Helix Energy Solutions Group Inc (HLX) 2008 Q3 法說會逐字稿

Thank you for standing by for the third quarter earnings conference call. Your lines have been placed in a listen only mode until the question and answer session of today's conference. Today's call is also being recorded, if you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host, Mr. Tony Tripodo, sir, you may begin.

Thank you Calvin. Good morning everyone, and thanks for joining us today. joining me today here at Helix is Owen Kratz, our CEO; Bart Heijermans, our Chief Operating Officer; Robert Murphy, our EVP of Helix Oil and Gas; Alisa Johnson, our General Counsel; and I would also like to introduce to our audience Cameron [Walls] our Director of Marketing and Investor Relations. Cameron has taken on the Investor Relations role with Cliff Buster's departure. As some of you are probably aware of, Cliff has accepted a terrific opportunity with a public company in Tulsa, Oklahoma. Cameron's direct line, by the way, is 281-618-6543, but as Cameron is climbing the learning curve, please direct any questions on the quarter to me.

Hopefully you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through the investor relations tab on our website at www.heixesg.com. The press release can be accessed under "Recent News" and the slide presentation can be accessed by clicking on today's web cast icon.

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

As vetted 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 (inaudible) we direct your attention to our press release, and to our annual report on Form 10K for the year ended December 31, 2007, and subsequent reports on Form 10Q 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 materials provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The presentation, together with the reconciliation is available on our website. Owen Kratz will now make some opening remarks.

Good morning everyone. Not exactly a news flash, but we were hit by a hurricane. But hurricanes happen. One reason why we have not been more forthcoming with information prior to now was just due to the size and the extent of the impact of this storm, and the type of damage that was incurred. The coastal areas from Mississippi to south Texas were impacted, and our people needed to take care of personal and family first. So it was a while before we could get our people back offshore. The corporate office lost its roof with its server, but some courageous action by our IT department, setting aside their personal needs, got us back up and running.

But really the biggest issue was the type of damage. Most of the damage impacting us was related to third party pipelines, and therefore we were really relying on gathering information from third parties, which was very difficult to get in the early days of this storm.

But we do have a clear picture now. When the storm hit, of course, we took it very seriously. As cash flow is deferred, we immediately deferred spending, and we continue to do so. We have sufficient cash flow from strong service performance, cash on hand, and access to our revolver to cover our revised needs and recovery efforts. We currently have about 30% of our production back on, and we're ready to produce more once the third party pipelines get back into service. We expect to be back to at least near pre-storm levels by the end of the year.

We are concerned about the credit crisis, but we don't have any near-term maturity issues, rollovers, or covenant issues. And we have no current plans to access the credit markets. Our concerns really made us spend considerable effort looking at our providers, including insurers, banks, vendors, partners, and clients for potential third party exposure, and we're comfortable with what we've found out and what we can expect, but we do continue to monitor the situation.

Now we all face a potential recession with a resulting drop in commodity prices. But just to put this in a little bit of perspective, the current prices are the same as they were when we made the Remington acquisition in 2006. We've taken steps to protect our capital by hedging 60% of our PDP for all of '09. We have a range of good return projects, but the spending can be flexible, depending on what the markets indicate would be prudent.

So in summary just let me say again at this time we have sufficient liquidity based on current committed facilities. We have no near-term maturity or rollover issues, we currently anticipate production recovery to pre-storm levels by year end. But again, much of this is out of our control, because it is third party pipelines. We anticipate generation of free cash flow in the second quarter of '09 and we don't foresee any covenant issues.

Our focus in '09 will be on debt reduction, following the completion of currently committed CapEx projects. We have, and will continue, to pursue opportunities to lower debt and generate free cash flow on a more accelerated basis if we can. 2009 outlook will obviously be dependent upon the global economic issues and the impact on the industry. Therefore we will provide guidance once we've finished our 2009 budgeting process, which is under way.

