Helix Energy Solutions Group Inc (HLX) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Q2 2014 earnings conference call.

(Operator Instructions)

As reminder, this conference is being recorded Tuesday, July 22. Thank you. I would now like to turn the call over to Terrence Jamerson.

Thank you. Good morning, everyone. Thanks for joining us today on our conference call for our second-quarter 2014 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Tony Tripodo, CFO; Cliff Chamblee, Executive Vice President and Chief Operating Officer; Alisa Johnson, our General Counsel; and Eric Staffeldt, our Finance and Treasury Director.

Hopefully you all have had an opportunity to review our press release and related slide presentation released yesterday evening. 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 today's 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 and in the associate 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 in a number and variety of factors, including those set forth in our slide 2 and in our annual report on form 10K for the year ended the December 31, 2013. 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 reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website. Owen?

Good morning, everyone. We'll start with slide 5, which is the high-level summary of Q2 results. We followed a very good first quarter with an even better Q2.

EBITDA increased to $109 million from $93 million in Q2. And when adjusting for the insurance recovery contribution in Q1, EBITDA excluding this item, was actually $86 million and $74 million in Q2 of 2013.

EPS came in at $0.55 per share. Revenues increased to $306 million in Q2, up from $254 million in the prior quarter. Both the Well Intervention and the Robotics business contributed nicely to this 20% sequential increase in revenues.

Of note, our consolidated gross margins increased 600 basis points to 36% in Q2. Turning to slide 6, Q2 certainly benefited from having H534 in the fleet for a full quarter, as well as the Well Enhancer, which spent much of January in the scheduled dry dock. You may recall the H534 did not enter service until the middle of quarter one.

The Well Intervention business realized remarkable 100% utilization for our three North Sea-based vessels during Q2. We also realized a much higher level of revenue producing days for our rental IRS unit, which as we have indicated in the past, produces nice margins for us.

The Robotics business also saw a significant increase in revenues in Q2, some of which is seasonal and some of which can be attributed to a very active trenching market, a business we certainly excel in. Our robotics chartered vessel fleet realized 89% utilization in quarter one (sic, two), up from 80% in Q1.

It should be noted that we achieved a fair amount of utilization on spot market vessels to take advantage of the strong market environment for ROV services. Cliff will address the Robotics business in more detail later.

On the operational side, we took delivery of the T1500 trencher mid quarter and our newest trencher was immediately placed into service and performed well from the get-go. The sold meant significant blemish to Q1 results relates to the relatively high amount of bad debt reserves recorded during the quarter, which were $5.2 million.

Our bottom line also benefited from a slightly lower tax rate at 23.3%. Tony will discuss this in more detail later as well.

From a balance sheet perspective, our cash and liquidity levels remain very strong. Cash increased to $501 million, and that along with the unused portion of our credit facility, kept total liquidity at fairly consistent levels of approximately $1.1 billion.

Net debt dropped to $57 million and net debt to book cap also dropped to the 3% level at the end of the quarter. I will now turn the call over to Cliff for an in-depth discussion of the Contracting Services results.

Thanks and good morning. Yes, we've had a good start to the first half of this year, across-the-board Well Ops and Canyon Robotics business as well.

Across all segments, $306 million in revenue with a 36% gross margin was a very strong quarter for us. This comes after Q1, which was also a very good quarter.

I'm pleased with the performance and the up-time on the H534 after entering the market in the middle of February. In fact, all five of Well Intervention vessels are operating well.

For the second quarter, we achieved near full utilization of 98% up-time across the entire Well Intervention fleet. Last quarter the Skandi Constructor completed its West Africa campaign. And following a brief return for a project in the North Sea, she is now working in a new market for us of the east coast of Canada, which is expected to continue until mid August.

We're also bidding on work in the Gulf of Mexico for the Skandi Constructor, which she would be available for after her scheduled dry dock in the fourth quarter. I expect to have a better update on this during the next quarter's call.

On the Canyon Robotics side, we had a record-breaking quarter in terms of number of vessels operated. We actually operated 14 vessels periodically, 9 spot vessels plus the 5 vessels we currently have under long-term charter, with nearly 90% utilization.

