 contracting front.

I think for this year I mean we've got some completion work we're going to do on (inaudible) well which is tied back to the Phoenix. I mean it's part of Phoenix development tied back to the Helix Producer I. Then we're going to plan to do some top hole drilling. We're going to get into the drilling slowly. I mean we have to build up a track record and we have to get everything worked out in the vessel.

So the top hole drilling, the completion of [little burn], we've got (inaudible) contract there we're signing for some relatively shallow targets in deepwater that we plan to drill. Then we're probably going to spend between 100 and 150 days this year in the deepwater well intervention.

So it is going to be on a continuous basis. It's going to be mixed between deepwater well intervention where we think we can get some pretty good rates for the vessel because we're competing with fifth and sixth generation drilling rigs. And then we are going to be active in the drilling modes in let's say the 2000 to 4000 feet range where we are competing with third generation drilling rigs.

Let me follow-up just a little bit. Right now the MMS has given us partial clearance on the use of the Q4000 but we still don't have full regulatory permission to drill with it. But when I mentioned there's options of drilling without the full E&P risk, it's just not the fact that the Q4000 can drill cheaper than a drill rig.

Strategically, I don't think you will see us doing any more 100% wells where it makes more sense for us as a contractor to take on partners and lay off some of that risk and then by doing so we also lay off some of the CapEx and in the process it reduces the profit elimination for the use of the Q4000 for instance. Really if you look at the economics of the Q4000 it really makes sense when we are using it from a minority position with majority partners. And that's where we maximize the profitability on the vessel.

Stephen Gengaro, Jefferies & Co.

Two main things -- the first just coming back to the guidance on the contracting services side, to me the margins look conservative. I guess I have two questions. One is sort of what is driving that and two is a general part of that question. Are using kind of a midpoint of DVR's guidance or can you kind of frame it for us what you are using out at the DVR side?

Stephen, this is Wade. We are using just below their midpoint in our budget. And I will let Bart speak to the margins if you want to.

Yes, I mean clearly what we're saying is that we're seeing some softening on the shelf so there is margin compression there. Then just also with the conservative forecasting which results in margin compression and then also would have more chartered vessels, more third-party content which results in margin compression.

But I am not that worried about margin compression whether we use chartered vessels or we use -- we have more third party content because the models shifting (inaudible) results in incremental profit on the bottom line. And so it's not like margins go down and profit goes down. It's mainly the margins may compress a little bit the profit goes up because we get higher revenue from some of those international projects. So it's not something I'm concerned about at all because it's not going to go at the expense of decreased profit; to the contrary.

The other question I guess is directed for Owen. When you take another kind of look and I know you have always been paying close attention but when you look at sort of the struggles I guess on the production side since the Remington acquisition, how do you categorize kind of what has been going on? I think more importantly what should give us increasing confidence that things are going to get materially better over the next year?

If you are looking back at what went on I think it was a combination of events that made the recovery from the hurricanes a lot more difficult than what we anticipated -- access to third parties, the cost of third parties, just a number of things. I think the difference going forward is it would've been one thing to say what you do and then do what you say.

If we had said we were going to have the difficulties and then outperformed it would've been one thing. And going forward I think what we are doing is looking at a realistic conservative case with proper contingencies and production levels that we feel we can meet and exceed. There's more specifics. Feel free to --

I think from the production side obviously it's been a disappointment. However, as far as value and the purpose of that acquisition I think we have shown that the deepwater portfolio does have considerable value. Just to reiterate we've only drilled one out of 20 plus deepwater prospects that came with that merger.

So I think in combination with the Q and slowly becoming a drilling unit, the use of that to drill the majority of those prospects with our ability to not only drill and generate and produce them as the case with our HP I that the value is not going to be created overnight. It's going to take time and maybe we were just out of the gate a little too quick after the merger.

I didn't mean to imply that we had any problems with the deepwater production. I was speaking primarily to the shelf which quite honestly right now is taking on less emphasis for us as we see -- we're transitioning from shelf to deep and the deep is now half of our reserves and very successful. So it becomes less of a meaningful event going forward as well.

That's helpful. Just as a final question maybe for Wade, when we look at sort of the strategy of maybe mitigating risk and selling down some interest, is there an optimal debt to cap ratio you're looking to get to over time?

Yes, I would say certainly below 40% and our target is to get it down to 30%.

I think historically we're comfortable in the 30, 35% range. Our philosophy on use of debt is we're not opposed to using it and spiking it up. But the visibility of the capacity and the intent to pay it back down as quickly as possible is something we need to be disciplined about.

