Helix Energy Solutions Group Inc (HLX) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the review of first-quarter 2012 results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded Monday, April 23, 2012. I'd now like to turn the conference over to Terrance Jamerson.

Good morning, everyone, and thanks for joining us today. Joining me today is Owen Kratz, our CEO; Tony Tripodo, our CFO; Cliff Chamblee; Executive Vice President of 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 had an opportunity to review our press release and related slide presentation released yesterday afternoon. If you do not have a copy of these materials, both can 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.

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 as described in the Private Security Litigation Reform Act of 1995. Our actual results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in our slide deck and in our annual report on Form 10-K for the year ended December 31, 2011.

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.

Good morning, everyone. We left you on a pretty positive note at the end of last quarter. We'll skip page 3 and 4 here, so moving on to slide 5, which is the high-level summary of first-quarter results, quarter one's revenues increased from $396 million in Q4 to $408 million this quarter, with all of the increasing attributable to our Contracting Service segment -- an increase that more than offset the decrease in oil and gas revenues resulting from lower oil and gas production. Consistent with the increased revenues, we also reported increased earnings and operating cash flow. The EBITDA generated of $209 million represents an all-time post Cal Dive divestiture quarterly record for Helix.

Moving on to slide 6 and 7, quarter one's reported EPS is $0.62; however, this is after absorbing $17 million of pre-tax charges, or $0.10 after-tax associated with the early repayment of a portion of our senior unsecured notes and a portion of our convertible notes. The uptick in Contracting Services revenues and operating results in Q1 was actually led by our Subsea Construction business, which saw a 94% vessel utilization in Q1. However, our Well Intervention business also had an increased operating result from Q4, despite the fact that the Q4000 entered dry dock in early March and the Seawell went into dry dock in late March.

Canyon, our Robotics business, had a very active quarter utilizing five different spot market vessels at various times during the quarter in addition to its four regular vessels under long-term charter. Our oil and gas production in the first quarter totaled 2 million-barrels of oil equivalent, down from 2.2 million-barrels of oil equivalent in Q4. Quarter one's production decline was impacted by the sale of our main pass field, as well as the shut in of our Noonan gas well along with normal decline rates. We continue to benefit from our oil production being sold at Louisiana light sweet prices, which is at a significant premium to West Texas intermediate prices, realizing $109 a barrel, net of our oil hedge contracts. In addition, natural gas liquids production, along with our natural gas hedge contracts, allowed us to realize $5.82 from our natural gas production in Q1.

Continuing on slide 7, from a balance sheet perspective, we continue to strengthen our financial condition. Our net debt position, which continues to decrease, went from $609 million at year-end '11 to $560 million at the end of the first quarter. Our cash balances increased to $620 million at the end of Q1, from $546 million at year end. We did a bit of a re-haul of our capital debt structure during the quarter. First, we issued $200 million of new 3.25% convertible notes due in 2032 and used the proceeds to buy back $142 million of the $300 million of pre-existing convertible notes, which we fully expect to be put for repayment in December of this year. The remaining $158 million of the old converts are expected to be put to us and retired in December.

Essentially, we preserved a low-cost form of capital and convertible debt by issuing new $200 million notes to replace the $300 million that we fully expect to be repaid by year end, and reducing a net amount of this type of debt capital by $100 million. Furthermore, we issued new $100 million of a syndicated term loan A and, along with revolver borrowings, called and retired $200 million of our 9.5% senior unsecured notes. The net effect of this reshuffling results in a much lower cost debt capital structure. With this, I'll turn the call over to Cliff for an in depth discussion of our Contracting Services results.

Good morning, all. As you can see, Contracting Services had another strong quarter with a total revenue of $265 million, up over $100 million from a year ago and $40 million higher than Q4 last year. Our gross profit margins, at 27%, were also significantly higher than a year ago, as well as improving upon last quarter's margins. Utilization was higher in this business unit with Well Ops and the Canyon vessels at 84% and 93% respectively. The pipeline vessel utilization was 94% with Express Intrepid working in a pipeline mode and the Caesar in accommodations mode.

Moving on to slide 10, this slide shows the equity and earnings contribution of the Independence Hub, Marco Polo and the SapuraCrest JV. The results are consistent, except for the $4 million write down to close out the JV in Southeast Asia. Over to slide 11, the Q4000 was down at 67% utilization for the quarter. It had near 100% utilization in January and February as it worked for Shell and Helix Oil and Gas projects prior to entering the dry dock in early March.