To give you an idea where our capital projects stand, as I mentioned, we are currently continuing with major capital projects under way, but we have altered the timing of the capital expenditures somewhat to conform more conservatively with our cash management efforts. The Caesar is currently expected to be in the market in the second half of '09. Well enhancer is still expected to be completed by the second quarter of '09. As for the Helix Producer I, completion of the ship conversion is expected by the second quarter of '09 and it should be ready for field deployment by the end of '09.

The Phoenix field development work is currently scheduled for Q3 and Q4 of '09, with first production at year end. And the Danny development is currently scheduled for first production in Q3 of '09.

In our press release it mentions that our CapEx plans for '09 are roughly half of the $800 million to $850 million this year. You can look at that $400 million to $425 million range as being split roughly 50/50 between oil and gas and services. The 50% going to the oil and gas will cover some well work that we have planned, it's a modest well work program, plus abandonment. And the other, the remainder of it, will be dedicated to the development work mentioned above.

The other half, going to services, it's sufficient to complete all of these CapEx projects I just ran through, plus it holds out approximately $60 million for maintenance CapEx on our fleet through the year.

So upon completion of these legacy CapEx projects, Helix's focus will be on a disciplined approach to capital deployment, reducing debt, and returning to a strong operational focus as we continue to pursue ways to accelerate the debt reduction. Having given a little bit of an intro, we'll now dive into the presentation.

Okay, thanks Owen. Let me move straight to slide four, I won't go over slide four in detail because it's fundamentally a recitation of the press release. But the quarterly revenue of $616 million represented a record for Helix, as well as the gross profit figure of $201 million, and that we were able to do despite the reduced production levels.

This didn't translate into a record EPS for the following reasons; part of the up quarter was due to Cal Dive, and of course we have to book a minority interest expense as a result of their higher earnings. We also, this quarter, booked no gains of sale of oil and gas assets as we had in prior quarters, as we had no sales. And the impairment loss we took on the Tiger fail of $6.7 million due to hurricane Ike damage. So the accumulation of those factors did not allow us to book a record EPS.

Obviously, and as Owen has suggested in his opening remarks, our EPS this quarter was significantly impacted by the 4.5B reduction in production as well as our inability to bring on incremental production from the NOONAN field due to the hurricanes.

On to slide five, in addition to the highlights I've already mentioned, and Owen has mentioned, let me point out a couple of other highlights. First of all, our contracting service business had a real strong quarter as our assets performed at high utilization levels, the Q4000 was back in service for a full quarter working in the Gulf of Mexico, and as I mentioned, Cal Dive had a strong quarter, and they'll be conducting their conference call in a couple of hours.

We actually did commence production for a couple of days from the NOONAN field, which was ahead of our expectations during the quarter. before we had to shut it in, first for hurricane Gustav and then for hurricane Ike. We expect to recommence production later in quarter four when downstream pipeline repairs are completed.

And again, as Owen mentioned, we believe we'll get back to pre-hurricane production levels around the end of the year. Pre-hurricane production levels was 160 million cubic feet a day. Again, that is subject to third party pipelines and facilities coming back on stream. So at this point this represents our bet estimate of the production ramp up. Currently we are producing at approximately 30% of pre-hurricane Ike levels.

On to slide six. Obviously we have lowered our previous guidance for 2008 from 336 to 276 on account of the reduced production. We expect production for the full year to be 15Bs lower than we've previously forecasted, and we're also using a lower commodity price DAX. Previously we were using $9 for gas, $120 for oil. Now we're at $7 for gas and $70 for oil.

What the current outlook does reflect is a much stronger year for our contracting services businesses than we had previously guided to. I'll turn slide seven back to Owen.

All right, thanks Tony. Talking about the impact from the hurricanes, you see that there was a total impact of 15bcf. One question might have been how do we derive that from our projections. We were expecting to produce 18bcf in the fourth quarter. There was this tremendous ramp up from the third quarter, basically because that was NOONAN coming online.

