Helix Energy Solutions Group Inc (HLX) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter 2015 earnings conference call. During the presentation all participants will be in listen only mode. Afterwards we will conduct a question-and-answer session.

(Operator Instructions).

As a reminder, this conference is being recorded, Tuesday, February 23, 2016. I will now turn the call over to Erik Staffeldt, the Vice President of Finance and Accounting. Please go ahead, sir.

Good morning everyone, and thanks for joining us today for our conference call for our Q4 2015 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Tony Tripodo, our CFO; Alisa Johnson, our General Counsel and Scotty Sparks, our COO.

Hopefully you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed to the investor relations page on our website at www.helixESG.com. The press release can be accessed under the press releases tab, and the slide presentation can be accessed by clicking on today's webcast icon.

Before we begin our prepared remarks, Alisa Johnson will make a statement regarding forward-looking information. Alisa?

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 facts, 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 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, 2014.

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?

Good morning, everybody. We're going to start out looking on slide 5 which is a high-level summary of Q4 results.

From a pure operating results perspective, Q4 exceeded our prior outlook for EBITDA, coming in at $34 million compared to $51 million in Q3. We typically see a seasonal drop-off in Q4 and that has certainly happened, but the better-than-expected results is primarily owed to better utilization of both the Q4000 and the Q5000 in the Gulf of Mexico. We're pleased to put the Q5000 to work after commissioning in October and we're pleased to report that she performed very well. For all of 2015 we finished with $173 million of EBITDA.

Turning to slide 6, the persistent weak industry conditions in the region and the recent additional step down in oil prices compelled us to take a close look at the carrying value of our assets. This analysis led us to the conclusion that we needed to impair the book value of our production facilities business unit, the H 534, as well as writing off some of our goodwill and some other items. I won't go through each of these non cash accounting adjustments in detail as they are outlined in the slide.

On to slide 7. From a balance sheet perspective, our cash levels actually increased from the end of Q3 to year end, rising to $494 million from $469 million a quarter ago. The increase in cash occurred even after paying down $16 million of scheduled principal payments during Q4.

Similarly, our net debt declined as well to $267 million at year end. Our revolving credit facility remained undrawn. In February, we amended the credit facility to provide us with more [cushion] with respect to covenant compliance. Erik will go through some of the key amendments of the provision later on.

In addition, subsequent to year end, we have consummated two transactions that added to liquidity. We did a sale lease back of our Aberdeen facility for approximately $11 million in cash. We also sold our 50% interest of Marco Polo production facility for $25 million. We will continue to look for ways to add liquidity going forward. I will now turn the call over to Scotty for an in-depth discussion of our operating controls.

Thanks, Owen. Moving on to slide 9. In Q4 our results decreased compared to Q3 as we entered the winter months resulting in less utilization due to seasonal factors and the weaker oil industry conditions. Our revenue in the fourth quarter declined $24 million from the third quarter, to $158 million.

Our gross profit margin declined from 18% in Q3 to 13% in Q4, resulting in $20 million gross profit. To mitigate the weaker industry conditions, we warm stacked both the Skandi Constructor and the Seawell (technical difficulty) partway through the quarter of Q4 and the 534 for the entire quarter in the Gulf of Mexico to reduce cost.

In robotics, we reduced the fleet by one vessel, negotiating an early termination for the vessel owner. A significant number of our nonessential off shore personnel from the stacked and terminated vessels were released by the company.

Moving on to slide 10, for our well intervention business. In the Gulf of Mexico, Q4000 had 98% utilization working on two major projects. Q5000 entered service late October and successfully undertook its first project resulting in a 78% utilization.

The Helix 534 was idle for the period and warm stacked to reduce costs. We are currently planning to further reduce the cost by placing the vessel into cold stack for 2016 and possibly beyond.

IRS No. 1 and IRS No. 2, our rental intervention riser systems, remained on [line] for the entire quarter. In the North Sea, the Well Enhancer achieved 67% utilization, working on seven projects in the quarter, including 21 days in December. The Skandi Constructor was utilized on four projects, until the 10th of November, and the vessel was then warm stacked to reduce costs in Blyth in the UK.

Moving on to slide 11 for the robotics review, robotics achieved 58% vessel utilization in Q4 and 48% utilization for ROVs and trenching systems. The Grand Canyon of the T1200 spread was fully utilized working on a trenching project in Brazil.