Our two North Sea vessels were also busy with 93% utilization, despite the Seawell transiting for dry dock in late March. The Well Enhancer successfully completed its West African campaign. This campaign represented deepest operations conducted from the Well Enhancer since joining our fleet in early 2009. Both North Sea vessels carry strong backlogs for the rest of the year, except for a planned dry dock for the Well Enhancer in the third quarter. The Q4000 backlog is beginning to extend into 2014. Also note, our second intervention riser system is now in the Gulf of Mexico and working for Exxon.

Moving on to slide 12, on the Robotics side, Canyon experienced high utilization for the construction support vessels as well, with a record nine vessels on hire during the quarter. The renewable side of the business is again a highlight for us this quarter as we continue to generate significant trenching revenues in the renewable energies market utilizing the Island Pioneer and the Deep Cygnus vessels, as well as our road drill coring asset. We're still on target for Q2 delivery of our new vessel, the Grand Canyon, and believe this business will continue to grow for us.

On to slide 13, in Subsea Construction, the Express continues to achieve high utilization here in the Gulf. She departed for a project in the Mediterranean earlier this month and is not expected back in the Gulf until third quarter. The Intrepid finished its campaign off the coast of California before transiting back to the Gulf of Mexico at the end of March. Caesar remains on an accommodations project down in Mexico where the contract has now been extended through August. On to slide 14, I'll leave that for your review. And with that I'll turn it over to Johnny on the Oil and Gas side.

Good morning. Please turn to slide 15. Slides 15 and 16 provide the financial highlights for Oil and Gas for the first quarter. Production and revenue for Q1 2012 was lower than Q4, mainly due to the sale of our main pass area properties and the shut in of the Bushwood Noonan gas well due to high water production. Our production mix in Q1 was 71% oil.

On slide 16, our operating costs were lower in Q1 with the major differences being reduced work-over expenses and less facility repair work. Looking forward, we have some exciting opportunities. On the shelf, we expect to start at two oil-producing properties in the second quarter. We will begin production from our Eugene Island 302 field at about a 1,000 barrels of oil equivalent per day net and at South Tim 86 we will again be producing about 500-barrels of oil equivalent per day net from one well with two additional wells to drill this year.

In deepwater, we expect to add production from two wells in 2012 in the Bushwood field. First, the Danny 2 well is expected to spud by the end of this month. This is an exploration well targeting oil just below our Danny oil well. If successful, we will add an estimated 3,600 barrels of oil equivalent per day net. Production from Danny 2 is scheduled for third quarter. Also in the Bushwood field, the Nancy well, which was drilled in fourth quarter 2008, has been completed and is waiting to flow. First production from Nancy is estimated in Q3 also in 2012. This gas well will add an estimated, an equivalent basis 2,000 barrels of oil equivalent per day net.

The Phoenix field and the HP1 continued to produce very well in Q1. We received the APD and we've contracted a rig to drill the Wang well. The rig for the Wang well will not be available until mid to late Q3, therefore, we've scheduled first production for Q1 2013. If successful, the Wang well can add an estimated 3,400 barrels of oil equivalent per day net. We also have two proved, undeveloped oil wells to drill at Phoenix, but we do not anticipate drilling those until after 2012. Over to you, Lloyd.

Thanks, Johnny. Slide 17 summarizes our current commodity hedge positions with the 3.2 million-barrels of oil equivalent, covering about 62% of our forecasted combined oil and natural gas production for 2012. On an estimated production from PDP, we're hedged on a combined basis totaling 74% for the year. We also have a portion of our 2013 production hedged, notably with natural gas slightly above a floor price of $4 per Mcf and oil with a floor price of nearly $100 per barrel. And regarding our oil hedges, over 80% of our current hedges in place by volume for 2012 and 2013 are based on the Brent benchmark, and we've mentioned on past calls that we're using the Brent benchmark to better correlate our financial hedges against the actual pricing we're receiving for our Gulf of Mexico crude sales. The actual spread in quarter one between the WTI benchmark and what we actually received for our crude oil sales in the first quarter was approximately $15 per barrel.

