Helix Energy Solutions Group Inc (HLX) 2008 Q2 法說會逐字稿

Good morning and thank you all for standing by. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I'll now turn the meeting over to Mr. Tony Tripodo. You may begin.

Good morning everyone, and thanks for joining us today. I'm Tony Tripodo, CFO. Joining me today is Owen Kratz, our Chief Executive Officer; Bart Heijermans, our Chief Operating Officer; Robert Murphy, our President of Helix Oil & Gas; and Alisa Johnson, our General Counsel.

Hopefully, you've had an opportunity to review our press release and the related slide presentation that's on our website. If you do not have a copy of these materials, both can be accessed through the Investor Relations tab on our website at www.HelixESG.com. The press release can be accessed under "Recent News" and the slide presentation can be accessed by clicking on today's webcast icon.

Before we begin our prepared remarks, Alisa Johnson, our General Counsel, will make a statement regarding forward-looking information. Alisa?

As noted in our press release and associated presentations, 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, 2007, filed with the Securities and Exchange Commission.

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

Moving over to slide 3, slide 3 is outlined in the presentation we will be providing today. First, we will review the second-quarter results followed by an update on progress towards the 2008 strategic objectives we have previously outlined to investors. Then, we'll update our 2008 guidance. After that, we will discuss the operating highlights for both contract and services in our oil and gas segments, and then we would be happy to entertain any questions from participants.

Moving on to slide 4, quarter 2 revenues of $540 million represented an all-time quarterly record for the Company as well as a substantial sequential increase of 20% in the first quarter of 2008. In fact, both the contracting services segment and the oil and gas segment posted record quarterly revenues. Contracting services revenues of $400 million benefited from generally high vessel utilization, as well as the additional assets in place resulting from the Cal Dive's acquisition of Horizon in late '07. Oil and gas revenues reached a record of $194 million as a result of the high commodity price environment.

Gross profit for Helix also reached a record quarterly amount of $192 million. This would have translated into record quarterly earnings number if it were not for the one-time, nonoperational gains booked in Q4 of 2007 and 2006 resulting from selling down our interest in Cal Dive. EPS in quarter 2 did reflect the contribution of $0.10 a share from the sale of an incremental 10% interest in our Danny and Noonan properties, net of a loss on a disposition of all of our onshore properties which we consider non-core.

You may recall that we booked a gain of $61 million or $0.42 a share from the initial sale of a 20% working interest in Danny and Noonan in Q1. Thus stripping out the property sales, quarter 2 EPS would have been $0.86 compared to $0.37 in the prior quarter.

Over to slide 5, in addition to the highlights I've already mentioned, let me point out a couple of other highlights. We completed the hull and launched the Well Enhancer in Rotterdam where the vessel is being outfitted and the operating equipment will be installed. The vessel is expected to be placed into service sometime in quarter 2 of '09.

The Q4000 finished her marine and drilling upgrades and was back in service in the Gulf of Mexico in June, with a nice backlog of work ahead of her.

I will turn the next couple of slides over to Owen.

Good morning, everyone. Switching to slide 6, I will just provide a little overview of the strategic update here.

Basically what you'll see from this slide, the takeaway is that the strategy at this point remains unchanged. Having said that, I will say again that all options going forward are on the table; they are being studied and considered. The biggest change between now and the beginning of the year that you might have picked out on this slide is the fact that whereas in the beginning of the year our budget assumptions assumed a sell-down of 40% of Danny Noonan, 30% of Phoenix and 100% of our offshore properties, what's transpired is that we sold 30% of Danny Noonan. We have not sold Phoenix, and we've sold the onshore properties. So therefore, we have not sold as much of the production as we originally assumed. And that in large part is due to commodity pricing and examining our options going forward.

Switching over to page 7, to give you a little idea of the outlook for the remainder of the year here. So far, we've seen a lot of moving parts, some up, some down. And this will continue to be a trend through the year, probably. In the first quarter, for instance, the Q4000 was delayed by about two months getting back into work, but the other business units on the contracting side outperformed expectations for a net zero impact. Cal Dive of course was weaker than anticipated.

Moving forward into the second half, what we are anticipating and putting into our assumptions is the fact that the Caesar will be delayed. We are now showing it going to work in '09, just taking a conservative approach, taking it out of '08.

