Helix Energy Solutions Group Inc (HLX) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2017 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded, Monday, April 24, 2017. I would now like to turn the conference over to Erik Staffeldt, Vice President, Finance and Accounting. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today for our conference call on our Q1 2017 earnings release. Participating on this call for Helix today is: Owen Kratz, our CEO; Tony Tripodo, our CFO; Alisa Johnson, our General Counsel; and myself. Scotty Sparks, our COO, is in the U.K. this week attending to Helix business.

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.

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, other than statements of historical facts, are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a 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, 2016.

Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slides of our presentation materials provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website.

Owen?

I will start off with Slide 5.

Typically, the first quarter's financial results in any given year are adversely impacted by winter seasonal factors affecting the operating conditions in the North Sea. 2017 is no different. However, the first quarter of 2017 showed a substantial improvement in financial results from a year ago, as revenues increased from $91 million to $105 million and EBITDA increased from $1 million to $15 million year-over-year. All of the improvement is attributable to higher utilization across our Well Intervention fleet, which offset continuing weakness in the Robotics business.

Turning to Slide 6, 2 important factors contributed to the better year-over-year results for Well Intervention. First, the Q5000 operated at higher utilization levels for BP, whereas the vessel did not commence operation for BP until 2016 -- in 2016 until the middle of the second quarter.

Second, much better utilization in our North Sea Well Intervention fleet. The Seawell and the Well Enhancer combined for 102 days of utilization in the first quarter, which again, is typically a quarter for low utilization compared to only 12 days of utilization in the North Sea fleet a year ago. These 2 factors offset continuing weakness -- weak Robotic activity and the earlier than planned interim -- and the earlier planned interims of the Q4000 into its scheduled drydock in March.

The Siem Helix 1 arrived in Brazil in the third quarter of last year, and we fully expected to be in a position to have placed the vessel in service during Q4 of last year. However, the Petrobras inspection and acceptance process has proved to be more time consuming than we anticipated. As we announced last week, the vessel went on hire in mid-April. We'll discuss the impact of the later startup and our assumptions for expected revenues and earnings later on in this call.

Right now, onto Slide 7.

From a balance sheet perspective our cash levels at quarter-end March increased to $538 million from $357 million at year-end 2016, with the increase attributable to the common stock offering we executed in early January, which netted $220 million of cash to the company. We also paid down $18 million of principal on our debt obligations, and scheduled and then used $48 million of cash for capital expenditures, the majority of which is attributable to the Brazilian operations. Our net debt declined to $72 million at quarter end compared to $269 million a quarter ago, while total liquidity increased to $594 million from $376 million at year-end, a reflection of higher cash balances and increased availability under our revolving credit facility, which remains undrawn.

I'll now turn the call back over to Erik for an in-depth discussion of our operating results.

Thanks, Owen, and moving on to Slide 9. Revenue in the first quarter decreased to $105 million from $128 million in the fourth quarter. Gross profit margin decreased to negative 1%, resulting in a loss of $1 million down from $18 million profit in Q4, primarily driven by lower seasonal utilization and the difficult market conditions that continue to affect the Robotics fleet.

In the GOM combined, we achieved high utilization for Well Intervention fleet. The Q5 was utilized [ all ] quarter with minimal downtime and the Q4000 was fully utilized until commencing its scheduled drydock in March. We continue to pursue and seek further opportunities, contracting on a shared risk mechanism with our alliance partner, OneSubsea and Schlumberger. Schlumberger services were contracted on the Q4000 throughout the quarter.

Moving over to Slide 10, it provides an overview of our Well Intervention business in the Gulf of Mexico. The Q5000 continues with BP, completing work on 4 subsea interventions ahead of schedule, with 97% uptime in the quarter. Q5000 has been with BP for almost a year, and in Q1, it was awarded rig of the quarter for high safety standards and overall reliability. We have agreed with BP to bring forward the 95-day off-contract period to June 1 to allow us to schedule some contracted work from the Q4000 onto the Q5000 during this period. The vessel will then return to BP in early September for the remainder of the year. Q4000 had 83% utilization in the quarter, working for numerous clients. The vessel performed exceptionally well, with complete uptime on all works during the period prior to entering drydock. In late March, the Q4000 commenced its scheduled drydock and inspections in Brazil and is expected to return to service in early May and has good backlog for 2017.