Joe Gibney, Capital One.

Owen, I just wanted to touch base a little bit. We haven't touch too much about the production. Obviously you've talked about monetizing and unlocking some of this value and you don't need to bring it all down to the bottom line certainly in 2008. But I just want to get a little bit of color here about your strategic thinking about how the hubs fit into where Helix is going to be over the next several years.

I think our entry into the facilities market was prompted by our need to establish credibility and expertise in production facilities in support of our marginal field approach. The concept of getting into the hubs arose what back when the Gulf of Mexico didn't -- there was not yet the infrastructure in the deepwater to make it commercial for a lot of the smaller discoveries and there were an awful lot of them at the time.

With enterprise, we entered into the Marco Polo hub and that allowed the basin to really open up and a lot of smaller reservoirs to become commercial. Followed that on with Independence Hub; I think we got into that we always knew that was probably a limited duration market for us you know as financial players coming and as infrastructure is established financial players with lower cost of capital than ours and it becomes a financing game to see who can get these contracts. We knew that wasn't a long-term solution but it did allow us to build the credibility and expertise to really look at where we take that business.

Where that is is again an application to marginal fields. That's where we believe our niche is. The Helix Producer I thatis currently coming out of the yard that will be deploying on the Phoenix field is the first of the vessels in that line. It's a much smaller floating production unit. In fact it's the first one in the Gulf of Mexico that is DP with a disconnectable [turit] which has some very attractive qualities with regard to hurricane avoidance. So the smaller unit, that then can be used to produce small fields sequentially is probably the path we're taking in the future.

With regard to the existing hubs, we did look at monetization of them. Quite honestly on an outright sale the discount applied to the cash flow of interested MLP parties was not sufficient to make it that attractive on an outright sale. There was some consideration last year given to forming our own MLP but I don't know. I just felt like given the complexities of our business and as much as we have our plate right now to try and do an MLP with its own stand-alone infrastructure just was probably not the best path for us to consider.

In general, I think we have a lot more value to be unlocked and reasonably out of the production interest and it's also in-line historically with our strategy. The facilities are good return-on-capital projects, very visible cash flow. It's almost an annuity and for the reasons that they get fine multiples elsewhere they have that same value for us internally for ongoing cash flow. Right now there's no intent to look at monetizing them in the near future.

That's helpful. Thanks. I just wanted to follow up on an earlier question relative to the shipyard delays. Just if you could give us a little color here. Are we just dealing with typical shipyard capacity constraints relative to equipment and personnel? It's impacting the entire industry. Is there anything specific that's kind of delayed some of the Q and some of the other vessels coming out and the Caesar coming back?

It's really what the whole industry is experiencing. I mean, I think it would be interesting to know is that it's not only (inaudible) shipyard constraints but if you just look at the whole shipyard capacity especially in Southeast Asia I mean that's doubled in the last five years and was on the critical path; nowadays is -- the engineering and design that has to be done because that design and engineering that's not being done in Southeast Asia is being done in Western Europe. So you have a doubling of shipyard capacity and doubling of demands and then still the engineering is still the same number of engineers really and I mean -- so that has been one of the bottlenecks.

If you look like the Helix Producer I we are we own are on the homestretch there. With the Caesar we have made very good progress in the last six months. There really are no lead items, no long lead items that we're waiting for. We've ordered all the material we need to order, all the pipeline equipment that has to go in the back of the Caesar. The fabrication of the stinger is going very well.

So we are on the homestretch of these projects. But I mean, the shipyards are busy and sometimes it's difficult to keep the owner of the shipyard focused on your project when he gets in a couple of other projects that are bid at higher margins than some of these contracts we have signed with the shipyard owners two years ago. So it's just a process the whole industry goes through but we are on the homestretch.

That's helpful. One last one if I may. Just I noticed your comment there on the [express] has arrived (inaudible) November commenced work there with [Reliance]. Any update on that project and how that is progressing?

Reliance arrived there in late November and has been working with on the project. We are a subcontract on that project. We have performed very well. We also expect the Eclipse, the DSP to arrive in India next week. So that vessel is going to be available for the diving work that is needed to tie in the pipelines to their shallow water platform.

We see that as a big growth area. As you saw last year we entered into a (inaudible) contract with the customer in that Southeast Asia region and I mean we think it's in the world-class deepwater oil and gas basin that we hope we can play an active role in the next couple of years.

