Helix Energy Solutions Group Inc (HLX) 2016 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first-quarter 2016 earnings 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 Wednesday, April 20, 2016. I would now like to turn the conference over to Erik Staffeldt, Vice President of Finance and Accounting. Please go ahead, sir.

Good morning, everyone and thanks for joining us today for our conference call on our Q1 2016 earnings release. Participating on our 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 through the investor relations page on our website at www.HelixESG.com. The press release can be accessed under the press releases tab and the slide presentation can be accessed by clicking on today's webcast icon.

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

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, 2015.

Also, during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slides of our presentation materials provided 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 the replay of this broadcast are available on our website. Owen.

Thanks, Alisa. Good morning, everyone. Starting as usual on slide 5, which is a high-level summary of Q1 results, generally speaking, Q1 results were consistent with our own expectations that the first quarter would be the low quarter for the year as EBITDA came in at a positive $1 million on $91 million of revenues. The relatively weak results are a reflection of a continuation of a very weak industry condition combined with normal winter seasonal factors. For all practical purposes, the only vessel on the well intervention side that had high utilization during the quarter was the Q4000 in the Gulf of Mexico.

Turning to slide 6, the Q4000 did see 100% utilization during the quarter. Aside from the Q4000 and apart from a few days in early January with the Well Enhancer, the remaining well intervention fleet stayed idle at port. The Q5000 spent most of the quarter mobilizing for the BP contract. More on the Q5000 later.

As previously announced, we realized $11 million in cash from the sale-leaseback of our office warehouse facility in Aberdeen and another $25 million from the sale of our 50% interest in Marco Polo Hub.

On slide 7, from a balance sheet perspective, our cash levels remained relatively steady from year-end 2015 levels of $488 million compared to $494 million at 12/31/2015. The previously mentioned $36 million in asset sales helped us maintain our cash levels and we also paid down $19 million of scheduled principal payments on our debt instruments. As such, our net debt declined to $244 million at quarter-end from $255 billion at the end of December.

Our revolving credit facility remained undrawn. You may recall in February we amended the credit facility to provide us with more cushion with respect to covenant compliance. I will now turn the call over to Scotty for an in-depth discussion of our operating results.

Thanks, Owen. Moving on to slide 9. Our Q1 results declined as expected compared to Q4 as we continued for the winter months resulting in less utilization in the well intervention and robotics business units due to the seasonal factors and weaker industry conditions.

Revenue in the first quarter declined to $91 million from $158 million in the fourth quarter. Our gross profit margin declined from 13% in Q4 to a negative 16% in Q1 resulting in a loss of $17 million. To mitigate costs during the seasonal low period, both the Skandi Constructor and the Seawell remained warm-stacked in the UK and we commenced four cold-stacking of the H534 in the Gulf of Mexico.

At the end of Q1, we reduced the robotics vessel fleet to three fully operational vessels. Offshore staffing levels were sized to fit the fleet at expected activity levels and we've reduced the [riding] costs of all of our vessels. Cost savings and efficiencies continue to remain a key target across the business.

Moving on to slide 10 for our well intervention business. In the Gulf of Mexico, Q4000 had a very good quarter, fully utilized working for two clients and with very minimal 44 hours downtime throughout the entire period. The vessel is currently working and has a busy year planned ahead with numerous clients.

Q5000 continued preparation for the BP contracts and in mid-March commenced the [paid] mobilization of the BP equipment and the acceptance testing. The vessel is currently in field and fully mobilized to BP, undergoing some final tests, which we expect to complete soon in the next few days.

As a result of the ongoing testing procedures and some equipment issues, although under contract, we are presently operating at less than 100% day rate. The vessel is then planned to go straight to work for the remainder of 2016.

IRS no. 2 completed contracted work in mid-February and then undertook upgrades compensated by BP and is now fully mobilized onto Q5000 with BP. IRS no. 1 completed contracted work in mid-February and is currently being stored at our facility, but is available to the market. H534 is now cold-stacked in Mississippi with some minor procedures underway to seal the vessel for this period. All offshore staff have been released and running costs of the vessel significantly reduced.

