Helix Energy Solutions Group Inc (HLX) 2017 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Helix Energy Solutions Group Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Monday, July 24, 2017.

I would now like to turn the conference over to Erik Staffeldt, CFO. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today for our conference call for our second quarter 2017 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Scotty Sparks, our COO; Alisa Johnson, our General Counsel; Tony Tripodo, Executive Vice President and Senior Adviser; and myself. 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 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?

Good morning, everyone. We'll start with Slide 5 to provide a high-level summary of the Q2 results. Our second quarter financial results benefited from the improved seasonal factors that affect our operations in the North Sea as well as the start of operations on the Siem Helix 1 in Brazil. Our financial performance showed significant improvement in Q2 compared to Q1. Revenues increased to $150 million from $105 million and EBITDA improved to $30 million from $15 million. Most of the improvement is the result of higher utilization of our North Sea Well Intervention asset. Our results were negatively impacted by a non-cash $6.3 million tax charge attributable to a change in treatment of our foreign taxes.

Turning to Slide 6. The drivers of our improved financial performance both quarter-over-quarter and year-over-year with the improved utilization of our North Sea Well Intervention vessel. The Well Enhancer and the Seawell were fully utilized in Q2 compared to 57% utilization in Q1 2007 and 49% utilization in Q2 2016.

In the Gulf of Mexico, the Q4000 was in drydock for 34 days. Absent the drydock, the Q4000 was fully utilized during the quarter. The Q5000 was 91% utilized for the quarter, experiencing downtime early in the quarter. At the end of May, the Q5000 demobilized from the BP campaign and worked on projects for 2 customers the remainder of the quarter. The vessel is scheduled to return to service for BP in early September.

As we previously stated, we commenced operations with the Siem Helix 1 in Brazil in mid-April. During the quarter, the vessel performed successful operations on 3 wells. As expected, the vessel's financial results continue to improve since they began commercial operations.

Robotics did benefit from improved activity over Q1, but is tempered by an overall weak market. Production facilities continues to be a steady performer.

Onto Slide 7. From a balance sheet perspective, our cash levels at quarter end decreased to $390 million from $538 million at the end of Q1. At the end of the second quarter, we entered into an amended credit facility comprising some costs of $150 million revolving credit facility and $100 million term loan. As part of this process, we used cash on hand to reduce our term loan balance to $100 million.

For the quarter, we take down the total of $95 million of principal on our debt operation and used $46 million of cash for capital expenditures, the most -- majority of which is attributable to the Brazilian operation.

Our net debt increased to $125 million at quarter end compared to $72 million in the first quarter. As of quarter end, access to our revolver was restricted but we expect this to change over time as our performance improves and we continue to pay down debt.

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 second quarter increased to $150 million from $107 million in the first quarter. Gross profit margin increased to 12% resulting in a profit of $18 million, up from negative $1 million in Q1 due to achieving high utilization across the Well Intervention fleet and increased seasonal activity in the Robotics fleet.

In the North Sea Well Intervention business, both vessels had 100% utilization on projects required and our unique fully integrated diving services.

In the Gulf of Mexico Well Intervention business, the Q5000 had high utilization and successfully completed the first year of the BP -- of the 5-year BP contract, and they continued on to complete work for 2 additional clients.

The Q4000 completed its planned 5-year drydock on schedule and on budget, and they continued working for the remainder of the quarter.

In Brazil, operations commenced in April on the SH1, with the vessel utilized 95% with good uptime. With our alliance partners, OneSubsea and Schlumberger, we have contracted several works on a shared risk contract and mechanism. We now plan to offer a fully integrated solution with Schlumberger services on the Q4000, offering our clients further enhanced benefits.

Slide 10 provides an overview of our Well Intervention business in the Gulf of Mexico. The Q5000 continued with BP, completing work on three subsea interventions ahead of schedule. On June 1, the vessel completed the first year of the BP contract and immediately commenced working for 2 additional clients for the remainder of the quarter. The unit realized 91% uptime for the quarter. The Q5000 schedule is nearly full for the remainder of the year and will return to BP for the second 270-day term in early September. So far in 2017, the uptime of the Q5000 unit has been in line with our fleet-wide expectations.

The Q4000 had 63% utilization in the quarter due to completing its 5-year drydock in Brownsville, on schedule and on budget in May. The vessel performed well after drydocking, completing work for 2 clients and have a good backlog for 2017. IRS 1 is idle and IRS 4 is completing its 5-year COC, both at our support base in Houston.