The Grand Canyon 2 completed work in the North Sea and then commenced transit to the Gulf of Mexico and went straight to work on numerous smaller projects. The Deep Cygnus completed trenching projects in North Sea and then commenced transit to Equatorial Guinea to undertake walk-to-work projects.

The REM Installer continued on numerous ROV support projects in the Gulf of Mexico and the Olympic Canyon concluded transit back from India, and was idle in October and November before reaching in early negotiated settlement to return the vessel to the owner. And all business units remain intensely focused on the areas we can control and continue to lower cost and optimize efficiency. Over to slide 12. I will leave this slide detailing vessel utilization for your reference, turning the call back over to Erik for a more in-depth balance sheet discussion.

Moving over to slide 14 for a review of our key balance sheet metrics. Our funded debt at December 31 decreased to $776 million, reflecting our scheduled quarterly principal payments of $7.5 million on our term loan and $8.9 million on our Q5000 loan.

In February we concluded an amendment to our senior credit facility. The amendment increased our leverage ratio capacity during 2016 from the previous 4.5 to 1, to 5.5 to 1 at March 31, and gradually declining the rest of 2016 over the year to 5.0 to 1 at 12/31/16.

There is additional (inaudible) provided to the middle of 2017. As a point of reference, at year end 2015, our actual leverage ratio stood at 3.1 to 1. Just to confirm the Q5000 Nordea loan does not factor into our senior credit facility leverage ratio.

Other key aspects of the amendment included the following. A reduction in the overall size of the facility from $600 million to $400 million. We believe this amendment makes sense as we are currently un-borrowed on the facility and the reduction saves us commitment fees, and likely EBITDA levels for 2016 and perhaps beyond, will not allow full access of the revolver anyway.

Secondly, the introduction of minimum cash reserve is dependent on actual leverage ratio. We have provided a lot more detail on this amendment with the 8-K filing a few days ago.

Moving on to slide 15 to provide an update on our gross and net debt levels at year end and December 31. Our net debt position decreased to $267 million in the fourth quarter, from $307 million in the fourth quarter. Our liquidity at December 31 was approximately $744 million comprised of cash balance of $494 million and revolver availability of $250 million. I will now turn over the call to Tony for discussion on our 2016 outlook. Tony?

Think you, Erik, and good morning everybody. Moving over to slide 17. We entered 2015 in the midst of a declining industry environment. One year later, the environment continues to weaken in tandem with even lower oil prices. Our customers have responded by slashing their 2016 budgets even deeper than the reduced spending levels of 2015. Thus, we see no evidence of a recovery in 2016, and in fact 2016 is shaping up to be worse than 2015.

Given the fact that many of our customers are still working through their budgets and formulating which projects get sanctioned and which do not, we feel it is a bit premature to provide quantitative guidance for 2016 at this point, other than to say we expect 2016 financial results for Helix to be lower than 2015. We hope to be in a position in April to provide more quantitative guidance.

That being said, we can say this much in how we see the year unfolding in the near-term. It will be difficult to break even from an EBITDA basis in quarter 1 combination of the weak industry conditions and typical seasonal factors.

We expect quarter 2 to show a significant improvement as the Q5000 is scheduled to go to work for BP on April 1 and both the Well Enhancer and Seawell are scheduled to be working as well. The improvements in quarter 2 should continue on to quarter 3 before we see a typical seasonal drop-off in Q4. The key assumption is the expectation to Siem Helix I enter service for Petrobras in late quarter 3. As a further note, our total backlog at year-end amounts to $1.8 billion.

Moving over to slide 18, for CapEx we expect to spend $245 million in 2016, with a substantial majority of the number associated with the completion of the top sides of the 2 Siem Helix vessels, which are under contract to Petrobras and further [progress spending on the] Q7000. Presently our plans are not to take delivery of the Q7000 until the end of 2018.

A bit more color on our balance sheet metrics. Our gross debt is set to decline $71 million in 2016, due to scheduled principal payments on our debt instruments. Our net debt levels are forecast to increase from the $267 million at year end 2015 to somewhere between $340 million and $390 million. This range is based on a number of assumptions which could vary significantly, including the amount of operating cash from what we ultimately generate, changes in working capital tax refunds, et cetera. The $36 million of asset sales that have already occurred in Q1 is also factored into this range.