In the North Sea, both the Seawell and Skandi Constructor remain warm-stacked in the UK for the quarter. The Well Enhancer completed work in January and was then idle for the rest of the quarter. A client canceled a project in March and paid a cancellation fee covering the cost for a portion of the quarter. The vessel is currently working in the central North Sea.

The two newbuild vessels for the Petrobras contract, Siem Helix 1 and 2, are progressing well at the FSG Shipyard in Germany and are on budget. Siem Helix 1 recently experienced a small localized fire on the front of the vessel. Based on what we know today, no major equipment or systems have been damaged. However, there is some cleanup and minor work to undertake that will set the vessel back by approximately one month. The vessel is still scheduled to undertake sea trials and acceptance by the yard in Q2. We have hired nearly all required offshore staff for the vessel and increased our onshore staff at our local office in Rio.

Moving on to slide 11 for our robotics review. As expected, our robotics business had a challenging quarter and continued to see rates and utilization decrease through the winter periods. We've now reduced our robotics vessel fleet from five vessels in Q4 to three fully operational vessels in Q1 consisting of the Grand Canyon I, the Grand Canyon II and the Deep Cygnus and we have sized our offshore staffing requirements accordingly.

The Rem Installer is still on contract to us; however, after completing work in the Gulf of Mexico earlier in the quarter, the vessel has now been cold-stacked in Norway and will be returned to the owner in July. We have negotiated rate reductions for all three Grand Canyon vessels commencing at the start of 2016 by extending the charters and agreed to delay commencement of the charter by 12 months for the Grand Canyon III. Grand Canyon I completed pay transit back to the North Sea after a successful trenching project in Brazil and the vessel conducted some smaller ROV contracts in the North Sea.

Grand Canyon II completed transit from the North Sea to the Gulf of Mexico and was awarded some small support contracts with various clients. Deep Cygnus was fully utilized on the walk-to-work project in Equatorial Guinea and the project has now been further extended and we will have the vessel returned to the UK at least mid-May. Our standalone ROV and [personnel] service contracts continued as normal with various clients.

Over to slide 12, I will [leave] this slide detailing the vessels ROV entrenching utilization for your reference, turning the call over to Erik for a more in-depth balance sheet discussion.

Thanks, Scotty. Moving over to slide 14 for a review of our key balance sheet metrics, our funded debt at March 31 decreased to $757 million, reflecting our scheduled quarterly principal payments of $7.5 million on our term loan and $8.9 million on our Q5000 loan and our semiannual merit payment of $2.9 million.

Moving on to slide 15, it provides an update on our gross and net debt levels at March 31. Our net debt position decreased to $244 million in the first quarter from $255 million in the fourth quarter. Our cash position decreased this quarter by $6 million, driven by our debt repayments of $19 million, capital expenditures of $23 million, partially offset by the receipt of $36 million associated with the asset sales of Helix [House] and Deepwater Gateway. Our liquidity at March 31 was approximately $635 million comprised of a cash balance of $488 million and revolver availability of $147 million. I will leave slide 16 financial highlights for your reference. I will turn the call over to Tony for a discussion on our 2016 outlook.

Thank you, Erik and good morning to everyone. Moving over to slide 18. As Owen mentioned early in this call, we continue to operate in a most difficult industry environment. Even though the price of oil has bounced off of its early 2016 lows, we believe our customer base will want to see a more sustained uptrend in oil prices before they alter their spending approach in any material way.

We were reluctant to provide guidance back in February, which has been the timeframe in which we historically have provided initial earnings guidance for any particular year. Although there is still a great deal of uncertainty to play out in 2016, particularly with respect to how this North Sea market develops this year, we are now providing an EBITDA range for the year at $110 million to $130 million. This range takes into consideration an assumed amount of contribution from expected work to develop for the Company and in particularly in the North Sea. So the range is not a lot by any stretch.

Scotty mentioned to you the fire incident aboard the Siem Helix 1 vessel earlier this month at the construction site. Although preliminary reports suggest that the shipyard can maintain schedule despite the damage to the vessel, we are taking a more cautionary approach in our forecast and now assume a late Q4 startup for the Petrobras contract for the Siem Helix 1 vessel. We have revised the CapEx forecast for the year slightly lower to $230 million.