We continue to strengthen and enhance our alliance with Schlumberger. Firstly, the 15K jointly-owned alliance IRS system is now completing the testing phase of the OneSubsea facility in the U.K. The system will be shipped mid-Q3 and delivered and ready for use in the Gulf of Mexico in Q4. We are negotiating closely with several premier clients for the rental of the IRS -- of the intervention riser system starting in Q4 of 2017. The system will be the first of its kind available on a rental basis to address the growing intervention needs of deepwater high-pressure subsea wells.

Manufacturing continues on ROAM, the riserless open water abandonment module, and we expect completion of the system and to be operationally ready in Q3 or Q4.

As I mentioned earlier, we now plan to offer fully integrated Schlumberger services on the Q4000 to offer server and tanks benefits enabling a 1 contract option to clients. This should also lead to integrated crews and also a reduction in overall costs on the vessel and scheduled savings. We are also looking to expand this offer into other regions as well.

Moving to Slide 11. Our North Sea Well Intervention business had a very good quarter. Both vessels experienced 100% utilization on projects utilizing our unique integrated onboard diving services. The Well Enhancer worked for 2 clients in the quarter. The vessel completed the first scope on an intervention project mid-April and then commenced work on an 11-well P&A project for the remainder of the quarter.

The Seawell also worked for 2 clients during the quarter, both being P&A projects. The vessel completed the first scope in April and then went on to a longer-term commitment for our clients. Both vessels have good backlog for the remainder of the year and are scheduled to be fully utilized into November of 2017.

Moving to Slide 12. In Brazil, the Siem Helix I was placed into service mid-April. The vessel has successfully completed 4 wells since commencement with good operational uptime throughout, achieving 95% utilization for the quarter. We have addressed the number of the identified items from the vessel acceptance phase, reducing the rate penalty as we worked through the list leading to improved financial performance.

The Siem Helix 2 topside equipment installation continued this quarter, with additional refinements to the vessel from the lessons learned from SH1. The vessel will transit to Brazil in Q3, and we are presently forecasting the Siem Helix 2 to be placed into service late Q4.

Moving on to Slide 13 for our Robotics review. As expected, market conditions remained soft for the Robotics side of the business. However, we did a good job increasing utilization in Q2, and we have secured some good utilization through Q3 and into Q4.

Deep Cygnus completed 28 days in the quarter, commenced in an ROV support project in June that will see the vessel contracted through at least the end of Q3 working in Egypt.

Grand Canyon I had 63 days utilization, mostly on trenching scopes, and will be -- and will have high utilization in Q3 performing various contracted trenching projects into early Q4 in the North Sea.

Grand Canyon II had 61 days of work on various short-term ROV IRM projects in the Gulf of Mexico.

Grand Canyon III was delivered in May and went on to complete 33 days utilization. In June, the vessel commenced paid transit to India to undertake an ROV support project in Q3 and will then work in Egypt trenching in Q4. We have secured some good recent utilization and increased our backlog with some multiyear longer-term trenching projects from 2018 onwards.

Over to Slide 14. I will leave this slide detailing the vessels, ROV and trenching utilization for your reference.

Handing over to Tony.

Good morning. Thanks, Scotty. Turning to our balance sheet. Slide 16 reflects total gross funded debt of $544 million at June 30, a reduction of $95 million from March 31. The substantial reduction in gross debt levels primarily is the result of the payoff of $180 million of the prior term loan net of proceeds for the new $100 million term loan that we entered into at the end of quarter 2. The new term loan facility essentially extends maturities on $100 million of our bank loan facility for 2 years. Thus, the debt maturity profile shown on Slide 16 shows a more comfortable level of scheduled principal payments than existed a quarter ago.

On Slide 17, net debt at the end of June increased from $72 million a quarter ago to $125 million at the end of June. The increase is directly related to cash outflows on CapEx as previously mentioned, which amounted to $46 million during quarter 2. Cash at quarter end decreased to $390 million, reflecting the aforementioned paydown of debt as well as the CapEx.

Slide 18, I will turn the call over to Erik for a discussion on our 2017 outlook.

Thanks, Tony. Moving over to Slide 19, which provides an updated outlook on 2017. We are maintaining our forecasted 2017 EBITDA range of $105 million to $125 million, the outlook is based on some key -- some fundamental key assumptions performing for the Siem Helix I. We continue to address certain items on the vessel that will improve our top line performance. As we address these items, our operating costs are running higher than normal with extra equipment and operating personnel on board. Currently, we estimate we'll complete this process toward the end of Q3, at which point we expect to reduce our cost in the vessel to start generating acceptable returns.