Turning to slides 19 and 20, slide 19 profiles our current debt levels and liquidity position at March 31. Gross debt increased slightly during the quarter as a result of the completion of our new $200 million, 3.25% convertible senior note offering. And as Tony mentioned earlier, we used $142 million of the proceeds to repurchase and retire a portion of our existing 3.25% convertible senior notes. The existing notes are puttable to Helix beginning in December 2012. We ended the first quarter with $620 million of cash on hand, and that's up $74 million from the $546 million at December 31, and our liquidity position remained at $1.1 billion as of the end of the first quarter.

Over to slide 20, this slide provides the current update on overall debt maturity profile as of March 31. As we mentioned on the quarter four call and earlier by Tony, we entered into a new $100 million term loan with a syndicate of banks in February. This term loan funded in late March and we took the proceeds, plus $100 million borrowed under the revolver, to repay $200 million of our 9.5% senior unsecured notes on March 30. The senior unsecured notes have been reduced to $275 million, or 0.5 of the original $550 million issuance in December 2007. With the reduction in the high-yield bonds, we will realize a sizeable cash interest savings over the next few years, with our overall cost of debt just slightly over 5% at March 31.

Thanks, Lloyd. Well, we're off to a much better start in 2012 than we originally expected. As such, we have now -- expect our EBITDAX forecast for 2012 to exceed the approximate $600 million we originally forecasted for 2012. The key variables impacting this forecast, in addition to the commodity price assumptions shown on the chart on slide 22, are little or no tropical storm disruptions impacting our Oil and Gas business, as well as the successful drilling and completion of the Danny 2 oil target. As Johnny mentioned, we expect to spud this well later this month and estimate first production around October 1.

What has changed is that although we have secured our permitting rig for the Wang oil target, which we expect to spud in Q3, we have pushed any production contribution out of our forecast until 2013. But despite moving Wang production out of the 2012 forecast, we still estimate our total production at 7.5 million-barrels of oil equivalent, the same as our original 2012 forecast. With both the Seawell and Q4000 in dry dock for the most of April, we expect our Contracting Service business to pull back somewhat in Q2. However, activity levels remain very strong, particularly in the Well Intervention business.

Our CapEx estimate for 2012 is $450 million, essentially the same as our original forecast. $130 million of the $450 million in CapEx is slated for the new Q plus well intervention semi, of which we've paid $60 million first installment in Q1. We have contracted two additional ROV support vessels under long-term arrangements based on a very favorable outlook for the ROV business, both for the oil field and for the renewable energy market. Both of these vessels are copycats of the Grand Canyon vessel, which is expected to enter our fleet mid-year. The other two vessels are expected to be delivered in 2013 and 2014 respectively, and will either replace existing long-term charter vessels in our Robotics fleet or, depending on market conditions, expand our ROV-support capacity in the future.

CapEx spending again is $450 million, essentially the same as our original forecast and, again, $130 million of this represents spending for the new Q plus vessel. I'll skip slides 27 and 28 and leave them for your reference, and at this time I'll turn the call back over to Owen for closing remarks.

From the bottom line is that the Company is in good shape -- operating well and positioned for growth, while continuing to strengthen financially. Debt is down to a comfortable level for a service company our size. All assets are at high utilization levels. The markets we serve are strengthening and margins continue to improve. We're bringing on new assets into growing markets at a measured, prudent pace. And in the last 12 months we've committed to adding six new work-class ROVs.

A new trencher is going into service in the renewables market in July or August on board a new-build charter vessel, as mentioned in the previous presentations. The construction of the new Q Plus has now been kicked off at the Jurong Yard in Singapore, and by the end of Q2 we should have four of the five dry docks scheduled in 2012 behind us. These steps towards adding growth are being achieved within our strong cash position and without adding debt. The debt reshuffling we have been able to accomplish the past six months served to reduce our debt service and there's more that can be done.

Presently we have a strong visibility on the utilization and rates. Production is consistently in line with our assets -- with our estimates, with two highly prospective wells to be drilled. We now have permits and rig contracts in hand for both of these wells. For now, things are going well. We're on track to exceed our original 2012 outlook to the investment markets.

