Helix Energy Solutions Group Inc (HLX) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the review of the fourth-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 Thursday, February 21, 2013. I would now like to turn the conference over to Terrance Jamerson, Director, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Joining me today we have Owen Kratz, our CEO; Tony Tripodo, our CFO; Cliff Chamblee Executive Vice President and Chief Operating Officer; Alisa Johnson, our General Counsel; and Lloyd Hajdik, our Senior VP or Finance. Hopefully you've had an opportunity to review our press release and its related slide presentation released last night. 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 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 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 forth in our slide 2 and in our annual report on Form 10-K for the year ended December 31, 2011 and subsequent Form 10-Q. 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 opening remarks.

Good morning, everyone.

We are going to begin with slide 5, which is a high-level summary of fourth-quarter results. Quarter four results were undoubtedly messy due to the impairment charges we booked on the announced sales of both the oil and gas business and the sale of the Caesar. With regard -- when regarding the impact of these strategic transactions, our real operating business continued to perform nicely and produced $113 million of EBITDAX. Although these results are slightly below Q3 EBITDAX of $127 million, most of the decline is a result of typically lower seasonal activity associated with our robotics business. Overall for the year 2012, we finished with a cumulative EBITDA of $601 million.

On slide 6 and 7, we have enumerated the impact of the impairment charges on our strategic divestiture's on this slide, so I will not recite what is recited on slide 6. I will note that we achieved very high utilization, 94% for our well intervention fleet. Although we operated 10 robots -- robotic support vessels during Q4, 4 long-term and 6 [spot], our actual robotics fleet was only 69% utilized, and we incurred in the extraordinary level of uncompensated [mode] and [demode] cost.

On to slide 7, closing the books, so to speak, on our oil and gas business, our production totaled 1.4 million barrels of oil equivalent in Q4, compared to 1.5 million equivalent in Q3. We continued to realize relatively high pricing for our oil production, $99.32 in Q4. However the real highlight in Q4 for our oil and gas business related to the successful drilling and discovery of our Wang oil project. We completed this well in January, and although we have now closed on the sale of the oil and gas business, we have a continuing economic interest in the Wang well in the form of an overriding royalty interest on future production. The Wang well is expected to commence production in April.

From a balance sheet perspective, our cash and liquidity levels remain strong. Cash decreased from $584 million at September 30 to $437 million at December 31, mainly attributable to the retirement of $104 -- $154 million of convertible notes. Our liquidity levels of more than $900 million remains high.

I will now turn the call over to Cliff for an in-depth discussion of our contracting services results.

Thank you, Owen, and good morning, everyone.

Contracting services revenues remained strong from Q3 to Q4, primarily due to very strong utilization of the well intervention assets as the well enhancement returned to service at the beginning of the quarter after 52-day dry dock. However, gross profit for contracting services was down in the fourth quarter, mainly due to a normal seasonal decline in robotics, as well as one-time mobilization and de-commissioning costs incurred at the end of the year, which I will get into in more detail on the robotics slide here in a minute. We also had unexpected idle time on the Express in December, due to permitting delays with the client, which ultimately moved the schedule into quarter one of this year. Overall, these operational issues contribute to our gross profit being approximately $12 million lower in the fourth quarter than quarter three.

Moving on to the next slide, slide 10, again as I mentioned in the previous slide, our well intervention assets had a very strong utilization for the fourth quarter, and the same can be said for the outlook in well intervention for 2013 and beyond. The Q4000 was 100% utilized in the quarter and remains booked solid through 2014. Based on our latest schedule from the shipyard, we now expect the Helix 534 to be placed into service in Q3, and she is also fully booked through the end of 2014. On the north seaside, our well intervention vessels averaged 91% utilization across a variety of well intervention projects during the quarter. Both vessels now have full schedules for the remainder of the year. Our chartered well intervention vessel, Scandi Constructor, is still on schedule to begin work in the middle of the year, and the customer interest for this vessel remains strong as we continue to book work for her beyond initial 75 days assigned backlog that we have now.