The IRS 1 recently completed the 38-day contract and is now idle, and the IRS 4 is completing its 5-year COC. Both IRS systems are currently idle at our support base in Houston.

The 15K jointly owned alliance IRS system is now at the final assembly phase and will commence acceptance testing in Q2. The system is expected to be delivered and ready for use in the Gulf of Mexico in Q4.

Manufacturing continues on the ROAM, Riserless Open-water Abandonment Module. We expect the system to be complete and ready for operation in Q3.

Moving to Slide 11, our North Sea Well Intervention business. The Well Enhancer commenced work in February after seasonal warm stack and is completing work with multiple clients, working primarily on production enhancement interventions. The Seawell entered the quarter in stack mode following the warm stack. The vessel commenced an abandonment campaign in early February and was contracted for the remainder of the period. In contrast to 2016, when the Seawell and Well Enhancer did not commence work until the second quarter, both vessels commenced work in early February, with firmer in backlog than in 2016 and expect better utilization for the vessels in 2017. The Skandi Constructor remained idle for the quarter. The charter expired at the end of March and the vessel was handed back to the owner.

Moving to Slide 12. In Brazil, the Siem Helix 1 modifications were completed at a local yard in Brazil and then continued with the Petrobras inspection and commenced testing at the offshore trial well location. The vessel was placed into service mid-April, commencing operations at reduced rate as we work through certain items identified in the acceptance inspections and trial well program. The Siem Helix was delivered to us in the first quarter. The topside equipment installation has commenced this quarter. We are presently forecasting the Siem Helix 2 to be placed in service late Q4.

Moving on to Slide 13 for our Robotics review.

As expected, market conditions remained tough at the Robotics side of the business. Utilization in Q1 reduced to 37% for the charter fleet and 36% for our ROVs and trenchers. Deep Cygnus completed 54 days of trenching work in the North Sea and then transited to Israel to undertake an IRM project. The vessel currently remains in the Mediterranean. Grand Canyon had 27 days of work on small IRM scopes in the North Sea. Grand Canyon II had 18 days of work on various short-term ROV IRM projects in the Gulf of Mexico. In the Gulf of Mexico, we entered into a no work, no pay arrangement with the Harvey Gulf to jointly market the Jones Act compliant vessel, the Harvey Intervention. Currently, we have mobilized 2 world-class ROVs onto the vessel as part of the package. The vessel is offshore, working on small IRM scopes. We expect 2017 market conditions to remain challenging for Robotics.

Slide 14, I'll read the slide detailing the vessel ROV and trench utilization for your reference.

Next, -- turn to Slide 16. Next, we turn to a discussion on our key financial metrics. On Slide 16, we outlined our debt instrument and maturity profile at March 31, 2017. Our total funded debt decreased to $639 million at March 31 from $657 million at year-end, a reduction of $18 million from our fourth quarter balance, reflecting principal payments of $6.4 million on our term loan, $8.9 million on our Q5000 loan and $3.1 million on our MARAD debt. We currently have $50 million of scheduled principal payments remaining in 2017.

Moving on to Slide 17, providing an update on our year end and March 31 gross and net debt levels. On March 31, net debt position improved to $72 million from $269 million at December 31. Our cash position increased by $181 million. In January, we completed a public offering of our common stock with net proceeds of approximately $220 million. This was offset by capital expenditures of $48 million. We generated $29 million of cash from operations, driven by improved operating results and improvements in working capital, offset by deferred cost in mobilization. Our liquidity at March 31 was approximately $594 million, comprised of cash balance of $538 million and revolver variability of $56 million.

I will now turn over the call to Tony for a discussion on our 2017 outlook.

Good morning, everyone.

Moving over to Slide 19, which provides an updated outlook for 2017. We're adjusting our forecasted 2017 EBITDA range to $105 million to $125 million from the previous range of $120 million to $140 million. This outlook is lower than we previously guided in February, almost entirely attributable to the later startup of operations with Siem Helix 1, along with the reduced rate structure we are assuming for this vessel, as mentioned in our press release last week. This adjusted outlook has some fundamental key assumptions. We have agreed with Petrobras to commence operations in offshore Brazil at reduced day rates to take into consideration certain conditions, which we'll identify during the vessel acceptance process. We have made certain assumptions in our forecast with respect to both the timing as well as our ability to satisfy all of these conditions. Any significant variations to these assumptions could have a material impact on our outlook, either plus or minus.

