Helix Energy Solutions Group Inc (HLX) 2009 Q1 法說會逐字稿

Welcome and thank you for standing by for today's first earnings quarter call and investors conference call. All parties' lines are on a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

It's my pleasure to turn today's conference over to Mr. Cameron Wallace, Director of Marketing and Investor Relations.

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

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 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 will make a statement regarding forward-looking information.

This conference call and the associated presentation contain certain forward-looking statements. All statements other than statements of historical fact are forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Our actual future results may differ materially from our forward-looking statements due to a number and variety of factors. For a complete discussion of risk factors that could cause our results to differ, we direct your attention to our annual report on Form 10-K for the year ended December 31, 2008, which is on file with the Securities and Exchange Commission and available on our website.

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. Tony Tripodo will now make some opening remarks.

Let me move forward to slide 4, which summarizes this quarter's financial results. Quarter 1 represented a sharp operating improvement from Quarter 4, even after we strip out the net nonrecurring items recorded during this quarter and the effect of our discontinued operations related to our sale of Helix RDS.

The three nonrecurring items mentioned in our press release, and we'll talk about them a little later, contributed a net of $0.28 a share to the positive, while our discontinuing operations was a loss of $0.02 a share. So if you strip out these items, our normalized earnings per share amounted to $0.24 a share for Quarter 1.

Over to slide 5. Again, there were three nonrecurring items that impacted Quarter 1's results. First of all, the redemption of $30 million of the $55 million of the convertible preferred stock issue into common stock that occurred in January, as well as the resetting of the conversion price in the remaining $25 million of preferred stock issue from 15 to 277 a share resulted in the recording of a non-cash dividend charge totaling $53.4 million.

This served to reduce net income available to common shareholders. The additional common shares involved with this event are now included in our dilutive share count.

Secondly, and based on a favorable Fifth Circuit court decision earlier this year, we reversed $74 million of accrued royalties booked in prior years associated with the Deep Water Royalty Relief Act of 2005.

Lastly, we changed the accounting treatment related to our 2009 natural gas hedges to the mark-to-market method from hedge accounting treatment. This results in recording a mark-to-market gain of $55 million for unrealized gains on hedges that will be cash settled in [capped] Quarters 2 to 4.

We continue to record our oil hedges on a hedge accounting basis, which means the accounted event for these hedges will occur when these hedges actually settle over the remaining course of 2009.

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

Starting with slide 6, we continue to be focused on debt reduction. We were able to reduce debt on a consolidated basis by $50 million in the first quarter, and $100 million for Helix on a standalone basis.

We continue to forecast CapEx in the $300 million range, excluding Cal Dive, for 2009. Bart will update you later on the status of the major capital projects.

But of the $300 million forecasted for the year, $60 million was incurred in the first quarter. This may be a little different from what we have said earlier in that how frontloaded our CapEx is. The variance is due to the fact that we have been managing successfully the pace of our capital projects' completions to better match our cash flow.

We were able to increase production in the first quarter to nearly 12 billion of cubic feet equivalent, which was up from 6.4 Bcfe in the fourth quarter.

We were able to exit the quarter on a daily run rate of approximating pre-Ike levels, but we had anticipated having production at higher rates than the 140, about, million cubic feet a day at March 31.

However, lingering third-party pipeline issues continued to hold back production rates, and Robert will get into this issue a little later. Given the lingering pipeline problems, we now forecast production for the year in the 45 to 55 BCF range.

Switching over to slide 7, this slide details the approximate $100 million of net debt reduction previously mentioned. We expect to reduce debt further by the end of the year. We paid down $100 million on our revolver credit facility during Q1, and this leaves us with $159 million of unused capacity in this facility.

Any significant non-core asset sales would certainly accelerate our ability to reduce debt levels to levels that we are a little more comfortable with. However, we intend to manage our business so that we can continue to reduce net debt organically.