If we move on to slide 11, on the robotics side we saw declines in utilization in both vessels and in ROVs themselves, mainly due to, as we state previously, the normal seasonal declines. We also had increased costs due to mobilization of the Trencher 1200 under the Grand Canyon, as well as mobilizing two of our vessels for the North Sea to the Gulf of Mexico, of which one of those vessels returned back to the North Sea after the project during the fourth quarter as well. Our newly chartered vessel, the Grand Canyon, was placed into service along with two new work-class ROVs during the fourth quarter, as we returned another vessel to Island pioneer back to the owner after five years of service in our fleet. In December, the Grand Canyon kicked off 150-day [win form] contract, utilizing T1200 Trencher, and in 2012, renewable energy accounted for approximately 15%, which is about $54 million of our total revenues on the robotics side.

If you move on to slide 12, on the sub-sea construction pipelay side, we had lower-than-expected utilization on the Express due to the customer permitting issues in December, resulting in delays that moved the work into the first quarter of 2013. The Caesar continued its accommodations work down in Mexico. And with recent schedule delays in December, the sale of the Express is now expected to occur in mid-May, and the Caesar remains on schedule for sale in July. If you move on to slide 13, I will just leave this slide for detailing the vessel utilization for your reference.

And with that, I will turn it over to Tony for the oil and gas operations.

Thank you, Cliff, and good morning.

We recite our normal operating statistics for oil and gas on slides 14 and 15; however, given the closing of the sale of this business on [F] 6, I will leave the information on these slides for your reference. On a more important note, as indicated, we closed the sale of ERT on February 6, receiving proceeds of $624 million, which represents the base sale price of $620 million plus certain closing adjustments. After estimated tax leakage and transaction expenses, we expect net after-tax proceeds of approximately $550 million. We will continue to benefit from an overriding royalty interest on the Wang well and certain other exploration prospectus, thus our estimated total pre-tax value on the sale of ERT when considering a basket of contingent consideration is closer to $700 million. Over to you, Lloyd.

Thank you, Tony.

Turning to slide 17, this slide provides an update on our gross and net debt levels as of the end of the year. In December, the holders of $154 million of our convertible senior notes that we issued in 2005 put their bonds to Helix, and we subsequently repurchased them. This left about $3.5 million dollars of these 2005 convertible notes outstanding that we subsequently called and repurchased in early February. As a result, we paid off the entire outstanding balance of these 2005 issued convertible senior notes.

Further in conjunction with the sale of our oil and gas business, as Tony just mentioned, in early February, we were required under our credit agreement to take 60% of the after-tax proceeds and pay down senior secured debt. So immediately after the closing of the sale, we repaid a total of $318 million of our credit agreement. We paid off 100% of the outstanding balance of our term loan B, which totaled $271 million, and paid down our term loan A and revolver with the balance. As a frame of reference, since the second half of 2011 through today, we have reduced our gross debt levels by $533 million. At year-end 2012, our net debt to book cap ratio was 29%, a slight improvement from the 30% at the end of 2011 and significantly better than the 43% at the end of 2010.

Turning over to slide 18, our liquidity, which is defined as our cash on hand and our borrowing availability under the revolver, continues to be at a very robust level. At year end, liquidity totaled $925 million after taking into consideration the $154 million of cash we used for paying off the convertible notes, as well as our ongoing CapEx for our major well intervention projects, the Q5000 and the Helix 534, and also the drilling of the Wang oil well and Grand Canyon 237. I will turn the call back over to Tony to take you through our 2013 outlook. Tony?

Okay, turning to slides 20 to 22, slide 20 presents our initial 2013 outlook. We are forecasting total reported EBITDAX of $300 million plus for 2013. However, when backing out the stub impact of our discontinued operations, both oil and gas for the month of January and six days of February and pipelay, and then fill it into the equation, our pro forma full years impact of the two vessels that will be entering the fleet in 2013, the Scandi Constructer and the Helix 534, our pro forma exit rate EBITDA for 2013 is more like $350 million. We have also broken out revenues by product line with well intervention showing a 20% increase in 2013 over 2012. While robotic revenues are forecasted to be slightly lower in 2013, we actually anticipate profitability to actually increase as a result of a more favorable mix of trenching and road drill activity.

