Helix Energy Solutions Group Inc (HLX) 2011 Q3 法說會逐字稿

Welcome to the review of Third Quarter 2011 Results and 2011 Outlook with Investors Conference Call. During the presentation all participants will be in a listen only mode.

(Operator Instructions)

As a reminder this conference is being recorded today, Tuesday, October 25, 2011. It is now my pleasure to turn the conference over to Stephen Powers, Director of Finance and Investor Relations of Helix Energy Solutions Group. Please go ahead.

Thanks, Sharon. Good morning everyone, and thanks for joining us. With me today is Owen Kratz, our CEO, Tony Tripodo, our Chief Financial Officer, Cliff Chamblee, Executive Vice President - Contracting Services, Johnny Edwards, Executive Vice President of Oil and Gas, Alisa Johnson, our General Counsel, and Lloyd Hajdik, our Senior VP of Finance. Hopefully you've all had an opportunity to review our Press Release and the related slide presentation material released last night. If you do not have a copy of these materials both could be accessed through the Investor Relations page on our website at www.HelixESG.com. The Press Release can be accessed under the Press Releases tab, 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. Alisa?

Thank you. During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, 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 projections and forward-looking statements, due to a number and variety of factors, including those set fourth in Slide 2 and in our Annual Report on Form 10-K for the year-ended December 31, 2010. 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 reconciliation, along with this presentation, the Earnings Press Release, our Annual Report and a replay of this broadcast are available on our website. Owen will now make some comments.

We'll start the presentation with Slide 5, where you'll see a high level summary of Third Quarter results. Quarter 3 continued our progression of successive quarterly revenue earnings and EBITDA increases in 2011, with earnings of $0.43 up from $0.39 in Q2, and EBITDA rising slightly to $178 million, up from $176 million in the prior quarter. Quarter 3's revenues increased 10% over Q2. Noteworthy about Q3's results is the underlying strong improvement in our Contracting Services business which more than offset the various production disruptions experienced in our Oil and Gas business, a matter we'll discuss a bit more later as well as the high effective tax rate.

Over on Slide 6, Q3 was characterized by high utilization of our Contracting Services as I said, lead by strong performance in both Well Intervention and Robotics. We even achieved high utilization within our reel pipe lay assets albeit at low margins. Our visibility in the Contracting Services business is growing stronger, and thus we're able to increase our full year EBITDA outlook for 2011. Our Oil and Gas production in the second quarter averaged 127 million cubic feet equivalent per day, with oil representing 69% of that production. Again, much of our oil production is sold at Louisiana Light Sweet market rates, which is at a significant premium to the WTI prices you often see quoted. Pipeline disruptions particularly in the pipeline servicing our Phoenix field along with the production slow downs due to Tropical Storm Lee, held down our production rates in Q3. Tony?

Yes, thank you. Over to Slide 7. In addition to the sequential uptick in earnings the Company's balance sheet continues to strengthen. In Q3, we took advantage of the high liquidity levels and went into the open market to re-purchase $75 million of our high yield notes. Year-to-date we've paid down approximately $190 million of debt while at the same time maintaining robust liquidity levels which now stands at $933 million at September 30. The higher effective tax rate mentioned by Owen earlier is 33%, and is primarily due to a higher proportion of US earnings. I will now turn the call over to Cliff for an in depth discussion of our Contracting Services results.

Okay, thank you. As Owen mentioned, asset utilization in our project and servicing business continue to improve. Q4000 achieved 99% utilization, and Express and Intrepid posted approximately 95% utilization each, and utilization of the ROVs and trenchers increased from 54% in the Second Quarter to 67% in the third quarter. These activity levels translated into 30% increase in the Contracting Services revenue, with slight improvement in gross profit margins to 27%.

On to Slide 7. This slide shows the equity and earnings contribution of the Independence hub, Marco Polo and Clough Helix JV. The results are fairly consistent with the Second Quarter, and I'll leave the slide for your reference. On to Slide 7, our Well Intervention business achieved near full utilization in the third quarter, and Q4000 performed multiple projects for Shell and Anadarko in the Gulf of Mexico aside from a few days of R&M down time for the sea well, our 2 North Sea vessels were utilized every day in the third quarter. The Normand Clough was 100% utilized in construction projects offshore China. Demand for our assets and services in the well intervention business remains strong, and backlog in the Gulf of Mexico and the North Sea assets is building well into 2012.