We'll soon start up of the Siem Helix 2. We're completing topside equipment installation and applying lessons learned from our experience with Siem Helix 1 acceptance process. We are targeting commercial operations late in Q4. Sustained improved market environment for the North Sea Well Intervention business, we've had a good first half of the year and we expect to have a stronger second half. Improved utilization of the Q5000, fewer system issues, the vessel has improved its performance in 2017 and we expect this to continue. And we have, of course, operating in a weak Robotics market.

Moving over to Slide 20. Our backlog of $1.8 billion at the close of quarter 2 continues to be heavily weighted to the BP Q5000 contract to 2 Petrobras contracts and the production handling contract for the Helix Producer I. We are benefiting from the improved market activity in the North Sea Well Intervention market and efficient performance of our assets. We expect both vessels to realize good utilization into the fourth quarter.

In the Gulf of Mexico, the Q5000 is currently working spot market contracts with BP [de novo] for its 95-day window in late May and scheduled back on the vessel in early September. The vessel has work that will take it into August. Q4000 is expected to have good utilization the remainder of the year.

Again, the actual operational performance of Siem Helix 1, along with our ability to meet the operational specification with Petrobras, can be a factor for the remainder of '17. We've made assumptions to this respect that could vary plus or minus. These assumptions are incorporated into our guidance range.

Over to Slide 21. The Robotics business segment is expected to have a better second half of the year. But overall, it's still a difficult year as subsea infrastructure spending has weakened and is likely to lag in industry recovery. In the second half of the year, we should benefit from increased activity to take place in the summer months in the North Sea including several wind farm trenching projects.

Over to Slide 22. The CapEx forecast for the year, we have forecasted approximately $235 million, with most of this capital for the completion and build-out of the 2 Siem Helix vessels and the continuing construction of the Q7000. This forecast is higher than our April guidance due to additional spending associated with the items we're addressing in the Siem Helix 1 and Siem Helix 2. Of the $235 million in projected CapEx, $220 million can be classified as growth CapEx.

On to Slide 23. As previously mentioned, we amended our credit facility, we reduced our term loan and extended its maturity to 2020. Our remaining debt payments for the second half of the year approximate $24 million.

I'll skip Slide 25, and leave it for your reference. At this time, I'll turn the call back to Owen for closing comments.

Thanks, Erik. In the second quarter, we began to see the benefits of our long-term contracts and the foundation they provide for our financial performance. We expect this to continue over the near term, and we expect the results for the second half of 2017 to be better than the first half. We also expect 2018 results to be better than 2017. Although results are never predictable in the down market, we feel that we've entered into a period of time where we expect improved financial results. We have a plan to make it through this downturn and are prepared for the opportunities when the market recovers. That being said, I'd like to address more near-term issues likely on the minds of the investors.

Our 2 contracts with Petrobras in Brazil is where I'll start first. The SH1 went on contract April 14 and has worked uninterrupted since then on multiple wells, performing a wide variety of tests demonstrating its versatility. Applying Petrobras' interpretation of contractual specification allows Petrobras to contractually penalize our day rates for each issue identified in the investment process where we were deemed to be out of compliance, whether or not it reflects the absolute ability of the vessel. This is typical with Petrobras contracts. However, the amount of penalties imposed exceeded what we expected or might have expected in historic market conditions.

We've been working through and remedying these penalties. We currently expect to have worked through most of these penalties by the end of the third quarter. As a result, our capital expenditure increased and OpEx has been elevated at the same time that the revenues were penalized.

In June, we were profitable. Expenditures and OpEx should continue to decline as the work wraps up, and we'll see revenues increase. It is our expectation that returns will continue to improve. We've taken steps to mitigate a repeat of this occurrence at the second vessel. We've done the work in the shipyard to address the issues that resulted in penalty assessment on the first vessel. We're also in discussions to clarify the language of the technical classifications to more clearly capture the intended meaning, mitigating any penalty assessment that arise from differing interpretations. The second vessel is expected to arrive in Brazil by the end of the third quarter and begin its contract by late Q4, following the acceptance process. Taking all of this into account, going into the full year next year, we expect both vessels to be on full contract (inaudible).