On to slide 8, our liquidity in 2009 is substantially enhanced by our hedging strategy. For the balance of 2009, 80% of our remaining oil and gas production is hedged.

We continue our efforts to monetize our non-core assets, which include our oil and gas properties, our ownership interest in Cal Dive, and our production facilities. We have efforts ongoing associated with all of these assets. While we are focused on a major divestiture of these assets, we will continue to be opportunistic and take advantage of smaller sales when the opportunity presents.

To that end, in January, Cal Dive repurchased 13.6 million shares of stock that we owned and it -- generating $86 million of cash to Helix. We sold our interest in East Cameron 316, the Gulf of Mexico shelf property, for $18 million. At year-end, reserves associated with that property amounted to about 7.8 Bcf.

After the quarter, and as we announced last week, we sold Helix RDS, our Aberdeen-based reservoir consulting business, to Baker Hughes for $25 million.

With that, I'll turn it back to Tony as you turn to slide 9.

On slide 9, as we have in the past, and given the focus on liquidity and balance sheet issues, we have included a couple slides here on debt covenants and debt service. And slide 9 outlines our key credit facility covenants.

At 3-31-'09, we remain in compliance with these key covenants. And there are more covenants than the ones mentioned here, but these are the three key ones that we remain focused on.

Our collateral coverage ratio, which requires us to maintain collateral at a level of 1.75 to 1 of debt, for example, at 3-31-'09, we expect that to be about double that. So we are well -- have a lot of cushion with respect to our collateral coverage ratio.

Our fixed-charge coverage ratio, which requires us to maintain a ratio of 2.75 to 1, we expect to report a quarter to the banks where we are in excess of six, again double what was required for that ratio.

And our toughest ratio continues to be our consolidated leverage ratio, which requires us to maintain debt to EBITDA on a trailing 12-month basis of less than 3.5 to 1. And at 3-31, we expect to be in the mid 2s there.

So, furthermore, when we forecast out for the rest of the year, we expect to maintain compliance with these covenants throughout 2009.

Moving on to slide 10, slide 10 outlines our debt maturities and shows that we have no major debt maturities occurring until the middle of 2011, when our evolving credit facility comes due. So we don't have any major debt service payments coming up in the next two years.

I will turn the next few slides over to Bart.

My comments will call for Contracting Services only, which are the Helix owned -- wholly-owned contracting services businesses. Shelf Contracting is Cal Dive's business, and this will be covered by Cal Dive in their call that's scheduled for 11 o'clock Central Time this morning.

Slide 12 shows the highlights of our Helix subsea construction business. Six of our subsea construction vessels worked in the quarter on two major subsea projects, namely Eni Longhorn in the Gulf of Mexico and Reliant's KG D6 project offshore India.

Good progress was made on both projects, and production commenced from the Reliant's KG D6 field -- gas field offshore India on April 1. This project is one of the largest deep-water gas developments ever with many technical, logistical, and environmental challenges.

The Helix vessels and fabrication yards have performed well, and have been instrumental in delivering first gas for our customer within less than 2.5 years of signing the contract.

Three of our construction vessels are still working in the Bay of Bengal, and are there working on completing the balance of our contracting work, which we expect to be finished by mid-year.

Move on to slide 14. Our Well Ops business shows a dramatic improvement compared with first-quarter 2008, because of higher contribution of the Q4000 and the Seawell. But it could have been as good as the last quarter of 2008, had it not been for the one-month plant outage of the Q4000 and the seasonal slow start of the Seawell in the North Sea.

The work on the Q4000 was required to complete the marina upgrades that was started in late 2007. It took Rolls-Royce a long time to rebuild one of the thrusters that we reinstalled successfully in March.

Slide 15 shows a gross profit margin of 20% for Contracting Services, which includes corporate and operational support overheads. Margins are comparable with the first quarter of 2008, and higher than the fourth quarter of 2008.