Moving to Slide 12, Canyon utilization and financial performance continued to improve in the Robotics Business in the third quarter. We kept all of our 200 vessels fully utilized, added 2 new ROVs to our fleet, completed delivery of our new Robe-drill units, and increased the ROV trencher utilization up to 67%. The offshore renewal energy space continues to be an area of focus, and we are making incremental investments secured by firm contracts to expand the capacity. During the third quarter we utilized a trenching spread for the Deep Cygnus to perform inter-rate cable installation and burial operations at the Greater Gabbard wind farm in UK sector of the North Sea. One of our other charter vessels, the Island Pioneer, performs power cable trenching and burial operations in the UK sector of the North Sea, and Q4, the Island Pioneer is scheduled to join the Deep Cygnus on the Greater Gabbard wind farm to continue our cable installation and burial project through February of next year.

On to Slide 13, which is pipe lay. We mentioned improving activity levels for our pay lay assets in our call with you last quarter. The business got off to a rough start during the first half of the year but utilization of the Express and Intrepid began to improve toward the end of the Second Quarter. This trend continues into Q3 as the 2 assets each achieved approximately 95% utilization. Backlog for the Express continues to build in the Gulf of Mexico and the Intrepid set sail for California about a week ago, where she remained through the end of the year, and into January. The Caesar had been in shipyard all year are undergoing planned maintenance and upgrades, which were completed at the quarter end. After see trials in the middle of October, and is now performing accommodations work in the Bay of Campichi.

On to the next slide, 14. This slide illustrates the design of our deep water container system, the Helix fast response system, available to members that are consorting with 24 independent operators in the Gulf of Mexico. The system has been cited as a still response and containment plan, 38 approved deep water permits to date.

Moving on to Slide 15. This slide shows the utilization we achieved in our Contracting Services assets in the Second Quarter, which I'll leave for your reference. And now on to our Oil and Gas business, I'll turn it over to Johnny.

Thanks, Cliff. Slide 16 & 17 provide the financial highlights for Oil and Gas for the third quarter. Production and revenue for Third Quarter 2011 was lower than Q2 due to the down time for third party pipelines, and Tropical Storm Lee, which Owen mentioned earlier. Without this down time, ERT Third Quarter production would have exceeded Q2. As per the footnote on Page 17, our operating expenses were up by $9 million in Q3 2011 over Q2, due to the fact that we expensed the substantial portion of our weather derivative policy during hurricane season. The increase in Q3 2011 over Q3 2010 is the cost associated with the Phoenix field.

The Phoenix field has been in production now for 1 year with first oil produced October 19, 2010. Also during Q3, we continue to receive a premium for our oil sales above WTI, excluding hedges, ERT received over $13 a barrel for WTI for all of our GOM crude. Looking back at the Third Quarter, ERT brought on Little Burn well in the Phoenix field, and we continued with the successful workover program in the South Marsh 130 field. These wells added over 4000 barrels a day equivalent to ERT's Q3 production capacity.

Looking forward, we have some exciting opportunities. The Green Canyon 490 well, or wide berth, which was drilled in Q4 of 2009 is currently being tied back to a compliant tower in Green Canyon 260. First production is expected in Q1 2012. In the Bushwood field, we expect to add production from 2 wells in 2012. We currently have a rig in the Bushwood field completing the Nancy well, which was drilled in Q4 of 2008. We have received the drilling permit for the Kathleen well, which was renamed Danny II. This well is an exploration well targeting oil production just below the Danny oil well. The timing of the Danny II well would depend upon securing a rig.

We also have drilling opportunities in the Phoenix field. We have submitted paperwork towards receiving the drilling permit for our Wang exploration oil well and also a PUD oil well, which we can drill at our Phoenix field. And the timing of these wells will also be dependent on receiving drilling permits and securing a rig. Over to you, Lloyd.

