Helix Energy Solutions Group Inc (HLX) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth 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, Tuesday, February 21, 2017. 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 for our Q4 2016 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 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 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 provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliation, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website. Owen will now make some opening remarks.

Good morning, everyone. I'm losing my voice here, so bear with me. But we'll start on slide 5 which is a high-level summary of Q4 results. In addition to typical seasonal factors, Q4's results, operating results were adversely affected by the following items. First, systems issues on the Q5000 caused 15 non-revenue producing days in the quarter. Second, the deferral of startup of Siem Helix 1 in Brasfels in Brazil which I'll cover more in depth later. And, third, $3.2 million of additional bad debt reserves associated against the robotics business.

Fourth quarter revenues decreased from $161 million in the third quarter to $128 million, while EBITDA declined from $47 million to $27 million on a sequential quarterly basis. There were some bright spots in quarter 4. The Q4000 experienced 100% utilization and the North Sea Well Intervention Fleet realized higher utilization than we had previously forecasted.

Over to slide 6, non-cash charges impacted our bottom line results. We booked an impairment charge of $45 million to write off the remaining goodwill associated with our robotics business and booked a $4 million loss associated with convertible note refinancing which occurred in Q4.

After the non-cash items, earnings per share would have come in at a loss of $0.05 per share. We normally see a seasonal drop off in activity in both our well intervention and robotics business in Q4 associated with weather conditions in the North Sea market. That certainly was the case in the well intervention business in quarter 4. However, utilization of the well enhancer at 78% and the Seawell at 47% was better than we had anticipated just 90 days ago.

In the robotics business, revenues associated with wind farm project in the North Sea served to mitigate the typical seasonal decline in the North Sea. However, overall weak activity with offshore oil and gas activities resulted in a quarter-to-quarter overall decline in revenues for robotics.

The Siem Helix 1 arrived in Brazil, and we fully expected to place the vessel in service during quarter 4. However, the Petrobras inspection and acceptance process has proven to be more time consuming than what we had anticipated. We're still continuing to work through Petrobras' inspection and acceptance process and the vessel is currently in a local shipyard undergoing some modifications as agreed between Helix and Petrobras.

Over to slide 7, from a balance sheet perspective, our cash levels at year end 2016 dropped to $357 million from $482 million at the end of September. The drop off in cash is related to $107 million of capital -- cash expenditures for CapEx, including a scheduled $69 million shipyard payment on the Q7000 as well as $41 million of principal payments on debt obligations. In early January we bolstered our liquidity with a common stock offering with net proceeds to the company of approximately $220 million.

During the quarter we issued $125 million of new convertible notes while repurchasing $125 million of old convertible notes with proceeds. Essentially we pushed out $125 million of debt maturity from 2018 to 2022. $41 million of cash was used to repay principal on other debt obligations which reduced our gross debt obligations outstanding from $678 million to $626 million quarter to quarter.

Our revolving credit facility remained undrawn, although access to the revolver is presently fairly limited based on our trailing 12 months of EBITDA. You may recall in February of 2016 we amended the credit facility to provide us with more cushion with respect to covenant compliance. I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Thanks, Owen. Moving on to slide 9. Revenue in the fourth quarter decreased to $128 million from $161 million in the third quarter. Gross profit margin decreased to 14%, resulting in a profit of $18 million, down from $40 million in Q3 due to the expected seasonal lower utilization in the wells ops North Sea assets and difficult market conditions in the robotics fleet. In the Gulf of Mexico combined we achieved high utilization for the well intervention fleet.

The H534 was sold late in December and is due to be scrapped by the new owner. We continue to see opportunities associated with our alliance partners OneSubsea and Schlumberger and along the lines of the work performed on a coordinated basis on the Q4000 in the fourth quarter. Our global marketing and sales effort continues to bid work jointly with the OneSubsea Alliance. We are now in the test and qualification phase for the 15-K jointly owned IRS system and manufacturing has commenced on the Riserless Open-water Abandonment Module. We expect to complete the manufacturing of both of these systems in the second half of 2017 and bring them to the market as well.

Slide 10 provides an overview of our well intervention business in the Gulf of Mexico. The Q5000 continues with BP work and at the end of 2016 the vessel had completed work on six wells. The vessel had 15 days at zero rates during the quarter, primarily due to replacing a damaged umbilical related to the IRS system. Since this last event in November, the unit has had very little down time. The Q5000 is under contract to BP until the third quarter of 2017 and will be available to the market for a 90-day break from the BP long-term contract. The vessel resumed work under the BP long-term contract in the fourth quarter.

Q4000 had 100% utilization in the quarter working for numerous clients. The vessel performed exceptionally well with complete up time during the period. Q4000 has a good backlog for 2017.

The H534 which had been stacked for a year was sold to new owners. The vessel has been removed from the market and will soon be scrapped.

Our IRS units were idle for the entire fourth quarter. IRS number 4 has undertaken its five-year certificate of compliance while IRS number 1 recently commenced rental activities in Q1.

Moving to slide 11 for our North Sea Well Intervention business, the Well Enhancer completed the last project of the year in early December. During this seasonally low period, we took the opportunity to commence dry docking of the vessel for class intermediate inspection.