Slide 17 [calls for] utilization of our assets and our production facilities. Utilization of our subsea construction vessels decreased year over year, primary caused by our [secret] Canyon chartered vessel spending the whole quarter at the key side in Singapore. That vessel is working now on a 50-day job in Thailand.

And also, the Island Pioneer chartered vessel spent the majority of the month of March in a dry dock paid for by the ship owner, Island Offshore, in Europe, before leaving for India for a deep-water trenching project that the vessel has completed and the vessel at this moment is on her way back to Norway for the next project.

On the production facilities, the Independence Hub platform processed 81.4 Bcfe of gas, and -- which is an average of more than 900 million cubic feet a day.

For those of you who follow Anadarko, you have seen the large number of prospects Anadarko owns in the Independence Hub corridor, which they plan to drill and hopefully tie back to the Hub, if successful.

Production from the field supply and the Marco Polo was shut in for almost a whole quarter because of damage to the gas transmission pipeline on the outer Continental Shelf caused by Hurricane Ike. We expect this pipeline will be repaired in the next couple of months, and -- then the Marco Polo TLP should be processing production from the area fields again.

Anadarko is in the process of tying back another K2 production well to the Marco Polo TLP, and is drilling an exploration well in the area that, if successful, will likely be tied back to the Marco Polo TLP.

Let me continue with the status of our new Contracting Services assets. This -- we have some pictures of these assets on slide 18. The Well Enhancer has been delivered by the [Meriwether] Shipyard in the Netherlands, and we have successfully installed the well intervention tower supplied by [haus mon]. The vessel's currently in Rotterdam, and we are putting the finishing touches on the dive system, the deck-skidding system, the coral tubing launch frame, and the subsea (multiple speakers) lubricator. We expect that the vessel will join our fleet by mid-year, and we are seeing a lot of interest in this vessel for 2009 and 2010.

The second vessel that I want to talk about here is the Helix Producer 1. The Helix Producer 1 received the class certificate from Lloyds in early April and left the shipyard's [increase] in the second week of April. She is in the Gulf of Mexico, she arrived a couple of days ago, and we are waiting to get access to Kiewit's yard in Ingleside. We expect the vessel to arrive there by the end of this week, and at this moment, we are working on the final interface engineering packages.

The production modules constructed by Kiewit in Ingleside are complete, and are scheduled to be installed in the third quarter of this year.

The Caesar conversion is close to full completion. Our main focus is on the commissioning of the vessel systems and the pipe lay systems. We are currently forecasting the arrival of the Caesar at our new deep-water port in Ingleside by year-end.

This concludes my prepared comments, and I am looking forward to answering your questions in the Q&A session. I am now turning over oil and gas to Robert, one of our esteemed customers.

I appreciate the compliment. Morning, all. Please turn to slide 20. Significant improvement in our production volumes, in addition with the reversal of the previously disputed royalty payments, drove increased revenues and profit for ERT in the first quarter.

Our production restoration efforts in the Gulf resulted with volumes nearly double that in Q4. Additionally, our current producing rate is approximately 140 million cubic feet of gas equivalent per day.

However, as Owen mentioned, we are still experiencing continued problems with the third-party owned export pipeline that transports our Bushwood deep-water development. After repairs were made at this pipeline during the first quarter, hydro testing of those repairs indicated the line had still failed to hold pressure, due to additional areas of damage upstream of the completed repairs. Efforts are underway to repair this damage, but have pushed back the reopening of this line until Q3.

Adjusting for the ramifications of the continued pipeline delay, we've reduced our production guidance for the year by 5 Bcfe, and have marked our remaining 2009 gas hedge position with a $55 million gain. I'll discuss our hedge position in more detail in a moment.

Moving on to slide 20, our improved production volumes in Q1 significantly reduced our operating costs on a unit basis when compared to Q4. Operating costs, net of hurricane expense, declined to $2.06 per unit, compared to $2.15 for the same period last year. We expect continued reduction of our operating costs as we streamline our shelf-operated production [loops] in the Gulf of Mexico.