In Production Facilities, one of the production hubs, Marco Polo, was down almost half of Q2, although the financial impact to us was marginal. Basically just a delay or small amount of equity and earnings moving to the right. Beyond that, we do not have any cost obligations for repairs needed to return the platform to service earlier this month.

So we move on to slide 10 for Well Ops review. In the Gulf of Mexico we're operating three assets. Two vessels, the Q4000 and the 534, plus a standalone Intervention Riser System, IRS2.

The Q4000 would have been 100% utilized for the fourth consecutive quarter had it not been for a mandatory ABS inspection off location. The H534 worked for Anadarko for most of the quarter and continues to perform well. However, the 534 IRS system did cost us approximately seven days of lost revenue during the quarter.

The standalone IRS system number 2 was utilized for 86 days throughout Q2, 24 of those days of which were at standby rates. We are coming back on hire, or at full rates for the system, which we expect to continue through August any minimum.

I also want to note that we have added an important support group in Helix for well intervention, called the Subsea Intervention Group. I'm pleased to say that we're moving into a new large warehouse facility to better support us and our clients needs.

Out of the Aberdeen office we're operating three vessels: the Seawell, the Well Enhancer and the Skandi Constructor, which all achieved 100% utilization. With the exception of the Skandi Constructor regulatory dry dock and the start of the Seawell's life extension upgrade in December, we expect all three vessels to remain busy for the remainder of the year.

Next on to the Robotics. As Owen mentioned earlier, Canyon had a very busy quarter. Revenues were up sequentially over last quarter due to higher activity levels across all three of our operating regions, despite two dry docks during Q2.

In Europe and West Africa we are in the midst of a strong trenching season and thus have been able to take advantage of the market with the best utilization of our trenching fleet. Including our newest trencher, the T1500, which was utilized over 80% after being placed into service in May.

In addition to trenching, the region managed several ROV services projects with the Deep Cygnus and the Grand Canyon, as well as the significant walk to work product utilizing the REM Installer. We also took on two short-term charter vessels in the UK, which remain on trenching projects in the third quarter to accomplish all the work at hand.

In the Gulf of Mexico we had utilized seven different vessels of opportunity for various times during the quarter to perform ROV services scopes. We expect to reposition the REM Installer to the region in late Q3 as our project capabilities are highly regarded and in demand at the moment.

While the Olympic Canyon was in dry dock for a substantial portion of the quarter, the APAC region remained busy on all of these services for a die globally including Murphy in Malaysia, Subsea 7 and Reliance in India. In addition, you may recall that in May we announced the order of a long-term ROV services contract with McDermott. It's a three-year contract plus options to provide ROVs and tooling and personnel onboard McDermott's support vessels, similar to our ongoing agreement with Technip, which we won in 2012.

We ordered five new ROV systems during the quarter and took delivery of two to meet the demands from this contract as well as general growth in our ROV core services business. The McDermott contract bolsters our baseline business and is a testament to Canyon's reputation in the industry.

Moving on to slide 12, I'll leave this slide detailing vessel utilization for your reference. And with that, I'll turn the call over to Eric.

Thanks, Cliff, and good morning. Please turn to slide 14. Slide 14 provides an illustration of our debt instrument maturity profile at June 30. Debt reduction during the quarter was a result of the required quarterly payments of our term loan.

Moving on to slide 15, it provides an update on our year-end gross and net debt levels historically and at June 30. We continue to maintain a strong liquidity position with approximately $1.1 billion of liquidity.

Our net debt level was approximately $57 million, remaining fairly constant quarter over quarter. Year-to-date operating cash flow increased to $140 million, driven by our strong operating results.

We have used cash from operations to fund $97 million of capital expenditures, $10 million of debt repayments and $7 million of stock repurchases. Our cash position has increased $23 million year to date, however we expect to make two more ship yard payments during Q3 for the Q5000. At quarter end our net debt to book capitalization ratio was a conservative 3%. Tony?

Thank you, Eric. Let me move straight to slide 17, which presents our updated 2014 guidance. With the first half of the year producing $202 million of EBITDA, we now expect the full-year 2014 to be better than we have previously guided.

Aside from the strong first half, the strong demand and high backlog for our Well Intervention business gives us an expectation that we will exceed our previous guidance of $350 million of EBITDA for the full year. We are now suggesting EBITDA for the full year will be greater than $360 million.