For a little broader perspective on the market, I'd like to address the macro issues and the Helix strategy going forward. Without trying to join the chorus in predicting oil price and offshore demand, I'll share the perspectives that we intend to manage to and what that means. We'll be assuming a work for longer market. I do see some greenshoots of maintenance work and some production enhancement work starting again to be done on wells. Most notably, we see this in the pickup year-over-year in the North Sea. While the Gulf of Mexico remains fairly active, rig oversupply is exerting pressure on rates. We expect the rig oversupply to continue for years regardless of oil price.

Liquidity and cash flow are the 2 primary metrics driving this strategy. I anticipate modest offshore spending growth by our clients to occur over the next 3 years but at a gradual rate. Rig oversupply will continue through and beyond this period. We're nearing the end of our obligated capital build program. Capital spending did increase this year over our expectations as we work through the Brazil issues, but we see an end to that. And all major capital spending will be complete by year-end, with primarily just the Q7000 final payment remaining at the end of 2018. The work to complete the Q7000 will actually conclude by early Q1 of 2018. As previously stated, as we approach the time where our capital risk lessens, we will become more aggressive on debt reduction. I believe we've seen the beginning of this in this quarter's results. We have a fairly aggressive debt-reduction payment plan, and we'll [cease] to meet this scheduled debt reduction. The focus over the next few years will be to: one, complete our capital obligation and resist undertaking any new capital spending; two, preserve liquidity to operate in the down market; three, consider opportunity to reduce net debt; and four, improve margins through, first, OpEx cost reduction and B, creative contracting. Preserving a strong balance sheet and obtaining and maintaining improved cash flow will be our focus and position for Helix through sustainability and preparedness for opportunities as the market eventually recovers.

With that, I'll hand it back to Erik for Q&A.

Operator, at this time, we're ready to take questions.

(Operator Instructions) Our first question comes from the line of Gregory Lewis with Credit Suisse.

Owen, I was hoping you could dive a little bit more into the Siem Helix 1, just -- you made a few comments about the progress in the pricing or the lack of -- or the move of less penalties. I guess, where do we stand in the process now as we're here in July and you've sort of indicated that maybe in Q3, by the end of the quarter, you're largely behind this? Or do we think we're kind of about halfway there? And then you also made a comment about you expected delay -- you expected penalties out of the gate, maybe not as severe as they are currently. Has the Siem Helix 1 kind of caught up to maybe where you expected it was going to be at this point in the break-in period?

Right now, on the Siem Helix 1, I think we went on contract in April. I mentioned that we should have most, if not all, of the [pendencies] taken care of in 120 days. We're on track to meet that schedule. Right now, I'd say we're over halfway. We're a little over halfway through the curing of the pendencies. And like I said, we expect to have all of them taken care of by the end of the third quarter. On the Siem Helix 2, what we've been doing is, all of the little work scopes that Petrobras has required us to do to Siem Helix 1, we have passed over to the projects team on Siem Helix 2 and they've been doing those work concurrent with completing the vessel. So the vessel will show up in Brazil, with everything done on the Siem Helix 2 that had been done on the 1, that has been accepted by Petrobras. So we don't expect -- certainly, don't expect Petrobras to be able to penalize us for the same thing when we've already applied the acceptable remedy.

In addition to that though, a lot of what happened on the Siem Helix 1 was a result of just language interpretation and technical interpretation as applied by the Petrobras legal department. I -- what we are in the process of doing right now with Petrobras is restating the actual work of the technical specifications so that there is much less chance of any misinterpretation or application of wrong intent. So between those two, we don't expect anywhere near the same issues with the Siem Helix 2.

Okay, great. And then just on the -- with the 15K IRS stack that's going to be delivered later this year. I guess it sounds like customer conversations are ongoing. You kind of alluded to, hey, there could be some work later this year. In the event that the Q4 and the Q5 are fully booked out during the fourth quarter, is that something where Helix would consider renting out the 15K stack? Or is that something where we would just expect the 15K stack to go work on on the Q4?

Yes, like we said, we're in discussions with many premier clients at the moment. There's optionality to put the 15K on both the Q4000 and the Q5000. However, the target market is writ to be a rental system.

Bottom line, it's a rental system separate and apart from any of our vessels. It should assist in improving utilization and revenues on our vessels. But we are more than willing to make it available to others, whoever wants to rent it.

Okay, great. And then just one more for me. Just given the strength in utilization in the North Sea, clearly, 100% utilization is something to be very proud of. Is there opportunities? Or is there a potential that we could see Helix do some -- maybe some short-term chartering of vessels to maybe take advantage of what's really been a strong market? Or is that something at this point, given as, I guess, we're halfway through summer, that maybe we have to wait for next year for that to happen?