Moving over to slide 19, total backlog at year-end was steady at approximately $1.7 billion. On the well intervention side, we expect both the Q4000 and the Q5000 to realize good utilization for the remainder of 2016. However, there's a lot less clarity for the North Sea fleet. The Well Enhancer is working now and our expectations are that she will see good utilization for the remainder of the year.

The outlook for both the Skandi Constructor and the Seawell is cloudier. There is a considerable amount of work we are bidding on for the Seawell, a certain amount which is assumed in our forecast, but little of which is firmly contracted.

On the robotics side, the outlook remains unchanged. It will be a very weak year for this business segment due to lack of subsea infrastructure spending by the industry. I will leave the details enumerated on this slide for your reference. And as Scotty mentioned, on the robotics side, the outlook remains unchanged. It will be a very [lean] year for this business segment due to lack of subsea infrastructure spending.

Going over to slide 21, for CapEx, we expect to spend $230 million in 2016 with the substantial majority of that number associated with the completion of the top sides for the two Siem Helix vessels under contract to Petrobras and further progress spending for the Q7000. Presently, our plans are not to take delivery of the Q7000 until the very end of 2018.

Onto slide 22, a bit more color on our balance sheet metrics. Our gross debt is set to decrease $71 million in 2016 due to scheduled principal payments. Our net debt levels are forecasted to increase from $255 million to somewhere between $350 million and $390 million. This is consistent with the forecast we gave in February. This range is based on a number of assumptions, which could vary significantly, including the amount of operating cash flow that is ultimately generated, working capital changes, tax refunds, etc.

The $36 million of asset sales that have already occurred in Q1 is also factored into this range. I will skip slide 24 and leave it for your reference and then turn the call over to Owen for closing remarks.

Thanks, Tony. There's not much to add to what's already been said. The start to 2016 has been about what we expected. 2016 will be worse than 2015 as legacy work was still getting completed in 2015. Q1 was always expected to be slow. Rates are down, but lower utilization is the real issue. It's not a matter of losing work to rigs or other competitors; the fact is that producers are not spending and there's substantially less work being done.

It's our expectation that the current status is not sustainable for the industry. At some point, the customers will have to have well intervention performed to enhance production or perform required abandonment work. Either way, Helix is in line to benefit. Until that time, we expect the market to remain at these slow levels, but we do anticipate our EBITDA to improve over the next year through 2018 from new assets going to work on existing contracts, as well as improvement in our robotics group through decreasing charter costs and the prospects we see primarily in the alternative energy trenching market.

The Q5000 is now out working for BP. We are having some initial startup issues, but the vessels should be working the remainder of the year for BP in the Gulf of Mexico. I've always stated that although we have existing agreements with Petrobras, we've been in ongoing negotiations with respect to potential contract amendments that would both assist Petrobras in their cost-cutting efforts and also be acceptable to us.

I've just returned from meetings with Petrobras in Brazil. Although I can't discuss the specific terms, Petrobras did authorize me to tell investors that commercial negotiations are now concluded and that they need to take the time to get their internal approvals that they need to execute contract amendments. This has been a sliding target, so we will just need to be patient.

The shipyard had a fire on board, as Scotty mentioned, on the first vessel. It was confined to the [forecastle], the (inaudible) area, which will require some repair and cleanup. We anticipate the first vessel to be in Brazil and on contract in Q4.

For the remainder of this year, Q2 is expected to pick up from Q1, but will remain soft as weakness in the market continues. Q3 is expected to show seasonal strength with Q4 being stronger than what might otherwise have been expected due to the Siem Helix 1 going to work in Brazil.

At this time, our expectations are that 2016 earnings will be back-end-loaded to quarters three and four. The contribution from the Q5000 will ramp up during Q2 and with both the Q5000 and the Siem Helix 1 new vessels contributing in Q4. We continue to maintain sufficient levels of liquidity, but will continue to explore ways to enhance liquidity given the continuing uncertainties of the market. Bottom line, things are going about as well as expected. With that, Erik, we will --.

Operator, at this time, we will take questions.