Further expense related to hurricane damage will continue over the next three quarters, as we are moving into the major well and platform removal stage of our recovery program. We do feel we are adequately insured to cover all of the remaining Ike-related damage to our property.

Slide 22 summarizes our remaining 2009 commodity hedge positions. Our average realized price expectations for 2009, with hedges currently in place, is over $66.50 for oil, and over $7.25 for gas.

On an average daily basis, approximately 80% of our estimated 2009 production is hedged and furthermore, in anticipation that we will continue to hold some portion of our oil and gas production into 2010, we have hedged approximately 11 Bcf at [$5.80]. We continue to evaluate our hedging strategy for 2010 and may pursue additional hedges throughout the year.

And I'll hand it back to Tony.

Slides 23 and 24 and 25 are for reference purposes only. They reconciled our income statement on a GAAP basis to EBITDA. I won't go through those. Hopefully, they help you and if you have any questions, give Cameron or I a call.

So with that, I'd like to turn it back over to Owen for closing comments.

As usual, I'll just try and give a little color to what's going on in the Company right now. Post-hurricane and then the current economic environment, our management decisions really are being -- are focused by the following priorities.

First of which is liquidity. At $300 million currently, this isn't a threat in the short or medium horizon. Covenant -- on covenant compliance, things are tight. But we believe we will be in compliance.

Our ratio of our tightest covenant is the debt to trailing 12 EBITDA covenant, which is at 3.5. We do expect to be over 3 in the third quarter. That's assuming -- that's with the assumption of no asset sales. But we do expect to remain in compliance even without asset sales.

Sustainable cash flow, looking forward has required us to be very proactive in reducing OpEx and especially CapEx. This will have some timing effects on returns, with regard to the partially funded ongoing CapEx projects. And to a lesser extent, the marketability of some of these, seeing how we have to get to the completion of them.

Debt reduction is the next item we are focused on. Reducing our debt right now would greatly free up our flexibility on some of our decision-making that's impacted by our focus on the ratio issues. It certainly helps with all of the above issues that I just mentioned.

We also believe that reducing debt is the most direct and fastest way to return value to the shareholders. The share price currently doesn't reflect the full asset value in our stock, so it makes some sense to consider monetizing assets and reducing the debt.

Now there will be some potential value loss in the current market, and this could be considered acceptable when you consider the stronger balance sheet (technical difficulty) at this point in the cycle, as well as the simplification of our business model.

The business model going forward would be focusing on a market position of future growth as a service company focused on deep water, specifically on well lots, ROP operations, and surf work.

I mentioned asset sales. It's our desire to divest non-core assets. It is a difficult selling market right now. Non-core assets that can and are being marketed include Cal Dive. We have an engagement letter with Credit Suisse and the process is well advanced.

Production, we originally considered selling all of the production, and that was not possible. We focused on the shelf as the higher priority because it is really strategically non-core to what we are doing in the deep water.

UBS has the engagement letter here. It's a difficult market, and the deal is made more difficult when you consider the fact that these properties are hurricane-impacted and repairs are ongoing, so there's been some need for us to think a little creatively about how the deal is structured.

On the deep water, as I said we are currently not marketing it due to the status of the projects and the market conditions and the lack of finance availability.

On facilities, these are also considered non-core to us going forward. We have engaged Raymond James and the process is ongoing there. Even something like the Caesar, our new pipe lay vessel, although we really like the market, we are remaining open to potentially partnering with other strategic players in the industry in occupying that niche, which would constitute an asset sale.

As I said, it's a difficult market. There's no assurance that we will get any of these deals done, but they are a main focus and consume a lot of our effort here in the Company right now.

On the shelf, though, if we don't get a deal done, we also have a plan B in place, which basically is to continue selling the smaller packages, as you've seen us do with East Cameron 316. The pricing there seems to be fairly favorable when you find the right buyer.