We do mention that we expect to be back to the exit rate of 160, which is near pre-storm levels, by the end of the year. But I should point out that that exit rate does not include all of the production that was in service pre-storm being back on line. Part of it is from NOONAN coming on line at a low rate, and I should explain that story a little bit. NOONAN was to produce through a 30 inch pipeline. That pipeline has been severely damaged, with prolonged repairs as necessary. Part of our Danny development consisted of a six inch line, oil line, that runs from the landing platform of the NOONAN field over to East Cameron 346. We've gone ahead and accelerated laying of that six inch line, and we're going to use that to get NOONAN back on line a little in advance of the major pipeline repair. Of course that's at a lower rate.

So we are not expecting full rates from NOONAN until after the beginning of the year, so the exit rate is not inclusive of all of NOONAN, nor does it include some of the other production that's not back on line yet. It does include some new production from some fields in Main Pass and a new well that we're getting ready to bring on at East Cameron 346. It's actually an old well that we had lost and we've [twented] and now are expecting a couple thousand barrels a day of oil out of it.

So anyway, that sort of gives you a little better understanding of what that exit rate at pre-storm levels means. It's the same rate but different composition, with more to come.

That gets into the 55 to 75bcf range of guidance that we're providing right now. I think the take away here is that it's not going to be the 83bcf previously guided. The reason for that is that with personnel and resources and capital that were previously allocated to bringing on new production being redeployed to recovery, there's a certain deferment in the growth of the production. We've also, as mentioned before, we've curtailed some capital spending and that will also defer production growth.

But the range is still pretty impressive when you consider what's going on. The 55 is derived from just taking the exit rate at the end of the year, and taking it flat over the year with the assumption that well work and the additional production pre-storm that continues to come on offsets decline. NOONAN ramping up adds an additional amount, so we're confident that we'll offset the decline, by how much we don't know. Therefore the range, and we'll give you better guidance once we've finished our '09 budgeting and actually see the rate of these pipelines coming back into service.

The damage that we incurred, we incurred damage broadly across our fields. A lot of the platforms had damage, but very little of it was to the extent that it would impede production. Really, the pipelines are the major holdback for us.

The platforms, we did lose some platforms so there is additional production potential down the road, from -- especially one of these was a pretty good producer. But we're not the operator so we're not privy to the recovery plan there yet.

The only other thing I'll mention is that we are in the process of Level 2 inspections right now of the underwater portion. And, as we saw with the Katrina and Rita, you do find additional damage over time. But we don't believe that this is going to amount to anything material. We have some very small fields that quite honestly we haven't really looked at in depth for a recovery plan. So there could be some minor impairments in the future but they would be [de mitimus], the remaining reserves. So, it would not amount to anything.

So hopefully, that gives you an idea where we stand on our recovery. And with that, I'll pass it over.

Okay. We've added a couple of slides here, slides eight and nine on liquidity and capital resources because we know that there's a lot of interest on the subject, given the widespread concerns about the state of the financial markets and the impact of hurricane Ike to Helix.

So, let me highlight a couple of items on slide eight. First, we decided to be proactive, given the concerns with financial markets and credit liquidity and drew down $175 million from our revolving credit facility. We believe we'll need to use some of this draw to fund operations while our production is down. But, certainly, we'll have a lot of ammunition left.

We still have $44 million capacity remaining in our revolver and, based on our current cash flow models, we do not anticipate having to utilize all of the $175 million draw down; nor having to access any of the remaining revolver capacity. I want to emphasize that.

We have reduced capital spending for the remainder of '08 and we expect that CapEx in '09, as Owen mentioned, will be less than half of the '08 levels. And also, just to give us some assurance on price protection on our oil and gas production, we entered two additional oil and gas commodity hedges for '09, and a little bit for '08. And, we'll go over those in more detail later.

I've been asked by many recently as to whether we have any significant debt maturities coming due in the near future. We've attempted to outline this on slide nine. And as you can see here, we have no major principal payments due, either in the remainder of '08 or '09 or 2010. In fact, the first item that matures is our revolving credit facility; that is not until the summer of 2011. And all things being equal, we don't even expect to be borrowed on our revolving credit facility by then.

More importantly, as our production gets back to pre hurricane levels and our capital spending starts to wind down in '09, we actually anticipate being in a lower net debt position at the end of '09 as compared to where we stand now. Again, this is based on estimated production rates, assumed commodity prices, etc., etc. Also, we are in compliance with all of our debt covenants and our internal models reflect continued compliance throughout '09.