That's helpful, I appreciate it. I will turn back, thanks.

Bill Hebert, Simmons & Company International.

Owen, I guess I want to take more conceptual approach here and get back to strategy. On the one hand what I'm taking away here is that we want to de-risk the portfolio, we want de-lever and we're contemplating some asset sales. But ultimately at the end of the day, given all the different component parts of your portfolio as it stands today I think one conclusion we can draw is that you know Cal Dive of old subsequently became Helix. There was true symbiosis with regard to the marriage of (inaudible) construction and [E&T].

In subsequent years however, the complexity of the asset portfolio morphed beyond the limits of your business model. So now I think it's welcome news that you are trying to get back to what worked. So ultimately at the end of the day how does this company look? How do you want it to look down the road where we are actually realizing the synergies that you want to realize and that you no longer are?

It's a good question and I don't know that it's one that's got a definitive answer at this moment in time. I think the Company has sort of morphed recently and how it reacts to implementing the strategy right now I think remains to be seen. I think for right now the first steps will be to sell down production -- not deemphasizing prospect generation. I don't want to put the wrong impression in anyone's minds. We bought Remington in order to acquire the prospect generating group with the backlog of prospects.

The value for us in the production side now as it relates to deepwater is in generating prospects that we can then promote out to the marketplace bringing in partners that adds both capital access and backlog for our service assets and gives us a built-in market to apply new assets to. That value is still there. As we move forward in selling this down, a lot will depend on how -- I think there's a big disconnect. I think that's pretty obvious between the intrinsic value of the Company and the market value.

Whether or not we actually see the market value come back and recognize the intrinsic value will then dictate the neck steps we go from there. The only thing I will say right now or willing to say is that I'm taking no option off the table in looking at ways of unlocking the value of that is in the Company.

That's welcome news. So I mean it sounds like that given the sort of growing chasm if you will between public value and intrinsic value that you guys have a lot more intellectual flexibility here with respect to unlocking the value which I think is welcome news.

With regard to some of the details here, Wade, on your hedges, we have a pretty broad range here with regard to the collars. It looks like you have got about 27 Bcfs of '08 production hedged which would be about close to 40% -- 35 to 40% of expected production for '08. On a blended basis, if you will, what is the blended hedged gas and oil price for that production as it stands today?

Hedged volumes?

Yes, sir.

I would say it's right at around 830.

830.

Because on the collars, we would make 830 -- between 730 to 1087.

So this is 830 on the gas and on the oil it is what?

On the oil it is probably around $72.

Okay so I'll with a strip then it's hovering around $100 for '08 right now on oil and 960 for gas. It sounds to me that the price index that you chose with respect to providing guidance are somewhat arbitrary. Is that fair?

That's fair. We wanted to select some conservative prices that we hope to beat.

Fine, and then lastly with regard to your 59% stake in Cal Dive I think the timing of the announcement of this registration late last year was unfortunate. The stock has subsequently imploded. What are the plans there? If any big hurry to sell that off? Or are we going to wait until you get a better expression of value if you will for your holdings?

I'm glad you asked that, Bill. The reason we spun Cal Dive off in my mind was to create an entity in the shelf that was not a strategic core business for us but it was one that we did recognize a lot of growth potential through M&A and by spinning it off, creating its own currency in light of the fact that our multiples have been compressed. It would have the multiples to pursue that M&A path.

Unfortunately it just hasn't worked out that way. But I have to say I'm still a believer in that path. Obviously we registered the shelf. I think it is something that is prudent to have in place. But I will tell you that we have no intentions of being a seller at this time. Instead we plan to be a rational investor and start to explore ways of assisting Cal Dive and working together closer going forward.

Greg Poole, Echo Street Capital Advisors, LLC.

I just had a couple of questions. First one I think is for Bart. Bart, on the Helix Producer I, I think it is in Croatia at Victor Lenac in the shipyard there. As I understood it and correct me if these assumptions are not right that this is a conversion of a former rail ferry into it an FPSO and I am just curious -- I don't know how many of those have even been done and with the issues that have happened with Victor Lenac in the past, what is the likelihood that maybe this doesn't -- we don't even see this come out in '08? Because I understand that's a pretty Herculean effort for this conversion and how much is predicated in your guidance? I guess that's more of an Owen question question in terms of the Helix Producer I.

I'm glad to answer that question. I mean if you go to Page 20 in the presentation there is a picture there of Helix Producer I and that was taken six weeks ago or seven weeks ago. It doesn't look like a train ferry anymore and that was the whole plan of this conversion. We have a partner in a Danish company, Kommandor R˜M˜, a partner in this vessels that has been through this a couple times.