We plan to ring fence our production and really curtail the capital spending on the shelf. Essentially, adopt a blow down strategy, and then, for hurricane risks going forward, we would supplement our insurance coverage with looking into a cat bond market and buying some bonds to supplement the insurance, which is probably going to be -- there is less capacity in the insurance market this year than there was previously.

Our intent is to continue to market these non-core assets and reduce debt. We aren't able to accept just any value, and as it -- the value we receive definitely has an impact on the covenants. But we will push until the market allows us to receive an acceptable value. And in the end, our goals are to be service-focused, deep water-focused, with a strong balance sheet.

As far as the outlook on our market, we see the service market softening, in just about all areas. But more in the more conventional commodity niches. For instance, the lower-end DP-2 vessels typically used for robotic sources, we expect a soft market throughout 2010 as well.

Our view on commodity price is that there will be recovery in commodity price ahead of the service recovery, led primarily by oil, starting somewhere around 2010. Gas, potentially soft throughout '09.

We actually layered in the first gas hedges for 2010 recently at 580. And MCF. 30 million -- as was mentioned, 30 million -- the hedges were set at 30 million cubic feet a day. This is a conservative hedge to place -- put in place because it represents just half of the expected volume from doing it alone.

This leaves the remainder of gas production unhedged. Oil is also unhedged for 2010 at this point. With that, we'll wind it up and we'll open it up for Q&A.

(Operator Instructions). Roger Read, Natexis Securities.

Thanks for the rundown. It's pretty good. I was just curious. With the third-party pipeline issues on the oil and gas production, and what appears to be another reduction in CapEx for '09, how much of that 5 is absolutely third-party pipeline issues, and how much of that 5 Bcf is, okay, you're going to spend less, you're ring fencing the E&P assets out.

All of it is related to the pipeline issues. In terms of the lower guidance on production for the year, it's all related to the pipeline issues.

So it's really dependent upon when the issues get resolved. There is potential for us to beat the estimate, but I think right now it's a safer bet to be within the range of 45 to 55.

Certainly, if you look at first-quarter production at nearly 12 and multiply it out, we are safely in the range. And so, if that production comes on in the summer, we have the potential to beat it.

But we are also expecting that there will be hurricane disruptions in the Gulf of Mexico, and that's factored into our forecast for production. So if we have a light year for hurricanes, we are set up to beat the range of 45 to 55.

And a little more on that particular part of the business. Can you tell us what the Noonan field is doing now in terms of production? And we saw, obviously, the step up in the first quarter. Is it still the most -- one of the most affected by the pipeline, or is it basically getting on its run rate at this point?

Yes, it's on at a restricted rate. And that is principally around 30-some odd million a day gross. And the pipeline that is -- continually has more problems with it, that will allow us to ramp it up to that 100-plus million a day rate on a gross basis.

So we are disappointed. We continue to work with the third-party company any way we can with our assets, our ability, and we hope to see that thing pressure up and start flowing in August.

Okay.

What -- the reference I was making to return impact based on CapEx is primarily involving things that were not in -- contemplated to have a contribution for '09. We are really talking about 2010 events.

Okay, thanks. And then, as you look at the well intervention business in the North Sea, do you expect there is enough work to keep the Well Enhancer there, or do we see that vessel going somewhere else in the second half of '09?

Definitely our plan is to keep the Well Enhancer in the North Sea. The customers are very excited about the coral tubing capabilities that this vessel is going to have.

We are looking at, potentially, a winter campaign for the Seawell in the Gulf of Mexico, and we are talking to customers here in the Gulf of Mexico about it -- for well intervention work. And also, if there will be another hurricane, then with the Seawell in the Gulf of Mexico with well intervention capabilities and diving capabilities, we would be well-positioned to help our customers.

And my final question to you, Tony, as you look at the second quarter from a cash flow from operations standpoint, is it reasonable at this point to presume that you're -- no disruptions on the production side, all the vessels work. Our model says you should be free cash flow positive in the second quarter. Is that a reasonable assumption or is that still too optimistic, given the challenges out there?