We expect quarter three to be consistent or better than quarter two, absent any operational hiccups. In quarter four we expect to see the typical seasonal drop-off in the Robotics business.

And as we have previously stated, both the Seawell and the Skandi Constructor are scheduled to enter dry dock in the quarter. Thus we expect our results in quarter four to fall from quarter two, quarter three levels. Following suit, we have tweaked our EPS guidance upward a bit, and are now providing $1.65 to $1.75 range, depending upon our tax rate.

We are still guiding our full-year tax rate somewhere between 25% and 30%. We did see a 23% tax rate in Q2, but that was the result of settling some prior-year tax returns that allowed us to release some tax reserves that were set up for those years under audit. However, we still feel 25% to 30% is a good go-forward range based on our current geographic mix of earnings.

On to slide 18. Slide 18 outlines backlog visibility for our Well Intervention fleet. Not much has changed from a quarter ago, so we'll leave the specifics outlined in this slide for your reference.

Slide 19 outlines the near-term outlook for our Robotics business. Again, the trenching business has materialized nicely for us this year and we've been able to absorb the additional capacity with the T1500 entering the fleet in May.

With Grand Canyon II and III slated to enter the fleet in 2015, we have decided to return the Olympic Triton to its vessel owner sometime in quarter three. The timing on this works well with the typical seasonal downturn that we see in the Robotics business and our historically strong North Sea market.

We're forecasting -- now it's slide 20 -- we're forecasting total CapEx spend for 2014 of $375 million, which is slightly down from the $400 million we've previously guided. Not really much to say about this, other than spending for certain projects slipping to the right.

As you can see from the photograph on slide 4, the Q5000 is progressing in Singapore, as she is now wet, as they say in the shipyard business. We're still expecting a Q1 2015 delivery for the Q5. And of additional note, we have cut first deal on the Q7000 in Singapore as well.

I will skip slides 21 through 24 and leave them for your reference. At this time I'll turn the call over to Owen for closing remarks. Owen?

Thanks, Tony. Q1 was good, but Q2 was even better. Revenues were up 32% year over year for the second quarter and EBITDA was up by 47%. These results have exceeded our own expectations.

We always assume that there will be a certain level of operational incidents when setting expectations. However, we managed to avoid any major incidents that impacted our results to any serious degree.

Looking forward, we do expect another strong quarter in Q3. However, we do have upcoming dry docks with Seawell and Skandi Constructor in Q4, with the Seawell being on an extended period to undergo a life extension upgrade. Thus, I would caution investors not to take the first half of the year and extrapolate the results for the second half.

We've increased annual guidance to be greater than $360 million, but there's obviously an opportunity to beat $360 million. We do have the headwinds of the dry docks in Q4.

The more important note to take away from this quarter's results is that the growth plan that we'd previously outlined is in progress and is going well. As good as all this is, we're still hearing expressions of concern over rig rates and the potential impact to our business model.

We don't feel that it is our place to question anything that has been written by others on softening rig rates. Our own position continues to be that if rig rates do soften, they will have little near-term impact on our business and growth path.

First, much of our Well Intervention fleet has contracted backlog with rates substantially set for the next few years. Second, we have planned our growth based on direct discussions with our clients.

We've undertaken substantial addition of new assets but not on a pure speculative basis. We still have four major marine assets to be delivered over 2015 and 2016. Of those, three have long-term committed contracts.

We're in active discussions with a number of customers for the Q7000 utilization. And it is my expectation that we should be able to secure backlog for this vessel sometime this year.

You may also have noted that we have not renewed the charter on one of our vessels in the ROV fleet, as has been mentioned. This should not be confused with being a sign of any weaker expectations for robotics.

It's just that we're taking delivery of two newbuild ROV vessels during the period of time that we would have had to renew the expiring charter for. In actuality we're increasing the size of the ROV fleet by net one vessel, while also being able to down-size during the upcoming potentially slower winter season. We're also confident in our ability to secure this class of vessel in the open market of vessels of opportunity.

Our market outlook for both well ops and robotics is undiminished. The Q5 Q7, CM Helix I and CM Helix II newbuild projects are going well so far.