Our CapEx spending for 2013 is forecasted at $350 million. Major items represented in $350 number are as follows, progress payments and spending into Q5 currently under construction in Singapore at $140 million; the modifications and improvements of the H534 well-intervention vessel, also currently in a shipyard in Singapore at $55 million; additional intervention Rogers systems for well intervention operations of $35 million; additional robotics vessels and trenchers of $35 million; and then life-extension expenditures for the Seawell of $12 million. Again, these are isolated to 2013 only. The actual total project costs are higher given the money that has been spent previously in 2012 and beyond.

We wound up the year with $800 million of backlogs, most of which is in the well-intervention business. And this provides a very solid foundation for our forecast in 2013 and beyond. For example, the Q4000 is spoken for through 2014, with additional commitments in progress beyond. The Seawell and well enhancer have backlog into the fourth quarter of 2013, and we have strong customer interest beyond. The Helix 534 is fully booked for 2013 and 2014, once she enters service. The Scandi Constructor has backlog for 75 plus days in 2013. So when you look at the well-intervention business, we are really fully booked for 2013, and the real variable is operational execution.

Canyon, our robotics unit, continues to expand its technological and market envelope. For example, we continue to develop our world-class trenching technology. For example, the London Array wind farm project utilizing the Grand Canyon vessel, and the T1200 Trencher is currently in progress, and it is one of the biggest trenching projects we've ever worked on. The commercial development of our road drill technology should excel into 2013. For example, we are currently engaged on a sub-sea mining project offshore in Japan.

But stepping back from an overall standpoint to two key variables for 2013 relate to our ability to have both the H534 and Scandi Constructor successfully enter service as scheduled. Our outlook assumes the H534 enters service mid-quarter three in the Gulf of Mexico, while the Scandi Constructor enters service in the North sea midyear. Again, both vessels have work waiting for it, so it is a matter of these vessels coming out and going to work. I will skip slides 24 and 25 and leave them for your reference, and this time, I will turn the call back to Owen for closing remarks.

Thank you, Tony. For the past few years, we have articulated a plan for renewing the strength and growth of Helix. First, to restore the balance sheet to manageable levels, we have reduced net debt of $1.2 billion since 2008. I'm sorry, we have reduced net debt $1.2 billion since 2008 from over $1.8 billion to $582 million at year-end 2012. Our net-debt-to-Cap ratio is again below the 30% target that we communicated as being a comfortable level. The sales of the ERT and the pipelay assets will put us in virtually a no net debt position. The sale of ERT is behind us now, and the sale of the Express and Caesar are following completion of currently contracted work. [Hand overs] the anticipated to be finalized by midyear, with received of a balance of another $190 million.

Second, was to simplify the business model with a renewed focus on contracting services, specifically in well intervention and robotics, where we hold our strongest competitive market positions for deep-water applications. Third, we have said we will aggressively add assets for the explosively growing non-rig well intervention market, as well as in robotics, where steady consistent growth is expected. As a result, we have added three intervention vessels to our current fleet of three. This will double our capacity by 2015. We are also adding three new intervention systems to our current fleet of five intervention systems. Our long-term plans are to add additional vessels and systems in well intervention beyond this. In robotics, we have added eight work-class vehicles and a new trencher in the last year. Going forward, we plan to continue the run rate of about six work-class vehicles per year with an ROV drill and a trencher every other year, based on the current market outlook that we see. This could accelerate. We have also committed to two additional new-build charter vessels coming into the fleet by 2015.

All of this is either done or in progress. It is being done at a pace within our resource capacity and balance sheet. We anticipate being able to fund this growth primarily out of cash flow with very little reliance on debt. Therefore, we will have the capacity to consider other opportunities. All of this is being considered and planned with close dialogue with our customer partners.

Going into 2013, we are about a $300 million EBITDA service company, and as Tony said, with a run rate of about $350 million, once all of the transactions are completed. Given our current outlook on the market and growth plans, we anticipate a compounded EBITDA growth rate in excess of 20% annually from just the current plans in the next few years. We feel this is a conservative plan, and one that does not tax our resources or stress our balance sheet. It is very important to us that our customers and our investors have confidence that we do what we say we will do. The Company is in good condition, great position, and at this time, we will be happy to open it up and take any questions. Operator?