So, hopefully that answers a lot of the questions on liquidity and capital resources but please free to call me if you have any more. At this point, I'll turn the presentation over to Bart.

Thanks, Tony. Slides 10 to 15 contain some detailed information about our Contracting Services operations. We're happy to entertain any questions about this information but I will summarize it by saying that this segment is performing very well.

Helix is operating a record number of 12 vessels in our four main regions, namely Gulf Mexico, North Sea, Offshore India and Southeast Asia, including Australia. And our vessel utilization is very high.

Our backlog visibility is well into the second half of 2009 and we have yet to see any signs of demand weakness. So that was short and sweet, like our operating business. So, I'll turn it over to Oil and Gas, to Robert Murphy.

Yes; please jump forward to slide 16. As you've heard, production for the quarter was down significantly from Q2, due to three hurricanes that we had to shut in for and resultant damages from Ike. But repairs are progressing on our major offshore facilities. However, we are only presently producing 30% of our pre Ike daily rate. This is principally due to what you've heard already, third party export lines and the onshore processing facilities associated with them.

Following the guidance given by these third party transmission companies on the timing of restoration, we do expect to be at our pre Ike production rate by the end of the year, as stated before, approximately 160 million cubic feet of gas per day.

We did commence production on schedule from our deep water NOONAN discovery from one of the two wells prior to the storms. As we were disrupted twice by two storms, we were unable to bring the field up to its potential running rate but did gather enough flow data to feel confident that we will achieve our full rate of over 100 million cubic feet of gas per day, which is 60 million net to our interest. There was no damage to the NOONAN development by either storm. However, as mentioned earlier, a large third party export line was severely damaged downstream of our host platform. The owner of this line has projected a restoration date of December 12th on their website.

Turning to slide 17, this slide summarizes our operating cost structure on an MCFE produced basis. The operating expense incurred for Q3, of $2.10 per MCFE, stands out when compared to prior quarters, principally due to lower production in Q3 relative to the fixed costs associated with operating the properties. Additionally, we incurred hurricane expenses in September that we recorded and have applied to our insurance deductible. We did record a property impairment related to our Tiger deep water field as the sub sea well's host facility was destroyed by hurricane Ike. Due to the well's limited remaining reserve potential, we have written off this property, as we do not intend to find a new host facility for the well.

All in all, we expect our overall operating expenses in Q4 to be higher, on a unit basis, due to projected decreased production levels, but expect them to fall back in line to pre hurricane levels, once production is fully restored.

And Tony?

Yes, slide 18 summarizes our hedging positions as of today. I'm gong to focus on 2009, in October, given the concerns about the direction of commodity prices. We entered into a series of additional collar type hedges to bring our total hedged positions for '09 to 43 billion cubic feet equivalent. If you take the middle of our current '09 production estimate of 55 to 75 Bs, this represents approximately two-thirds of estimated production. The additional hedges, I ran a collar floor of $75 for oil and $7 for gas.

I'm not going to go over slides 19 to 22 as they're informational non-GAAP reconciliation schedules presented for your reference. So, at this time, we will be happy to take any questions.

(OPERATOR INSTRUCTIONS)

Our first question comes from Roger Read, with Natixis. You may ask your question.

Yes, good morning.

Good morning, Roger.

There're a lot of places to start but, could you give us an idea on the oil and gas production range for '09, 55 to 75? And I understand where you're laying out the start up for the Danny field and the Phoenix field etc., but what all plays into that range? I mean, on a percentage basis, that's fairly wide.

I'll turn this over to Robert and let him answer but let me just give my take before you start.

NOONAN, at the exit rate, is only producing at 22 million cubic feet a day, through the six inch line that we're laying. Once the major pipeline repair is done and we're expecting that very shortly after the beginning of the year, that adds 40 million a day to our rate, which, you know, that's incremental and not in the 55 number.