Thanks, Johnny. Slide 18 illustrates our commodity hedge position for the balance of 2011, as well as the hedges put in place so far for 2012. Quarter 3 we also layered in some additional crude oil hedges for 2013. The 6.6 billion cubic feet equivalent hedge for the remainder of 2011 covers about 60% of our forecasted combined production. The remaining Quarter 4 hedges are weighted at about 2/3 to oil production, which is in line with our current production profile. In the third quarter, we layered in additional Oil and Gas hedge contracts for 2012, and some additional or some initial oil hedge contracts for 2013. Our Q3 swap and costless collar hedge contracts for crude were based on current Brent crude pricing, and as we've mentioned before, we're utilizing the Brent benchmark to better correlate our financial hedges against the actual pricing we are receiving for our Gulf of Mexico crude sales. We continue to opportunistically hedge our forecasted 2012 and now 2013 production depending on the current commodities markets.

Over to Slide 20. Slide 20 profiles our current debt and liquidity position at September 30, and as Tony mentioned earlier, we've paid down a total of about $190 million in gross debt since the beginning of the year. In the third quarter alone, we repurchased $75 million of our 9.5% high yield bonds at a discount to the January 2012 first call price of $104.75. We ended the third quarter with $375 million of cash on hand, down from the $414 million at June 30. The decrease is largely attributable to the high yield debt repurchases in the third quarter. Of significance, our gross and net debt balances have decreased $855 million and $1 billion respectively since year end 2008. Our liquidity position stands at $933 million as of September 30, and based on our outlook for the Fourth Quarter, we expect further decreases in our net debt position from the September 30 levels. Tony?

Okay, moving over to Slide 22, which is an update of our 2011 outlook, and despite the production disruptions mentioned earlier, our Oil and Gas production forecast remains intact. We built 50 billion cubic feet for 2011. Again, that's up from the original forecast of 49 billion cubic feet equivalent for the full year 2011. We forecast Oil and Gas prices net of hedges at $96 a barrel for oil and $5.82 for gas. On the oil side we're definitely benefiting from the Gulf crude pricing premium. On the natural gas side we're benefiting both from our hedges, and natural gas liquids by-product production.

Due to the stronger near term outlook and visibility for our Contracting Services business, we now forecast EBITDA at $625 million in 2011, up considerably from the original outlook of $475 million and up from the outlook we presented 1 quarter ago of $550 million. You will notice again a plus sign on the slide next to the EBITDA forecast, which suggests we have upside potential to the $625 million number. CapEx spending is still forecast at $275 million and that's the same as last quarter. At the level of the EBITDA with the forecasted level of CapEx for the year, we should continue to generate Free Cash Flow for the remainder of 2011, allowing us to further reduce our net debt position from September 30.

Slides 23 & 24 provide more color on our outlook. On the Contracting Services side, we have booked a nice level of backlog for our well intervention vessels. The Q4000 is nearly fully booked for all of this year and into 2012, and both the Well Enhancer and the Sea Well are carrying a solid book of business as well going into 2012. With the exception of regulatory dry dock requirements for all 3 of these vessels in 2012, we anticipate very high utilization levels. As previously mentioned backlog from both the Express and Intrepid picked up. The Intrepid is set sail to California where she has 2 projects under contract, which will keep her there through January. Both of these vessels have regulatory dry dock scheduled in 2012 as well. The Express is currently operating the Gulf of Mexico with fairly good backlog going into 2012, and the Caesar has gone to work as Cliff mentioned in the Bay of Campichi on an accommodations project.

Canyon, our robotics business has seen a marked increase activity. Trenching for the renewable energy business in Europe has opened up another growth path for our Robotics Business. Presently out of our 5 ROV construction support vessels, 3 are in the North Sea, 1 is off the coast of India, and 1 is in the Gulf of Mexico. Our CapEx at $275 million breaks down to $110 million for Contracting Services and $165 million for Oil and Gas. Contracting service numbers contains little spending above maintenance other than some upgrades to the Helix Producer I, to enhanced spill containment profile, and some incremental investment in our historically profitable Robotics Business, and the thruster upgrades for the Caesar. The major items in the Oil and Gas spending at $165 million remaining to be spent are the drilling of the Kathleen well and the completion of the Nancy well, both in the Bushwood field. As Johnny mentioned we expect the Nancy well to be brought into production some time in Q1 of next year. Back to you, Lloyd.

Slides 26 & 27 are a non-GAAP reconciliation schedules presented here for your reference. I will not go over these schedules in detail during the call and at this time, I'd like to turn the call back over to Owen for his closing comments.