Thank you, sir.

(Operator Instructions)

James Rollyson, Raymond James

I want to -- by my math, after the closing of the [ENP] sale in February, it looks like you are actually in a net-cash position at the moment. With that in mind and your eventual plans to look at other new-build assets, what is the trigger to get you to make that step? Is it derisking the Q500 through backlog, and then you've got room for another, quote unquote spec vessel? Because it seems like financially now, you are in certainly in a position to be able to start funding your next venture, Q5000-plus type vessel.

I think you hit on one of them, Jim. We definitely plan to -- our plans are to build another vessel. It is a matter of just picking the right moment to initiate it, announce it. I think that depends on a couple of factors. One, you mentioned the Q5000, although we have a high degree of confidence on the Q5000 utilization. Another one is I would like to see us deliver the 534. I want to make sure that we are not over-committed to capital projects in shipyards, which taxes our human resources to effectively pull the projects off on time and on budget. That would be a second trigger. And then the third is just watching the market. I think that argues for an accelerated pace rather than a slower pace, because the market outlook that we are seeing is very robust.

And when you were initially shopping around for a shipyard for the Q5000, I seem to recall you were looking at deals to maybe build more than one vessel and trying to get a break on the price. Is that -- are you too far past that initial build point on the Q5000 that if you pull the trigger this year, you would still be able to get a break if you went with the same shipyard?

I think the next one that we build will be a little less than the Q5000. I'd attribute that to a number of things. I do not know what -- you are correct, when we went to the shipyards, we ran a multiple shipyard process for a two-build slot and got pricing accordingly. As a result, I think our partner in this whole endeavor is Jurong, and we are working very well with them. They are on board with looking at the next one, and they are assisting us in the designing and the engineering and moving it forward. I will say that I think Jurong is a good yard for us in that what we are building are basically very highly specialized, one-of-a-kind type assets. And Jurong, I think is very adept at being a customized builder of semi-submersibles. So I think it is a great match between our aspirations and their capabilities.

Great, and last one, Tony, just on the -- your benefits you will get over time from the Wang. How do you report that? Is that going to come in on the equity income line?

We are going to report that in other income and expense, Jim, so you will see it on that line. And production, as I said, is expected to start off on April 1, so we should start to see royalties thereafter. Let me clarify one comment, Jim, you made about us being in no net debt position. I think that will be closer to reality once we complete the sales of the Caesar and the Express. So by midyear, we will be very close to being in a no net debt position.

Well that is certainly a wonderful accomplishment, and congrats guys.

Thank you. In fact, if you look at the slides, we actually did a pro forma that is more or less suggests that as well on our debt slide.

Igor Levi, Morgan Stanley.

Now that you have a clean balance sheet and a very focused business, it looks like you are expecting 20% EBITDA growth over the coming years funded out of free cash flow. I was wondering what type of growth opportunities you see beyond the existing plans and what kind of growth could you achieve if you fully leveraged your balance sheet?

That is a work in progress, and we will let you know as soon as we really pin that down. But we have got a lot of potential.

Right, and if you were to order, let's say another vessel at some point in the first half of this year, when would you expect it to be realistically delivered?

Realistically, I think early 2016 would be the next delivery date.

Early 2016. Within your 2013 guidance, what utilization rates are you embedding for well intervention in ROVs?

Igor, for well intervention, we are really let's say between 95% and 100% because we have full backlog. So you always have some down days for maintenance issues, but really, again, as we suggested in our commentary, we have no shortage of work. It is a matter of just execution. On the robotics side, you typically don't have the visibility on robotics that you do in well intervention. But we are assuming, let's say around about maybe 75% utilization for our robotics vessels. It's a rule of thumb; it's what our anticipation in 2013.

Okay, and how many chartered vessels are you expecting to average?

Well, we are going to have the four under long-term charter, but we do expect to pick up spot vessels as the market dictates. For example, the road drill project for subsea mining that we're doing offshore Japan right now is being done with a spot-market vessel. I would say on average, we might have two spot-market vessels throughout the year on average. With the four long-term chartered vessels really being the foundation for our fleet there.