Then we have Danny, which adds another, if it comes on August 1, it adds another two Bcf in the year. So, you very quickly start ramping up from there. The 55 is based on the exit rate, taken flat, with declines being offset by well work in some of the pre storm non production coming online.

Did that help?

Yes, yes; okay, I was waiting to see if you were going to follow up or not.

Well, I think, from as wide a range as you see, that 55, hopefully, would cover, not an Ike like event but the associated shut-ins with storms entering the gulf also. And I did mention that the third party export line that NOONAN goes into, they are stating December 12th as their restoration date. But we are not using that.

And not that we hope that they make that date, which would be great, but we're being a little more conservative in the estimate, due to the winter time months that they're doing the work in.

So, not to get very granular with next year's production range but, we did also have some platforms that have damage but are not severely damaged, that will come on over the course of the first and second quarters. So, in that range, 20 Bcf that we're giving, that timing is uncertain. So, what I think we've done is put a pretty conservative forecast out there with the 20 Bcf range.

Okay and then my other question, the Caesar vessel, now a second half '09 delivery target, or availability target, Owen, can you give us a little idea of what, other than, obviously, you're trying to manage your cash flow and CapEx, was there something else that led to that vessel -- I mean, I was thinking Q1 delivery date, if memory serves, so, I guess, we've slipped about six months?

Yes, it's the combination, and I'll let Bart speak to the details of it because he's personally overseeing it. It is just a combination of our cash flow management combined with an ongoing problem with the Chinese shipyards that's just slow working. It just -- it's matching our interest at this point.

This is Bart; it's really the number of people that the COSCO shipyard is making available for the conversion of that vessel and the low productivity that we have seen in the last, mainly, in the last six months. And so, we know the number of man hours that are still left and we are applying the historic productivity factor. And we calculate the delivery of that vessel by mid next year.

Hopefully, COSCO can make more people available and/or their productivity is going to go up. But the only thing that, at this moment, we know is the historic productivity and we apply that and, I mean, try to come up with an estimate that we think is realistic.

And Roger, I'll add that we do have a contingent on the way over to sit down and try and talk with COSCO and see how much we can accelerate this. The cash impact to us, of this project at this point, is not that great because we're so close to the completion. It's just sort of an excruciatingly slow work pace over there.

We are losing contracts that we had backlogged for this vessel and we're very much interested in continuing to try and accelerate it, if we can.

But let me just add to that, I mean, we had nine months of work contracted for this vessel and some of this work, we have taken over with our older vessels. And then, some of the work we have sub-contracted and some of the work we are, I mean, working with the producers to add the (inaudible) into late '09 or 2010. And it looks like those producers are willing to do that because the work was not a critical path for their oil and fuel developments.

So, that's the general [development].

I have noticed that other projects in the yard that recently were announced, were being deferred for financing reasons. So that should provide more resources from the yard. Plus, the producers that we were contracted to, are starting to become impacted to the point where we're starting to garner some support in putting some more pressure on the yard to increase the pace.

Okay and then where you are outsourcing, or, I guess outsource isn't the right term but finding somebody else to do the work in your place, do you bear any risk if they fail to perform? Or is it a very clear sub let where you're essentially abdicating responsibility, in terms of either generating revenues or taking risk on losses?

Yes, for one of the projects, it's specific that we have subcontractor to another service contractor, those terms are back to back with the contract between us and our producer. Our customer has staffed up and has covered some of the higher cost and has assumed some of the liability in excess of the liability that we had assumed. And so our customer really has helped a lot on that project.

Okay, and then my final question, when is the Phoenix vessel, excuse me, when does the Helix Producer I for the Phoenix field, when does that arrive in the US? Do you have a date for that now?

We're planning on an April transit at this point.

Okay, that's it for me, thanks.

It's roughly a 30 day transit, so you should see the vessel in Texas in May.

We have moved the vessel from the yard in Croatia to a yard in Greece. The yard in Croatia was making not enough progress, and the yard in Greece where the vessel has been for the last four or five weeks, the yard in Greece is doing very well.

I might also add, prior to this move we did not have direct management of the conversion phase of this project. With the move to the new yard we've now taken over direct management of the project.