It's a pretty unique vessel because as you can see it's 160 meters. It looks like an offshore construction vessel 162 meters long and it's not going to serve as a floating production storage uploading unit an FPSO that you referred to because we're not going to store any oil on the vessel and we're not going to upload oil onto shuttle tankers. We're going to discharge them to the export pipelines.

So I mean as you can see in a picture we have made a lot of progress. The vessel -- I mean, all the (inaudible) have been installed, all the engines. Really what's left is some piping insulation on the vessel and then I mean finishing pulling the cables and terminating the cables, connecting to the equipment. And as I mentioned earlier I feel confident we are on the homestretch here.

This vessel is going to move, it's going to sail to the Gulf Coast where we are going to install the production modules onto the vessel and these production modules have capacity of 45,000 barrels a day. The fabrication of these production modules at Kiewit Yard in Ingleside is progressing very well. It's ahead of schedule so these modules are -- the weight of these modules are 4000 tons. They are pretty big modules. They're waiting for this vessel to arrive. I mean, then it's going to -- the vessel's going to set sail to the Phoenix location.

We feel pretty confident in the concept. The hard part of the conversion is all behind us. Victor Lenac yard has performed pretty well. They have had difficulties themselves but they have been a good contractor on this project. What Owen mentioned earlier what we like about this concept is a couple of things.

First is with the damage that these hurricanes have caused in deepwater really are if you're an owner of a production facility (inaudible) deepwater really are self-insured so it makes more sense to mitigate that risk by not being there when the event happens so we can disconnect and we can sail away if a hurricane is in the Gulf of Mexico. And also, we can relocate this to other fields very easily.

So we like the concept and as you can see the conversion is almost completed. And we are confident this vessel is going to leave Croatia in the second quarter and it's going to be in the Phoenix field ready for production in the fourth quarter of this year.

Are you having any issues at all in terms of ordering enough engines to power -- the install power on deck for either the Caesar or the Helix Producer? I know there has been sort of a shortage out there for getting installed power.

All of these long-lead items have been ordered a long time ago and were installed a long time ago. First off for Caesar, the Caesar was a 5-year-old (inaudible) ship and we are not installing any new engines. We're not installing any new thrusters. We're not touching that part of vessel. The Caesar arrived on her own power, arrived on her own power in China and the conversion is -- it has to do with changing the cable (inaudible) vessel into a (inaudible) vessel. Again, I mean all these vessels, all the long-lead items have been installed, are in the process and pretty soon we're going to start commissioning these vessels again. So yes, we're beyond that.

Let me just follow on. Most of these assets are due to come to market here within the next eight to ten months so these are mature projects that are well on the way. Just to answer the other part of your question, the way we approached it in the budget is we took all of the expected delivery dates and we have shifted them to the right. That is not to say that they couldn't shift further to the right, that Helix Producer I in specific we have got in the presentation here December. That means that our budget only has one month of Phoenix production into it and the delay in the vessel would not that severely impact the budget other than one month of production.

But to counter that there's probably equal or better opportunity to be early for instance on Noonan production. So even if there is a delay I think we've got enough contingency built into the budget. The same goes for the other assets, the floating assets on the service side, the Q4000, Caesar. I think by moving them all to the right just a little bit it gives us the opportunity to have as much upside as down.

Last question Owen or maybe it's for Wade, just to better understand and forgive the simplicity of the question -- but just understanding the hedging and the collaring, the gentleman who asked a couple of questions back assuming we see a price tag -- I will throw it out -- of $90 for WTI, with the collaring will you enjoy roughly call it the nonhedged portion for spot market crude sort of offside for Helix on the oil side? I understood the answer for natural gas. But just to help me better understand the oil portion. Thanks.

Yes we would on the gas and oil.

Michael Bodino, Coker & Palmer Inc.

Robert, I have got to congratulate you. That was a great year of good [F&D] cost.

Thank you.

I've got a couple of E&P questions I want to follow up on. Relative to the way we are looking at production for this year would it be conservative on our part to assume some general decline in production for the first thre quarters and then a ramp up with Danny Noonan coming online for fourth quarter?

I think the earlier gentleman had a similar question, Michael. Just from Q4 to Q1 through Q3 we did have that (inaudible) out issue. So I think we could -- because we're not getting individual quarter guidance at this point. With the notes on the Phoenix coming on December and then Noonan in September I think it's inherent that we will see the upward movement of production in late Q3 and then Q4.