(Operator Instructions). Igor Levi.

I was hoping to get a bit more clarity on the guidance. First, does the guidance range assume any work for the Siem 1 at the end of the fourth quarter? And then in addition, what type of utilization levels does the high or low end of the guidance account for the Seawell and the Skandi?

Oh, I will take that. There is an expectation for contribution from the Siem Helix 1 vessel in the fourth quarter. As Scotty mentioned, it's one month -- to be conservative, we've put in a one-month delay on that startup until we have better reports back from the shipyard.

Seawell, we have planned work in the forecast and the Skandi Constructor at this time we plan to keep it warm-stacked throughout the year.

Although there is an assumption that you will get some work later in the year on the Skandi.

And then, finally, I think the assumptions do assume that the H534 remains stacked through the year; although there is work out there that we are tendering for.

That was actually going to be my next question. The H534, it's said that you are still preparing to cold-stack the vessel in your release. What type of opportunities are you seeing for that vessel and how quickly could that be taken out of cold-stacked?

We've got some tenders on the go in West Africa and also in the Gulf of Mexico. The Q4000 has started to fill up its year quite well and obviously Q5000 will be busy with BP. So we are seeing tender activity for the vessel. The vessel is effectively cold-stacked right now. All the crew have been released. The costs are down to minimal. But if we wanted to bring it back out, we are looking at 6 to 8 weeks to ramp up the vessel.

Perfect. And just one quick last question on liquidity. Based on your EBITDA, it looks like your revolver availability is now only $147 million. As your EBITDA picks up and you reach the end of the year, let's say you are at the midpoint of your guidance, how much availability will you have on that revolver?

The revolver availability is based on our leverage ratio and it's based on our trailing 12-months EBITDA, so our expectations today are that that would pick up towards the third and fourth quarter of this year. I don't think we've given specific guidance on what our expectations are at the year-end level for liquidity.

Yes, the year-end liquidity covenant is 4.5 to 1, right, Erik, or 5 to 1? Sorry, it is 5 to 1. So at 5 to 1, and at the midpoint of the range, we would have pretty good access to the revolver, a lot higher than it is now.

Perfect. Thank you very much. I will turn it back.

George O'Leary.

Good morning, guys. I was just curious given -- sounds like a portion of the guidance is pending the typical uptick in North Sea summer season activity. How are discussions with customers at this point regarding the work that you feel like is a relative lock? And then what do you need to see incrementally between now and then to have that driver of the guidance range come to fruition?

George, the North Sea work -- we have visibility on the work that needs to be done in the discussions with the operational levels of the various producers. There is a lot of discussion about what needs to be done. The uncertainty lies in the corporate directives as with regard to what gets sanctioned and what gets spent on the budget. What we are seeing is that although budgets have been approved, each project is going back to corporate levels for individual sanction and that's creating a little lag compared to normal years where we would've had better visibility by this time. Hope that adds a little more to it?

No, that's helpful. And then I think some of the questions we get is, and you touched on it in the prepared remarks, are you seeing increased competition from rigs? It sounds like it's more so just deferral of work. I guess somewhat perversely, is the lack of ability or the fact that the IRS no. 1 is on the sidelines today, is that indicative of just there isn't work out there, you've can't even run an IRS stack at the moment? Just curious -- and then how would you characterize the competition from the rigs today?

Well, I think you have to split the two markets. The North Sea, we really don't have any competition from the rigs. We compete mostly with moored rigs over there and our efficiency gives us a great advantage. The things that have happened in the North Sea are the regulatory changes that do not allow tubing to be pulled open water and then the clients' reluctance to let go of cash at this point. So there's just a lack of work.

Gulf of Mexico, I think you are correct. I think the IRS no. 1 sitting idle is indicative of the lack of work; otherwise, you might expect it to be out on a drilling rig doing work. Again, like I said in the prepared remarks, I don't think it's so much a factor of us losing work to competition or rigs; it's just the fact that there's just a very low volume of work being done right now.

Great. That's super helpful. Then maybe one more, just a housekeeping item from me. Did I hear that right that Q7000 probably not delivered until late 2018?