The Helix Producer I is delayed, which reduces our expectations by one month of contribution, so we will see this vessel contributing in '09. And we have not considered any continuing outperformance by the other business units going forward, so we've taken a fairly conservative look on the contracting side.

Production-wise, commodity prices have been exceedingly strong, strong enough that the decision was made to not sell all the production assets as planned at this time. Commodity price strength was strong enough that it offset the anticipated contribution from gains from the sale of the assets, which contributed to the decision not to sell them. And it's also been strong enough to offset, going forward, any continuing weakness on the part of Cal Dive or the Caesar delay and HPI delay.

On production rates, the fact that we didn't sell all of the production anticipated means that we have more production in service. This offsets the deferred production from Phoenix that was planned to contribute in December, so there's a net zero impact on the production rate on an annual basis.

But the big takeaway I think from this is that we will make our guidance, even without the $0.62 gain from the asset sales that we have not realized to date. We will also make the guidance without assumption of a continued outperformance by the other business units, and we will make the guidance with a weaker expectation for Cal Dive going forward. So all in all, it means the Company is performing pretty strongly, that we are able to do this, but it also shows that there's a lot of room for improvement and good things to come.

With that, I will turn it over to Bart here to walk us through some of the operational highlights by segment.

Let's go to slide number 9. This slide shows the financials of shelf contracting on the Cal Dive and the Helix contracting services segment that consists of Helix subsea construction, Canyon Offshore which is our robotics service line; our Global Well Operations business unit; and Helix RDS, our well and subsurface consulting service.

Gross profit of Helix Contracting Services increased 30% quarter over quarter, and 18% year-over-year fueled by strong performance of our Global Well Ops and robotics businesses. Margins are flat compared with the first quarter and lower than last year's second quarter, due to the large number of chartered vessels and subcontractors that we are using on our projects.

Slide 10, I would like to highlight here the improved utilization, and point out that we still have capacity to grow. Well operations utilization was relatively low, due to the Q4000 being out of service on extensive sea trials until June. It's working now in the Gulf of Mexico.

Slide 11 shows the highlights of the Helix Contracting Services group. I am pleased to report that our Global Well Operations department was active in deepwater Gulf of Mexico, the North Sea, and offshore Australia, and delivered excellent results for our customers and for Helix.

The last slide I'm going to call for is slide number 12. The shutdown of Independence Hub's deepwater platform due to a leak in the Independence Trail gas export pipeline resulted in a loss for the quarter of $2 million of equity and earnings from our investment in Independence Hub. The platform has been back on line and operational since the first half of June, and is operating well.

Turning over to Robert for the oil and gas overview.

Looking at slide 13, we see revenue and gross profit up significantly, as a result of increased commodity prices and the property sales we made in the second quarter. Additionally, our production for the quarter was in line with expectations at 14.9 Bcfe.

Next slide, slide 14, illustrates our cost structure improved relative to Q1, and we expect continued improvement on a pure unit basis as we bring on new production from the deepwater.

Back to you, Tony.

Okay, slide 15 summarizes our hedging positions on our oil and gas production. I'll just summarize by saying that we are presently hedged about 45% of the remaining '08 production and about one-third of our estimated 2009 production. We are not hedged beyond 2009. So just in summary, 45% of the second half of '08's estimated production and one-third of '09.

Slides 16 through 20 are presented for information only; these are non-GAAP reconciliation schedules. I will not go over these schedules, but if you have any questions feel free to call either myself or Cliff Buster. So with that in mind, we are happy to take any questions.

(Operator Instructions). Jim Rollyson.

Owen, in the prepared written commentary and the press release, you talked about margins maybe just thought you'd detailed the thoughts for margins in the marine contracting space in the second half of the year, just what your thoughts are relative to how things played out in the first half?

I think I will let Bart speak to any specifics. But in general, I think that our margins are a little off from where they should be. I think we've been very conservative, especially here in the second quarter, on booking some revenue that -- it's a normal course of action for us historically and it's one that we will get back to. And we are going to be very conservative. And the margins were significantly impacted by the fact that the Q4000 was out of service two months longer than anticipated in our assumptions, and I think that was the biggest contributor.

I think your original guidance, you were kind of thinking upper 20s, 28% margins if I remember. Do you think you'll be tracking back towards those numbers?

I would think so, especially longer-term. I think the potential for this Company to operate at an extraordinarily high level exists, and I think you'll see continual improvement as the course goes on, assuming that the market holds as strong a demand as it currently has, which we don't see anything that would indicate that abating.