Our strategy over the past three years was to delever the balance sheet and then grow the Well Ops and Robotic service lines. We've identified the growth opportunities and have the financial strength to execute and have taken the initial steps. We're now on the verge of adding meaningful growth capacity to Helix and remain open to monetization options on assets that would allow us to accelerate growth, but we're in the fortunate position of not being under any pressure to monetize for less than the reasonable value and still comfortably achieve our targeted service growth. I'm proud of what we've accomplished and the position we're in. And with that, I'll turn it back over to the Operator for Q&A.

(Operator Instructions). Jim Rollyson, Raymond James.

Excellent quarter. Tony, you mentioned marine probably pulling back going into the second quarter compared to first quarter given the drydock schedule and all, but I was wondering if you or Owen could characterize what you're seeing or thinking when it comes to marine margins. You had really strong sequential uptick in margins and that's even with the Q4000 being out for the better part of a month in a quarter and as you look out, number one, at your schedule and how you think about it for this year but also equally important from a pricing standpoint, looking out you mentioned Q4000 having backlog going into '14. How does that margin curve progressing?

Jim, I think all of the markets that we're looking at are gradually strengthening over time. I think there's a long ways for them to go, so I do think that margins will improve on the back of the market. But even without the market, I think what you're seeing in the Company is a real focus on our costs and our operating efficiency. I think that's greatly improved and there's always more work to be done there. I think we have the internal opportunity to at least hold margins where they are and possibly improve them going forward.

Jim, I think obviously, utilization is important to margins, but I do think there is opportunity for margin expansion in a well intervention business and long term margin expansion in the subsea construction business. We had, as you noted, much better margins in Q1 and that's with one vessel, even though it's working the Caesar, really not making any money so there's opportunity for more meaningful work for the Caesar in the future we hope. All things being equal, we see the environment being more positive for margin improvement as we go forward.

On Q2 specifically, you've got the Q out for April. You've got the Seawell that will be out for a good chunk of the quarter. How much impact do we have from the couple vessels that are in relocation coming back from California and the one going to Mediterranean? Is that 30 day type impacts or trying to get a sense of how utilization might look from Q1 to Q2?

Well Jim, the mobilization of the Express and the demobilization of the Intrepid were still revenue earning periods for us so that's really not an impact. The big impact for us again is the Q4000 and the Seawell being out of service for most of April while they're in drydock, but the other two vessels are in revenue producing mode even as they are mobile.

Helpful and last one, you guys have the two new charters similar to the Grand Canyon, which I think you said maybe replacement or may be additive. Just thoughts on capabilities versus your existing fleet and maybe how charter rates are looking for the two new vessels versus what you've been paying or even what you're paying on the Grand Canyon.

Yes, we get the Grand Canyon is coming to us in July of this year and then we've contracted two almost identical vessels after that. We got involved in that with the first charter of the Deep Cygnus is a very similar vessel to those so we believe we've got the spec that's right for the market, size, shape, cranage et cetera, for those vessels. As you mentioned, the idea is that we have a fleet contracted on a rotating basis so depending on market fluctuations, we can either add to by keeping the next two vessels coming out or we can replace some of the vessels that we have and take those off charter and let those charters expire.

Joe Gibney, Capital One.

A follow-up on the chartering question, you guys flexed up on the spot vessel side with the five short-term charters. Was curious how that's looking into the sequential quarter, is it drawn off a little bit more outside of the four you got on long term? Curious as it was up a lot sequentially.

Yes, we have long term chartered vessels that usually run for three to five years and options on those as well, and those are our primary vessels. From an opportunistic standpoint as we see short jobs pop-up, that could be anywhere from two weeks to six months and we pick up other vessels for those as required and that's what you're seeing reflected in this last report. That's a little hard to predict what we'll do, but I expect that we will, throughout the year, we'll continue to -- all those vessels are pretty much gone at the moment but we'll pick those or similar type vessels up through the rest of the year in Southeast Asia and on with the ROV drill asset as well.

Outside of near term utilization impacts from the drydock schedule, curious on the subsea construction side is a strong quarter. You guys have a lot of visibility now, more so than you've had in the past, but can the Express and the Intrepid outside of drydock schedules maintain 90% utilization? It's a high hurdle rate but given your visibility, is that reasonable once we get past the drydock side of things?