The Seawell worked until early November and during an idle period in December, we completed [class renewal] and regulatory inspection in dry dock. Both of these dry docks were completed on budget and schedule and the units were idle until placed into service. In contrast to 2016 when the Seawell Well Enhancer did not commence work until the second quarter, in 2017 both vessels started work in early February with a firmer backlog than 2016 and we expect that utilization for the vessels in 2017.

The Skandi Constructor remained idle for the quarter. The owners relocated the vessel to the APSC region in search of activity and the vessel is currently stacked in Singapore. The charter for the vessel expires at the end of March.

Moving to slide 12, in Brazil the Siem Helix 1 continued with Petrobras inspections and entered a local yard to undertake agreed upon modifications. The vessel is expected to be placed into service in late Q1 subject to acceptance testing.

The Siem Helix 2 was under construction and commenced vessel trials in Q4. The top side equipment installation will commence this quarter. We are presently forecasting Siem Helix 2 to be placed into service sometime in Q4 2017.

Moving on to slide 13 for our robotics review. As I expected, market conditions remain tough for the robotics side of the business and due to seasonal factors utilization was slightly reduced compared to Q3. Rates continue to be challenging, however, we still achieved 68% vessel utilization.

Deep Cygnus completed 40 days of trenching work in Egypt and then concluded 27 days of trenching work in the North Sea, processed small IRMs scope. Grand Canyon had 74 days trenching in the North Sea. Grand Canyon II had 41 days of work on various shorter IRM projects with numerous clients in the Gulf of Mexico. Aside from trenching our chartered robotic fleet continues working more in the repair and maintenance works compared to new construction activities. We expect 2017 market conditions to remain challenging for robotics.

Turning to slide 14. I believe this slide details the vessels are being trenching utilization for your reference. Now turning the call over to Erik for a more in depth balance sheet discussion.

Thanks, Scotty. Turning to slide 16 which outlines our debt instrument and maturity profile at 12/31/2016, our total funded debt at year end was $657 million, a reduction of $41 million from our third quarter balance, reflecting quarterly principal payments of $32.2 million on our term loan, including $25 million prepayment of the loan and $8.9 million on our Q5000 loan. For the year we reduced our funded debt balance by $119 million from $776 million to $657 million.

In addition, during the fourth quarter we repurchased $125 million of our convertible senior notes due 2032 with the proceeds from the issuance of $125 million of convertible senior notes due 2022. This transaction effectively moved the expected repayment of $125 million of convertible notes from March 2018 to May of 2022, reducing our 2018 principal payments.

Moving to slide 17 which provides an update on our year end gross and net debt levels. Our net debt position was $269 million December 31, $73 million increase from our third quarter levels of $196 million. The increase in our net debt position was primarily driven by our capital expenditures. Our cash position decreased this quarter by $125 million to $357 million. The decrease in cash was driven by our debt repayments of $41 million, capital expenditures of $107 million, partially offset by approximately $20 million of cash generated from operations. Our liquidity at December 31 was approximately $375 million comprised of cash balance of $357 million and revolver availability of $19 million.

Moving to slide 18, it provides a pro forma statement on our year end gross and net debt levels adjusted for the equity offering completed in January 2017 that generated net proceeds of approximately $220 million. On a pro forma basis, our net debt position was $50 million, our cash position increased to $576 million and our liquidity increased to $595 million. I will now turn over the call to Tony for discussion on our 2017 outlook.

Thanks, Erik, and good morning, all. Moving over to slide 20 which provides our initial outlook on 2017. We are forecasting 2017 EBITDA in a range of $120 million to $140 million. This range includes some key assumptions. We assume we start up Siem Helix 1 for Petrobras late in Q1. We assume start up of Siem Helix 2 for Petrobras in middle of quarter 4.

We are seeing an improving environment for the North Sea well intervention business and expecting better results out of that business. We are also assuming improved utilization for the Q5000 on the BP contract that is fewer system issues, but we are also seeing a continuation of the weak market for robotics. Any significant variation from these key assumptions could cause our EBITDA to fall outside of the range provided. We entered 2017 with a backlog of $1.9 billion which is heavily weighted to the BP Q5 contract, the two Petrobras contracts and the production handling contract for the Helix Producer 1. We do see improving market activity in the North Sea well intervention market. As Scotty said earlier, both the Well Enhancer and Seawell went hire in February, whereas last year the Seawell was idle until June. Both vessels start 2017 with significantly higher relative backlog than 2016.

In the Gulf of Mexico the Q5000 is under contract for 270 days to BP and we expect the Q5 to secure utilization for some of the remaining 90 days. The Q4000 enters 2017 with good backlog and is expecting to see another year of high utilization outside of the regulatory dry dock. The Q4000 is scheduled to enter dry dock toward the end of Q1 with an estimated 45-day dry dock period. As with any dry dock, the actual time spent in dry dock is highly dependent upon an examination of the vessel when she is actually lifted out of the water and thus this estimate could vary significantly.

Over to slide 22. Again, the robotics business segment is expected to have another tough year as subsea infrastructure spending is likely to lag an industry recovery. Not much more to say about the robotics business.

Over to slide 23. The CapEx for the year is forecasted at approximately $200 million with most of this capital to completion and build out of two Siem Helix vessels and continuing construction on the Q7. The CapEx forecast for 2017 is higher than we previously suggested, primarily for the following reasons. Deferred spending from 2016 which is now carried over into 2017.