Assumed startup of the Siem Helix 2 for Petrobras in late quarter 4 was another key assumption that we are making. The third key assumption is that the market environment for the North Sea Well Intervention business is improving, and we're off to a good start in this respect. Another key assumption is improved utilization for the Q5000, and that is fewer system issues than we saw last year, and we did have a good first quarter in that respect. And we're also assuming that the Robotics business will remain weak throughout the year.

Moving over to Slide 20. Our backlog of $1.9 billion that closed at quarter 1 is heavily weighted to the BP Q5000 contract, the 2 Petrobras contracts and the production handling contract with Helix Producer I. Again, as we said, we see improving market activity in the North Sea Well Intervention market. Both the Well Enhancer and Seawell 1 went on hire in February and we expect both vessels to realize good utilization through the summer months.

In the Gulf of Mexico, the Q5000 is under contract for 270 days to BP for the entire year, and we expect the Q5 to secure utilization for some of the remaining 90 days. The 90-day non-BP window is now scheduled from June through August.

The Q4000 is presently in regulatory drydock, but assuming sea trials go well, it should be back to work in early May. Again, the actual operational performance of the Siem Helix 1, along with our ability to meet the operational specifications for Petrobras will be a major factor for the remainder of 2017. We have made certain assumptions in that -- in this respect. Again, that could vary on either plus side or the minus side. These assumptions are incorporated into our updated guidance range.

On Slide 21, not much to say about the Robotics business, except to say, again, that it's going to have another tough year as subsea infrastructure spending is likely to lag in industry recovery. The Robotics business got off to a tough start in quarter 1, some of which is due to seasonal factors. We do expect this business segment to improve its financial performance in quarters 2 and 3 as it usually does. The Grand Canyon III will enter the fleet in May.

Over to Slide 22. The CapEx forecast for the year is forecasted approximately $210 million, with most of this capital dedicated to the completion and build out of the 2 Siem Helix vessels and continuing construction and progress on the Q7000. This forecast is slightly higher than our February guidance due to additional spending associated with the modifications we made to the Siem Helix 1. Of the $210 million projected CapEx, $195 million can be classified as growth CapEx.

On to Slide 23. As previously mentioned, we bolstered our liquidity in early '17 with the sale of 26.5 million shares of common stock, yielding net proceeds to the company of approximately $220 million. During all of 2017, we're scheduled to make $68 million of principal payments.

I'll skip Slide 25, leave it for your reference. And now turn the call back to Owen for closing remarks.

Thanks, Tony. The market continues to be challenging, but we feel the period of crisis is over. We're starting to see green shoots in the various markets or at least the beginning of a willingness to, one, do some of the life of field work that's been deferred as producers stopped spending on all fronts; and second, some of the producers perhaps are deciding to go after low-hanging fruit of production enhancement; and finally, I think there's a number of producers starting to realize that during this down cycle is perhaps their best opportunity to reduce their abandonment liabilities and to reduce costs. I'm not saying that the market is returning to a more normal level of supply/demand balance, there's just far too much oversupply in the market. Rebalancing will take years.

While we're seeing some rig contracts awarded at better rates, there's still rig companies willing to price irrationally. It'll continue to be a challenge to not only achieve utilization, even with the green shoots we're seeing, but it will also be a challenge to realize rational margins. Service providers like Helix will need to demonstrate and tap into the value that our services add in new and creative ways.

Apart from the color on the market, I'm sure you're curious about greater detail on the Brazilian contracts for the SH1 and 2. The SH1 is now on contract. The vessel has gone -- the vessel had work done to it that was identified by Petrobras during the acceptance process. Some of it was contractual, and some of it was not. The work was completed at the beginning of March. From that time until April 14, it was taken by Petrobras for acceptance testing. This was far longer than anticipated. I'm told that this will be the acceptance process applied to all of the Petrobras fleet going forward as a result of what's been happening in Brazil with the heightened fears on -- about corruption-free compliance. A number of identified items remain, for which Petrobras will assess a penalty consisting of a reduced rate until compliance is met. We expect the majority of the penalty to be greatly reduced over the next 2 months and most, if not all, over the next 3 to 4 months. We've lowered our -- we have lowered our guidance. Until it becomes clear as to how Petrobras intends to administer the contract, we felt it best to reflect this uncertainty -- and this uncertainty and the possible delayed start of the SH2, both of which are in our guidance. All work identified by Petrobras, both contractually based as well as other work identified is being incorporated into the completion of the SH2 and its plans to address any contract ambiguity so that the acceptance process for the SH2 is shortened significantly. The SH2 will most likely go on contract in late Q4. It will be by no means easy going forward, but I believe we've passed the inflection point and are on the way up.