All right, Lloyd. Our Company and people continue to work well and improve performance. We've been successful in investing in our Oil and Gas assets to unlock the value and convert our PUD reserves to PDP. We'll continue with this game plan and keep Oil and Gas reinvestment within its own cash flow generation. On the services side, well intervention in Canyon continued to perform well. In the construction group, utilization is up but performance and margins have much more room to greatly improve. The Caesar upgrades are largely behind us which makes the vessel very capable global asset; however we've not sought to put her back into the pipe lay market as yet, and have deployed her on an accommodations contract for the near term.

Going forward our focus will be on an improvement to performance in this business unit, and in unlocking the value of the assets. In Well Intervention in Canyon, we're asset constrained. We've added some assets in Canyon which haven't quite yet come to the market, and we're considering various options to grow the Well Intervention business. We'll be working to further improve the growth potential of our services by adding assets in both Well Intervention and Canyon while improving the value realized from our construction group. We've now reduced debt levels to manage both levels, liquidity is high and cash flow strong, coupled with opportunities in well intervention in canyon, we plan to embark on a growth plan in these areas. As we continue to unlock the value in our current Oil and Gas reserves we expect our financial condition to continue to strengthen. And with that I'll turn it back over to the Operator for Q & A.

Thank you.

(Operator Instructions)

Our first question is from Jim Rollyson with Raymond James. Please proceed.

Good morning, everyone.

Good morning, Jim.

Owen, I guess first, your well intervention business seems to be kicking butt. ROV business is improving pretty rapidly, and it even sounds like pipe lay is starting to pick up, and you've got backlog going into 2012. Can you maybe spend just a minute talking about the outlook in terms of bidding to fill in 2012, and you mentioned margins still have a lot of room to go. Just kind of what's developing on that side? Are they still kind of stuck at levels that we've been seeing, or are you starting to see things at least signs on the horizon that might start to pick up a little bit?

Specifically on construction or want to hear all 3 groups?

All 3 groups.

Okay, let me let Cliff speak to that because he's day-to-day involved with the market here.

In general, first thing I'd like to say is we're in the middle of budgeting process for 2012, so we don't have it all quite figured out yet, but I'd see it from all 3 service groups, well ops will have a good 2012 as we mentioned. The backlog is pretty substantial there for next year, and both the US, Gulf of Mexico, and North Sea a little bit of work done in Africa, and the margins are improving slightly in that area.

From the Canyon standpoint, it's probably pretty similar. We've got their backlog usually isn't as far out in advance but we booked up some of the work in the wintertime for a few of the vessels that we normally have idled time during the winter months but due to some of the trenching and renewable market, we booked those up for the winter and we expect the spring and summer to be pretty substantially booked as well. And the last business, the Pipe Lay HSC construction business, I think it's going to be not too much different from this year. I think we'll have a reasonable amount of backlog for the real vessels, the Express and the Intrepid, but just don't see the margins greatly improving but I think our performance will improvement margin slightly.

And do you think the Caesar will at some point find its way back into bidding work? Or you guys talked about in the past possibly selling the vessel, kind of where do you stand on that?

Well we're looking at both options. It's no secret we've been looking and trying to sell the Caesar, but we're also chasing some work that will start later part of next year for pipe lay work for the Caesar as well.

All right, and I realize you're in the budgeting process and you may want to defer this, but I'll ask it anyway since you brought it up in the Press Release. In the 5 dry docks for next year you've got obviously significant vessels going out for dry dock. Have you thought about kind of how this might impact you on a year over year basis, because it seems like it's a little up year over year in terms of the number of dry docks and significant assets, but you also have some things coming into the market on the canyon side, just kind of trying to think about how we should model this from a year over year perspective.

Yes, I mean, Jim, I'll take that question. Number one, we are going for our budgeting process, so we haven't ultimately determined our numbers for 2012. I think it's unusual that the 5 vessels coincidentally are having dry docks in 2012, we had none in 2011 and it's just the way the cycle worked, they are regulatory required, normally last 20-30 days. Beyond that, it's tough to give you guidance on the impact of that.

Okay, appreciate the help for trying, and last question for me, you guys bought back the $75 million of senior unsecured notes in the quarter. Any plans to pursue that option again in the Fourth Quarter?