I think operationally, we expect to generate a little bit of free cash flow from operations, and I am not including the proceeds from the sale of Helix RDS in that comment. So yes, we expect to build on our liquidity position in the second quarter.

Okay. Thank you.

Marshall Adkins, Raymond James & Associates.

Let's shift gears to the contracting site. Nice bounce in margins this quarter. Can you help me get my arms around margins going forward? I know there is a lot of things going into that, you know, how well your projects go, etc.. But give us some insight on the expected margins, and then also utilization, like some of the key assets like the Intrepid and the Q4000.

On the margins for Contracting Services, I mean with this quarter, our margins were 20% gross profit margins. Last quarter, we were lower because of some operational issues. Now we are back at 20%. We hope that 20% is going to be the lower end of the margin range on the go-forward basis.

In the weaker markets, we could dip below 20%, but I wouldn't expect that to be very long. And in better markets, we should be at 30% or higher. So I think, normally, our range would be between 20% and 30%. Sometimes, again, in a weaker market we could drill below it, but I don't think that this -- I don't see that for the long term.

Utilization for our deep-water assets -- our big construction vessels, like Intrepid and Express, has been very good to date. The Intrepid still has -- has some nice backlog for the remainder of the year. The Express also has still several months of work left in India, and then has its regulatory drydock scheduled for the third quarter of this year, and then will be coming back to the Gulf of Mexico, where at that time our new school-based facility in Ingleside is going to be ready.

And we really see a lot of interest that our customers have in the Express capabilities, and -- with -- working her -- supported by the new school base in Ingleside.

Along those same lines, can you give me some insight into how bidding activity is shaping up in those markets for those kind of assets, and maybe some comment on backlog as well?

We are seeing bidding activities for the Express and the Intrepid. It's a little bit lighter than a year ago, but that shouldn't be a surprise. But we still see a healthy amount of interest in both assets.

Now my focus is really on 2010, where several of our customers are -- I mean, have teed up a whole bunch of projects that can be executed pretty quickly. But they are still -- holding on on their cash and looking for the fundamentals of the market to improve, which we expect is going to happen.

And so, I think once the fundamentals have approved and -- improved, and our customers are -- have sanctioned these projects, I would expect that the 2010 will be a pretty busy year for both the Intrepid and the Express.

And Tony, I vaguely remember -- didn't you all give some backlog numbers last year or last quarter?

Yes, we gave backlog numbers. Our backlog right now is roughly the same as it was at year-end.

I will add to Bart's comments on utilization, I think, and as we expressed last call, we expect the back half of the year to be softer, based on what we know now. Bart mentioned lighter bidding activity. We do have some holes in our vessel schedule, so we do now believe that the back half of the year will be softer than the first half.

It could be filled -- some of the holes could be filled, but right now, I think everybody should think that the back half will be softer.

Let me just answer it, like on the well intervention side of the queue -- I mean, the Seawell in the queue. The second half of the year, I mean, looks pretty good.

Our RV support vessels -- our guys are doing a very good job finding work for these vessels in a market that is challenging. And we have a lot of competitors that are struggling, but that also gives us an opportunity on an opportunistic basis to charter some of these RV support vessels at a lower cost, which is a good development for us.

And so, I think -- to comment about the softening of the markets, that would apply. That would apply to the Intrepid and Express, but I am still cautiously optimistic that we will weather the storm and that we will continue to find work for those vessels.

Very helpful for our modeling. Last question from me, can you update us on drydock schedules? Anything we need to plug into the model on that front?

For 2009, the only drydock that we have is an Express drydock. That's going to be in the third quarter. That's 30 days.

And then -- none of the other vessels that we own has any drydock scheduled for 2009.

Anything in '10 that we can plug in?

In '10 would be -- the Seawell has a drydock, and that's, as far as I know, the only vessel we will have in drydock.

That's very helpful, guys. Thank you.

Joe Gibney, Capital One Southcoast Inc..