The North Sea market, we have pretty well covered. There are some days that due to scheduling conflicts, we weren't able to cover and that work went to our competitor. Just to remind you, we still have -- we don't have a formal charter in place with Gulf, but we still have access to the Skandi Constructor. Although the Skandi Constructor is now located in Asia Pacific, so that makes it sort of difficult. So right now, I'd say no, we don't have anything anticipated in our plans for picking up additional vessels, but certainly, we're open to taking advantage of opportunities.

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

I guess, the first question, costs came in a little bit higher than we were expected in 2Q, and I guess some of that was kind of related to the Siem Helix 1. So maybe could you talk to -- maybe quantify that a little, at least relative to the Siem Helix I or some any other kind of one-off cost in 2Q? And in the past, the kind of reducing that and pulling those costs back out?

Well, I'll take the Siem Helix 1. We have had a number of third parties onboard doing work in response to the curing of the pendencies. That's had knock-on effect because it does require additional personnel from our crew to support them, extra catering, et cetera. So OpEx was elevated. We also rented some equipment near term in order to satisfy some of the pendencies. And as we replaced those with longer-term solutions, then the rental cost will come down. So I do see a lot of opportunity for us to lower cost in -- on the Siem Helix 1. With the rest of the company, one of the things though that excites me is with our alliance and what we're doing. Scotty, you might mention that.

Yes, I mean costs for the other vessels were in line and actually a little low. The guys have been doing a good job of keeping our budgets under control. As we've said, we are looking to further enhance our alliance position with Schlumberger. Our plan is to have their services made permanent onboard the Q4000, which will allow us to integrate fleet crews. It will mean their services are currently onboard, so there'll be far less mobilization and demobilization time between clients, which will lead to further savings. But there's no point having 5 service providers on 1 vessel, each having 1 electrician, each having 1 mechanic and then we can really look to integrate crews and reduce the cost down there as well as scheduled savings, which means a day-per-day of the whole vessel revenue to the client as a savings.

And we look to do that further in the North Sea. I think certainly when Q7000 comes out, we'll be integrating that fully from the start, and then we're going to look at some of the -- either the Seawell or the Well Enhancer having a more integrated solution also.

I might just add a little more color. This is one of the things that we believe we're positioned to deal with well in the marketplace because we are the only intervention provider that is fully integrated with a potential of adding third-party services vessels, Robotics and the intervention system. There is no other company in the marketplace that can do that, so that definitely gives us a competitive advantage going forward.

Okay. All right. Yes, that's helpful. I mean, when we think about the Q7000, so it sounds like that you've got an opportunity here to leverage the Schlumberger alliance. And so is that leveraging it in the North Sea? Or is that bringing the Q7000 to the Gulf of Mexico?

Right now, we're targeting some of that globally. The overall plan for Q7000 originally was for the North Sea. And there's still a large well stock in the North Sea that doesn't have much access to heavier coiled tubing length. Some of the other abandonment technologies we'll be able to deploy from the Q7000. So let's say, target market is North Sea and West of Shetland, but right now we're looking at opportunities globally from Africa, Brazil and even Gulf of Mexico.

Yes, the unique feature of the Q7000 is the fact that it has been built similar to the design concept of the Q4000, with a ship-shaped pontoon, which gives it a high transit speed. Historically, semi-submersibles are captivists to a region because of the slow transit speed, but the Q7000 was identified early on in our build process as a regional -- multiregional asset, so we can move it around.

Okay. And I think you mentioned in the prepared remarks that the Q7000 would be completed in the first quarter. Should we still expect a 4Q, late, late, late 4Q delivery for next year? Or is there the opportunity to bring this in ahead of time?

I think we'll just have to wait and see how the next year unfolds. Right now, the completion schedule on the vessel would make it available to work at the end of the first quarter. But right now, I think it's way too early to make that call.

Okay. Last one, and I'll turn it back over. When we think about [mob] cost for the Siem Helix 2 in the back half of the year, how much mob costs are left to be realized?

I still think we probably have -- the vessel's scheduled to transit, I think as Scotty mentioned, sometime in the third quarter, with the vessel acceptance starting shortly thereafter. So I think there's probably about 3 to 4 months of mob cost still to be incurred.

Okay. And all of this is deferred and recognized over the life of the contract, right?

That's correct.

Our next question comes from the line of Vaibhav Vaishnav with Cowen and Co.