Great, that is very helpful. I will turn it over.

Joe Gibney, Capital One.

Tony, just a question on the underlying annual G&A run rate here. I know there was some moving parts, having pipelay move out of the fold, had some higher shore-based G&A associated with that. What is the underlying annual G&A run rate that you are looking at now? I was curious what the corporate-level component of that is.

Joe, we expect to hold G&A within the 8% to 10% range. We think in the first half of the year, we are not really going to see a lot of G&A reduction because we still have a lot of activity associated with our legacy businesses. For example, the pipelay business is still present and won't be finished until the Caesar gets sold in July. Corporate is about $50 million of our G&A in total. I would say going forward, we expect to reduce G&A. We are going to be a much more streamlined, simpler Company to well-intervention business. It is much simpler than the subsea construction business. But I would say overall, we are still going to be in the 8% to 10% quarter, and we are going to work hard to reduce our overall corporate SG&A levels. I will just say that. But I don't expect us to be any lower than 8% even going forward.

Okay, helpful. Just to clarify, the '13 EBITDA guidance, roughly $300 million. You indicated the inclusive of this $27 million stub from ERT. Is the Express, Caesar contribution also in that roughly $300 million figure? It just wasn't called out specifically. I just wanted to confirm.

Yes, it is. Yes, it is. It is not very big. And by the way, the $27, that's component of the ENP business also includes the Wang royalty estimates.

Okay. Helpful. Just a vessel-specific question, I was curious, the timing and duration of HP-1 dry dock, and you referenced there was a Seawell life extension. I just did not know if we should be thinking about downtime and what timing to be associated with that one.

Yes, this is Cliff. The HP dry dock right now is scheduled for September, and I think we have got about 55 days scheduled in for it. And that -- our budget reflects that. And the Seawell, we won't be doing -- that won't be -- affect the service or utilization in this year.

Okay, helpful.

We will be planning for it this year, but it won't happen this year.

Okay, fair enough. And just wanted to confirm one last thing. On the net debt and cash proceeds from pipelay sale, Owen, I think you referenced it. I just wanted to confirm it is roughly $190 million left in cash proceeds from the pipelay sale that you are expecting to receive, is that correct?

That is correct, and that is split between the Express and the Caesar. And they will fund on -- those components will fund on separate dates, with the handover of each vessel.

Okay, fair enough. I appreciate it. I will turn it back.

(Operator Instructions)

Michael Marino, Stephens.

Question, Owen, you mentioned in some of your closing remarks about the committing to two new builds on the robotics side for a long-term vessel charters. Would those be in addition to the four you are running now? So the idea is to go from four charter boats to six?

I think you will see that announced in each year, because we have the option of either carrying over older charters or rolling them off. And it depends on what the market looks like in that particular year.

Yes, I will add a little to that. We are going to have four charter vessels now. By July, I think we pick up the fifth one called the Rim Installer. And those two boats, as you are referring to, won't come until '14 and '15. And these charters that we have vary in range from three, four, five years with options. So our intent and always has been, is to play the market. When those vessels are ready to come on, we can see if we want to extend the charter options in some of the other vessels and size our fleet up or down accordingly to the market.

But is the idea though that that market is getting a lot better and is something you want more potential exposure to?

Yes, that is to keep growing it, but I am saying we have some protection on the RIF side that we can let some of those go if we need to. But yes, of course, the idea is to grow it.

Right, what is the general market outlook for the robotics business if you --

On the robotics side for this year, it is pretty flat compared to what we were seeing last year. So there was a little growth, but nothing that is negligible. But in '14 and '15, we see quite a bit of growth on the renewable side of the equation, which will require vessels and trenchers.

Just have one more data point there. Our run rate anticipates acquiring six new work-class vehicles each year. Two of those though would be fleet replacement vehicles as we retire older assets. So on a fleet of 47 -- in the neighborhood of 47, adding four each year shows you the growth rate that we anticipate.

Great, that is helpful. On the Q4000 backlog, is -- should we expect as you work through that backlog to see higher revenue contribution from day rate increases? Or the day rate is pretty level through that backlog?