Robert, a question for you. Just curious on the production guidance and the outlook there, how should we think about oil and gas mix now, in this 45% to 55% -- or 55 range for production this year?

Right now, at the 140 million approximate rate that we have, it's about 9,500 barrels and about 82 million cubic feet of gas.

I know we've got certainly a lot on the strategic plate here right now, but in looking out into 2010, can you help us a little bit with the expectations and time for the remainder of Bushwood and Phoenix, given the HP-1 delivery here, the commentary there, how should we be thinking about that into 2010?

We still have considerable work to do on the HP-1, but obviously, the vessel's here and that's progress forward. So we look at that for 2010.

And then, we are looking at -- the Noonan gas export line has been a real thorn to us, because we brought that field on in record time, 18 months from initial discovery. And the large export line that we are going into, the large 30-inch line that continually has holes showing up in it.

I don't want to have egg on my face again, saying, yes, we're going to see that within the next 90 days, because we don't have any control over it. As I mentioned earlier, we're doing everything we can with the third-party owner to get it on, but it's still -- it's their property. So we see that coming on in Q3, and then we have our Danny development that we are looking at commencement of production, hopefully, sometime in 2010. Early 2010.

Early, okay. And Owen, just circling back with you, your comments on the Caesar there, any further definition on where you might be targeting? I know you'd mentioned potentially looking at Trinidad or China. Anything new on that front?

We've had contacts with some people starting the process in China. We've had trips down to Trinidad, and there's been a really positive reception down there. There is work identified. Mexico is another place, so we are pretty excited, actually, about the potential for the Caesar.

One of the projects that we did slow down, though, was the completion of the Caesar. Because of the delivery date, we had already missed the '09 season. So it really made no sense to rush it out at that point, and we are now planning to take delivery sometime going into the fourth quarter here, which will give us plenty of time to bid and prepare for the 2010 season.

And --

Also in the U.S. Gulf of Mexico, there are some good prospects for 2010 and 2011. And -- that's our home field, and when the vessel arrives at Ingleside, at our deep-water port, there's going to be a lot of interest of our customers. So we have projects teed up for 2010 in the Gulf of Mexico.

And one last modeling housekeeping question. Tony, if you could just -- expectations on run rate, [at a] tax and share count here for the rest of the year?

I think the share count will be pretty steady from this point on. We took our hit on the preferred stock dilution in the first quarter, and that's behind us now. It can't get any worse than it is now. So to speak.

So share count should be pretty steady at 106 million shares.

In terms of tax rate, I think tax rate will look a lot like Q1 for the rest of the year.

I appreciate that. I'll turn it back.

Sunil Jagwani, Catapult Capital Management.

I just wanted to get some color on the assets that are for sale. Obviously, the issue is not just to sell them. It seems like the sale actually has to be accretive on an EBITDA basis, obviously to reduce debt covenants and debt -- EBITDA coverage. Can you rank for us in order your expectations for sales that would be accretive along those lines?

I think if you look at it from an accretion standpoint, I think right now the best asset to sell, from an accretion standpoint, will probably be the production facilities. So that would rank number one.

Number two from an accretion standpoint, I think (multiple speakers) would be second. Of course, it's price-dependent, but right now, the shelf from an EBITDA standpoint is weak. From an EBITDA contribution.

Third would be Cal Dive, but Cal Dive would be accretive as certain price levels. So, at above certain price points at this position, a Cal Dive would be accretive, and certainly it's accretive at above $9 a share, where it is now. And it's accretive even at levels below that.

The only thing I would add is, it sort of explains the only reason we are interested in parting with a portion or all of the Caesar at all is because that doesn't contribute any EBITDA. So that's totally accretive.

Right, and I think, to that end, certainly the Caesar is contributing zero today. So any dollar of proceeds would be very accretive on the Caesar.

(multiple speakers) Hard to argue against (multiple speakers).