We have the right -- the vessel should be finished by the end of 2017. We have the right to take it then, but at our option we can defer delivery until 2018.

Perfect. Thanks for the color, Owen.

Chase Mulvehill.

Good morning. So I guess the first question, you talked about a termination fee for the Well Enhancer. How much was that and was that project set to roll into 2Q or 3Q?

Yes, the cancellation fee associated with that was not material, essentially just covered our cost for being idle during that time period.

Okay. And it did not -- that project was not set to be in 2Q or 3Q? It was just a 1Q project?

Correct. It was just a 1Q project.

Okay, all right. And when we think about the bottom end of the guidance range, does that imply flat year-over-year well intervention EBITDA at roughly $100 million?

I'd have to go back and look, Chase, at last year's EBITDA results. I just don't have that handy right now, so let me come back to you on that.

Okay, okay. All right. And it seems like that you are doing a lot better on the cost side of the equation. So can you just walk through where you've been able to cut costs and are these more structural costs? So as activity picks back up that these costs won't come back, or should we be thinking about as activity picks up that these costs will come back?

In the first stages, as activity comes back, I expect the cost structure to stay the same. We've done a lot of work reducing our offshore terms and conditions and salaries. By warm-stacking the vessels, we've released a lot of the offshore guys, so as we bring those vessels back out, I expect to be able to hire people at a lesser rate. We've looked at all of the procurement side of the business and we've been -- like we've had to reduce rates, we've been making our vendors reduce their rates.

We've taken a good look at how much we would spend on repairs and maintenance and drydocking. So across the board, we've been looking at the cost of all levels. We've reduced staff onshore as well in all of the business areas. So in my mind, we've rightsized the Company and the offshore staffing levels to the size of fleet we have now and the expected activity.

Okay. All right. And a couple more real quick. So I guess if we think about the opportunity for you to manage your covenants through debt repurchases, Tony, what's your comfort level here as we get through 2016? It sounds like you've got enough cushion on your covenants there, but depending on what happens with Siem, the Siem vessels, you may have to do something in 2017, probably not. What are your thoughts on debt repurchases on how you manage your covenants?

Chase, those are good questions. Obviously, we analyze and look at this every day. Our game plan is sort of as follows. We always like to roll over our term loan bank credit facility a year plus prior to maturity. The facility matures in June of 2018, so by time June of 2017 rolls around, and hopefully well before then, we will want to redo our credit facility.

Our expectation and hope at that time is that we roll the term loan as well. Whether that's achievable or not really will depend on the state of the industry and the state of the bank market and their perspective on the industry at that time. But a year from now, we should be in the middle of our effort to take care of that facility and roll it over just like we would in any normal year, in any normal circumstances.

And so far as the convertible notes go, I would say that that is another area where we are evaluating it. We have to take -- make the assumption that 2018 -- in 2018 the holders of the converts will put it to us and that's a $200 million put and we would certainly like to mitigate that, puts somehow or another and all I can tell you right now, Chase, is we study it every day. It is a high-priority analysis. I will just say that.

Let me take this opportunity to correct an answer I made to Igor Levi's question insofar as our liquidity and our headroom under the revolver. Because our covenant leverage ratio declined from the current 5.5 to 1 to 5 to 1, we won't be -- at the middle of the range, our availability to the revolver will probably decline, right, Erik? So I want to make that correction. Chase, I hope that answers your question, if it doesn't (multiple speakers).

It does. Yes, very helpful. Thank you. And so I guess how many -- so I can kind of back into the current availability here, how much letters of credit do you have? Is it roughly $13 million or in that ballparkish?

I think it's less than $10 million right now.

Less than $10 million? Okay, okay. Last one, then I will turn it back over. So you took down CapEx for 2016 and in a recent presentation, you gave CapEx all the way out through 2019. Are there any changes to 2017, 2018 and 2019 relative to what your presentation showed a couple months ago?

I would say no at this time. We keep looking at it and we keep working on it, but right now those numbers are fresh enough that they are still accurate.

Okay. Awesome. I will turn it back over.

Marshall Adkins.