We originally provided guidance for 2016 CapEx of $230 million and actual CapEx spending came in at $189. Much of the lower spending in 2016 than what we had originally forecast is deferred spending, that is projects which proceeded at a slower pace that now carries over into 2017. And there is additional CapEx for modifications to Siem Helix 1 and 2 for contract compliance and otherwise requested by Petrobras.

Moving over to slide 24. As previously mentioned we bolstered our liquidity in early 2017 with the sale of 26.5 million shares of common stock, yielding net proceeds to the company of approximately $220 million. During 2017 we were scheduled to make $68 million of principle payments, further reducing our gross funded debt. I'll skip slide 26, leave it for your reference and turn the call over to Owen for closing remarks.

Well, thanks, Tony, and thank goodness 2016 is behind us. We had always modeled that 2016 would be our trough year, but never expected it to be quite as bad as it was. Operational down time on the Q5000 IRS system and the delayed start of the Petrobras contract were two very significant unforeseen events. We met all of our financial and capital obligations and took steps in support of a healthy balance sheet in spite of disappointing cash generation from operations.

2017 will also be challenging, but it appeared that the corner may be getting turned. Both the Siem Helix 2 and the Q7000 are expected to be completed in 2017, bringing a conclusion to an aggressive capital growth phase. This should result in Helix having beyond question the dominant industry-leading, non-rig intervention fleet. With the ongoing construction of the Q7000, the modifications to the Siem Helix 1 and Siem Helix 2, along with the completion of the Siem Helix 2, our capital spending will be around $200 million mark for 2017. This is higher than previously anticipated as mentioned, primarily due to the modifications to the Siem Helix 1 and 2 as well as deferred spending as Tony just covered.

Throughout 2015 and 2016 we continued our aggressive pay down of principal on our debt obligations and as a result our gross debt continues to fall. In 2017 we anticipate a slightly improved market for well ops in the North Sea and improved operating results for the Q5000 in the Gulf of Mexico while robotics will continue to be depressed. We are seeing an upside in trenching and after 2017 we will also see the vessel charters, charter expense start to fall off. We should also see the initial contributions from the Siem Helix 1 and Siem Helix 2 in 2016.

I know many of you are wondering what's going on in Brazil with the Siem Helix 1 and 2. The Siem Helix 1 is completing modifications in the Brasfels yards which were agreed with Petrobras to be completed prior to starting the contract. The work should be completed over the next couple of weeks followed by offshore trials and testing before going on contract for the first well. All similar modifications are being incorporated into the Siem Helix 2 during its completion. We anticipate that the acceptance process will be much smoother for the Siem Helix 2 and should be able to get on contract in Q4 this year. I would say that we have a good working relationship now with Petrobras and feel this will be the beginning of a long and mutually beneficial future with them.

Once we have all the vessels completed and paid for, Helix should generate positive cash flow. The focus will then be an aggressive reduction of debt. During the same period we expect EBITDA to grow significantly with the addition of the new assets. Through our alliance with OneSubsea we will be bringing new technology to the marketplace starting with a 15,000 PSI IRS system and the new ROAM system.

With this we expect to be able to broaden our market coverage and utilization, driving higher margins. We are also seeing green shoots suggesting higher activity levels by our customers. Should this occur in a meaningful way, we will have turned the corner. Back to you, Erik.

Okay. Operator, at this time we'd be prepared to take questions.

Gentlemen, thank you.

(Operator Instructions)

One moment for the first question. And our first question come from the line of Ian Macpherson with Simmons. Please proceed with your question.

Thanks very much. Owen, I sympathize with the voice. I'm in the same boat as you, but I'll try to get these out. Clearly it's possible.

The first question with regard to the Seawell and the Well Enhancer starting this year with better visibility, better backlog than they had last year, does your total reported backlog at year end 2016 of $1.9 billion include the substantial backlog that those vessels now have or was that added subsequent to that backlog prep?

A little of both.

Okay.

So our backlog of $1.9 billion includes contracts we entered into in 2016, but we have added some backlog since the beginning of the year, as well.

Okay. Thanks, Tony. And should we think about pricing having more or less stabilized, such that there's definitely going to be EBITDA accretion from those two vessels as we move from 2016 into 2017?

Yes. I think it's fair to say that pricing has stabilized in the North Sea, and slight increases on certain projects where we have dive in and quote [G bin] enhancements that others can't offer, but not vast, very slight.

Got it. Thanks, Scotty. And then with the Skandi Constructor, I believe the charter rolls off at the end of this month -- or at the end of March, right, so I'm assuming that's not being renewed and your guidance assumes no future revenue would also benefit from expiring charter costs there, is that correct?

That's correct. That's what's in our budget.

And do you have any thoughts about chartering in more capacity into the fleet between now and when the Q7 arrives or do you feel like strategy from here forward is to maximize the capacity that you have on the table?

I don't see chartering in extra capacity. The Skandi Constructor that we have a very good relationship with [Doph] will be leaving our equipment on board and we'll be jointly marketing the vessel. So there is a potential there, and if we needed extra tonnage, that would be the first place that we would look.