The balance sheet strong and it is my belief that Helix credibility within our market continues to grow. I currently believe that Helix will continue deliver on the opportunities the market is making available to us. With that, we'll be happy to take any questions now.

Thank you.

(Operator Instructions)

Jim Rollyson, Raymond James

Good morning, guys.

Good morning, Jim

Owen, paraphrasing what I think I heard you say, it sounds like ROV strength that you saw in 2Q continues through 3Q, or most of 3Q, and then seasonally falls off. From an earnings and EBITDA guidance, the implication for your new range is that 4Q, because of the seasonality and the dry docking compounded on top of that, brings your 4Q probably as your lowest quarter of the year? Did I hear that right, basically?

Jim, this is Tony. We expect the fourth quarter to be the lowest quarter of this year for the factors that you just mentioned.

Okay, just making sure I hear that right. When we look at the step-up in the Robotics business revenues, you were in the first quarter $88 million, last year same quarter $88 million, almost $120 million. How much of that is just the market picking up versus your new alliance with McDermott?

Trying to get a sense of it as we think about this going forward, beyond just the third quarter into next year. How sustainable should we think about that kind of run rate?

I think, as Owen mentioned, we've had a really good trenching season this year on all the trenching assets that we had. We've added a new trencher, the T1500 went straight into service and has been working virtually every day since it went into service in May.

That has been the one big (inaudible), the trenching market has been up this year compared to last year. We've also had good utilization on the vessels, where last year in the first quarter we really struggled on utilization in the winter on those vessels.

Okay. Tony, any color on SG&A? It took a big step up. Maybe what we should think about that for going forward?

Yes, sure. There were really two factors that affected SG&A in quarter two. One was we mentioned that we booked a little bit over $5 million in bad debt reserves during the quarter. That hit the SG&A line.

Because we have a stock compensation plan that will vary in expense with our stock price fluctuation. The fact that our stock price went up during quarter two also impacted the SG&A line, as we have to book more stock compensation expense.

Hopefully in the future we won't see the kind of bad debt reserves that we booked going forward. I would expect SG&A to come down from quarter two. We've always guided 8% to 10% range for SG&A, and I still think that's a pretty good range going forward.

Okay, great. And last one, Owen, any color on the update on the timing of when you guys will find out about the Shell tender for the Gulf of Mexico for your potential Q6000?

The tender is still in process. We're still in the mix. We've had some recent meetings. But, no, the process is just going to have to play out at Shell's pace.

Great. Good quarter, guys. Thank you.

Jeffrey Campbell, Tuohy Brothers Investment Research.

Good morning.

Good morning.

First I want to ask a question referring to the Canyon-McDermott contract and also the earlier Technip contract. If there is other opportunities like that out there, is there certain percentage of growth services that you're targeting or would like to see locked up in longer-term contracts?

I guess, in reality we'd like to have them all locked up in long-term contracts, provided those long-term contract rates are what we'd expect. But we've always been more of a spot market player on the construction side of things.

I think we mentioned last quarter we were trying to focus little more on longer-term contracts. This is our second real stab at those longer-term ones. The other long-term contracts that really exist outside that is the drilling side of it, which hasn't been a market for us.

Okay, great.

I'd also add, I don't know that it is an either-or situation, though. Both in the case of Technip and McDermott, upon award of those we're fortunate enough to have the balance sheet strength that allows us to go out and immediately add to our fleet.

They are both growth-adding contracts. I don't know that it's a certain percentage that we're targeting, it's just additional work on top of what we already do historically.

Okay, that's interesting color. If I could, I'll ask one more question, a little bit more high level. I think guys might have unique viewpoint on this.

Yesterday FMC announced that they were in a project with four major offshore operators to develop a new generation of high-temperature, high-pressure subsea installations. They added the additional expectation of further standardization of materials processes interfaces.

Broadly, to what degree do you find subsea production equipment already standardized? And how much more do think it can be standardized? And overall, is this trend positive for Helix over time?

That is a lot. (laughter)

No, we're all standard. (laughter)

I'll make it short. Is standardization good? How's that? (laughter)

I'd say one of the biggest challenges facing, not only ourselves but the equipment manufacturers and everybody, is the lack of standardization. I think there's been a certain amount of movement towards it. Personally my view is that there is a long ways to go before there's -- I don't think you could even remotely call the industry standardized on subsea equipment these days.