Can you quantify for us how much was the improvement in day rate on Siem Helix 1 at the end of let's say, June, versus when it started in mid-April?

We haven't provided that detail. Obviously, the vessel did improve performance significantly as we addressed the open items, the punch list items that were out there. As we did mention, the vessel was cash positive from that perspective, but I don't think we've provided a specific...

No, we haven't really focused on it because the improving revenue was somewhat offset by the higher OpEx cost as a result of going through the process. So I think it's probably better to start focusing on what the year-end run rate might be.

Okay. And I guess what you are implying, if I'm not mistaken, is by the end of third quarter, all the modifications would be done. Hence, the day rate should return to a full day rate sometime in fourth quarter? Is that fair?

Well it's a full day rate less what we would have expected going into the contract. The way that Petrobras works is that they will always penalize your day rate. So your stated day rate is never an actual received day rate. Although we did make assumptions in our tendering to Petrobras to allow for that. And absent those penalties, yes, we should be back to a normalized revenue rate.

I mean, if I say somewhere around 200 to 225, is that a good run rate for the life of the contract?

I think that would be on the very, very low end.

Got it. Okay, that's helpful. On Siem Helix 2, do you now know where the vessel would be working? Or is it still to be determined by Petrobras?

That's still to be determined by Petrobras. They -- I don't know, they're very fluid in their planning, to be kind. So we're looking at it. We have a number of wells identified by them, but which ones they're going to do first and everything, I think is in constant state of flux with them.

Okay, but they...

The vessel's already programmed into the Petrobras schedule and they have a number of wells identified, whether they go well 1, 2, 3, 4 is dependent on their schedule at the time but it is scheduled to go into their system and has work lined up.

Okay, so they've work lined up. That's good. And if I think about the guide, so you increased the revenue guide specifically for Well Intervention to $400 million versus $375 million, but still no change to EBITDA guide. Is that all because of the mob cost? Or is it something else that we need to think about?

No, there's quite a bit of cost that we do incur on a daily basis that's on a pass-through. So from our perspective, it's a very small markup on those. We really don't forecast those when we provide our guidance. So there's always increased revenue and increased costs associated with those pass-through items.

Okay, okay. And last question from me. If I just think about from an EBITDA perspective or more so an EBIT perspective, it sounds like the guidance implies about $20 million EBIT in second half versus a $10 million EBIT loss in first half. So understandably, first quarter was not a great quarter. But just in terms of the progression from here on, is that fair to say you still expect Well Intervention revenues and profitability to grow in 3Q and 4Q? And then maybe, can Robotics be actually EBIT-positive in 3Q?

Specifically, from the Well Intervention standpoint, obviously, there's a lot of variables that are affecting our Gulf of Mexico. Obviously, we still have a blend of spot rate and legacy contracts. So the timing of those will affect, you could say, the results of the Well Intervention. So it's hard to say that you would expect sequential growth quarter-over-quarter, but we do expect very solid results from the Well Intervention side for both quarters. Obviously, in the fourth quarter, we do expect the decline with the North Sea assets as they enter their winter months.

On the Robotics side, quarter-by-quarter is a little hard to call because of how weak the market is and how leveraged it is to speculative work. But year-over-year, we are looking for Robotics to pick up, primarily through a cost reduction as our charters and hedges roll off.

Our next question comes from the line of Marshall Adkins with Raymond James.

Owen, on the 5000, with the contract with BP. Remind me, didn't they have an option to -- did they exercise the option on the -- to get to the 270 days? Or was that already under contract?

They have an option to decide whether they take it 365 or 270 each year. They asked to give us a 6-month notice period on that and they've exercised the 270-day option for 2018.

Okay. So that is -- is that any kind of testament to how well it's operating for them? Is -- can we read anything into that?

No, I think it's just the amount of work they have lined up in 2018. And I'll remind you that in Q1, the Q5000 received the Rig of the Month in the Gulf of Mexico for BP. And virtually every well -- in fact, every well we've worked on this year has been ahead of schedule and budget for BP, so I know they're very happy to be in it right now. Our downtime on the Q5000 is now in line with what we expect on Q4000 and in line with the rest of the fleet. So we're happy we're over the initial problems that we had with the IRS system and moving forward.

Perfect. And I know we've already hit the Q7000 a couple times, but I'm just curious, would you consider the outlook a little more optimistic than a quarter or 2 ago or a little less? Or still way too early to call, Owen?