I think through the backlog of this year, it is going to be pretty level, because a lot of these are legacy and ongoing service agreements we had with some of our clients. But as those fall out and we are renegotiating new longer-term agreements, then those rates are definitely going up.

In order of magnitude, how much?

As much as we can get, but usually, probably maybe 10%, 15%.

Okay. And one more, Tony, on the guidance, just for clarification, does that number include equity income contribution from Marco Polo and Independence Hub?

Yes, it does. As well as the HP one, of course.

Martin Malloy, Johnson Rice.

I was wondering, could you talk about any opportunities that you are seeing out there as far as additional vessels like the D534 that would be conversions that might help you accelerate asset deployment?

We don't anticipate making any further acquisitions of the older vessels. I think our experience with the 534 is sufficient. It is not that easy to buy these old vessels and bring these into modern compliance and up to the standards that we demand of an intervention asset. I think our focus will be on new, highly specialized, very efficient assets going forward. Having said that, though, we are -- we have covered the market really well, and there are a few assets that we could have access to to contract with, but it is not our expectations to have an equity interest in them.

Okay. And then I'm sorry, I missed the impact of the Express delay on the 4Q results. Did you give a dollar amount?

Marty, I am going to -- just off the top of my head, say it is probably about $3 million on an EBITDA basis. Okay.

(Operator Instructions)

Travis Bartlett, Simmons.

First one for you, I just wanted to focus on the well intervention side, so on some of the new well intervention vessels, the Q5000 and the additional new build that you mentioned. Is there any potential out there for Helix to get one of these new-build vessels fully committed with the customer under some type of long-term contracts? Are you guys seeing any opportunities like this out there?

That is certainly our intent. Although you can classify these builds as speculative, it is not without a great deal of dialogue with the operators before we commit. But it is not something that is a signed contract or announceable yet.

Right, okay. And then second one here, just looking at the exit rates, EBITDA guidance of $350 million, and then looking at the pro-forma business, excluding some of the discontinued operations here, what kind of run-rate revenue are you guys assuming in your exit-rate guidance? And then to the extent that you could break this down by robotics and well intervention, I think that would be helpful.

Travis, we can come back to you later on that. Obviously it is higher than the [$900 million] that we have in the guidance for the full-year 2013, because of the contribution we expect from the 534 and the Scandi Constructor. So we will come back with you on that.

Okay. And then --

We focus more on the bottom line with respect to that guidance than the top line.

Understandable. Last one here, just on the robotics side, the revenue guidance there, can you just talk about a little bit your expectations for 2013? I'm curious on the revenue declines of about 5% year over year. What is driving that there?

Well the revenues declined, but the profitability is up slightly. And as I mentioned, we see in the scheme of things, a relatively flat year. But we do see a big increase in '14 and '15 coming on the renewables and trenching side. So there is nothing really significantly driving it down this year. It's just that we don't see -- and as Tony mentioned earlier, one of the issues is on the well-intervention side, we have quite a bit of visibility in long-term contracts that are planned up front. On the robotics or Canyon side, we are almost like the fire truck. We don't usually get a lot of long-term contracts. It is a lot of sporadic jobs and we short-term lead times on them.

(Operator Instructions)

Trey Stolz, IBERIA Capital Partners.

Couple of quick questions here. With the backlog you've got on the well-intervention side, and I assume some of that from the Q4 got moved up to the H534, how should we think about rates? I know you get asked about this every quarter, but how should we think about rates on the well-intervention side going forward given the long lead time on your backlog? And what success are you having pushing rates up lately?

That is a constant thing is trying to get the rates up, and obviously the balance of what the clients are willing to pay you against using other methods. But I do not see them dramatically increasing, soon. But for the new things that -- the new contracts that we are discussing with clients now for the Q5000, for example, and maybe beyond that, are certainly reflecting the increase from a demand side and also for what it's going to take on the capital side. So where that is going to fall exactly, I hate to speculate on, but we are pushing them up.