Got it. Thanks, Owen. I have more, but I'll pass it over for now. Thanks.

Our next question comes from the line of Haithum Nokta with Clarksons Platou Securities. Please proceed with your question.

Hi, good morning. Tony, I guess I'm just trying to get a sense for the EBITDA range, you know, $120 million to $140 million, where are the pockets outside for that, since it sounds like the North Sea vessel is soon to have, you know, some pretty solid backlog in the busy month of the year. Is the upside really coming from the Q5 kind of period work where it is available, or can you give some color on that?

Yes. Let me provide some qualitative comments to your question, and it's a good question. I think where there's potential for upside is even stronger activity in the well intervention business in the North Sea than we're anticipating. Right now we're anticipating better than 2016, but I think there might be opportunities for increased utilization. We'll have to see how the year plays out. But I think that's one pocket of upside. Another pocket of upside is less down time on the Q5.

We're assuming a little less down time, but if we do even better operationally, there is upside there because that is a pretty good earning contract, okay? Down side, obviously, getting started later in Brazil than we're forecasting right now is a potential down side. Also think the robotics business is -- the market activity is pretty weak. It could be even weaker than we forecasted. So there's some pluses and minuses there that could affect it north or south, and hopefully that helps you.

That's perfect. Thank you. And just to calibrate the model for the fourth quarter, are the charter costs for the Siem Helix 1 flowing through the income statement or is it capitalized?

The charter expense for the Siem Helix 1, until it is placed in service is being treated as deferred mobilization which will be amortized over the life of the contract.

Okay. Perfect. I will leave it at that.

It's not CapEx. It's really a deferred expense, and then we amortize it over the life of the contract.

Got it. I'll turn it back. Thank you.

Our next question comes from Igor Levi with Morgan Stanley. Please proceed with your question.

Good morning. Now with both vessels in the North Sea and the Gulf of Mexico fully utilized, could you talk a bit more about the conversations you're having with customers in each of those regions, and which of the two regions would you guess would first require a third vessel?

Like Tony just said, we're not fully utilized in the regions, and we have a very good backlog and we still have some availability in Q4 for the vessels, so that will be our key focus at the moment. I would say if there was a need for a third vessel it would probably be the North Sea and like how imported that and we're going to leave equipment on the Skandi Constructor. But we're focusing on the assets we have right now and filling out those odd gaps.

Great. Could you talk a bit about the new ROAM system and what level of customer interest you've seen?

We've seen quite a high level of interest in the North Sea and in the Gulf of Mexico for the ROAM. The ROAM allows us to recover tubing, without the use of a marine riser. It takes away the requirement for rigs to do the final part of the P&A project. So 3-d alliance and through our client basis seems a quite a high amount of interest.

Great. Thank you. I'll turn it back.

Our next question comes from the line of Gregory Lewis with Credit Suisse. Please proceed with your question.

Hi. This is Neesha on for Greg. So it looks like the Jones Act is becoming more strict on foreign-operated vessels. How should we think about that in terms of impact to the robotics business? And Helix also recently signed a partnership with Harvey Gulf for robotics. Is that a result of this regulation or something else?

You want to do the partnership part? I'll take the Jones Act.

We haven't signed a partnership deal with Harvey Gulf. We're in discussions with a few vessel liners to provide a Jones Act-compliant vessel. They are smaller vessels. The Jones Act would only affect the robotics fleet by one vessel if it was enforced and we would then place that vessel out in this arena if that came to fruition. But I'll pass it onto Alisa.

Yes. This is Alisa. In answer to your question, we are not exactly sure how this new interpretation, if passed, would affect robotics. If you look at some of the logic of the proposed ruling, it would imply that if something is not left behind it isn't impacted, but because of the way it's drafted revokes so many prior rulings, in answer to your question, it's really not clear at this point.

I'd just add this has been a movement that's been ongoing for my entire career, and the new ruling if enacted would have to ignore 40, 50 years of precedent.

Got it. And then on the Siem Helix 2, that's in the shipyard. Have there been any lessons learned from the startup process of the first vessel that are driving any changes to the second?

Oh, absolutely. The original plan was for the second vessel -- if you remember we negotiated with Petrobras a rate reduction on the first vessel, no rate reduction on the second vessel, but a deferred start to the contract.

The original plan was to bring the vessel out and try and seek some utilization in the market somewhere. As a result of this first vessel what we're doing now is we're making all of the modifications to the second vessel that were requested on the first vessel and agreed, so that when the second vessel arrives into Brazil there should be no issues and it should go a lot smoother.

Great. Thanks. Congrats on the quarter.

Our next question comes from the line of Matthew Marrieta with Stephens, Inc. Please proceed with your question.

Thanks. Thanks for taking the questions this morning. I want to get more color on the Siem 1 issues. You know, you guys obviously talked about it, but to be a little more specific, it's in the shipyard. What exactly happened?

What were the equipment issues found during the inspection? When did those issues become identified? Can you also maybe elaborate a little bit on what triggered moving it into the shipyard, and when it got into the shipyard and how long that work is expected to take?

Wow. I might finish that sometime this afternoon.

Take your time.

The vessel -- any contract the technical specs are subject to interpretation. There can be differing ways of interpreting them. We had a lot of technical meetings during the build process with Petrobras.