Cal Dive -- last quarter, somebody asked just kind of your thoughts about the eventual progression of spinning that off, selling it off or exactly however you proceed with that. Maybe an update on what you are thinking now, given the guidance change and where the stock is, etc.?

I am going to have to just I guess formally say no to Raymond James' offer at $25! No seriously, we will just reiterate the fact that we plan to be a rational investor going forward. Having said that, I think it is obvious that shelf contracting is not core to the strategic future for where this Company is going. But at this price, we are certainly not a seller. And I think the potential for Cal Dive to -- you know, once they digest the Horizon acquisition and get back to a seasonal norm of operating, I think you'll see Cal Dive return to its normal operating margins. So I think the potential will come; it's just not now.

Understood. And last one, just I think I will take a shot at this. Given the delay, slight delay again in the Helix Producer and the Caesar and how that plays into some of your production projects as you go into next year, any initial thoughts on how production growth might look next year relative to this year, since you held this year kind of flat from guidance?

But if you go back and remember the previous quarterly call, I believe I said that going forward, our intention was to sort of manage our production a little differently going forward. We are not really looking for production to grow significantly. Production for us is an enabler to advance the growth of our contracting services.

I'm fine with our production being in the 60 Bcf range on an annual basis, and then we will grow it in step with the -- we will allow it to grow in step with the contracting services. And the way we will manage it to keep it at that 60 Bcf level, given the anticipated -- well given the size of our portfolio and the potential of that portfolio, we will keep it at that level through a series of selling down on a promote basis interest in each of the projects, therefore lowering our risk, lowering our capital, and allowing us to have a better return on capital from the interest that we do retain.

Excellent.

Roger Read.

I guess a question I will have for you, Owen or I guess maybe for whomever -- in terms of startup of the Noonan and what you think the volumes there can be? So are we looking at still late September, potential for August? What can it do for you in the fourth quarter? And are you hedged at all on the Noonan field?

Bart, Robert, you want to give what specifics you can?

Well, right now, we are installing our pipeline and umbilical to the Noonan field area and things are going well, and I don't think -- barring any really bad weather, tropical storms or hurricanes -- that we shouldn't meet our September startup date. So we are going to have to bring the field up. We've got two wells we are bringing on, so we will bring one well on and let it line out, and then bring the other well on.

So our full ramp-up, we won't see probably until mid to late October. But from a rate standpoint, you know I think we had said we were looking somewhere north of $90 million a day from the two wells. But again, we really want to see the wells come on first. And from the hedging strategy, we do have hedges in place but they are not specific to any [in fact] field. So it's just to the group production.

Bart, do you want to comment on the installation?

The flow line from Noonan has been installed. We are now in the process of installing some of the jumpers and then the harder testing and the pre-commissioning of the flow line system is going to start. The umbilical, we are halfway, making some good progress there. Platform modification is almost finished. So as Robert said earlier, I mean everything is on track for a September startup, assuming that the weather cooperates.

And I believe in the slides, we did reiterate September as the startup.

You did. Just going back to could it be any earlier, is that just in keeping with the conservatism in general on your forecast?

We will let you know next quarter!

Is the 90 million cubic feet a day, is that net, or is that gross?

Gross.

That's gross, and we hope -- we are trying to be conservative with it.

Yes, that's fine. All right, then I guess looking at the Caesar and the Helix Producer I, it sounds pretty -- I guess the Helix Producer I, once you get it here, you are in pretty good shape, and I guess it's the same issues that were going on in Croatia. Or has anything else crept up? I mean is it a higher cost on the vessel, or just the delays in getting the work done?

Well, let me address that a little bit, because there was some rumors spread by one of the publications as to what was going on in the Helix Producer I, so let me just put a little light on it. The Helix Producer I is a jointly-owned vessel between us and the ship owner. The hull modifications were undertaken by the ship owner; the topside modifications undertaken by Helix. The hull modifications went exceedingly smooth, with the exception that Croatian law requires only Croatians to work in the country, and all the Croatians have been [subcontracted] to other shipyards. So there's been an extreme shortage of labor over there and that set things back on progress. But there weren't any problems.

The mechanical, the hull and everything went exceedingly well. Our engineers did find an engineering error in the superstructure, and this goes back -- I don't know what two or three months ago, Bart?