And with that, I'll turn the call back over.

Okay. At this time, operator, we'll take questions.

(Operator Instructions) Our first question comes from Ian MacPherson with Simmons.

Owen, with the Siem Helix 2, have you been able to bring forward the commencement of acceptance, given the elongated process and the anticipation that this will probably take longer? Is your updated -- expected start time in late Q4 now predicated on a lengthier process and therefore an earlier start date for when you begin these tests? Or how should we think about the risk to the start time on #2 as we go forward?

It's a good question. We have included a lengthier acceptance process than what we first anticipated with the SH1, but a shorter process than what the actual was for SH1. And that's based on the fact that we've taken all of the comments and requests that Petrobras has made on the SH1, and we've modified the work scope on completion of the SH2 to incorporate all of those. In addition, Petrobras has asked for us to review and amend the contract for the SH2 to remove a lot of the ambiguities that resulted in some of the disputes that we had on the SH1. With that -- that, combined with the work scope already being addressed, that should shorten the acceptance process tremendously for the SH2. Plus, I think our vessel was one of the first to be accepted by Petrobras, and I think there was a certain -- I don't know how to phrase it. They were searching for how they were going to apply their acceptance process and contract administration across their whole fleet, not just us. And I think they're starting to get a better handle on what their intentions are going forward on how to do that. So I think once the SH2 arrives, I think a lot of the uncertainty that the SH1 was victim to will have been addressed by then.

Okay. I wanted to ask,, separately, if you could update us on the outlook for the Q4000 after its current backlog expires, I guess, next quarter; how the -- how you're thinking about the future backlog for that unit, if you're going to be looking for more term work, or if the market opportunity doesn't provide that, what you think the utilization and pricing dynamics look like going forward as you progress. And then also, if you could update us on the commercialization of the ROAM unit and when you expect that to be contributing financially, if that's in the guidance for EBITDA this year?

Let me take the Q4000 first. We do have some expiring contracts with the Q4000. And right now, that's reflecting negatively on our listed backlog. But our contracts are multiyear in nature, and they have been reviewed -- renewed many times over the past. Our expectations for the Q4000 is that it's become a mainstay in the Gulf of Mexico. A lot of clients are using it. I would expect the contract to be renewed. At what rate, I think that's a negotiation that probably it's too early to guess the rates that they get renewed at. But our expectations would be that the contract (inaudible) the Q4000 continues to experience high utilization. With respect to the ROAM, correct me if I'm wrong, I've been out of the country for a while, but I believe the ROAM should be completed in June, July or August time frame? But there is no contribution in our current forecast for it in 2017.

That's correct.

That would be an upside if that occurred.

Yes, that's correct.

Our next question comes from Marshall Adkins with Raymond James.

Just a little -- trying to get a little more clarity on the progression. It sounds like the Siem 1 is going to be a little slow on the up-ramp in terms of your guidance. In other words, we should think of margins being lower over Q2, then gradually ramping up. Is that the right way to think about it, Tony?

Yes, Marshall. That's exactly right. I mean, these are assumptions we're making. I think Owen went into some detail as to the issues during the acceptance process. And we're just assuming we're going to work off those issues. And as we work off those issues, the day rate will gradually increase over time. So that is the way we're looking at it, and we're making certain assumptions in that regard and those assumptions are baked into our guidance.

And are the costs going to be the same the entire time? I would guess so.

Yes, that's correct.

Okay. Second question on the guidance. Robotics was obviously weak this quarter, a lot of seasonality there. It seems like you have confidence in it recovering through the year or at least getting better than it was Q1. What gives you that confidence?

I think work that is secured or work that we expect to get. But Marshall, that's pretty typical. I mean, you typically see our Robotics business peak in quarters 2 and 3 and have a very weak first quarter and a somewhat weaker fourth quarter than the spring and summer months. So a lot of that's historic trends, and we don't expect that to be any different this year.