I think the -- matter of Q7000 is more balance sheet-related than it is market-related. For us to go ahead and bring it out early would accelerate payments. To be able to accelerate payments puts unnecessary pressure on the balance sheet or we would have to have a bankable contract. There is no bankable contract that we're aware of for 2018. So it's sort of just trying to be conservative with our cash flow management that leads us to be a little more pessimistic about bringing the Q7 out in '18 than we might have otherwise spent.

Okay. Last one for me. The North Sea has been certainly better than we thought it would be. Give us some insight on what's driving that? I mean, everyone talks about how horrible the offshore market is. But this seems to say, wait a minute, there's still a whole lot of stuff going on. There's still a lot of demand, particularly in these mature areas, like the North Sea. Can you give me any color on what you think is driving that strong demand in North Sea?

Yes. I think first of all, we are seeing an increased amount of P&A activity and for us that's the first piece of the actual well P&A, and a number of the clients are leaving now to a larger P&A schedule. We just said we've just completed an 11-well P&A program on one of the vessels. So P&A activity is increasing. Since the price of oil has come back, we're also seeing the small operators go after intervention scopes and more so repair and maintenance scopes on the wells to get production back online. So I think the price of oil has helped them spend money compared to where we were sort of a year ago, and there's not much spend that was going on at all.

Also, Marshall, just from a more of a macro perspective, the North Sea is probably the most mature of the subsea provinces. As wells age, they require more and more intervention. Quite honestly, I think the North Sea was just -- the cash was cut off for about as long as it could be cut off before some of the maintenance programs just had to start happening. And so I think with the stabilization of the oil prices we are seeing a normalization of the maintenance programs.

Our next question comes from the line of George O'Leary with TPH & Co.

I just had one more question. It sounds like you guys are pretty excited about the joint offering with Schlumberger. It seems like a big opportunity. I guess, could you provide a little more color and remind us of where most of the opportunities you feel like sit with them? Is that more on the production enhancement side? More on the brownfield work and coaxing incremental hydrocarbons out of kind of legacy-producing areas? Just a little bit more color on where the customer discussions and where your marketing focus is for that offering?

Yes. Right now, it's pretty much all Gulf of Mexico. And it has led to utilization on the Q4000, allowing us to offer a shared risk mechanism for the contracts. There's certainly an interest with the clients in the Gulf of Mexico that would -- certainly lead the smaller operators to make the offering easier for them, so that they don't have so many contacts to deal with and just would rather work with us and 1 service provider. So right now, it's Gulf of Mexico. Definitely, because the interest we've seen, so far in the Gulf of Mexico, and the amount of operators that are looking towards a fuller service contract, we'll be looking to offer that into the North Sea region and other places. I believe also that will lead onto SP&L to take on different contracting mechanisms with these clients. Again, making it easier for the clients and leading to better scheduled savings, and therefore, overall project savings to the clients and then the integration of the teams allows us to bring the vessel cost down as well.

I'll just jump in and -- I think just -- just to follow-on -- you mentioned the brownfield. Our effort combined with Schlumberger, especially in light of what they do through their IPM, would make an awful lot of sense. I don't know that, that's on the radar for their Schlumberger IPM program. But I think that's something where we, along with OneSubsea, can do a lot to further the application of our assets with Schlumberger on enhancing brownfields on behalf of the producers. I don't -- I wouldn't call that a mature concept at this point. I'd say we've just barely touched the tip of the iceberg as to what's possible there.

Great. Very helpful color. Thanks, guys.

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

Just picking up on George's question there. Is the shared risk contract, is that the primary marketing apparatus for the Q4000 right now? And can you also just explain, is that -- is part of that deferred compensation? Or is that a completely separate topic that you're either engaging in today or would consider doing in the future?

Right now, it's certainly not deferred compensation. It's more a contrasting risk style, whereas should the vessel go down, some of the service costs come off, and should the service -- the services piece of the overall project go down, then we'll reduce the overall vessel cost. So it takes away risk from the client to allow the work to go forward.

Understood. And is the deferred compensation scheme with Schlumberger something you would consider in the future? Or, can you just comment on that? Or...

I think we're open to considering all forms of creative contracting. I don't know that deferring revenues right now will be at the top of our list. But just to carry on from what Scotty said, another form of performance sharing risk would be to sort of say to the clients, you know we're faster. So let's get away from the day rate and to the extent that we can beat the expected days on a rig, then we get an uplift and to the extent that we don't, then we get a -- we lower the day rate. So it's a little bit of putting our money where our mouth is, without risking profitability.