On slide 20. More specifically by business unit. On the well intervention side, the Q4000 should have relatively good utilization in 2016 as well as the Q5000, which is committed to BP as of April 1. The H 534 is presently warm stacked, but we are making plans to cold stack this vessel as a cost-saving measure. The decision to cold stack H 534 led to the impairment charge at year end for this vessel.

On the UK side, 2016 will continue to be tough for well intervention. While the Well Enhancer should stay relatively busy, there is a lot less visibility for both the Seawell and the Skandi Constructor, although the Seawell does have confirmed work starting in May.

The robotics business will weaken sharply in 2016. The lack of subsea infrastructure projects sanctioned in 2015 will have a dramatic impact on robotics activities in the coming year. We have reduced our robotics vessel fleet to four vessels as we negotiate in early termination of the Olympic Canyon charter in December.

We've also negotiated more favorable charter rates for the Grand Canyon fleet of three vessels under an amend and extend renegotiation. I will skip slides 22 to 23, leave them for your reference, and now turn the call over to Owen Kratz for closing remarks.

Thanks, Tony. I don't think I need to tell everybody that these are tough times and we anticipate 2016 will be tougher than 2015. Helix has a relatively healthy balance sheet, though. Let me address three areas of concern that I've heard expressed by investors: our capital commitments, our debt obligations, and our (technical difficulty) contracts. First, Helix has capital commitments to meet.

The SH I is being completed this year with our contract with Petrobras and we expect it to commence work in Q3 of this year. The SH II will be completed around year end and is expected to work for Petrobras in 2017 so those projects are well underway. For those two vessels, our capital -- our capital commitment is just in the topsides equipment only. The Q7 has a planned completion date at the end of 2017, with an option for delivery to occur with final payment at the end of 2018. All three of these projects are on budget.

Second, Helix's debt obligations. This past quarter we generated positive cash flow with net debt being reduced by $40 million from $307 million at September 30, to $267 million at year end. We will not generate positive cash flow in 2016 due to lower levels of operating cash flow and our capital commitments.

We are planning to use cash on hand in 2016 and expect that our net debt will increase to somewhere between $350 million and $390 million as Tony mentioned. We will continue to pay down our gross debt at a rate of $70 million per year in 2016 and 2017.

It is our current plan to cash settle any potential put of our $200 million convertible notes in 2018, which is the first put call option date. All of this is factored into our cash flow analysis.

Third, we expect that customers will honor their contracts. The Q5 begins a multi-year contract for BP beginning the second quarter of this year. The Siem Helix I has a signed contract to begin work for Petrobras, which is expected by the end of Q3 this year. Work orders have been issued from Petrobras, and our teams are planning and engineering the work to be done during the year. The second vessel, the Siem Helix II, will be completed and is expected to begin its work for Petrobras in 2017.

As everyone knows and we've announced previously, Petrobras did approach us, like many in the industry, to restructure our contracts as part of their cost-cutting initiatives. While I'm still not in a position to discuss these ongoing talks, it is important to note that we do have two firm contracts today and we expect our negotiations with Petrobras to conclude shortly.

With these two assets, despite the current market weakness, we would expect EBITDA growth to occur in 2017 from 2016 even without a market recovery in that time frame. We feel that we have sufficient liquidity and operational results to meet our obligations in the current weak market conditions. We still have further cost-cutting initiatives that we will be putting in place. We also are modeling market trends in several ways and are analyzing all appropriate options, but as we see things now, what I said here is the plan forward.

Although the market is not getting any better right now, we would expect P&A at some point to increase, as a result of regulatory requirements, or operators having a desire to get it done in this cost-effective environment. On the other hand, if there is a semblance of a recovery, we would expect production enhancement through well intervention with its low development cost, to be one of the first service sectors to see a sign of recovery.

We feel that we have sufficient strength to see us through this period of capital obligations, while meeting and reducing our debt obligations. By the time the Q7000 is delivered, we expect to be left in a free cash flow operating -- positive operating position with relatively low debt levels and positioned well with assets ready to capture the opportunities.