Yes, I would say this, Jim. Our first priority in paying down debt is if we can opportunistically do that and we feel good about the macro conditions, a lot of ifs, ifs, and ifs there, Jim, but we really would like to pay down the high yield debt if we can. Obviously our liquidity position is good. It gives us the flexibility to do so, so a lot depends on market conditions and how we feel about the macro situation.

Great. Thanks, guys.

But that's our favorite debt to pay down.

9.5%, I understand.

Our next question is from Joe Gibney with Capital One. Please proceed.

Thanks, good morning. Just wanted to drill down a little bit more on the dry docks if we could, just in terms of timing specifically on the Q, I think the expectation had been for some down time there in the First Quarter. Is that still accurate for its dry dock as well? As the well enhancer, would that be the first half of the year? Just trying to get a sense of timing on a per vessel basis.

No I think -- This is Owen. I think you'll see most of these dry docks front loaded in the first half of the year. We prefer to get them out of the way during the slower part of the season and the rougher weather.

I think the Well Enhancer is scheduled for the last half of the year.

That one?

Yes.

Okay, that's helpful. And then Johnny, if you could, I know you guys haven't formalized this, you've loosely talked about production potentially being flat year over year 2012 versus 2011. You've got you're waiting on a rig on Kathleen, your paperwork has been submitted on Wang, and Nancy is supposed to come on First Quarter of 12. Has anything changed relative to your perception of timing impediments on Kathleen and Wang as you sit here in Third Quarter versus 2Q? Do you think it's still an achievable target to be flat year over year at this point in time on production?

Well, in 2011 we've done really well. We exceeded our budgeted number. Our budget was 44 to 46 range of what we originally thought and we pushed it to 49 and we did really well. I think to keep it flat year over year, that assumption would require us to be successful on both Wang and Kathleen and to get them drilled in a timely basis and I don't really know if the rig market and the permitting market is going to allow us to do that. I really don't want to speculate, but if we have the ability to keep it flat, if we could get those wells drilled in a timely basis, and if they are successful, because both Wang and Kathleen are exploration wells.

Understood and drilled on a timely basis you mean first half of the year, correct?

Early 2012.

Okay. Thank you, gentlemen. I appreciate it. I'll turn it back.

Our next question is from Michael Marino with Stephens Inc. Please proceed.

Good morning. Owen, you mentioned possible, or I guess growth opportunities in the well ops business and intervention markets. Outside the much talked about stat oil bid, what other opportunities are you seeing? Is that a market you may approach from a new build standpoint? Without stat oil?

In a word, yes. There's several sectors of that market though. You have the light intervention market which we have never, we dominate the light intervention market in the North Sea, but we have no light intervention asset in the Gulf of Mexico, so that's an option. Whether that's a new or an existing vessel, there's options there to consider, and then as far as additional vessels, every time we build one we start designing the next one, so there's been 1 on the table for quite a while, and when we pulled the trigger, I think that is another option that we'll consider. Like I said in my remarks, we're looking at a lot of options. Those would be organic, and then there's also M&A options, so we're looking at quite an array right now.

And at this point, is it something that looks more like the Q or something that looks more like the Well Enhancer, or both?

I'd prefer not to speculate. Obviously for competitive reasons I'd like to keep it under wraps as long as possible but also until the decisions made, I think it would be wrong to pre-announce anything.

Sure, understandable. And just one housekeeping, Tony. The SG&A line, I guess that came down a quarter. Is that something that will continue or does it kind of bounce back Q4? Need a little help there.

I think it's going to be relatively flat to maybe to be conservative slightly up in the Fourth Quarter.

Okay.

But we're not really doing anything to change activity levels and SG&A to cause it to move higher or lower that much.

Okay, great. Thanks.

(Operator Instructions)

Our next question is from Roger Read with Morgan Keegan. Please proceed.

Good morning.

Good morning, Roger.

I guess a lot of the stuff has been asked but maybe looking at the amount of dry dock time you're going to have, you have the Caesar at least out and floating doing a little work. What's the potential for putting it into more of the conventional market. You mentioned the reel lay versus J-lay system. Is that the difference here the reel lay is more in demand and just a better more cost effective type vessel? As we look at 2012?