Okay, thank you.

Our next question comes from Marshall Adkins with Raymond James; you may ask your question.

Good morning guys. Obviously a somewhat brighter outlook you've given us than the market was pricing into your stock a few days ago. I want to drill down, I understand your budgeting process is going on right now and you don't have any specifics. But just rough back of the envelope type stuff, given your guidance for the rest of '08, looking to '09 you ought to be able to generate ballpark $300 million of free cash flow, earnings of $3.00 plus. Is that even in the ballpark? Does that sound close to you guys?

Well Marshall, this is Tony, how are you?

I'm great.

Good. I think we'll answer that question by saying that we do expect to generate free cash flow in '09 despite reduced commodity prices, because our CapEx spending is going to be substantially lower. In terms of earnings, your back of the envelope at this point, I don't think it's materially off. We're still in the middle of it, so it's difficult to give you any intelligent response to that.

Marshall let me just go down one level though, we've given a pretty broad range on production and I think we'll be able to narrow that down once we see the actual pipelines coming back into service and have better visibility. On the service side, we have spent some time calling around to producers, because there was a lot written about capital budgets being cut in response to the commodity prices dropping.

So far what we've found is that we have not seen any cancellations in our backlog. So our backlog remains strong and pretty much full, certainly through the first half of the year. And in our budgeting process, as usual, we'll probably take a little more conservative approach to the second half of the year. But right now it's looking pretty promising.

What you might want to do Marshall is, looking at the contract and service side of the business; we had very high asset utilization in Q3. If you wanted to do some back of the envelope you might not want to get as aggressive about asset utilization for '09. But Q3 had the Q4000 in for a full quarter and with the Caesar coming on you can expect some incremental contribution, maybe not much though in '09. So I would look at Q3 as perhaps a proxy for what the service business might do with lower utilization, only because of the uncertainties that exist because of general economic conditions.

Well that was going to be my next question. It seems to me, and I'm sure we'll hear more from Cal Dive, that you're going to see a lot of hurricane related repair work over, obviously more shallow water stuff, but over the next year. What are you seeing on that? Or what is your sense from just the hurricane related work?

I should let Cal Dive address this more directly, but it's obviously there's a fair amount of hurricane work, probably somewhere less than what was following Katrina and Rita, but still substantial.

Okay. Last question here on this same kind of trend, is your margins recently have been trending up. I mean a lot of that, obviously, is getting the utilization up. Going forward, in terms of pricing and I guess margin trends, should we expect those to continue expanding modestly? Or was this kind of a high water mark, and maybe they pull back a little bit to where we were a quarter or two ago?

Our margin is also a function of the (inaudible) of subcontractors we use on these projects, so therefore you will see some fluctuations quarter by quarter. But I would say in general it's going to mean that we expect that Helix contracting services for it to be between 20% to 30% and Cal Dive, you're going to have to listen to their call.

Terrific. Well good job guys, thanks.

Thanks Marshall.

Our next question comes from Mark Thomas with Simmons and Thomas. You may ask your question.

Good morning guys.

Good morning.

Owen, just a quick question on hedging. It appears at this point the restoration of production greatly depends on, I guess the third party. Do you have any contingency plans to make whole on production if you're unable to restore production as quickly as you forecasted?

That's one reason why we've limited the hedges in place next year to 60%. And based on what we're relatively certain about on production we don't see that as being an issue. I will tell you though, going into this fourth quarter we had some exposure on hedges. The first thing that we did following the storm was we basically closed our hedge positions out so that we removed one bit of uncertainty, and we actually booked a gain from that process.

But we will watch that closely. But at 60% I feel pretty comfortable, barring a hurricane. Following a hurricane you'd have to take some near-term action. But in general for the year we're comfortable that we can meet the 60%. Under our covenant guidelines we are allowed to go as high as 75.

Okay, thank you very much, I'll get back in queue.

(OPERATOR INSTRUCTIONS) Our next question comes from Joseph Gibney with Capital One Southcoast, your line is open.