Right. So just typical seasonality. I just want to make sure.

Typical seasonality, right.

Last question, for Owen. Owen, you talked about the big picture, the competitive landscape. Tell me -- give me some flavor for how sensitive your customers are to oil price? I mean, if we see a $5 to $10 bump in oil prices, do you expect a change in behavior, or is it just much more long-term, deliberate type stuff?

That's really hard to say, Marshall, and I think it varies client to client. Each of them have their own balance sheet issues. I think right now, the balance sheets are not as -- I think they've done a lot and are seeing some stability in the balance sheet at the current pricing. I think what's driving the -- what the green shoots that I spoke about, what's driving that more than improved commodity price is just how long they've gone without doing the work on the wells and they're now being forced to get some of the work done.

Our next question comes from Gregory Lewis with Crédit Suisse.

I'd just like to -- I'd like to dig in a little bit into what's going on in the North Sea. I mean, clearly it looks like the market picked up a little bit earlier in the year in February than maybe we've seen in the last couple of years. Just as we think about that progression into Q2, Q3, where it's typically a little bit stronger. I mean, is there any way to sort of quantify how we should be thinking about any progression in margins? Or is this really just about utilization at this point?

I think you're looking at utilization being the biggest driver to margins in the North Sea. And I would say, Greg, we expect the second and third quarters to be stronger than the first quarter. We talked about 102 days of utilization in the first quarter between the 2 vessels, and we expect that to pick up quite a bit in quarters 2 and 3. We're not 100% booked, but we're fairly solidly booked in quarters 2 and 3 for the North Sea business. So we're happy with the improvement in activity. I think some of this is a deferred spending, because last year was so bad. And the operators there just didn't spend any money, and now they have to, and we're the beneficiary of that. So yes, we expect quarters 2 and 3 to be even better than quarter 1 and much better, to say that.

Okay. And then just, I guess just -- you announced the partnership with Harvey Gulf. Just -- there's been some movement for, and I guess an enforcement of, the Jones Act. I guess, it seems like -- I guess it started picking up about a year ago or maybe last summer. As we think about vessels like the Grand Canyon II, which are [ foreign flag ], but have been in the Gulf of Mexico for quite sometime, does -- should we be thinking about the outlook for that vessel changing? Is that vessel -- and not that vessel specifically, but sort of non-U. S. Jones Act vessels. Is it reasonable to think that these vessels will be in the Jones Act trading in the U.S. Gulf of Mexico in the next 2, 3 years? Or are we going to see sort of -- I don't know how you want to refer to it, evolution or clean out of sort of non-U. S. flagged Jones Act vessels in the GOM? Curious how you guys are thinking about that.

The outcome of this particular round of the Jones Act debate, I don't -- I think it's too early to predict what the outcome's going to be. The Jones -- this comes up almost regularly in our industry. Usually, every downturn, there's a big push to apply the Jones Act. It never comes to fruition. Historically, this time, who knows. For our company, we have -- we rarely have more than 1 vessel exposed to the Gulf of Mexico marketed any one time. Our vessel utilization is more predicated on the strength of the overseas trenching market, and that'll be where our focus is going forward. The deal with Harvey Gulf is to have a solution available to the producers. What's going on right now is there's been no definitive resolution of the debate over Jones Act. You do have some producers that are ahead of the curve and wanting a Jones Act vessel. And therefore, we have the ability to provide one. Other than that, right now, the Grand Canyon II still is operating in the Gulf of Mexico. There's nothing in the Jones Act that would prevent it right now. And then the focus on the future would be, if the Jones Act came into the most onerous interpretation of enforcement, then our focus would be on the overseas trenching market.

Our next question comes from Chase Mulvehill with Wolfe Research.

I guess, I wanted to talk about the Siem Helix 1. And I guess, maybe could you provide a little bit more additional color on exactly what the issues are around the contract specifications? And I guess, maybe, what also -- how long do you assume that you work at a reduced day rate in guidance?