The implications to us are it is not that significant. We're fortunate enough to have been working on all of the equipment, so we have all of the necessary crossovers and the experience with all of the manufacturers of equipment.

The lack of standardization, I guess, actually gives us a slight competitive advantage over others wishing to get into the intervention market. Having said that, the industry is moving to try and standardize more. This is an area of probably the greatest pioneering area in our industry right now.

It also means that we have to dedicate -- that's one reason we formed the Subsea Intervention Group is so that we could have a dedicated group to developing new innovative ways forward on working with some of these moves in modifying the subsea equipment. Of course we work closely with the service companies.

We're a deployment specialist Company. It is a matter of staying on top of what the service companies are doing and the manufacturers are doing, and then maximizing our delivery process for the greatest efficiency. That's basically what we focus on.

Okay, great. That was great color. I appreciate it. Thank you.

(Operator Instructions)

Martin Malloy, Johnson Rice

Congratulations on the strong quarter.

Thank you.

Could you give us an update in terms of how you're looking at the market for additional IRS systems that you might rent or charter out?

I think I've said in the past that this is an area that I consider -- I have mentioned one of the things that were going to be evolving to is creating a greater service line around our heavy marine assets. This is one area that I do think has a lot of legs and one that we're focused on.

We're looking at the best way forward to provide more systems on a rental basis, and support those systems with the maintenance and the personnel and everything. I do think there is room for us to add.

It's a long process to build one of these things. Right now we're -- all of our resources are committed to building the systems necessary to fit our vessels. As time and resources allow, we do have the intention to build additional rentals units.

Okay. And then the production assets that you all have and looking at multiples that MLPs are trading for these days. Is there any thought towards perhaps monetizing those assets at this point?

Marty, I'll say this, we fully entertained any offers that were legitimate and a reasonable value. Again, we get asked this question often.

This is a business line that produces a healthy amount of free cash flow with very little management attention required. It is nice mailbox money, so to speak.

On the other hand, we don't consider it a core business. So if somebody wanted to step forward and offer us real value for it, I think we'd have to entertain it. That hasn't happened yet.

Thank you.

Ole Slorer, Morgan Stanley.

Thank you very much. Back to the Robotics business again and the ROV vessels. The revenue beat the quarter, at least versus what we've been modeling, was pretty substantial, about 30%.

Looking at your utilization numbers, they did have nice optics sequentially, 73% to 78% and 88% to 89%. Was this the main driver? Or was it that this is business is changing with these heavier trenching assets entering the fleet?

But then I can't quite get there, assuming that there is no real quarter-on-quarter pricing. I can't quite get to the blowout number based just on the tweaking in the utilization on the same-store basis.

We have had a good season in trenching market, and we added another trencher, the T1500 we mentioned, to it. So we've had an exceptionally good year trenching season. And we've had a good run of utilization on the I-Trencher, as well. So that's part of it.

The other part of it is that we had several spot market vessels, as I mentioned, especially in the Gulf of Mexico where we don't have any cost for the, when they're idle. That these vessels are all outside for us, because we only get them when we have work for them. We let them go when we don't have any work for them. So that's the two drivers, I think

You had it as 161 days. You haven't given number like that before, I think. Could you give us some color on how big or small a number that is compared to what be a normal run rate?

Is a pretty big number for a spot vessel because we haven't had a vessel in the Gulf. We've had our assets tied up for most part over in the North Sea and in West Africa and the Middle East region. To determine a spot cost has been mainly driven by the Gulf of Mexico, not having a vessel here. We do plan to bring a vessel back over here in the third quarter (technical difficulty) install base when we come back over here. We'll supplement that with spot vessels as the need requires.

What's changed in your business is basically additions sequentially of the heavy trenchers. On the other hand, you had this pickup in spot activity.

How did those two -- I'm thinking about what is sustainable and what might be exceptionally unusually strong for this quarter? Could you help a little bit on that?

As Tony said, our fourth quarter is usually our weakest quarter. And in the ROV side of it, fourth quarter and first quarter is a lot more seasonal than the Well Intervention business. We do expect to not sustain second and third quarters, I think, will be higher than what the fourth and first quarter of next year will be.