It's going to be a tough period for a while and may actually get worse before it gets better. We are monitoring the market and constantly assessing our options to mitigate. I'm here to tell you we will meet our obligations and focus on preserving liquidity. We will not rely on a market recovery to do this. If the market persists at these weak levels, we will still get through our obligations and emerge with free cash flow from operations given what we know now.

Back to you, Erik.

Thanks so much. Operator, at this time we will open up for questions.

Thank you.

(Operator Instructions)

Chase Mulvehill.

Good morning.

Good morning.

I guess I'll just start with the first one, just to confirm, 1Q, you said break-even EBITDA, right?

Yes, Chase, I said that, Q1, it will be difficult for us to get to breakeven on an EBITDA basis.

Okay. I wanted to make sure that it was not gross profit or EBIT, right?

Right. Referring specifically to EBITDA.

Okay. Can you hold our hand a little bit and take us from 1Q to 2Q and kind of the puts and takes? I know you've got the Q5000 starting up with BP, you'll have the IRS systems having some better utilization, North Sea coming back a little bit. So maybe kind of help us step from 1Q to 2Q and try to understand what the increase would look like?

Yes, I think the big step-up is going to be the Q5000 going to work. Also, the North Sea seasonal start in Q2 and the Well Enhancer should stay busy in the spring/summer months. We do have some confirmed work for the Seawell, and there's other opportunities out there for the Seawell, as well as the Skandi. Most of it is unconfirmed at this time, but there are some opportunities for those vessels to work the high months, so to speak. We also expect the robotics business, even though it is going to be a lousy year for them, to pick up in Qs 2 and 3. Again, these are seasonal factors.

The way we look at it, Q2 will be a relatively good step-up in terms of earnings. Q3 should even be better, and then we'll drop off again in Q4. Obviously we're being very subjective here, because we think there are too many variables at this point to get too objective about specific numbers.

Okay. All right. And then, can we talk about 2016 and the potential for tax refunds? And then I'm seeing, I guess, it's about a $30 million cash interest expense -- if that's right, can you confirm that? And then maybe some color around working capital.

We expect to receive some tax refunds, yes. We won't quantify them because, until we prepare our returns and get them done, we won't know what the actual number is. Yes, we are going to pay about $30 million in interest expense. That is pretty much set in stone. So, yes, to your questions.

Any cash from working capital or should we just assume that --?

I think we are going to generate cash from working capital this year. That typically is the case as your business slides, you typically generate cash from working capital changes.

Okay. Less than $50 million? Is that a fair number?

Yes. I think it will be less that $50 million, yes.

Okay. Last one and then I'll jump back in. The potential to further enhance liquidity moving forward around other asset sales or anything like that, with non-core production facilities?

Again, Chase, I think the answer is if there are willing buyers we would be -- consider selling.

Okay. All right. That's all I have, Tony. I will turn it back over. Thank you.

Martin Malloy.

Good morning. On the robotics side, can you talk about the outlook for the non-oil and gas revenues [technical difficulty] the wind farms off the UK?

Yes. We have some awarded work in 2016 in the UK for wind farm work. We currently have about a 110-day project awarded. That is all trenching work related. (Multiple speakers).

There are bidding opportunities this year that would presumably impact later years?

Yes. There's still some in bid, and then we see that, going into 2017 and 2018, there is actually a bit of an upturn there on the works. We see the bids come in generally about a year before the work, and we've seen an uptick in the bid potential.

Okay. And then stacking costs, what are they running you when you have those three vessels stacked -- warm stacked? (Multiple speakers).

It depends on the size of the asset, but they're considerably lower than the operating cost. The 534 is, in warm-stack mode, is sub $30,000, and if we go to cold stack, it is considerably less than that. We'll end up with no crews on board. And the warm-stack costs in the North Sea are sort of $20,000 to $30,000 a day for each vessel.

Okay. Thank you.

Okay.

Marshall Adkins.

Morning, guys. Obviously, you guys did a great job seasonally with the Q4000 and Q5000. A couple of questions on that. I'm assuming the 5000 is currently down, is that accurate? And then, secondly, tell us what the competitive landscape for those is on the spot market right now. Are we seeing lower prices?

It seems like your pricing held up pretty good for those. Just talk a little bit about both the Q4 and Q5 and what's that looking for, outside of the contracts we know are coming for the Q5 in April.