Good morning, guys. Owen, I want to turn to some big picture questions here. The industry obviously is struggling to bring down costs to deal with the lower long-term oil market. I presume you are in conversations with all your clients regarding how they achieve this. So I'm just curious, how do you think the industry is coming on knocking down overall offshore costs? And if we were at $90 a barrel equivalent in 2014, can they get that down to $60 and below over time?

Good question. I thought you were going to ask me about Trump's chances in the election. I agree with Schlumberger in that the cost reductions that you are seeing that are announced by the producers are not necessarily real cost reductions as a result of technology or methodology change. It's more cost reduction on the back of the service industry that's been basically crushed here. That I don't think is sustainable. I think the service industry contracts.

I think longer term one thing that concerns me, Marshall, is if you go back to the mid-1980s, it took us almost 10 years to recover from that downturn because of the flight of the labor out of our industry. I think you are going to be seeing something similar to that with the rest of the economy sputtering along because it is, it is still stronger than the oil and gas sector. Some of the people that have left us have said they are hanging it up just because they don't want the uncertainty any longer.

So when oil does come back and it creates a relative boom in growth, I think you're going to see labor become scarce again as it did in the early 1990s and that's going to drive labor costs up. I think this time around I think we are a little better prepared to deal with it. Like Scotty said, our expectations right now are that, during the early part of the recovery, we will actually be able to hire back at lower cost than where we were. I think by 2014, all of the service costs had really gotten exuberant and overinflated. So I don't think the costs come all the way back to where they were, but I do think that there has to be some increase in the cost to the producers going forward.

All right. On the service side, but it sounds like you are somewhat skeptical on the structural decrease in costs or at least the pace of that. Is that fair?

I'm sorry. Say that again?

It seems like you are a little skeptical about the structural nature of the cost decreases for the industry, i.e. getting better at doing it. As you know, we are looking for oil prices to rebound and you think the service component of that goes right back up, but the structural nature of the cost reductions, i.e. getting smarter, getting more efficient are still coming relatively slowly. I don't want to put words in your mouth, but is that what I hear you saying?

I think certainly the motivation for the industry will be to try and come up with better ways of doing it and lower cost, but for any stepwise change in technology or methodology, it also requires a certain amount of capital investment. And during this time right now, I think there's a lack of capital investment on anybody's part, so the costs right now are really reductions in capacity.

I will say though that where Helix was positioned was in trying to offer a lower-cost alternative to rigs. That is the thesis of our existence. So having said that, I think we are well-positioned. The use of non-rig alternatives for well work was really just in its infancy in demand growth. So as the market comes back, I think the quest to find lower-cost methods of doing the work really just speaks positively for the future of our efforts.

So you are part of the solution. Good. One last clarification here. I know you can't give any details on the Siem contract negotiations, but it does sound pretty clear that those vessels will be going to work. It's just the structure around the contract maybe gets adjusted a little bit, but they are going to work, correct?

That's the indications that I've received from Petrobras at this time.

Perfect. Thank you all.

Let me add one thing, Marshall. Not on Petrobras, but back on the technology side, one of the benefits that we have going for us right now is our alliance with OneSubsea and between us, there's a lot of companies that aren't spending the capital. We are in a fortunate position that our balance sheet is -- let's use the old phrase -- it's the prettiest horse in the glue factory. But we have ongoing efforts with OneSubsea at developing new methodologies to be deployed off of our vessels.

Just more specifically, when it comes to the regulatory changes that have occurred on abandonment, making it more expensive for the producers, I think we have some counter moves coming up where new technology may allow us to bring that cost curve back down.

Thank you, Owen.

Matthew Marrieta.

Good morning, guys. Thanks for taking the questions here. Wanted to start really with the Q4000. The performance there obviously very strong and I think Scotty hit on this if I heard right. Was there an incremental customer that came into 1Q and if this is a new customer or an existing customer and what sort of work were you able to line up with this incremental customer on the Q4000, if I heard that correctly?

The work that we had in Q1 was the planned work we had. It was for two clients that we've had contracts with for a long time and the work for one of the clients was P&A work and the next client was an intervention.

But they weren't new contracts.

No, they weren't new contracts.