Yes.

But the superstructure needed some modification. The fix is relatively simple; we are now awaiting class approval of the remediation and then that will progress. And that's really the main cause of the delay, not allowing us to get it in service as assumed. But it's not a big issue.

All of the projects that was managed by Helix has been finished. All of the topsides are waiting, being stored and waiting for the vessel to arrive. And it should go very, very slick and smooth once the vessel is in our possession and in the US.

And then looking at the balance sheet and your expectations for CapEx for the full year where it appears to have come in in the second quarter, do you think at this point -- and maybe this ties into your hesitancy to sell some of the oil and gas assets at this point beyond just what the commodity prices are, do you think the balance sheet debt is essentially -- hit its peak? I mean, we were down here a little bit at the end of the second quarter from where we started. Or is it, we may see an additional desire to sell assets in order to keep the balance sheet from getting any more levered up?

If I have any control over it whatsoever, you will not see the balance sheet get levered up any further.

Should we expect it to continue to come down from here, then, in the absence of asset sales?

I think the strategic analysis going forward at this point I think it's obvious that there's great value to be unlocked in the Company through a recapitalization exercise, which would lower the debt. I think that's one important step that needs to happen, and it's one that we will be looking at very seriously and trying to accelerate to the greatest extent possible.

Having said that, we do have a significant amount of free cash flow in the years coming. There are several options to consider, but it just depends on how fast we want to do it. And personally, my preference is to see it done as quickly as possible.

Yes, Roger, our own modeling suggests it will get down to desired debt levels organically without having to do any significant asset sales. But as Owen said, the quicker we get there, the better. So that's why all options are on the table.

And is any of that you think at this point in terms of asset sales? Is it still dependent to some extent on the timing of the Noonan field, the timing of Phoenix, the timing of whether it's the Well Enhancer or Caesar, etc.? Or is it, somebody walks up, makes a good-enough offer, you'll do it tomorrow?

I think this market is not dependent on anything internal.

Joe Gibney.

Just a quick question on the Caesar [causing us] and the commentary there, just discussion of increasing but still competitive costs, just a little bit more color there on what it's taking to finally get Caesar wrapped up and out the door?

The vessel is still in Nantong, north of Shanghai, and conversion is going on. All the owner-furnished equipment has been ordered, has been delivered to the yard, so really at this moment it's for the yard to perform and get this vessel out of there. There's 600 people a day working on this vessel. Productivity has been lower than what we had hoped for. The yard is very busy, has contracted a lot of work, also with customers in Western Europe and in North America, sort of reputable customers there. All these customers are suffering from the yard contracting too much work. So the productivity has been low.

But I mean we are going to get there, and the majority of the commitments -- the vast majority of the commitments have been made. So now it's really what's variable cost on a go-forward basis is our monthly burn rate on our [site team] and insurance and that type of stuff.

Just to give a little more color, the issues with the yard in China are nothing technical. The conversion of the vessel and outfitting is going as planned, technically. The problem is the same as in Croatia; it's a systemic problem with shipyards. When we made the contract, there was no backlog. They've since booked up backlog in excess of their capacity to handle. We should be having 900 to 1000 people a day on board, and we get 600. We constantly complain about it, but the problem is if you do get the 900 workers on board, there's a shortage of middle-level supervision. And therefore, your productivity drops. So it's a matter you're trading bodies for quality. And therefore, we are just sort of, believe it or not, there's a labor shortage in China!

Bart or Owen, just following up with this bar question on the marine market, following on the margin question from earlier, this commentary out of [Asit Gia] earlier this earnings season relative to the sort of deepwater well intervention market, and just they had some concerns relative to near-term incremental capacity from inexperienced operators coming into the fray. Any concerns here relative to -- any change that you're seeing relative to bidding activity, deepwater or pipelay of demand that's theirs? Kind of curious, broader take relative to incremental capacity of equipment out there.

I think first of all, you've got to recognize that the well intervention market is not one market but it is actually four separate markets. You've got the low-end P&A work. You've got the middle light-intervention work. You've got the non-diver intervention work, Norwegian class. And then you've got riser deployed and coil tubing. So there's several subsectors of that market.