Okay, why -- (inaudible) ask the question on lifting costs. Your lifting cost was fairly low last year. Why is the guidance on lifting costs so high now?

That would be on Slide 22. The operating expenses that we deal with in the Company with the combined Company have increased. We have some older fields that after the hurricanes have required more maintenance not that they were not maintained prior but there are certain fields that are legacy fields that require -- that still are very economic that just require more (inaudible). They're more expensive to operate.

The number we're quoting includes R&M.

It includes the maintenance of the platform also and wells.

To ask the question a little bit differently, when the Danny Noonan (inaudible) comes online we should expect or maybe expect LOEs to start declining again?

Yes, exactly.

So, to come to 220 -- I think the number was $2.02 LOE average, it may be a little bit higher pre Danny Noonan, a little bit higher afterward?

That's right.

Relative to the deepwater business just out of curiosity, is there a dollar or percentage ownership that is optimal to own relative to the prospects and/or is it a sell-down to generate cash or mainly to mitigate risk?

Yes, it is all. There's not a formula. I think strategically for our model, you can make the case of that it makes sense for our contracting business to have control of the costs and control of the contracting from as small an equity position as possible that reduces -- minimizes the profit elimination and lays off as much of the CapEx as possible.

But having said that there is incremental value in these fields from which production becomes cumulative over time. And it can very quickly overshadow and outpace the services side. I think going forward we will be selling down continually. I don't know that there is an optimal level. The model also has the benefit from the production side of having the visibility of cash flow in the event of down cycles. So you don't want to get the production down too low.

Quite honestly I think in the 50 to 100 Bcf range is a good range to manage towards and it's not a dollar amount. It's more how much cash makes sense to have, how much capital are you incurring and it's sort of a moving target. But I think you will see us -- as we build our -- as we prospect more and drill more in the deepwater, you will see us settle down and probably manage the production to roughly its current level or slightly higher.

That helps a lot. Relative to the -- I have a few more quick questions if you will indulge me here. Relative to the $1.15 and earnings from sales, what goes into that number? How did you calculate that?

Well we looked at the potential sales and took into account the basis obviously in the properties but we also took into account how much reduced interest expense would come with the cash proceeds and how much additional profit deferral would come. Unfortunately I cannot get any more specific than that.

Okay so I'm not to assume you have a deal on hand or anything like that?

Nothing that we could talk about right now.

My last question -- one of the things that we haven't talked about today is the deepwater portfolio. Is there any -- I know you've got a lot of development dollars being spent this year both in Phoenix and Danny Noonan. Is there any other significant deepwater prospects that you have on the books to be drilled this year?

I think we're letting the balance sheet dictate the momentum that we put back into the drilling program right now. We're sort of -- we've still got the tail end of these capital projects and we're going to be funding them through '08 and then we're going to be looking for a little bit of debt reduction. But I think starting in '09 -- '08's drilling program is lean. We have no deepwater prospects due to be drilled in 08 but you will see us start to feed those in starting in '09.

Joe Agular, Johnson Rice.

I just wanted to clarify on some of your shipyard projects if there has been any increasing cost overall or not.

From the original inception?

I guess with the news that you all released today or yesterday.

From the point when the AFEs were submitted for these projects there has been some tremendous cost increase. I say tremendous cost increases -- it's in line with what industry's experiencing but given the high increasing cost of steel, the currency exchange, and just the demand in the market. Yes, the prices are -- the costs are much higher.

Is this something that is going to -- you are paying for or is the shipyard is on the hook for this?

No, well it's back and forth. It depends on the contract on each individual vessel but I should put a caveat on that. There originally were fees for when we initiated these projects were very, very low-cost our and I think with the cost overruns that we have got if you look at the cost basis and the assets as they come to market we're still going to have a competitive advantage on cost.

And you might have noticed the guidance we gave for CapEx for '08 is $800 million with about 50% of that being services and 50% being oil and gas and those amounts that we're now expecting to incur are included in that.

Okay.

Some of these as Owen mentioned, I mean some of the cost increase is caused by the weakening of the dollar and of course several of these assets are global assets like [well enhancer] will predominately work in the North Sea. And the Caesar will probably work eight months a year outside the Gulf of Mexico and so we also expect that these assets are going to generate more dollar revenue on a go-forward basis.

So, I guess what I think I hear you saying is that even with maybe a little bit higher cost in the asset you still think the economics are very attractive once they come to market?