We thought we had an agreement on the interpretation of the technical specs. When the vessel arrived in Brazil, of course that was pre car wash scandal days. Then we negotiated an amendment to the technical specs that still left some ambiguity in the interpretation where we were basing our interpretation on the technical meetings held prior to that.

So now post car wash scandal, acceptance of the vessels in Brazil, and as you can imagine, Brazil, Petrobas is trying to reduce their spending and reduce their fleets, so there's a lot of scrutiny on anything that would add to the contracted fleet in Petrobras. So as a result the legal department got involved.

Legal department started making their own interpretation of the technical specs in the contract which were -- which had some differences between what our interpretation were and the way the vessel was built. So that we went through a negotiating period, prolonged inspection to identify all of the issues and a lot of discussions on interpretation, and negotiated a mutually-agreed scope of work to be carried out to the vessel.

So the vessel went into the shipyard just the day after Christmas. The work was all agreed at that point and the work has been proceeding. It's been delayed somewhat. It's been a little slower than we anticipated because of the holidays, Christmas, New Year's and then we've got Carnival coming up which sort of caused a few delays. But other than that the work is winding up. We still expect the vessel to be on contract before the end of the first quarter.

Just to clarify at this point everything within the contract from an inspection standpoint has been agreed upon and everyone is on the same page and there's no risk on that contract, or is that -- is that essentially what you're saying?

The inspection process is technically still on going. So once we had the work all finished, Petrobras would have to come back on board and inspect the work to make sure that the work has been done in accordance with what was agreed.

Once that occurs, then we go out on a dummy well where we have to prove the operability of the vessel. That has yet to be done. Once we do that, then the vessel goes to its first well site.

To clarify I think the question was asked earlier, I just want to get a little more color, on the Siem 2 -- well, first of all, I think you said there was not a day rate adjustment. So that day rate is still intact, just to clarify. Then secondarily, is Petrobras trying to get in front of a similar equipment dispute? Is that what's going on on the Siem 2 or is there, you know, potential risk as the vessel gets delivered that a similar process will happen?

Well, a similar process will happen in that they will come on board and they have their inspection protocol as to what they look at. They will then also be applying the same contract interpretation that was used on the Siem Helix 1. What's different is that we now know what that interpretation is.

We've mutually agreed the things that need to be modified in order to be in compliance from their perspective. Therefore when the vessel shows up in Brazil, we will go through this similar inspection process. But it'll be the same inspection process looking at the same things and we've already negotiated what they should look like, so it should go a lot smoother.

Just to clarify, this is my last question, the rate on the Siem 2, it's still the original rate when the contracts -- the initial contracts were executed?

Yes. There's been no -- during this whole process there has been no renegotiation of any rates or terms of the contract.

Okay. Thanks a lot. I appreciate it.

Our next question comes from the line of Vebs Vaishnav with Cowen.

Thank you for taking my question. Following up on Siem 2. Given what is happening with Petrobras, how do you assess the risk of either cancellation or delay or any reduction updated. I know it has not been discussed so far, but how do you assess the risk of that?

Well, there has been -- there is no termination provisions in the contract unless the vessel goes beyond one late on delivery. And then in our dialogue with the Petrobras personnel, like I stated in my color comments, you know, we have a really good relationship now. I think there's enthusiasm and anticipation of the vessel going to work. We've identified the work. The engineering is ongoing. There seems to be a real desire by Petrobras to have the vessels and anxious to get them started working now.

As I've mentioned, Petrobras is reducing their fleet. They're going from 56 to, I think, 26 rigs. In order to do that, they have to have some means of providing the work that the rigs otherwise would have done and that's the role that these vessels are filling. So I think there's also a tactical need on Petrobras' part for the two vessels.

Got it. Okay. Seems like in [Vellin dimension] the number of days working in 1Q could be like 230 to 240 from 285, just given some survey work going on. First of all, is that fair? And, second, what are the moving parts in maybe data and OpEx we should think about given the survey work on Q4000 and well enhancer?

Okay. OpEx-wise costs have come down over the last two years, so we expect our OpEx numbers to be in line with what we have with the budget. Utilization days, definitely Q1 this year is going to be much higher than last year.

Yes. Two primary reasons. Last year we didn't have the Q5 and Q1, and we expect better utilization for sure on the two UK vessels. So Q1 will be much stronger from a vessel utilization basis in Q1 than a year ago.

I would also point out I think there is some additional upside from reducing OpEx through our alliance partner OneSubSea. When they provide on an integrated solution we have their services constantly on the vessel. A lot of their personnel have overlapping skill sets with some of our personnel. So through the year you'll see us be attempting to do a little bit more cross training and therefore reducing the personnel on board for a much more efficient and lower-cost operation.

Just to clarify, the money spent on survey on the Q4000, is that like a part of OpEx or CapEx?

That's dry dock costs that is deferred and amortized over usually a 30-month period.

Okay. One last question, switching to robotics. I understand you guys have been talking about that business remaining depressed. But how are you thinking directionally, are you thinking robotics could be flat to down in 2017, in light of the Grand Canyon fleet delivery or how should we think about it?