And certainly, any sales of PUD assets on the oil and gas side, which would be very accretive because they are not producing any EBITDA contribution, but you've got to measure the disposition of all those assets against what you really believe the value should be for it.

And that's the other part of the equation that enters into this is, are you getting decent value even in a depressed environment? And -- versus where you think you might get that value a year or two years from now.

I might just add, also, what we're looking at, up until this point, we were really focused on the near term. We are becoming more and more comfortable with the value loss that -- it's obviously tied to the accretion of EBITDA, but you have to look a little bit further.

You have to get sufficient value to retire enough debt so that you are not just pushing your problem off to the future. And we're spending a lot of time doing long-term modeling in that regard.

And then, an extension of my question, what's the total amount of capital recently spent on Caesar? I guess in the last two or three years, while it's being worked upon?

Just off the top of my head, I don't have that information here. But it's just under $200 million. (multiple speakers) And we have probably $40 million of payments remaining. $30 million of that, though, is a milestone payment for work already completed that's due upon delivery.

So it shows you how close the vessel is to being completed. She is essentially ready to go. We are in the commissioning phase now, of starting up all of the equipment.

The incurred costs and the [march] were about $165 million.

Lastly, again with asset values for construction vessels, any comment on what you are seeing, because I guess, if you look at what's happening between the Norwegians, [acker keverner], and I guess Subsea and a few others, there is a pretty healthy backlog of new vessel deliveries.

Have there been any transactions recently on -- with these kind of vessels that you can point to, that would indicate the current status of the market?

We are following it loosely, the shipyard deliveries and things. There is a large number of vessels coming out.

We've also seen some -- a lot -- a fairly high number becoming distressed in the shipyard with financing falling apart.

But I need to point out that most of these are the more speculative-built multipurpose DP-2 kind of vessels. It's what Bart was referring to. We are seeing a softening in that market, which is actually a good thing for us.

We charter that type of vessel. We choose not to own them. We charter them on a rolling basis, so we are able to let higher charter rates roll off a contract and request them with actually lower cost for us in our robotics group.

The rest of our vessels, we've really tried to develop a deep-water mark business model that focuses on specialty niches. If you look at things like the Caesar coming out, there just aren't that many of those vessels in the world and there's not that many coming out of the shipyards. It's really the more multipurpose in nature.

And of course, the well intervention vessels are very specialized in nature. So one of the reasons we've picked the niches we have and target the types of assets we do is so that we do avoid the supply-driven softening in the down cycles.

I appreciate all your answers. Thank you.

(Operator Instructions). Mark Thomas.

Good morning. Just a couple of quick questions here. Circling back around on the targeted asset disposition, can you give us an update on how those are progressing and your confidence level on how soon any deals might get done?

I think what I spoke to from my notes is about all that anyone is going to let me say.

And then, just a clarification, with regards to the Noonan production. I think you mentioned it was 30 million cubic feet per day currently, and it would get up to 100 million cubic feet?

Yes, those are gross numbers.

Gross, and net would be just your working interest?

Net -- net to us is about 20 million a day on the 30.

And then, finally, just sort of a housekeeping question, you did a good job on cost control in SG&A. How should we think about that going forward? Will it continue to trend down?

Yes. It's a big focus here. We're going to continue to improve operating -- I'll let Bart throw in his two cents here.

SG&A and costs will continue to come down. And then, the whole question is what revenue is going to do from an SG&A percentage of revenue. But we have some healthy cost-savings initiatives.

Of course, our customers are telling us to lower our cost to them, and we are working hard with our vendors and our ship contractors, to tell them to lower their costs, and we are -- we are successful. And so, our overall cost of our business, operating costs, SG&A, op support, is going to continue to come down.

Thank you very much.

Currently, we have no additional questions at this time.

Let's just give it another 20 seconds here to see if there's any questions. All right.

First of all, in closing, thanks for joining us today. We very much appreciate your interest and participation, and we look forward to speaking to everyone on the next call. Good day.

This concludes today's conference. You may disconnect at this time.