Absolutely.

If I could also -- there was some conversation earlier regarding the variation in charter vessels in maybe '08 versus '07. Is there any way you could and I assume you're just talking to short-term charters -- is there any way you can put some numbers around that in terms of either number of vessels or vessel days or --?

If you look -- let me to see one of these slides. I mean, Slide 14 for example, in our --the business units -- the [robotics] business units or the business units called (inaudible) offshore that's the entity that has the most charter vessels. And as you can see we list five long-term charters of which there are three that we entered into last year and they are three to five-year charters at pretty favorable dayrates.

Two of these vessels (inaudible) for Olympic Canyon and Olympic Triton joined the fleet or Triton in late 2007, Olympic Canyon in mid-2007, the Island Pioneer will join the fleet in April of this year. And so we are adding capacity and several of these vessels have long-term contracts.

For example the Iran contract we announced and $60 million IRM inspection repair maintenance contract that we announced a couple months ago is going to take one of these vessels, the Olympic Canyon, off the market for three years. And then the other vessels have some nice contracts in the North Sea and in the Gulf of Mexico. So we expect that I mean that's going to add to the bottom line in 2008.

(inaudible) effect is that we are also planning to add robotic units to service the vessels so that's a smaller component but a meaningful component of the CapEx this year.

This is an area too where you see some margin compression because of the higher charter cost but from a return on capital perspective I mean these are -- these really help to increase the return capital which is one of the most important metrics we use on the profit side.

Joe, if you want to when -- our 10-K will come out today. There is a listing in there of all the vessels we own and the charters. They're all included in there with their specs if you care to see.

It sounded like the number of overall days in '08 is up pretty much over '07 therefore -- the question was related to the margins in the contracting business and I think you explained it. I just wanted to maybe put some numbers around it. But if I could just ask one more question on the contracting overall, I don't know if you said this or not but deepwater not margins but total EBITDA in '08 versus '07, are you expecting that be up or do some of the -- having the Q4000 out, is that a big impact?

The Q4000 -- we expect Q4000 to have an high utilization in 2008 from 2007 because I mean of the problems we had with the vessel in 2007. So we expect that to be a good profit contributor again and hopefully better in 2009. Overall we see in deepwater I mean (inaudible) budget and a slight increase in EBITDA [profit] contribution. I mean we hope that we can beat them.

Slight increase for deepwater, slight decrease for shallow water. Okay thank you.

And then a net increase for the entire year due to the assets at the end of the year coming online.

Exactly, okay great. Thank you very much.

Kelly Krenger, Banc of America Securities.

Two quick questions, on the CapEx budget of $800 million does that contemplate the sell-down or included in that number is there an assumed portion of sell-down of the E&P assets?

Yes, that does contemplate the sell-downs and it is reduced by the amount of future CapEx which would be shared with partners after the point-of-sale.

And then on the reserve reconciliation page can just you provide us more detail on the revision line item? I know it wasn't very big but I'm just wondering if there were more components that went into that number?

On the reserve revisions?

Yes, on the reconciliations. It looks like you had four in the shelf, five in the deepwater (multiple speakers) negative and I'm just curious in terms of kind of what went into those if there was positive (multiple speakers)

There is considerable positives that obviously offset some of the negatives. We had the Devil's Island project that we just wrote to zero, zero reserves on the books. And then on the shelf we did have several fields that had PUDs drilled this year. When you look back at our drilling on the shelf last year I know it seemed (inaudible) cause a lot of exploratory drilling. But we had an equal as much (inaudible) conversion and we were pleasantly surprised with some of our drilling on our PUDs. So the end result was that we had (inaudible) less in both the deepwater and the shelf that resulted with the nine negative revision.

Was there any price related impact?

There's some. Just being a successful efforts company we have to look at every field individually. It's not like (inaudible) where throw it all in the pool. And that's not unique to us but for the amount of drilling that we do and everything we are mandated to look at every single field. So the pricing helps maybe on some of the older fields but really doesn't impact the new fields, the high rate fields.

I think it's fair to say that excluding Devil's Island the reserve provisions were neutral to slightly positive.

Right, they were positive; yes.

Okay, I guess that was the core of what I was hopeful to get out. Okay, thank you guys.

(OPERATOR INSTRUCTIONS) There no further questions at this time.

Well thank everyone for joining us today and we look forward to speaking with you soon.

Thanks (inaudible) Roger I didn't mean to ignore you but thanks. It is good to be back.