Good morning everybody. Robert just a question for you, I'm just curious here as I'm drilling down on DD&A and LOE expectations for the fourth quarter. Could you give us some color there about what we should be thinking about?

Well I think, you know, when you look at it on the MCFE basis as I discussed, it looks kind of ugly. But it's relative to the amount of production. I think from the LOE you're going to see that stay pretty constant, however you're going to have an additional hurricane repair expense that if we don't have the claims filed timely you'll have that reimbursement come a quarter later. But I would just say that you might see some variation there.

The abandonment number as you see for Q3, I'd say that you're going to see something similar to that in Q4. We're finally getting the last storm cleaned up there. And from just the R&M work I think it's been relatively stable, but you're probably going to see some non-hurricane R&M that's going to come in Q4. So when you look at DD&A I think you're going to see it decrease slightly due to us getting NOONN back on hopefully for maybe 30 days with this new line we're laying.

So overall I don't think you're going to see much improvement until Q1.

Okay, that's helpful. I just want to follow up on the HPI delivery site; obviously you're shifting it to the Greek yard. Correct me if I'm wrong, you guys are still in the midst of obviously taking control here of the superstructure work. My understanding was that you would have gotten this vessel into stateside by end of the year. Is the delay now and the expectation anything new that has cropped up in this particular yard in Greece? Or is it just the transit and moving it over from Croatia? Just any more color there on the incremental gap between what transpired moving it over, and if there's any push out there on why it's taking a little bit longer to get to stateside.

There was a certain amount of delay just involved in the mechanics of terminating the old contracts and negotiating for the ship's release, preparing it and towing it. So there was a bit of delay there. And as you mentioned, there were some issues with the superstructure that had been identified by us when it was still in the Croatian yard. So the remediation work of that superstructure work may cause a little bit of a delay, but basically it's running concurrent with the completion work on the whole vessel.

So I'd say it's mostly due to just the process of terminating, negotiating, transferring the ship, and then getting the project started again in Greece. I will tell you though that we're very happy with the Greek yard right now; at the pace of the work as its proceeding plus the run rate of the cost of the work is roughly 50% of what it was running in Croatia. So we've made a tremendous gain on the economics.

Okay. And last one, Bart or Tony, you mentioned Q4000 basically a full quarter contribution, what was the utilization for that unit during the quarter? Was that principally the driver of the up tick on the Helix contracting side where you had the profit margins here kicking up to 27% from 22; was that the principal driver, just the Q?

The Q was one of the main drivers and then also our robotics division had a very strong third quarter, which is normally the quarter where all the assets are working in the North Sea and they're trenching vessels. The Q had, I think, 100% utilization in the quarter; maybe it was 99%, maybe we were one day down. But it was very high and the vessel did a great job on the projects she was working on.

All right thanks guys. I'll turn it back, I appreciate it.

Our next question comes from Michael Marino with Johnson Wright; you may ask your question.

Thank you. My question relates to, I guess, the roughly $200 million of CapEx you all expect to spend at ERT next year. How does that break up? What exactly are you doing? Does that include Bishop? Are there more NOONAN wells there? I was just wondering if you could put a little more color. Really I guess what I'm trying to figure out is, how does that level of CapEx impact production as we look out even into 2010?

I'll let Robert follow up, but I'll give you my take again.

The range of 55 to 75 is a range that we believe that can be met with just the incremental CapEx for the Danny field being the only contribution in that. The roughly $200 million of BMP is split, roughly $100 million for well work and abandonment work and the remainder going to the Danny and Phoenix developments.

There is no incremental additional CapEx in there for drilling. First of all, I think the drilling program this year, it's a little early to say. We have drilling prospects that are fully engineered and ready to go. But with the hurricane recovery, there's going to be a certain extent of re-drill that we're going to have to dedicate our personnel assets to overseeing.

And then, going forward on the drilling prospects that we have engineered, they're not in the range right now. They're not in the CapEx and the intent would be to do those on the discretionary basis but using largely on a promoted basis so that it limits the amount of CapEx that we would put into it.

Okay.

I'm sorry?

No, I was going to let Robert go ahead. I thought he was jumping in.