Okay. Q5 at this time we're just making sure we're 100% ready for the BP contract. We're finishing up any warranty items that we have left over after the first operations, so we're in prep phase to make sure that we're 100% ready. We will be going out at the end of February, early March, to complete the yearly DP FMEA trials. And then, two weeks after that we will commence mobilization for BP, so then we will be under the full contract for the year there.

The Q4000, we have some legacy contracts at the usual rates, so about 50% of the year is built up on older contracts. We are bidding some work and we've won some recent work at the more -- recent environments where we're competing against some of the drilling assets and the rates there have dropped, I would say, 30%, 40% compared to what they would have been in previous years.

Okay.

We still have some days to fill up on the Q4000. At this time, we've got a fairly sizable backlog that still have days to fill up.

Okay. Perfect. Remind me on the BP contract, is that 100% for BP? It seems like you were going to -- it wasn't 100% for BP and you still going to have some openings to do spot work?

For 2016, once we've gone on hire, the rest of the year will be entirely for the BP. And then, the following year it is 270 days per year.

Okay. Last question for me. We have the Brazil contract with the CM vessels coming up, and all of us are terrified of Brazil (laughter). So, what confidence level do you have that, that thing goes off on the timing that you are thinking? Or what gives you confidence, is maybe a better way to put it?

Marshall, this is Owen. I think since Petrobras first came out and asked us to look at the terms of the contract, as they did everybody, I think one of the things that occurred is that we have two firm contracts already in place. What gives me some confidence is that Petrobras has stated and to date I have not seen them terminate any valid or in-place contracts. That is the first thing.

Second of all, we were told that the negotiations stretched out because we just weren't as high a priority as some of the other things that they had to be dealing with. Third, they've been pretty honorable with us through the whole negotiation. And even though we have firm take-or-pay contracts with no termination provisions, we have shown a willingness to try and work with them, to both of our mutual benefit. I think that has been appreciated on their part.

I think we are well down the road. There's just some final things that need to be cleared up, but we do expect for it to be -- first of all, we have contracts in place. What I'm talking about are the negotiated amendments that are potential, and we expect those to go for approval fairly soon.

Right. Thank you all.

(Operator Instructions)

Matt Marietta.

Good morning, gentlemen. This is Brooks Braden, filling in for Matt Marietta. How are you all?

Good.

Okay. Just a couple of questions. For both your existing and upcoming committed work, what kind of protection do you have against customers looking for reductions in operating day rates? And as a follow-up, how willing are you to defend utilization at the risk of further erosion?

That's a good question. Contract-wise, we don't have that many full-term, multi-year contracts. We've mentioned the BP, that one is firm and in place; the Petrobras contracts I just went through. The Shell contract, we have more years remaining on the current contract. And we work well with Shell, so I think our existing contracts are looking good.

The spot market -- the nearer-term spot market that has been awarded on a near-term basis, on a one-off basis, there is pressure from the clients to seek further sheltering from expenditure of cash right now. I think that most of those are -- the discussions are more around the timing of when the work gets done rather than the rates.

To get to your question on rates, we have been aggressively defending our rates. In the North Sea, the rates are holding up better than the Gulf of Mexico, primarily because we don't really compete against drill rigs in the North Sea. Here in the Gulf of Mexico there has been some pressure from the drill rigs, which has required us to be more competitive on our rates. But where we are trying to be more competitive is in the very short-term outlook spot market in order to fill gaps in the schedule, where otherwise we would just be incurring idle asset time at the dock anyway. So that is where we have been most aggressive.

Okay. That is all great color. Thank you. And then, one follow-up from me. What kind of blend-and-extend-type opportunities, similar to what you all did with the Skandi, do you have to take advantage of or potentially pursue to add to your backlog? It looks like that kind of stayed flat quarter on quarter.

I'm not quite following the question there, but we do have blend-and-extend contracts that have been amended with all three of (inaudible) Grand Canyon vessels. But those vessels will be going out in the spot market. So it's basically that we've extended the charters, but we have taken reductions out for a couple of years on a cost basis.

Sure. Okay. That's what I was getting at. Thank you. I will turn it back over.

Marshall Adkins.