The Caesar is a S-lay vessel. The other 2 vessels are reel lay. Reel lay, there's far more reel lay vessels on the market than there are S-lay, and reel lay fits more with our type of construction, which is the surf market, the in field construction work. S-lay is usually reserved for export lines or lines with large enough diameter where you need a weight code and there for can't be reeled. That's sort of a standalone market and outside of where we're headed, which is why we're causing to see what our options are on divestment of the Caesar. But there are opportunities like Cliff mentioned and we are planning, we're in the planning stages to man up and start to re-bid the vessel but we're going to be taking it a little bit slow so we can make sure when we do contract the vessel our performance will be up.

Should we think about it as staying basically in an accommodation mode for the near term, or is it just short-term work and then back to the dock?

We think it will be in accommodation mode for the first half, certainly through the first quarter, maybe the first half of the year.

Okay. And then I don't know if you want to go into it given your hesitation on the previous questions, but the Cat B, Owen, can you give us an update on where we stand and that was originally kind of February this year and pushed back to year-end, where do we stand on one stat oil move forward with that?

To my knowledge all of the submissions from the 3 bidders are all submitted to stat oil. They're in the process right now of evaluating the submission. It will then turn into a back and forth clarification dialogue probably with all 3 and stat oil announcing that they plan to go to contract in February. So it's wait and see here now. All the work is done.

So February 2012 is the date to expect something?

Yes. That's what we're told right now.

Okay. And then final question, along the well intervention, you mentioned work in West Africa next year. Can you maybe give us more on is that a specific to 1 customer that you've been working for in the North Sea, or something totally new and as you think about whether you add a light or a heavy well intervention vessel is that what we should be thinking about more of a Southern Hemisphere opportunity?

We have an opportunity down in Africa and from the well ops side from the North Sea operations they've never been to Africa but from the Canyon side, we've been working down there. So, we've leveraged a little bit off that experience and it is a wintertime campaign which is typically a slow time in North Sea, so we've taken advantage of the slow time and there is no deep water activity picking up off the coast of West Africa so taking advantage of that and treat it just like any other project. I think it's about a 60 day campaign.

But specifically Roger, it's the well enhancer going down there and the major E&P customer.

Okay. That's it for me, thank you.

Our next question is from Mario Barraza with Tuohy Brothers, please proceed.

Thanks. Good morning guys.

Good morning.

I know pretty much you guys have run down the majority of my questions, but can you just talk a little more about the renewable energy opportunity going forward?

Well I guess that's a pretty broad question.

Just more offshore in the UK and North Sea you guys are picking up some activity there.

Right, right. We've got I don't know, maybe 1.5 vessels working in that market full time right now and our part of the market is after installation of the actual turbines is doing the interconnect cables between the turbines and varying those for protection and then also the trunk lines going from the wind farm to the beach bearing for protection the trunk lines and that market is picking up, we've got another vessel coming out called the Grand Canyon, which will come out next year, and have another asset, a T1200 trencher that will go on there and as I mentioned it's part of a contract that we're building assets for based on the back of the contract. So that's a growing market for us in the Canyon sector and kind of a spinoff of the pipeline barrel market that we were already in. There's some talk of the first one going off the East Coast to the US, and that's still a few years away, if it ever goes, there's quite a few impingements against that right now legally, so most of the activity is in Europe, and I think will stay there.

Okay, well thank you guys.

(Operator Instructions)

Our next question is from Martin Malloy with Johnson Rice. Please proceed.

Congratulations on the quarter.

Thank you.

Is there any help that you could give us in terms of thinking about the impact of your investments in the ROV and Canyon in 2011 and first half of 2012 in terms of either revenues or return of how you're looking for on the investment, and how much you've invested?

Martin, I'll just say we expect our Robotics business to grow next year. Again, we are not quite through the budgeting process, but we've made investments based on committed backlog, and that meets our return hurdles of at least 15% after-tax return on capital, so I'll just say that. We're in the support vessel that Cliff mentioned, the Grand Canyon, we've acquired a couple more ROVs, we're building a trencher for the renewables market, and all of that is backed by firm backlog.