No, I think that pretty much covers it. Again, that range of 55 to 75, we're setting here, right now, at 30% of our pre Ike rate. So, I think for us to even go any further than what we said on our capital budget right now would be premature. So, as we move through this very critical Q4, I think we'll have a better visibility on what our spending could actually end up being.

Right; I guess my question was more related to 2010 production but does the Phoenix field coming online give you enough to show growth in 2010? Because if you're only spending $200 million in 2009, what does that do to 2010 production?

We only have Danny on for, I believe, it's a quarter. So, that's pretty significant when it comes on. And then, with Phoenix coming on, that is a very, very high rate at flush production.

Okay.

Okay?

So, 2010 still looks, I mean, good from a production standpoint, even with spending $200 million, I guess is what I'm getting in this?

Yes, yes.

Okay. And I guess, as a follow up, the Q4000, that's working in intervention mode, presumably, and will be for the foreseeable future?

Yes, that's correct. This is Bart. I mean, it will be working as a well intervention vessel, until, probably, mid-next year. I mean, it can't work as a well intervention vessel for the whole of next year, but we still plan to start drilling with the vessel where we've got some work contracted with Chevron, the deep water on the [hydrate] project. And then, also, we still hope to do our first completion with the vessel and do some [top hole] drilling and slowly getting into the full drilling mode. But this isn't (inaudible), this is something that we're going to take and have it in a gradual approach where we are going to, I mean, do some top hole drilling, some completion first before we're going to start doing some [closed hole] drilling.

Okay, great. That's all I had.

Our next question comes from Kelly [Arkringer] with Banc of America. You may ask your question.

Good morning, just a couple of questions. The first one is on your staging of CapEx for 2009. You guys said that your budget would be about half of what it is this year. Is that going to be spread pretty evenly, over the year? Or will it be, you know, more spent the first half? Or how would you decide to do that?

Kelly, it's heavily front end loaded, because it's oriented toward completing these major CapEx projects, the Caesar, the well enhancer, the HP 1, the Danny infrastructure, etc.. So, it's fairly front ended oriented. And I don't have those statistics in front of me but we can talk about it later, Kelly, and I can give you more granularity behind it. But just think of it being front end loaded.

Okay, and I think you said earlier on the call but, you expect to be free cash flow positive in the second quarter, is that right?

Yes, by the second quarter, yes.

Okay and then, I think, Owen, in your remarks, you said that in '09, you wanted to pay down debt through cash flow. I think you also made a comment, I can't remember how you phrased it, but something along the lines of, if you don't do other things or, you know, to accelerate the debt pay down. Can you elaborate on that? Or, I know, earlier in the year, you'd anticipated more asset sales; I know it's not a great market for that, but can you just kind of give us your views on that right now?

Kelly, as far as asset sales, let's talk about production first.

Going into '08, we had originally had $1.15 of that $3.36 guidance was made up of asset sales. The actual for the year was actually only $0.52 was achieved from asset sales, which, and I know this is a little digression, but if you back out asset sales and look at just operating income, it shows how strongly we operated for the year.

The original guidance would've been at a $2.21 level. If the hurricane and everything hadn't have happened, we were on track to hit $3.03 for an operating income. And as it stands, we still beat the original guidance in spite of the hurricane and everything. So, we're operating very strongly there.

There is another $0.63 then, in that original projection so there are, obviously, other asset sales that we could make. And because of the strong commodity pricing and the strong performance of the Company, we didn't do it. We still have that option ahead of us. So that's one side on the production side.

And then on the other side, we've got the, obviously, our position in Cal Dive and we reiterate that eventually we would probably be exiting that position. Right now, it's a pretty nice set of assets to hold and we do plan on being a rational investor. But you have to look at the total value equation as to what the resulting impact to the value for the shareholders would be from a capital redeployment. And, we'll continue to explore those, going forward. That's what I was talking about.

Okay, thank you.

I'm showing no further questions at this time.

All right. In closing, thanks for joining us today. We very much appreciate your interest and participation and look forward to speaking to everyone again at year-end. And, again, thanks very much.