Well, if nobody else is going to ask questions, I am going to jump in and ask a few other ones I had. Kind of off the wall, any update on the Schlumberger JV? Do you see anything happening there? Any work coming into that?

This is Owen, Marshall. I think as we mentioned on past calls, the Schlumberger JV is sort of a long-term perspective for us. I think all of the projects that we were chasing, in combination with Schlumberger, are still on the table. I think this market, though, just makes the timing of when they occur even less certain than it was before. So I'd say it is still in the future.

Right.

We have started working closely to bring a more efficient package to the clients, where those parties are adding their assets onto our vessels and we are looking at risk and different ways of contracting to the client.

Okay. Tony --? (Multiple speakers).

Go ahead, Marshall.

Tony, just some housekeeping items so we don't have to follow up too much off-line, can you help us with -- you gave us good guidance on the CapEx, but looking out next year, I know your overall guidance we need to wait until the work comes in, but can you help us with SG&A, depreciation, the corporate elimination stuff? I know you have been cutting costs. Any stuff on that you can share with us in terms of directional guidance?

You know, I expect SG&A spending, certainly we're not adding anything. If anything, I would expect SG&A to go down. My only caveat there is we booked some pretty low levels of stock compensation in 2015 because of how the stock price dropped. But, from a pure cash standpoint, I expect SG&A to come down in 2016.

And I assume depreciation, obviously with the write-downs, comes down pretty sharply. Can you give us a magnitude of that?

Yes, depreciation will actually go up because of the Q5000.

That's right.

We are taking out the 534.

534 will stop, but the trend here is we will have more depreciation.

We will have a full year of the Q5 as opposed to we had a partial year in 2015.

Any guidance? A lot of moving parts there, obviously; for us to put all that together is going to be pretty tough. Any annual guidance you can give on depreciation at this stage or should we wait?

Marshall, let's get back to you off-line, because I don't want to shoot numbers off the top of my head.

Got you. Last one on me. You mentioned in the comments, P&A activity. I assume that's still fairly muted so far. Is that the case, or are you hearing any rumblings on the P&A side?

We are being approached by producers that are -- have expressed interest in getting P&A work done. In the most recent environment, though, I think the overwhelming driver was that they just didn't want to spend cash at all.

Now, P&A is regulatory driven but, as we all know, there are certain things you can do to defer it and move it around. And, to the extent that they can, they have elected to defer any work at all -- including P&A -- as long as they can, but that is a rubber band that's sort of getting stretched back. At some point, P&A will start to increase again.

Right. Guys, very helpful. Thanks again.

Joe Gibney.

Thanks, good morning, guys. Just a quick question on first-quarter utilization within your well ops fleet. Tony, just kind of tracking towards this break-even EBITDA profile. Embedded in that assumption, is the Skandi, the Q5, and the Well Enhancer to be there for this break-even-at-best EBITDA? Should I be assuming that they are just not working at all in 1Q? Just trying to understand the depth of this utilization trough from the first quarter that you are implying for some of those assets.

Yes, the Skandi is likely to have zero utilization in Q1, the Q5000 as well, because we're strictly focused on getting ready for BP. So it's going to have zero utilization. The Well Enhancer does have some contracted backlog but it doesn't start till March.

Okay. That's helpful. And, in terms of the timing of the cold stack of the 534, is it imminent? Is that more getting it ready for second half? I missed that in your comments if you indicated it.

We'll have that process concluded within the next two weeks.

Okay. And then, last one for me --

If I could just add on the 534, the 534 was purely a cash cost savings decision. The potential to work the 534, you could say might be there. But the cost to bring it back out of cold stack during the first 12 months is probably less than the cost to maintain it in warm stack. And the amount of time to bring it back out of cold stack is not that detrimental, given the visibility on the timing of engineering the project should one occur. That is sort of giving you some color behind the decision. It was literally just to conserve some more cash.

Okay. Helpful. I will turn it back. Thank you.

Haithum Nokta.

Hey, good morning, guys. I was going to ask, maybe to expand a little bit on Marshall's last question on G&A and decommissioning-related work, particularly in the North Sea. Can you talk about maybe how customer body language has changed from maybe like the November/December time frame to now? Would you say that the oil price of $40, $45, that there could have been some P&A -- or a lot more P&A work this year, but the collapse to $30 a barrel just wiped that out? Or was the plan all along to kind of just keep cutting cash cost as much as possible for operators?