Yes, I'll take that one again. Yes, with the Express I don't think we have too much concern on the high utilization for it. As we mentioned, it's on the way to the med and going to the North Sea and back here. We'll probably pick up some more work in the North Sea and we've got work for it once it gets back here. The Intrepid will be a bit of a struggle to keep it working the rest of this year because it is truly Gulf of Mexico based, but we're starting to see that turn a bit as well. We do not have a real strong backlog for the Intrepid, but that's also a vessel that we pick up, we're pretty sharp to the lead time of when we're going to execute the work so it's typically not contracted out a year in advance. It's usually two months in advance or so before you contract.

Tony, if you could detail what the deferred mode revenue contribution was for the Well Enhancer in the quarter?

Joe, off the top of my head I don't have that figure, so let me get back to you on that.

Martin Malloy, Johnson Rice.

Congratulations on the quarter. Could you talk about opportunities with Statoil and the Cat A contract?

We spent a lot of time on the Cat B, and I think you saw last week -- well, prior to that you'd heard us say that we were moving on without considering the Cat B and with the build to the Q Plus. The other contract that we're involved with Statoil tendering is for a Cat A, which is a smaller mono-hull similar to the Enhancer type vessel or Seawell. I think the tendering process is through, all submissions are in and we're now awaiting the award and when we actually hear about that award, I'm not too sure given the history of extensions that Statoil puts on things. It should be near but I can't tell you exactly when we might hear.

With respect to the Caesar vessel outside of working in accommodations mode, are there bidding opportunities you're seeing out there to prove up the pipelay capabilities of the vessel?

Yes, well right now it is extended to accommodations in Mexico through August and the first part of September. There's an option we're discussing now to extend that farther on into next year, but we're also now planning to get back into the pipelay mode with that vessel probably half way through 2013 or so, in the mid 2013. Yes, there are projects that we're chasing here in the Gulf and internationally.

(Operator Instructions). Michael Marino, Stephens.

A question on well intervention rates. I guess drill rig rates have moved up and could you maybe compare what you're bidding the well intervention assets for today versus maybe what you're working them for today?

Well, a lot of the well intervention work that we have today and the rest of this year is long term contracts that we had in place, so we're not really able to raise those rates. Yes, we do see, I think Tony mentioned earlier, room for improvement in the well intervention business, so that's definitely part of our strategy to get those rates up and part of the timing to build the Q Plus and we're talking to clients now about rates for the Q Plus. Those rates and margins on Well Enhancer, Seawell and the Q4000 here are steadily increasing as we can but as I mentioned, some of these are one and two year contracts that we can't increase the rates on until those expire but we do see room for improvement.

But generally speaking the rates in our backlog, Michael, are higher than what you saw a year ago, generally speaking. That's locked up in our backlog right now and certainly drill rig rates, if they hold up for 10 wells for our rate situation beyond what's in the backlog as well and certainly when you see generation 6 drilling rigs out there at 550 a day and higher that's going to give us plenty of opportunity to put the Q Plus to work at very nice rates.

In order of magnitude, are you talking 10% increases from what you're currently working or is it greater than that?

Well, I think we talk about opportunity for rate increases and I certainly think there's an opportunity over the next two years to see a 10% rate increase, but that again is going to be subject to market conditions at the time.

Looking out a little bit further on the E&P business into 2013, I guess this year you'll spend close to $200 million there. Is that a good level or strategically, Owen, how you see spending in that business where you're working things on the shelf and some opportunistic things in the deepwater but trying to keep it in that range, or maybe your thoughts on E&P longer term and how much spending you direct there?

Well let me let Johnny express what his wish list is and then I'll look at the balance sheet and later on tell you what the actual is going to be.

In 2013, we have similar number of projects and similar spending that we do in 2012. We still have a backlog of projects to develop that are in our proved undeveloped category and we still have some deepwater wells we would like to drill in the Phoenix field, because the Phoenix field is just continually outperformed our expectations. We'll be bringing him another list in 2013 that will look like 2012.

I might just add a follow on, I think Johnny and the guys at ERT are allocating capital very wisely now and I think as a Company, there's a refocus on the return on capital of every dollar deployed from CapEx. That bodes well but we will endeavor very prudent, or with a lot of discipline to stay within or close to our cash flow and avoid any recurrence of debt increases.

There appears to be no further questions at this time.

Okay, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you participate on our second quarter 2012 call in July.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.