Budget-wise we're expecting robotics to stay flat this year, and Tony has already highlighted that there is a risk point if we don't achieve the utilization that we're looking for. There is an upside in the trenching side and we are managing to hold rates on the trenching side, so it's flat and we're going to do our best with it.

Okay.

Yes. We're forecasting relatively flat, but there is risk to that forecast, I'll just say that.

Got it. All right. Thanks for taking my question.

Our next question comes Joe Gibany with Capital One. Please proceed with your question.

Thanks. Good morning, guys. Just a question on how we should think about utilization for some of these North Sea assets. You reference pretty high utilization for the well enhancer going through for the year, the Seawell sounds like you've got a good linkage of work all the way into November, but are there gaps in between those jobs? I'm just trying to think about utilization on a normalized basis for the Seawell, or are you expecting it to run pretty fully utilized into November akin to the well enhancer?

It's the Seawell that has good utilization out through to November and the well enhancer, we're quite confident in our scheduling. We're expecting there to be some gaps, very minor gaps and should be a complete run-through from now outwards, providing we lock up one or two other contracts for the well enhancer.

Okay. First quarter, back to the question of sort of easing into your guidance here, Tony, for the year 1Q. Obviously you got the puts and takes with Q4 and the Siem 1 variability on startup. But should we anticipate similar seasonal weakness in robotics as we usually do?

Just a side question on that. How is pricing on the robotics side? I know this is predominantly a utilization game as we get into 2017 here, but is pricing still under pressure as well as we think about that subsegment?

On the robotics side, yes. We are forecasting, in our forecast we are assuming on average lower day rates in the robotics business in 2017 and 2016. Our forecast assumes we will offset that with lower expense, but that is the trend we're seeing in 2017. It is essentially across the fleet, across the ROD fleet and across the vessel fleet lower day rates. If you could repeat the first part of your question, Joe. I want to make sure --

Yes. Is the seasonal aspect of robotics tailing off a little --

Yes. (multiple speakers)

Okay. Got it.

We expect robotics to have a pretty weak first quarter, which it normally does. Normally the first quarter is the weakest quarter and that's the way we're forecasting it, as well. The robotics will follow it's typical quarterly trend of low point in Q1, starting to pick up in Q2 and 3, and then slight drop off in Q4. That's the way the robotics business has always run and that's the way we're anticipating it this year.

Okay.

All in all, I think, because of the well intervention business being much stronger versus a year ago, we are anticipating overall to have a much better Quarter One in 2017 than we had last year.

Okay. Fair enough. And last one for me, just on the vessel side, you guys are opportunistic on these dry docks in the seasonal down time last quarter. You got the Q4. Anything else out there from a vessel perspective we need to be cognizant of in modeling from a dry dock standpoint? Thinking about the Q5, or even the HP1, or well enhancer as we get into maybe late 2018. Any thought there would be helpful.

All major dry docks have been undertaken for the year. We have some inspections to do on Q5. About a week's worth of inspections. That means that that work could be undertaken if we were actually working as well. There's nothing major out there for this year. Other than the Q4000 that we've already given guidance on.

Appreciate it. Thanks. I'll turn it back.

Our next question comes from the line of Bill Dezellem with Tieton Capital. Please proceed with the question. Bill Dezellem, your line is now open. Please proceed with your question.

My apologies. The OneSubSea Alliance, would you please go into a little more detail in terms of what you're seeing with the opportunities with that alliance and how you think 2017 may look different than 2016 and continuing that out how 2018 may look different than 2017?

Okay. Well, the alliance is very strong. We have a good relationship. Our sales force is more joint than ever before. We are still seeing the opportunities along the lines of the integrated works we undertook in Q3 and Q4 on Q4000.

Those opportunities are out there and the market likes how we contracted. This year we plan to integrate the teams Owen has already mentioned. Our overall plan will be one day on certain assets to have just their services on board the vessels and therefore we can truly integrate teams and bring down the overall lower cost of the spreads.

This year is significant for us. We will be bringing the first 315-K system to the market later in the year and also the ROAM system. So there's two new pieces of equipment that will join the markets and they'll be coming to the market this year.

Thank you. Then moving to the North Sea, does that market normally lead the upturn?

No. Historically I wouldn't say that there's a trend there. In fact, the North Sea has been the hardest hit during this downturn with respect to the overall volume of work.

There was increased utilization this year, and like I said earlier, some slight increase on pricing, but it's not generally the lead, or there is no data point to give us a lead from it. But we are seeing across both sides of our one dimension business that the clients are moving more to production enhancement than P and A of late. Typically over the last few years it's been sort of 50/50 whether it's P and A work or enhancement, and now we are seeing a bit of a shift in the upturn in oil prices to get more enhancement projects on the go.

If anything what's driving the early recovery here in the North Sea may be the fact that the wells are very old. If you don't intervene in them, you'll have -- you'll accelerate the cessation of production. In order to prolong the life of the fields, I think the producers have starved the capital spending on the intervention side and you're seeing just the necessity of going in and working on wells.

That's where the uniqueness of our assets in the North Sea comes online having dived the based intervention vessels, roughly 48% of the wells in the North Sea. The older wells that Owen is talking about require dire interventions to be able to latch on and allow us to undertake the intervention works.

That's helpful. Thank you.