Just to add to that, budget to budget 2012 in the Canyon side, the budget will go up even though we haven't finalized it, it will go up over 2011 budget and one of the ideas of the Grand Canyon that was going to be a replacement vessel for one of the charter vessels that we have, and because of the backlog of work right now, we're going to have the Grand Canyon come out, and keep the vessel that it was supposed to replace so we'll have added capacity in our fleet for next year, at least for the busy part of the year through the summer and fall.

Okay, and then the ROV drill upgrades, is that enabling the ROVs to work in drill support, or what is that?

No that's a good question. I guess it is a little confusing there. No, it's ROV drill, maybe not the greatest name for it, but it's getting us in the geo-technical business and we have our first coring job in the actually renewable business as well, doing core samples so they can determine what type of foundations they need to put the turbines in.

Okay, thank you.

Our next question is from Josh Jayne with Simmons & Company. Please proceed.

Thanks, good morning.

Good morning.

The first question you guys have historically given pretty good color surrounding the permit process in the Gulf of Mexico and where it stands. Could you talk about if you're still seeing a constraint or is it largely better understood today than where you were in the summer?

Johnny, do you want that?

Well, we have received the Kathleen which we renamed Danny II permit. The process is still rigorous and the rigorousness of it is because it's thousands of pages required to fulfill the requirements, that therefore it's very time consuming and if you make any mistakes, if you don't fill it out properly, it's back to square one and restart, so the process is a lot more time consuming and stretched out than it used to be. Maybe not all that's bad. Not saying it's bad. It's just more time consuming and therefore, it will take us longer, and everyone longer, and that's probably the color I could give.

On more of the macro view, I think permitting is up substantially from where it was. It's not back to pre-Macondo levels but I think the bigger bottleneck, and correct me if I'm wrong, Johnny, but the bigger bottleneck is not so much getting permits through, although it is a lot more tedious than it used to be. The biggest bottleneck right now is the lack of rigs in the Gulf of Mexico. We saw a lot of rigs exit, and getting actually your hands-on a rig is very difficult and of course, to permit, you have to specify which rig you're using, and if you can't nail the rig down, then that just adds another hurdle of delay on the permit.

That's correct. There's not a lot of free rigs.

And then, Tony, one for you on the tax rate. If you could just sort of provide us some color, I think Q3 was guided to 27%, and it came in higher so what should we be thinking about Q4, and also into 2012?

Well, year-to-date, we're at 30%, we booked 33% in the Third Quarter to catch up to a 30% rate, and we think 30% is going to be the rate in the Fourth Quarter as well, and that's largely being driven by much higher earnings in the US, where we have a higher effective tax rate here or higher statutory tax rate because of the strong earnings being produced by the E&P business. I still contend on a go forward basis where we see our business falling out globally, we still expect our rate to be between 25% and 30% on an ongoing basis.

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

Mr. Powers, there are no further questions. Oh, we do have another follow-up question from Michael Marino from Stephens Inc. Please proceed.

Thanks. Just wanted to follow-up on the guidance for 2011 and I guess the implied EBITDA number that you guys are getting to. What's kind of the delta there between I guess Q4 and Q3? Is it -- you gave the production guidance, so is there some seasonality to the vessel utilization?

There is always some seasonality, Michael, in the Fourth Quarter wherein our business, we take a dip. We don't expect the dip to be as pronounced in Q4 as it has been in prior years, mainly because we're sending a well enhancer down to West Africa. Canyon is sizing-up a bit better in the Fourth Quarter than it normally does. At the same time we expect maybe Canyon utilization in the Fourth Quarter to be slightly lower, so we normally take a dip, and I think if you back into the Fourth Quarter number, we're sort of guiding to a bit of a dip, based on where we are year-to-date, but we feel pretty good overall about where we are right now in terms of our backlog and utilization for the remainder of the year. Year-to-date, we're at $500 million of EBITDA, so that would suggest a slight decrease in EBITDA, but we notice we did have the plus sign behind that $625 million number too.

Okay, sounds good. Thanks.

I'm showing no further questions at this time, Mr. Powers.

Okay, thanks, Sharon. Thanks everyone for joining us today. We very much appreciate your interest and participation and look forward to having you participate on our Fourth Quarter call in a few months.

Ladies and Gentlemen, that does conclude the Conference Call for today. We thank you all for your participation and ask that you please disconnect your lines.