The contract issues -- some of the issues are contractual and some are not. Basically, Petrobras put 18 inspectors on board and started making comments as to what they'd like to see on the vessel. Some of them were contractual noncompliances. Some of them were disputed interpretation of our contractual clauses. Some are completely outwit of the contract and just being requested. But whatever the reason for them to want the changes to the vessel, compliance was everything. So we took the vessel and put it into the shipyard, and we've just been doing all of the work that they wanted, everything they wanted to see. In order -- because the vessel was scheduled to go to work and had some wells in the backlog, some of the work was not completed, some of the items. For those items, the typical way that Petrobras works with all vessels is they assess a penalty for these items. Once you clear the items, then the penalty goes away. Right now, like I said in my color comments, right now we have a number of outstanding items. We expect to be able to knock most of those or majority of those out in the next couple of months. And then within 3 or 4 months, we should be able to have most, if not all of them, done.

Okay. And in your guidance, when do you actually have the Siem Helix 1 going back to full day rate?

I think in our guidance, we've baked in a lot of assumptions and we'd rather not be too granular on that. Again, we've baked in a steady ramp up, but we want to leave ourselves a little bit of leeway here as to whether we ever (inaudible).

I can give a little more color on that. Because we were so surprised by the atypical acceptance process that we went through, we're uncertain at this time as to what Petrobras' intentions are going forward with regards to administration of the contract now that we're on it. So we've been -- we've baked some of that uncertainty into our guidance and can't get granular until we see what Petrobras' behavior is going to be.

Okay. Tony, how much of that $15 million guide down was attributed to Siem Helix 1? Is everything just kind of related to the Siem Helix 1? Or was there anything else that contributed to the $15 million guide down?

Almost all of it's attributable to Siem Helix 1. The vast majority of it.

Okay. And I guess, just moving on to the North Sea. The North Sea sounds like it's going to be better this year. Could you actually frame kind of day rates as we think about the North Sea for 2017 versus kind of 2016?

I think they're flat to marginally improved. I think it's indicative of the fact that in the North Sea, we don't necessarily compete against drill rigs. Therefore, our rates have remained stronger there than perhaps in the Gulf of Mexico where we've been under pressure from some rogue rigs pricing irrationally.

Okay. Last one and then I'll jump back in. Credit facility, any updates there? I know it becomes current this summer, so anything to report here?

Nothing really to report, other than, obviously it's our focus here for the near term, to get that (inaudible).

Our next question comes from Vebs Vaishnav with Cowen.

Just following up on Chase, one of the questions he asked. So it sounds like the entire $15 million of EBITDA decline in guidance was driven by Siem 1. Can you frame for us how much was that due to a delayed start? Was this lower day rate structure that we expect going forward?

I think of the guide down that we did, there is a portion addressed to the pushback and delayed start of the Siem Helix 2 from mid-Q4 to late Q4. So there's a piece there. There's also a piece associated with obviously the slip and the startup of the Siem Helix 1. We had originally scheduled it for Q1. It didn't start until mid-April, so there's a month delay into that. So those are 2 items. The third would really be the assumptions that we have built in as far as day rates going forward and downtime assumptions and so on of the Siem Helix 1. So it's really those, you could say, 3 buckets that may call the guide down.

So let's say if we were to think about -- because of delayed versus what we expect going forward in our model, is it like 50-50 each contributing to that $15 million decline?

Actually, it's a little bit more related to rates versus slower startup.

Got it. Okay, that's helpful. And as we think about the SH2, can you help us think about how much of SH2 is embedded into guidance in terms of maybe revenues or EBITDA? Or however you want to frame it?

Yes. Like I said, we moved it off to late Q4, so it's really, you could say, marginal to the fourth quarter from that perspective. We haven't gone into specifics for that, but it's really just late Q4 from both revenues and EBITDA perspective.

Got it. Okay. So I think the Robotics, like first quarter revenue's obviously seasonally down, only around $20 million. And to get to $160 million, assuming seasonality, we have to almost assume revenues almost kind of double from here on into 2Q and 3Q, and then maybe slide down a little because of seasonality in 4Q. Anything I'm missing in broadly thinking about the revenue trend?

Well, I think Robotics is going to follow its natural revenue trends during the year where, again, quarters 2 and 3 will be the best quarters and substantially better than quarter 1. And then you'll see a little bit of decline in Q4 again. But yes, you're going -- we should and our expectations are that Robotics will have a much stronger quarter 2 and 3.

Okay, okay. And just if I think about the Robotics year-over-year and think about -- well, in 2016, the operating margins or operating profit was roughly, call it, $25 million loss, is there -- how much visibility or backlogs do you have in that business? Or can we -- how should we think about how that $25 million EBIT moves in 2017? Is there a reason why it should move materially different than what we saw in 2016?