I'd like to use that as a segue to moving to Petrobras' assets. I'm curious the degree to which their enthusiasm that you referenced increasing has as much to do with oil prices going up because they have some positive ROI projects that they can get the Siem 1 working on and it will actually make sense to them whereas three to six months ago they were a little less enthusiastic about that.

For both of the assets, the vessels have had a forward plan of scheduling for nearly two years prior to the increase in oil prices. So the vessels are scheduled into their overall program to undertake the work orders and those schedules are still the same from prior to the increase of oil price to what we are seeing today.

I do think that, though, there was a shift in the -- and I hate to speak for Petrobras here, but from what I can understand there was a shift from utilizing the vessels primarily in the well construction mode and with the drop off in the drilling there was a shift in their desire to use the vessels more in the production enhancement and P&A mode, and that also led to some of the modifications required on the vessel to broaden their scope of work.

That's a good point.

Thank you, both, that's very helpful.

Our next question comes from the line of Pravi Nara with Raymond James. Please proceed with your question.

Hey, good morning, guys. A couple quick ones on guidance. In terms of the robotics pricing you discussed, was that pricing continued to get hit from here as an average basis and do you expect it to kind of bottom sometime in 2017, or continue to get hit over the course of the year?

It's across all of the business segments for our robotics fleet pricing. There is a tremendous supply of vessels out there at the moment. The vessel liners are not scrapping like the rig owners are, so there's an oversupply. We've seen the prices come down in the Gulf of Mexico, in APEC and in the North Sea. The only area that we're holding is on the Niche trenching site.

I might point out, though, that we have -- we charter all the vessels into our robotics fleet. Our charters were priced at pre-oil price collapse rates. If you were to pro forma the current Russell rates into Canyons results instead of our charter rates, Canyon would be very profitable right now. So going forward as our charters roll off, you should see a recovery of Canyon.

We have one vessel each year rolling off.

That's very helpful. Then in terms of the Siem if I think about -- sorry, the Siem 2 in terms of when I think about when the Siem1 has top side installed, it seems like given the learning curve you guys had with the Siem 1, seems like the Siem 2 could perhaps start at the beginning of Q4 depending on how the installation schedule goes. What is built in on that Q4 start? Is that a mid year, mid-quarter start?

Right now I wouldn't count on an early fourth quarter start. I think -- and we'll know more and can probably refer more on the next quarterly results. Right now, though, we're into the sourcing of some long lead items and it really -- you know, in the industry right now, nobody keeps anything on the shelf in inventory. So everything has to become bespoke and fabricated, and we don't have a firm handle yet on all of the delivery times. Once we have that, we'll be able to be a little more exact on the delivery time of the vessel.

Okay. And then last one for me, in terms of rig contracts that are rolling off, got a bunch of them in 2017, in terms of recontracting some of your assets, are you starting to have discussions with operators in terms of more longer-term commitments again, or is that something you're still trying to stay away from and talking shorter term for the most part?

We have a couple of our key clients there are discussions on longer-term opportunities, but then the rest of it is how the market is now. We are picking up work as we go along, and there's not as many longer term requirements out there. There's no major Q5000 long-term-type deals out there at the moment, but we are with certain key clients that require our assets talking about extended frame agreements.

Thank you very much.

I would just add two points on that. The well intervention market other than the long-term contracts that we already hold, there are very few long-term contracts available or very few clients that even have the requirements that could support a long-term contract. It's a spot market.

It always has been.

Oh, yes. Always has been.

Right. Thank you very much, guys.

Our next question comes from the line of Chase Mulvehill with Wolfe Research. Please proceed with your question.

Hey, thanks. Thanks for squeezing me in. A few questions: a first one point of clarification for the Siem Helix 2. The newly agreed-upon technical requirements, are they the same on the Siem Helix 2 as they are on the Siem Helix 1?

Yes, they are identical.

So in other words if you go through and get approval for the Siem Helix 1, then they can't change anything on the technical requirements as you bring online the Siem Helix 2?

That should not occur.

Okay. All right. What was the incremental CapEx on each vessel that you had to end up spending this year?

The incremental additional CapEx?

Yes. Seems like because of the new technical requirements there was some incremental CapEx?

Yes. On the Siem Helix 1 it was about $11 million, and on the Siem Helix 2 it's going to be a little bit more than that, it's going to be $15 million to $20 million.

Okay. To confirm there, is no change in the day rate as a result of incremental CapEx, correct?

Correct.

Okay. All right. And then as we think about --

Let me just add, we were actually under our CapEx budget on both of those vessels prior to this happening. So -- but I think that's a pretty good number --

Okay. So what is total CapEx for each of these vessels then? That might help.

I think it has gone up. Originally we had guided around $130 million per vessel and it's up to --

$145 million.

$145 million per vessel.

Okay. All right. And then for the Siem Helix 2 vessel, it's delivered in April and it starts up in kind of the fourth quarter. How are the cash costs -- what are the quarterly or daily cash costs? I don't know how you want to help us, what's the associated cash costs for this vessel until it starts up in fourth quarter?

As we previously had talked about the Siem Helix 2, we had mentioned that we going to try to market it in the mid-year range prior to Petrobras. Obviously with the developments of Siem Helix 1 and the requirements of the Siem Helix 2 that opportunity is no longer available.