Okay. Just one more question on the Q7000. Could you remind us from, an operating capability, where is this vessel capable of operating? Or where is it not capable of operating?

Is basically capable of operating worldwide. Some of the unique designs that we put into it were set up for Western Shetlands and North Sea. But it can work worldwide.

Including Norway?

Yes.

Okay. Thank you. (multiple speakers) Finally, when are you going to embrace this standardization concept and kick off the 6000?

I'm sorry, say that again?

There was a question earlier on standardization. I suggest you can help the industry by getting going on the 6000. What would the likely timeline be?

We have the Q6000 fully engineered and ready to kick off. The timing of that and the balance sheet can certainly take the addition of the new asset. But the timing of that is totally market-dependent on the discussions with the clients and the upcoming demand.

And, Owen, back to this debate again on idle DP rigs versus your specialized vessels. Do you have any further data points as lay discussions, other examples where you can help shed some light on your latest thoughts, if you have anything mark-to-market on that?

I'll be honest with you, we don't. We see what's written by the analysts and we see some data points. From our perspective, it's been a little bit mixed.

You'd seen some renewals at higher rate and some at lower rates. We haven't seen any rates that we would consider alarming.

But then again, that's assuming that they were going to encroach in our market. But I think our consistent position has been that no matter what the rigs do, the clients are now in a phase of our industry's growth where they are looking for a long-term solution for an ever-increasing amount of well intervention work.

I think that precludes the clients looking first at a cyclical softening of rig rates as the ultimate long-term solution. I think it's a misconception on the investment community's part in comparing well intervention with drilling market.

The comparison, it's understandable because it had been drilling rigs that have historically done the well intervention work. But the well intervention work historically has been a fraction of what the well intervention work is going to be going forward. I think the market is truly diverging and the well intervention and drilling are two separate markets that really defy comparison.

I agree with you. Look at the your contract in Brazil, which I found particularly interesting in that regard. Because in Brazil, Petrobras have historically been a user of drilling rigs for well intervention.

And they chose a newbuild contract with you guys at the same time as rigs like the Ensco 7500s are with DP capability stack down there. That sends an interesting signal, I think.

I think that is only part of the picture, though. If you look at Petrobras historically, Petrobras was actually one of the pioneering producers to actually dedicate vessels to doing work over an intervention only.

If you go back almost over a decade now, they had the Amethyst originally. And then they had the build series of the Mega semi-submersibles. All of those have been dedicated to work over an intervention, primarily on the shelf.

What is happening now is that with the Tupi field and the pre-salt, they are now looking at their deepwater future intervention needs. And that's what's led to the new contracts

Okay. Thanks for that, Owen.

Sure.

Michael Marino, Stephens Inc.

Thanks, good morning. Wanted to get some color, or make sure understand things correctly on next year, if you will.

Any significant dry docks other than the Seawell extension project? Which I believe spills over well into 2015? The Well Enhancer, the H534, Q4000, are those all more normal --?

The Seawell goes into dry dock probably mid December and it's scheduled to be in for about four months. Then later in the year, which we haven't scheduled, we've got another -- we have to bring that Q4000 out of service as well. It will be as long, it's like maybe two or three weeks.

Okay. And then on the Q5000, you mentioned delivery still on time, Q1 delivery. But what does that mean in terms of revenue generation?

Does that mean Q3 revenue generation? Or is there an acceptance testing period that it needs to go through?

I will answer that. The scheduled delivery time that we keep talking about is delivery date from the shipyard, where we take control of the vessel. From there we still have some run-up activities, plus a delivery schedule of the vessel from Singapore to the Gulf of Mexico. As far as revenue generation, that would not occur until Q3.

Okay. Just one final one, in terms of the potential Q6000. Would you move forward on that without a contract on the Q7000?

It depends on what day you ask me. (laughter) I don't mean to be facetious. Market conditions are changing.

I will be transparent on this, the Shell contract is a big event for us. I think it is important to just watch the market demand. We have ongoing dialogue with a number of producers right now that I think are still uncertain enough now that it wouldn't warrant pulling the trigger.