Yes, we may have referred to new contracts, Matt, and that applies to quarters two through four. We actually picked up some additional work with customers that we hadn't anticipated. But Q1 really was as expected. The vessel performed very well, had 100% utilization, but it was with work that we had contracted previously.

And you kind of hit on what my follow-up was going to be with respect to the Q4000, which was the incremental work that you have picked up that you've lined up for the second and third quarters, what's driving these wins? Obviously rig guys are bidding on similar jobs or at least that's the anecdotes that we hear. Is this performance-based that's getting these wins for you? Are you having to take much on price? Or is really the customer base recognizing the value proposition? Maybe help us understand what's driving the incremental backlog wins for you?

I will take that. The price levels have dropped with increased rig competition in the Gulf, but we have won work with new clients. In the forward-looking schedule for Q4000, there's three new clients in there and it's best that we've won that work based on efficiencies of how we undertake the work compared to a rig.

And I guess these new clients, do you view that as an opportunity to help the marketability of the Q7000, or are these the type of clients that would be willing to take on longer-term larger contracts like for instance Shell and BP, or maybe help us understand that opportunity?

Certainly one client has been a target of ours for a while and with the alliance now, we've been able to take the components that Schlumberger and OneSubsea provide, put it into our vessel and offer an overall package that may lead to bigger and better things with that client.

Okay, great. And then one more out of me on the robotics side. I'm trying to get a sense for where are we in the potential to maybe break even on the gross margin there for 2016. Obviously 1Q puts you in a pretty big hole, but using 1Q as a starting point, it seems like this year could be slightly negative on the gross margin, maybe a slight deterioration from prior comments. How do we think about maybe gross margins, cash flow there on the gross margin in robotics for 2016 and when can we potentially see that inflection (inaudible) margin, do you think?

Yes, so if we are talking gross profit versus EBITDA on the robotics business, we expect to have a slightly negative gross profit in the robotics business. And previously we've sort of suggested that the robotics business will be breakeven from an EBITDA standpoint; and that is still our outlook. But from a gross profit basis, it's going to be slightly negative. Not a lot. It's all relative. But it's not substantial, but it's still slightly negative. It won't take much incremental business to turn that to breakeven positive, but our outlook for the year is very muted. It's going to be the worst year that we've ever experienced since we've owned the robotics business.

Okay. Thank you. That color helps on the models. Thanks a lot for answering the questions and I will turn it back.

Trey Stolz.

Looking at the Q5000, if I recall correctly, that contract accounted for about 75% of the available days for each year. Your guidance, does that include the additional 25% of days for 2016 and what's the outlook for that with the additional negotiations going on?

Yes, the BP contract was I believe for 70% of the days --.

270 days.

270 days for our 2016 outlook. It includes all the remaining days on that contract.

So 100% utilization for the remainder of the year?

On that contract.

On the contract. And can you give us any color on client appetite for the remaining days available?

They don't have to call that down until the mid of the year. They are looking at their work program and I can see it moving on through into 2017 without a break at the moment, but it's the client's call from there.

And when do they make that call, Scotty?

Mid-year. June (inaudible).

Okay.

Okay. And if they elect not to utilize that, it's open to other operators in the Gulf?

Correct.

And --

We've had a whole bunch of show and tells from clients to the vessel, so there is interest in that period.

All right. So anything in those extra 90 days or so on an annual base would be upside to guidance at this point?

Correct, yes.

The Seawell, the unstacking, is that pretty firm then, the May/June timeframe?

Yes. At this time, we have contracted work for the Seawell in that timeframe, so we will start coming out of warm stack here in the next couple of weeks.

Tony, we've had this conversation in the past, but can you get a sense or is there any more clarity -- is this a pure seasonal issue in the North Sea, or is it more the floating rigs come off contract and operators are free to spend as they please, they are coming back to -- our deepwater well intervention, as Owen noted, was still in its infancy? Any idea you can kind of weigh that a little better now looking at the summer?

For the North Sea specifically, I'd say that the industry has shifted back to where it was historically where the work will now and going forward always be more seasonal than it has in recent years. With respect to the rigs --

Yes, we don't compete against rigs in the North Sea.