Going into the year, we always knew that Q1, from a seasonal perspective, was going to be very quiet from a well-intervention side of the business in the UK. There is P&A activity going on in the North Sea. I would say that the price of oil going down into the $30s has made the clients reevaluate when they'll take the work and if they will do some of that work this year.

We expect to see one of the vessels busy on our outlook right now, and we're in discussions to get a second vessel with fairly high utilization. But, again, we're in those discussions and the clients are somewhat more erratic than in the past and certainly taking longer time to contract up. And, within that time, they're always trying to get a rate reduction also.

Right, okay. And then, two more modeling questions, but it gets closer to the fourth quarter this year, once the first CM vessel goes on contract in Brazil, are the average costs in Brazil going to be meaningfully higher than kind of your average cost now between the Gulf of Mexico and the North Sea, or will they be consistent?

They're fairly consistent across (inaudible).

Okay. And then, for the --

This is Erik. One difference there, just to point out, that since it is charter vessels for Brazil it will have a higher cash component cost as opposed to an owned vessel.

Okay. And then, lastly on the Grand Canyon III, can you just clear up -- is that -- was the start-up now pushed to 2017, is that correct? Or how did that work?

Yes, correct. We were originally planning to have the vessel come to us in April of 2016. We've completed a blend-and-extend deal with the owners of the vessel where we will now keep the vessel in a very low cold-stack rate for one year, commencing in May. So that will take it through to May 2017.

And we can start up the vessel in relatively short order. We have been told we can start up within two to three weeks if the market changes and we decide to bring it up. So, basically, we have a very low cold-stack rate and the charter doesn't commence until May of 2017.

Okay. All right. That's all I had. Thank you. I'll turn it back.

Chase Mulvehill.

Thanks for letting me back in to ask a couple more questions. If we think of the IRS systems in 2016 versus 2015, you're going to have two IRS systems in the rental market, right, now that you're going to cold stack the H 534?

Yes. We will have two available, but we do see the rental market being far less in 2016 than we had in 2015. We had two longer-term contracts with two units through most of 2015.

So those were effectively fully utilized throughout 2016 -- I'm sorry, 2015, and one unit goes down (multiple speakers) --. Sorry?

One was fully utilized and one went on hire in June of 2015.

Okay. And then one will go down in the first quarter for maintenance, right?

Correct. Yes.

And so you don't have any -- you've basically got to go to the spot market and try to get these things rented, right? You don't have any contracts as of yet?

They are both currently concluding the contracts they are on now. They're having their rework completed. And then, forward-looking, we don't see any contracts right now. We have a two-bid potential out there, but there's not much that were seeing right now.

Okay. All right. And will the Skandi be warm stacked the entire first quarter?

Yes.

And is there a -- what's the cost difference between warm stacking it and basically just marketing it?

Basically we have a lot of charter costs, but we've taken all of our personnel off the vessel for Q1. To be able to market it and go to work the next day, we would have to carry a significant amount of people on board the vessel. So, with the visibility we have now, we've released near all -- apart from one or two guys on the vessel -- from the Company.

Okay, so do they still have the marine crew on there? I know you (multiple speakers).

The marine crew is on board. A smaller marine crew is on board.

Okay. All right. And then, robotics, as we kind of move forward into 1Q, assuming it would be hard to break even EBITDA, does that assume that robotics is negative EBITDA?

You know, I think robotics will be in the same boat as well intervention in Q1. It will struggle to break even.

Okay. All right. And you're talking EBITDA, not EBIT, correct?

I'm talking EBITDA, right. Robotics is -- it will be challenging for robotics to break even from an EBITDA standpoint in Q1.

Okay. Last one, and sorry if you've mentioned this earlier. Did you talk about when you plan to do the HP1 dry dock?

The HP1 dry dock will now be end of Q3 2016.

Okay. And can we just go back to, I think it was 2013, and look at the last time it was dry docked, and assume that it will be, I think it was 46 days back then and production facility EBITDA declined by, I think it was roughly $4 million -- is that a fair modeling assumption?

This dry dock will be considerably less than the 46 days. It is an intermediate dry dock.

Okay. That's all I have (multiple speakers).