I think the utilization expectations from well intervention, especially the light well intervention market, are grossly misunderstood by the industry. So therefore I do think that you're going to see an oversupply in that middle sector. As far as we're concerned, that doesn't represent any great threat to us. I think as long as we maintain the quality of our work and our leadership role, and we have not gone hog wild in overbuilding our own capacity, so I feel comfortable with our position.

As far as the inexperienced operators with the extra assets coming into the market, I'd just view that as a future potential opportunity.

Stephen Gengaro.

A couple of quick questions -- one, as far as your expectations for the year and assuming no more asset sales, is that any change in your mindset as far as your desire to sell down properties? Or is it just the timing in the market?

There's no change in our desire. I think sell-down of properties takes the form in two categories. One is on an ongoing basis, how are we going to operate and manage our production. And I think I've been really clear that we are going to be lowering our risk profile and capital outlay, by taking on partners on each of our future development on a promoted basis, if possible.

The other category is recapitalization. And as Tony mentioned, our desire is to de-lever the balance sheet. And to the extent that we can do this on an accelerated basis, by selling down further production, we will certainly consider it. But that just depends on the price that we are able to receive in the market.

And when you say recapitalization, you mean using proceeds from asset sales to de-lever, not issuing equity?

No, definitely not issuing equity.

Okay, I just wanted to clarify that one. And then, do you still view -- or maybe I shouldn't say "still", but do you view the shallow water production assets as noncore going forward, like you mentioned on DVR?

If we don't have DVR, and I don't think it's any secret that eventually we will not have our interest in DVR, then it begs the question -- if production is an enabler for our contracting services and we are no longer a shelf contractor, then why would we retain our shelf production?

Then one final one. Excuse the jackhammer in the background, but one final question and that is -- when you look at the HPI, can you give us any sense for the production rates we would expect out of the Phoenix field? I mean, I look back at the history at kind of what it was producing pre-damage from the storms. Is that a good proxy? Will it be below that? Can you give us a sense for kind of the deferred production or the -- at least the production we should expect when the HPI is operational?

I will let Robert speak to the specifics. But keep in mind, the Phoenix field was in rapid decline. It's got a high productivity rate initially but it's very quickly declining. But it's a very, very rapid payout on cash. Then, the field also has several potential prospects in it for continuing to increase or to add production which then extends the life of the Helix Producer I on-site.

So if you look back historically at the field, it's made about 50 million barrel equivalents, but it had -- as Owen just mentioned, it's had ups and downs on it. Our mission here is to strike quickly and get it out, and that's going to be made possible by using a floating production unit.

The rate at which it was at prior to Hurricane Rita was about, oh, between 14,000, 13,000 barrels a day. We feel our capacity on the HPI is about 30-plus thousand barrels a day. Depending on when we get some of the things tied in, we hope to see this well in excess of 20,000, 25,000 barrels a day in the beginning. But it will fall off rather quickly. We have to go out. We do have some very low risk [ad hoc] opportunities and some [Develica] opportunities that we want to get in during the initial period of the production, so we hold that production constant.

Keep in mind also, the Phoenix field is a very important development for us because it's sort of the culmination of our model. The future work that Robert is alluding to there, a lot of it is within the capacity of the Q4000. And because of that, it allowed us to make the capital investment to quit drilling on the Q4000. So it's a very strategically important project for us.

And then just finally, an update on the Q4000? It sounds like it's operational and working and the upgrades are solid. How does the workload look for that going forward?

Yes, the vessel is working well. It's really at this moment working well intervention work, because we had them in backlog when we entered the shipyard. And we have to work that backlog.

The vessel is performing well. I mean, the upgrades that we have made I mean rich -- low [residual] cost and increases the productivity and efficiency of the vessel, so we are very pleased with that. Then I mean, we still have 2009 and 2010. We still have the shelf contract here in the Gulf of Mexico a minimum of two months a year through 2009 and 2010. Then we have all the work contracted already for external work contracted in 2009 for some third parties, some drilling work, one project with Chevron in deepwater, and then we have internal opportunities.

So soon, we're going to have to make a plan for 2009, how much internal work are we going to do with partners and how much external work. Then we have the Shell work as more or less an annuity for the next couple of years.

Then just an administrative question -- in the back of the presentation you provide, are you going to give details on deepwater contracting services anymore, or are you going to leave it as a whole? Because you used to break out the three divisions.

I think we are going to summarize it from this point on.