As I have said in the past, we did pull the trigger on the Q5000 and the Q7000 based on discussions. Right now I think the market -- we don't see the -- before there was pretty much a no-brainer on the regions that we were looking at.

Right now I would say for the Q6000 we need some resolution to certain issues in the marketplace before we would be willing to pull the trigger on the Q6000. Unless of course, somebody stepped up and gave us a full contract, and then all bets are off.

What are you talking about -- is there a certain market you want to see more acceptance in? Is that what you're alluding to?

Yes I think there is a number of markets that we have identified future needs. We've entered into discussions with the clients about those needs. I think it is obvious that it is going to happen, but it is probably not developed to the stage yet where it warrants pulling the trigger on cutting steel.

Because we are at the point of design on the Q6000 where we could immediately start cutting steel. It is matter of just waiting for the market demand to give us the indication that there is a fairly certain possibility of a full contract for it.

Since you brought up, if I'd have asked you three months ago, do you feel better about it today than you did three months ago?

I'm about the same place. I think our outlook is that the market is probably going something like a 20-vessel market by 2018. I think targeting anything more than 50% of the market is starting to flirt with utilization risk.

Once the current builds are in service, we'll be up to nine vessels. That gives us risk room for one additional under those guidelines. I think that is where I have been for a while.

But between now and 2018, there is no reason to be in a rush over it. I think it is prudent to just be -- now that we have established a clear dominance in the growth of the Company and the credibility in the market, it probably is prudent to wait for a little more certainty before pulling the trigger on the last vessel here.

Got you. Makes sense. Thank you very much.

William [Alqua]

Good morning, everyone. Congrats on the good quarter.

Thank you.

What is the plan for the Skandi Constructor after it completes its Canadian campaign and is dry docked? Does it now have a contract extending into 2015 as well?

After it's finished in Canada, it's got to go back to the UK for some committed project work that we've got there. And then as mentioned, it's got a dry dock.

Then it is fairly open for a few months. Then it has more committed work in the North Sea. We do have an open slot for it right now and we're negotiations with a client to take that slot as we speak.

All right.

That's basically first quarter of next year.

Okay, thank you. Can I get some color on the decision on moving the REM Installer to the Gulf of Mexico? And the opportunities that you see there?

We haven't had a permanent vessel here in several months. We've been using these spot vessels that we've been pretty successful using these spot vessels. But we've also had to turn down quite a bit of work, and we've got some clients asking us for work that they would prefer to use us.

It's just a matter of demand. We need a vessel back over here and that it's the first one that's going to break loose that we can bring back.

Okay. For the Grand Canyon, the T1200 and the I-Trencher, what was the reason for the reduction in term?

Say that again?

The reduction in term? I noticed that it reduced terms through 2015, last quarter in Q2 2015 that was in the presentation this quarter.

I'm not following your question. The term of what now?

For the Grand Canyon, the T1200 and the I-Trencher.

Yes?

Last quarter you all said they had a contract through 2015. And then this quarter you all said it has a contract through Q2, 2015.

Okay. It is frame agreements that we have through 2015, but it's not a consistent steady work haul on the crew. I think that is what you're referring to.

Okay. So it still has visibility through 2015? It just wasn't firmed up through 2015?

Yes, there's frame agreement to do work for multiple clients through 2015, but it's not a steady utilization for those clients all the way through. So we break off and go do other work and come back to it.

Okay. Last one. For the R&B contract with McDermott, are you expecting this contract to begin mid 2014? Can we get an update of the timing and the number of ROVs and any other color you'd like to provide on that?

Yes, it's just adding ROVs as McDermott requires them. Right now, I think we've got four ROVs on two different vessels and we'll be adding more later this year and potentially more in the next year as well.

Okay. I appreciate the color. Thank you, guys.

Edward Okine, Oppenheimer.

Yes, with regard to the guidance that you did give, did you say that the third quarter will be stronger in the second? But the fourth quarter will be weakest of all the quarters? I'm trying to figure out what was actually said.

We expect the quarter to be strong, similar to quarter two. And quarter four to be the weakest quarter of the year.

Okay, I got you. Thank you.

There's no further audio questions at this time.

Everyone, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our third-quarter 2014 call in October. Thank you.

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