The oil prices are significantly lower now than they were back then so I don't think the $4 million would be comparable.

The speculation on the dry-dock days is purely speculation, because on a dry dock you really don't know how many days you're going to have until you actually haul out, and then the regulators come on board and they develop your work scope. As we get closer we will be able to give you some better visibility on the potential length of the dry dock.

Okay. I will squeeze in one more. Back on your net debt guidance -- or expectations, I won't call it guidance, of $350 million to $390 million, what does that include for working capital and tax refunds? Is there a range or anything that we should be thinking about?

Since we don't want you to solve the riddle of EBITDA, we are not going to give you those ranges either. (Laughter). All we are going to say is that we expect working capital to be positive and tax refunds to contribute positively to cash.

Okay. All right. Thanks for the time and thank you.

(Operator Instructions)

Martin Malloy.

Yes, how much is left to spend on the Q7000 after 2016?

Post 2016, Erik, help me out here. I'm going to say about $230 million to $250 million.

That is the right range.

Post 2016.

That's inclusive of our internal costs. The remaining shipyard balances are more like $210 million.

Okay. Is that remaining shipyard balance, is that mostly due when you would take delivery of it, potentially out in late 2018?

On the shipyard side, two-thirds of that figure is upon delivery.

Okay. And maintenance CapEx, I think you've got $30 million in there for this year. As we look out with the CM vessels working, maybe the $30 million to $40 million area, is that a good range for maintenance CapEx ongoing, annually?

On a straight-line basis, yes, but it will be lumpy depending on the timing of the dry docks. 2017 CapEx is projected to be far below 2016.

Okay. Just one last question. It seems like you have been competing with some of the floating drilling rigs that are under contract for doing well intervention P&A work. As those contracts continue to roll off, is there any change or impact on you all in terms of the competitive dynamics in the market for well intervention P&A work?

I think that's one of the variables that we're trying to track with some of our market tracking. It's unclear to us how aggressive the rig operators are going to be in trying to maintain a fully operational rig and chase what is essentially two to three week spot market jobs out on the open market.

Historically, it's not been a pattern that the rig operators have followed, but this time we have seen a few that are attempting, or at least talking about doing it. So how many do it and how long they persist in doing it are two of the things that we're tracking that makes it difficult to quantify how much market share that we sacrifice to them.

Okay. Thank you.

Bill Dezellem.

Thank you. Would you dive into some more detail on your insights from conversations with customers about their desire to spend money to enhance production in this environment versus just totally trying to reduce their cash outflow?

It differs from client to client, but I would say, in general, there's a broad desire, on the part of at least the operating level of the producers, to spend money on production enhancement. But the mandate is from corporate to just not spend any cash.

So you are really seeing two different mindsets, corporate mindset versus the guys that are actually responsible for the individual fields mindset?

That is correct. We are seeing the work out there that is to be done, it is just when is the corporate mindset going to get a little more -- find a little more ease in making the call to release the funds. I think what you will see -- and this is pure blue sky on my part, but these wells can only go so long without being worked on, so a decision to not spend cash today is purely that -- it's a short-term decision. But eventually I think you will see a lot more un-budgeted work starting to crop up.

And one additional follow-up. What is the timing -- if and when the corporate group says, okay, it is all right to spend some money -- that you can move forward and the guys in the field can make that decision? Is that reasonably quick, within a quarter's time period, or does it stretch out longer than that due to complexity of many of these fields?

I think it has more to do with the timing of the budgeting process. The producers go through a budgeting process. Once the budget is set, it is pretty much set for the remainder of the year. So I think for them to start allocating funds over and above budgets -- and I don't know how they are doing this internally.

They could be setting two budgets, one main budget and one contingency budget, we don't have that kind of visibility with our clients, but that is some of the input that we're waiting to get back from the clients. We know that they have the work to be done, we know corporate doesn't want to spend the cash. The question is, how do they get it done and when?

Great. Thank you for taking the question.

Responding to the work, technically, is within a quarter. It is easy for us to respond from a technical point and man up to the project. And the project regulatory requirements are all easily done.

Thank you both.

There are currently no further questions on the phone lines at the moment.

Okay. Thank you for joining us today. We very much appreciate your interest and participation, and look forward to having you on our first-quarter 2016 call in April.

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.