Yes, I might add a little color there. In the North Sea, the regulations are a little different from elsewhere. In the North Sea, you are not allowed to pull tubing without well control in place, which limits our role to doing the lower section of the abandonment and then rigs are typically brought in to do the upper portion of the abandonment. That's the way the market functions right now. As I alluded to earlier, I think we have some technology changes that will increase our capabilities there, so I would expect an uptick in our utilization from that.

And approximately 50% of the wells in the North Sea still require diver intervention, so our assets are very unique in the North Sea by having the dive intervention then going into the lower abandonment, which no rig can do.

Great, okay. That will do it for me. Thanks.

(Operator Instructions). Bill Dezellem.

Thank you. I have a group of questions. The first one is the $26.2 million equity investment on the balance sheet as of December 31 does not exist as of March 31. Is that the Marco Polo, or what am I missing there?

Yes, that is the Marco Polo. That was sold in February.

Great. Thank you. And then you've mentioned the OneSubsea JV a couple of different times. I'm hoping I can just open up a more broad discussion of an update with the JV, please?

Well, the JV, I think the heart of the JV is a mutual agreement whereby the OneSubsea group of companies exclusively use our vessels to perform their work and then vice versa we exclusively use their services to perform the work. That's the basis of the alliance. Beyond that though, we have joint marketing, which has helped tremendously. Scotty has mentioned a couple of new clients, new major clients. They've been generated primarily as a result of our relationship with the -- through OneSubsea.

And then as I mentioned earlier, this technology development, they bring a lot to the table. Hopefully, we do as well and combined, I think that's adding a lot to help lower costs going forward. But I think the biggest thing that it brings to the industry is a fully integrated approach to doing the work. Prior to this, producers would typically higher Schlumberger separately and us separately. What we are able to provide is a completely integrated package of services combined with the deployment asset and through that combination, there's a lot of things that we can do to increase efficiency and lower cost.

Yes, the sales effort globally under the alliance has increased significantly and the offering out there for one contract for all services under one package has been taken very well by the market and that's helping bring some of these new clients to the table. But through the alliance, we've now bid an awful lot more work in Africa and again, we are able to offer local content support because of the alliance and have one contract that the client really has taken well to.

And then finally just on the cost side, because we now consistently have the same equipment and the same people on board the vessel, we are able to do a certain amount of crosstraining lowering the personnel on board therefore greatly lowering the direct cost of the spread.

Great. Thank you. I'd like to come back to the new clients that you have now lined up. Did those come to you by replacing some other option that they were using, or had their particular facilities that you are going to be working on not actually progressed to the point that you needed the well intervention and so this is really new work for them? I guess I'm trying to understand where that business came from and if that's a marketshare gain in some way, or I hesitate to say market expansion, but you get the idea.

Yes, it's work they have to do and it's work we've been up against with rigs and we've won that work by showing our efficiencies and by being able to put one contract forward from the alliance. So we are doing things different to the rigs and we are winning the work against the rigs. That work is there and needs to be done and it's more efficient with our services.

So I would definitely characterize this as a marketshare increase.

That is helpful. And on the prognosis going forward relative to additional wins like this, how significant could they be and then I also would like to understand when you believe the new technology that you are working on with the alliance will be available to the market and could be meaningful from a shareholder perspective.

Okay, well the new technology, the first piece of new technology will be the [15K] system and that will come to the market mid-next year and that's been jointly developed by the alliance. And then there's other technologies that we are working on that could come to the market on a similar timeframe, possibly a couple of quarters later. Some of that technology really changes how we would take some efficiencies and some of the work on that rigs would do that we wouldn't necessarily do.

And then prognosis for additional wins?

As we like to say, the sales effort has increased. There's a lot more tender activity, but until we win with those clients, it's hard to put it out there.

Yes, I think that's really a blue sky question because, as I said before, the demand for non-rig alternatives was really in its infancy. So as we go forward, you can -- it'll be a combination of how much more marketshare we can take combined with how large the market expands.

Thanks to all of you for the answers.

There are no further questions on the phone lines. I will turn the call back to you.

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our second-quarter 2016 call in July.

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