Trey, let me just add, if you look at the rates we are quoting today for our well intervention vessels to where it was two years ago, I would just use the term they are significantly higher on average. There is a lot of factors that go into the rates, whether a client is going to use our intervention riser system or their own. And there is a lot of factors that go into average rates, but when we look forward and when we look at what we're quoting for the Q5000, I think that the rates we are talking about are again, significantly higher than what we are seeing today. And it has to be that way, because that capital costs to build a new vessel is significantly higher than it was 10, 12 years ago when we built the Q4000. I think when you look at it from a long-term perspective, rates have gone up considerably, and there is no doubt that has been helped by higher semi drilling rig rates.

I will jump in and join the party here with one more data point on the macro issue. If you look at the market as it has been developing right now, we are in the infancy stage of the non-rig intervention market, the assets have been, by necessity, priced at a discount to the historic methods, which is a drill rig. So there is a discount, yet if you look at the efficiency of these assets versus the rig, it actually argues that there should be a premium. So there is definitely a gap between where the intervention assets are priced today relative to the value they contribute relative to a drill rig. So I think as the market matures, and pinning down the timing of that realization is difficult, but I think it is starting to accelerate here lately, which is attributing to the recent rate increases. Because the producers are starting to see the need. Demand is increasing for this asset and market.

Owen, thank you, that was my next question was going to be how you view it relative to a deep-water rig day rate. I assume that is due to the quicker set up and quicker overall -- fewer days on the job, so it saves the ENP, theoretically, even with a higher day rate?

Yes, I think there has been a number of studies done by producers in collaboration with ourselves, and there is actually at the current day rates, there is an efficiency gain of roughly 40% by using one of our assets versus a drill rig, which is significant to a producer.

Got you, and you all touched on it a second ago with the Q5000. We were talking about potential long-term contracts for these new builds. Is demand for that, for a long-term contract coming from the Gulf of Mexico? Or is that likely to go elsewhere? And if so, how might that affect OpEx on a daily basis for a vessel like that?

I think that is one of the exciting things about where Helix sits right now is that we are North Sea and Gulf of Mexico centric. But the intervention market, on a global basis, is really starting to perk up. There has been a long standing intervention needs down in Brazil, and those demands are increasing. West Africa is opening up. That may be a little slower in developing, but it is definitely there. As Helix moves forward, one of the things that we are doing right now is just really educating ourselves and looking at expanding our operations internationally and everything that that entails.

Okay. Is it off to think that you would see a similar increase in OpEx operating in a market like West Africa or Brazil versus the Gulf of Mexico? Is there anything that would be different on the well-intervention side?

Well, there is different regulatory environments in each of these areas, which drives your OpEx. So but their -- I would say order of magnitude OpEx isn't more than 10% or 15% different region to region.

Got you.

And the pricing will reflect those differences.

Last year you had an offshore or deepwater driller lease intervention riser system. Any additional interest from drillers in that respect? Or is that a one-off situation? Or is that something to think about for potential down the road?

No, I think that is an area of business development that we are looking at right now and focused on. The intervention riser system that we built as a rental is now basically fully booked for this year. So I think -- and there is interest from parties in this kind of service being provided, and it is one that we are exploring and broadening our offering.

And one last one. You said a little bit more than $900 million in liquidity, and with CapEx commitments coming due on the new builds, what are your thoughts on tapping the capital markets or any comment there?

Well, Trey, again our plans are to execute our growth plans within our existing free cash flow and our existing available liquidity. Now, without foreclosing and other options, so if we decide to build new vessels, and it would require us to go to the capital markets, we have the flexibility to do so because of where our balance sheet is today. But it is more likely to be an expensive form of debt than anything else.

By I guess you mean the Q6 and Q7 being beyond what is contemplated within free cash flow currently?

I would say the Q7 would be within our cash flow, maybe even the Q6, but maybe beyond that. But I think right now it is really a hypothetical discussion more than anything else, Trey. So I hate to get to granular here with the discussion of how much capital will be required for a hypothetical number of units we may or may not build.

That is helpful, puts it in perspective. Thank you, Tony. And that's it for me.

We have no further questions on the telephone lines at this time. I will turn the call back to you.

Okay, again, thank you for joining us today, and we very much appreciate your interest and participation and look forward to having you participate on our first-quarter 2013 call in April. Thank you.

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.