In terms of operating margins, we're expecting slightly lower this year than last year.

Our next question comes from Joe Gibney with Capital One.

Just a couple of quick questions from me. On the Q5, the -- was curious on the nature of the work that shifted over from the Q4. Is this Well Intervention-related in the Gulf of Mexico, or is it P&A? And is it reasonable to assume you're going to have a little bit of downtime, say in August, before you ramp up -- back up with BP? I'd be curious there.

Yes. The switch from the Q4 to the Q5000, I believe, it's Well Intervention work that shifted there. And then, yes, the period now that we're off hire for BP goes from June 1 to I think we would start ramping up in early September back with BP.

Okay. And then last one for me. And again, sorry to beat the dead horse here. I'm just trying to get some clarification on Siem 1. So related to the lower contractual rate and however long it's going to extend, just trying to understand the genesis of this. Is this operational issues that you guys encountered on your test well? Is this -- or is this really just more of what you characterize as the broader inspection process of them wanting to see some things that maybe weren't in the initial contract scope, some of the reasons that initially created some of the incremental CapEx? Is it contractual noncompliance nickel-and-diming issues that usually come up? I'm just trying to understand if there's a little bit of both buckets there, or are there operational issues you guys encounter on the test well or are we just not willing to kind of open the kimono yet until we kind of move forward a little bit?

No, Joe. I don't think there -- there were very few, if any, operational issues. This was almost entirely their reading of the contract versus our reading of the contract and what was due to be delivered. And like I said, some of the things that Petrobras wanted actually fell outside of the contract entirely. Now we had the vessel ready to work at the beginning of March, the early March and they -- a lot of this delay was just the extent of their slow operational process through the dummy well testing. To give you a little color, it was supposed to be scheduled for 10 days and it ran for over 30. So there will be a time in the future where we sit down and we will have a discussion with Petrobras about everything that's happened. But right now, the focus is getting on contract and getting the work done.

Our next question comes from Igor Levi with Morgan Stanley.

You mentioned that there are many different factors that go into your guidance, so I was hoping you could touch on the biggest factors that define the low-end and the high-end of the range.

Igor, I think the biggest assumption is what day rate will apply to Siem Helix 1 and at what pace do we -- are we able to improve that day rate over time. I think those are the 2 biggest factors that are baked into how we've developed our guidance, and then from there, the low and the high end. I mean, look, the startup of Siem Helix 1 is now behind us, so that's sort of set. And now, we've -- as Erik mentioned, we've adjusted the startup of Siem Helix 2 until very late in Q4. So I think the biggest variable, plus or minus, going forward is, is the application of day rate we experienced during operations of Siem Helix 1.

So would it be fair to assume that at the low end of the guidance, the vessel continues to work throughout the year, but at the lower day rate or maybe at the high end within that 3-month period or so you guys are able to resolve the issue?

Yes, more or less. I mean -- yes, more or less. I mean, there's a lot of factors we developed to get to the plus or minus, and only time will tell.

Okay, great. And then, shifting focus to ROVs. I remember you previously talked about a significant pickup in tendering for trenching work, maybe doubling in '17 and then doubling again potentially in '18. So I was wondering if there's any change in that outlook? And to what extent could that still help offset the weakness in the traditional oil and gas business?

The doubling remarks there, I think, were based on the number -- the bidding activity that we were able to see that was based on our visibility of the market. How much of a market share we capture, we'll determine on a year-over-year basis. But '17, definitely we are expecting a pick up and increase in the trenching market throughout the rest of the year, and we are expecting a further increase in '18.

Our next question comes from Martin Malloy with Johnson Rice.

I had a question about the proposed changes to the Jones Act enforcement, and would there be any impact potentially on your Well Intervention assets? And then, maybe I wonder if you could comment broadly if this does come to fruition, what does this do for development in the Gulf of Mexico in the deepwater?

Right now, there's no implications on drill rigs with what's going on, on the Jones Act. That's not to say that, in principle, I mean, every time they expand it, they could theoretically apply it to a greater and greater asset base. Right now, it does not impact the drilling fleet. That would be disastrous for the Gulf of Mexico if that were to occur. And I should point out that the Q4000 is Jones Act-compliant. So for the clients that do prefer to use a Jones Act-compliant vessel for whatever scope of work they have, we do have one.