I think we're going to be taking our full time prior to the Petrobras contract to be working on the vessel doing the -- getting the systems up to the requirements. There's not going to be an opportunity to market the vessel prior to the Petrobras contract. That being said, a majority of the cost will be part of our capital and then there will be costs associated with the mobilization, which will be deferred up until the start of the contract.

Okay. Will you be paying Siem the charter rates starting in April?

The charter rate on the Siem Helix 2 has commenced as of February 15.

Okay. Okay. All right. And so then that cash cost will continue to roll through and then you'll just defer those costs and you'll have some amortization over the life of the contract, right?

Correct.

Okay. All right. And then last one, could you talk about the equity raise in January and kind of what drove your decision to issue equity in January?

Really a variety of factors, chase, being we're looking at the outlook and it's been lower for longer. We felt that it would be important to reduce our net debt, given that scenario even though as Owen mentioned there are some green shoots out there. I don't think we're going to go from 2016 back to 2014 overnight. So given that, given the late startup in Brazil and just wanting to have an abundance of caution with respect to liquidity, all those factors drove our decision to raise equity.

Okay. I just wanted to clear that up, because we've gotten a lot of questions on that.

I will chime in a little bit here because as everyone probably knows, I don't like issuing equity. But in this case if you look at the next phase once we're through with our capital spend program, the next phase for the Company would be an aggressive pay down of debt.

Having this cash on the balance sheet right now helps in a number of respects with flexibility and optionality. It certainly improves our position as we renegotiate our credit facility that's coming up. It also gives us the optionality as to when we take delivery of the Q7000 should the market come back. And if we don't spend the money, then it just accelerates the debt repayment at a later date, which was always the plan. So it was sort of an abundance of caution that did very little harm.

Right. Okay. I'm going to squeeze one more in if you don't mind. If we think the OneSubSea Alliance, what percentage of your well intervention jobs tendered recently have included both Helix and OneSubSea?

In Q4 I have five projects on the Q4000. Three of those projects were jointly combined OneSubSea/Helix projects.

Were they all in the Gulf of Mexico?

Correct, yes.

Okay. Awesome. I'll turn it back over. Thanks.

I do have a followup question from the line of Ian Macpherson with Simmons. Please proceed with your question.

I'm all finished. Thanks very much.

Thank you. I do have another followup question from the line of Haithum Nokta from Clarksons Plat Securities. Please proceed with your question.

Hi. Thanks for getting me back in. I just wanted to -- Tony or Owen to actually give a little color on this. You had mentioned briefly that the Skandi Constructor will have a joint marketing agreement going forward. Can you give a little color on what that would mean for the Business?

Right now there's nothing in our forecast for it. It's just with the way that the schedules are booking up, the fact that the Skandi Constructor has been a good vessel and operates well. We've got a good relationship with [Doph] and the decision was to leave our equipment on board, which enhanced their opportunity to find work for the vessel. And we will jointly try and -- we will do our share in trying to find work for the vessel. Of course we'll fill up our other vessel schedules first, but with the way the schedules are working out, it looks like there could be potential conflicts of scheduling that would require additional tonnage and if so then we would press that -- we would talk with [Doph] about bringing the vessel back into service.

But from a cost perspective our charter does complete on April 1st, I believe it is, Scotty. So after April 1st there is no additional cost to us other than maintenance cost for the equipment on board.

I see. If that vessel does work, call it more of a regular kind of subsidy support. That wouldn't be something that you would share in the economics of, but it worked under an intervention work scope, would that be something you would benefit from?

Oh, certainly. We would be for intervention work, we probably would be the prime contractor. Therefore the economics would flow through us and we would have to negotiate. If and when that time comes for that project, we would negotiate a splitting of the economic (inaudible -- background noise)

Okay. Cool. Thank you.

Our last question we have is another followup question from the line of with Vebs Vaishnav with Cowen. Please proceed with your question.

Hey, thanks for putting me back in. Just a couple of quick questions. If I think about the IRS 15,000 and the ROAM systems, can you talk about the CapEx requirement and how do you think about the cash pay back for those and what's embedded in the guidance for 2017?

I can tell you the -- both systems are jointly owned between ourselves and OneSubSea, the alliance, so the capital is split on the 15,000 PSI system.

(inaudible)

That's 100%, so our share -- (inaudible - multiple speakers). Then on the ROAM system I believe it's 11 and our share is about 5.5. The economics are such typically an IRS system in the market place on a rental basis will go from anywhere from 50,000 on up to 90,000. You know, it's a broad range depending on market conditions and whose system it is. We would expect the 15,000 PSI system to certainly carry a premium.

Okay.

Yes. We have very little -- we have zero revenues assumed in our forecast for the ROAM and a little bit for the 15K, but it really doesn't move the needle.

Okay. Okay. On Q4000, I think you said you have a good backlog in 2017. If you could provide some color on that and that's all for me.

Yes. We haven't provided specifics. It's a good backlog. It's similar to what we had entry in 2016. Obviously we do have the dry dock in there. We do have some gaps that we need to fill, but we believe that when we get a vessel it will have high utilization absent the dry dock.

All right. Thank you. That's all for me. Thank you.

Mr. Staffeldt, that is all the questions I have on the phone.

Okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our first quarter 2017 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. Have a great day.