I will add, by the third quarter -- I mean, right now, we're working on our drilling program for the next couple of years. So by the third quarter, there should be a lot more color being able to be added as to what the Q4000 is going to be doing, and for instance what's happening on the Phoenix field.

Mike Jones.

Actually, this is Rehan Rashid. Question is for Robert; Robert, what do you think about what gas prices are?

Hello?

Yes, sorry; I'm back. The quick question Robert, what do you think is the marginal cost or your reinvestment rate in the shelf? Does gas have to stay at or go below $8 before you start reconsidering how much you would reinvest in the shelf if you continue to be there? And also maybe from the aggregate standpoint, if you guys could tell me what would the other operators consider as a kind of point to consider from a gas price standpoint?

Well, I think as historically we've seen, the gas price -- because the high flush nature production in the Gulf of Mexico, it has a little better tolerance than some of the onshore things we are seeing. But it really depends on the prospect activity, what size prospects and what type of risks are you willing to take to go get it. Because we do have a strategy that's taking us out into the deepwater, where the risk on the front end is less but it's a greater risk getting it out. But with the combination of the model we put together here, as we're hopefully going to illustrate here at Noonan, that if you do find something and it's not necessarily a gigantic field like Noonan, that you can go out and drill it, complete it, and get it on production in less than two years. And that's what we are trying to achieve with the deepwater.

So the economics again are time, value, money. From the shelf, the recycle rate or whatever you are looking at right now, you see the cost has gone up significantly because the deposits are smaller. And you see that reflected in DD&A rates for shelf companies, which we are also a shelf company -- kind of a hybrid changing now, but you do see those rates going up pushing $4. So it looks like your finding costs, just your finding cost is north of $3.50 for shelf gas.

And then what kind of operating costs would you throw on top of that to get to a number, just rough numbers?

Just rough numbers, depending on whether it's a legacy or brand new, I would say you are looking at $2 op costs, so you are looking at about a $5.50 basis.

Okay, perfect, perfect. And is that what -- I know you've got a size advantage and all the other stuff that's part of your business plan. But would it be roughly the same for somebody who doesn't have Helix as they call it a mother ship, here? Would other smaller operators have a much higher number? Do you have a competitive advantage here of some sort?

Well, I think one advantage that we have, like in the Noonan field for example, just a turnaround, so it's really a [PV] advantage because we can get things done quicker.

Got it. One last question on Independence Hub, what are you guys thinking in terms of volumes for the third quarter? Any guidance there?

I mean, in our budgets, we are assuming eight and a million a day of throughput. I will say again, if you look at our earnings from net investment, like 50% of that is in demand payment and the other 50% is volumetric. So eight and a million a day is what we are using in our budgets.

On that topic, one quick second -- from what I've heard, it seems like a lot of methanol has been used to kind of clean up and get the operations going. Is that indicative of maybe freezing happening a little bit more often, quicker? Or is that something that you really can't use to judge anything else?

Yes, I think you'd probably need to ask Anadarko or Enterprise that question.

Vinit, Greenlight Capital.

I just wanted to follow up on a question related to the strategy update. I think you addressed questions related to DVR being non-core and your shelf production potentially being non-core if you dispose of DVR.

I think you also implied that you think the stock price is ridiculous in terms of where the shares are trading relative to kind of what you own. Can you give us your current thinking, then, on the necessity for the deepwater services business to be together with the deepwater E&P side?

I'm a big believer, obviously, in the hybrid model. I think there are a lot of benefits for having the production as an enabler for the services and vice versa. Having said that, I think it is obvious that if we are going to be looking to grow the service side, especially through M&A, you've got to have a multiple that's competitive with the peers. And that's not the case with that. That's the downside to a hybrid model. That then opens up the question as to, is there not a chance to accelerate service-type growth through a separation of the two, and whether or not that happens depends think on whether or not you can maintain the benefits of the hybrid model through a contractual relationship. Those are sort of the exercises that we are currently going through.

Don't you believe both segments would benefit independently from being arm's length from one another, or at least not part of the same corporate umbrella?

I think there are obvious benefits that would suggest that both would benefit being separated. That's countered by the benefits of the hybrid model, and again I think the ideal solution would be to have a separation if you could maintain the benefits through a contractual relationship.

At this time, I'm showing no other questions.

Okay. If there are no other questions, I'll say in closing we appreciate everybody's participation today. And we look forward to presenting again next quarter. Have a good day.

Thank you. This will conclude today's call.