Our next question comes from Bill Dezellem with Tieton Capital Management.

I have 2 questions. First of all, relative to the Robotics business, is there anything that can be done to further reduce the cost of that segment if the revenues were to stay flat? And then, secondarily, I'm hoping that you'll go into more detail on your relationship with Harvey.

Yes. I think over time, one of the things we expect to happen as the existing charters start to expire is we expect the current market rates for our chartered vessels to be much lower, combined with the fact that (inaudible) charge we put in place, we entered into a series of hedging contracts to fix the [ Krone ] charter rates, and those roll off, too, over time. So we're expecting to see a very meaningful reduction in our charter costs associated with the Robotics business going forward beyond '17. So, Bill, I hope that answers your question. And your second question is about Harvey Gulf, and I'm sorry, can you repeat that?

Yes. That was the question. I'm just trying to understand more detail about that relationship and what you expect from that going forward?

Okay, bill, as we said in the scripted part of the call, it is a no work, no pay arrangement with them. It's beneficial both to us and them. From our standpoint, we wanted to offer our clients that desire, potentially Jones Act-compliant vessels, that option. I think we did have a little bit of work in Q1, and I think we'll start it up with a little bit of work in Q2. But it's something that we've done to offer our clients options.

And we have a follow-up question from Chase Mulvehill with Wolfe Research.

I'm going to go at this one, one more time. I'm getting a lot of questions, so maybe you could just provide a little bit more color and maybe just kind of your confidence around the Siem 1 returning to full day rate over the next quarter or 2.

Right now, we have a list of the works that Petrobras wants to see done. Our schedule shows those works, half of them being done in the next 60 days. And the remainder of them, over the next 120, 160 days.

Okay. And do you see a risk that there's a permanent lower day rate for both the Siem 1 and Siem 2? Or are these things that you foresee being able to work through -- you're highly confident you'll be able to work through these over the next 2 or 3 quarters?

I think we're highly confident that we'll be able to work over these penalties over the next couple of quarters. We're not highly confident that we've seen the last of the uncertain reactions from Petrobras on the administration of the contract. And that's what led us to lower our guidance, was to try and allow for any further uncertainties. It's really difficult with Petrobras to figure out what's going to happen.

Let me add some perspective on this. I think our original thinking on these 2 vessel contracts as well as our guidance for these 2 vessels, never assumed we'd be at full day rates 100% of the time. So we never assumed that. We always assume we'd be operating at less than full rates and have some downtime associated with the administration of contracts. So I think that's important to state that our economic assumptions upfront, when we entered into the contracts as well as our guidance all along, assume that there's going to be a certain amount of hair cutting that takes place just based on the way business is conducted down there. So I think that's important to point out. Now I think based on what we experienced here the last few months, we think there may be a slower uptake to that, but I think it's important to point out that perspective.

A little more color. Petrobras has made the comments that are -- they are being called on by a lot of the rig companies that are rolling off contract and they're being offered ridiculously low rates. So there is a certain amount of desire on Petrobras' part to try and lower their rate. But I will note that at no time during this whole process did Petrobras ever give the indication that they did not want these vessels. Certainly, they'd like to work the day rate down, and that's a normal contractor-client process that's ongoing, it's a little more severe in these times. But again, they've never indicated that they did not want these vessels. The biggest impediment -- or the biggest cause of some of the issues that we've got right now is the overzealous or prudent or however you want to categorize it, focus on absolute compliance with every letter of the contract, and especially with new vessels that come out of the shipyard, there's always punch list to be done. And the contracts -- these contracts were written at a time before all of this happened in Brazil, so there's just an intense scrutiny on absolute compliance with the letter of the contract. And it's just -- it's painful and it's taking time, but we're working through it.

Okay. At the rate that you're working at today, are you generating cash margins?

Yes, we are.

Okay. And are you currently in discussions with Siem about a reduced charter rate?

We're in discussions with Siem about a lot of things. Some of the work scopes that Petrobras are requesting has to do with the vessel, which is a Siem issue. And we're always talking with them about the costs and the rates.

We have no further phone questions at this time.

Okay. Thanks for joining us today. We very much appreciate your interest and participation, and look forward to having you on our second quarter 2017 call in July. Thank you.

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