And on the Q5000, you said that's off from BP now and restarting in September. What should we expect in -- until then? Are there work opportunities for that vessel in the spot market?

Yes. Well since we've finished up on the first term on the first year of the BP contract on June 1, that evening the vessel went straight to work on 2 projects with 2 clients. We finished up those works about 38 days past, and went straight onto work with another client. The current client we have now will take up a good portion of the remainder of the time available. And then we expect to start mobilizing early September with BP, so it's going to have near full utilization for the year.

Our next question comes from the line of Joe Gibney with Capital One.

Just a few quick ones from me. Scotty, I was wondering if you could comment a little bit on North Sea's utilization has tightened up a little bit more. I think you guys have characterized some measure of modest pricing lift coming with that low single-digit percentage. Is that still the case? Are you able to push price a little bit more? Is this still predominantly a utilization game?

No. We have, over this year been pushing prices up, slight increases as you said. And that will continue if we see similar utilization going into next year, which we've got quite a good outlook into next year, we'll continue to push prices where and when possible.

Okay. Anything new on the Q4 contract discussions with Shell? Is it still optimistic that you'd be able to get something in place by the end of this year?

I can't really comment on that. We're in discussion with many clients for utilization for Q4000. We have a good track record with Shell and I think that'll bode well with us going forward. But we've worked on many, many wells for Shell and worked with them for many years, and a good client of ours, I think that's the best place to leave that.

Okay, that's fair. Erik, just a question for you. What is the all-in CapEx now on Siem 1 and Siem 2 as you continue to work through the punch list, made adjustments on Siem 2, as you're going? Just help us with what is that refresh number is now on your full topside spend here?

I don't have the number by vessel, but I think we're right around $300 million all in for both vessels.

All right. That's helpful. And last one from me, just, Owen, can you comment just, I'm curious the change in board structure there with separation of the Chairman and CEO role. Was it just a mechanical shift? Or can you comment on that, just curious; I saw it at the end of your release today.

I think it's twofold. First of all, I think it's just good governance. It's something that's been recommended by our IRS systems manager, and it's just an industry trend. I'm not a real trendy guy, though. The way I look at it is that, I think we've touched on it in the conversations here, that there's an incredible amount of opportunity that results in every down-market. We've mentioned a few of those potentials here and it would -- I think it would serve the company and the shareholders best if I was able to allocate more of my time to try and advance those. And as a result, getting a little help of maintaining clear communications with the board by bifurcation of the position I think is the best thing for the company overall.

Our next question comes from the line of Ian MacPherson with Simmons.

I was wondering if you could update us a little bit on the spot pricing dynamics in the Gulf of Mexico. You mentioned that you've had some modest positive traction in the North Sea, but we've seen, clearly, continued downward pressure in the Western Hemisphere on rig rates, which I know is an influence on your pricing dynamics. And we're seeing -- your drilling competitor has certainly been around cash breakeven cost. Is that a barometer for the profitability of your spot contracts today for the 4000 and the 5000?

Firstly, the 5000 is tied into a long term 5-year agreement with BP at good legacy rates. We still have some legacy rates on Q4000 that we'll see drop off going into 2018. We have had considerable pressure on our rates from just dressed rig operators, taking down the rates. However, our efficiencies have allowed us to stay above the bar that they're setting. The way we did our work allows for a lot more efficient work. And then we have things like we've discussed the alliance that can allow us to bolster some of those rates up. And then we have the new technologies come in, like the 15K, which will also, if you know if you apply 15K work on to Q4000 that will allow us to keep rates in a better place. But we have seen rig drop off coming into the market and bringing the rates down but we've battled against them so far and achieved good utilization for Q4000 this year.

I would just like to add, I think some of the rig operators, and like (inaudible) mentioned are just irrational and seem a little desperate. But I think this is where 2 things come into play. One is, as Scotty mentioned, our efficiency. But two is our track record. We have a great credibility with the clients on strong performance on the job so it derisks it for the producers. And third, is what I mentioned earlier, we are the only company that has a fully integrated approach and I can't overstate how important that is, both for efficiency and performance credibility.

That's helpful. Thank you both. I was just thinking with regard to the 5000. The joint contractors are bidding as well as they are to avoid stacking. You don't have that same dilemma for a 90-day window on the 5000 side? I would assume that you would resist work that's below profitability? Is that a fair assumption?

Yes. Yes. And like I say, we built the first hole (multiple speakers) so I was just saying, we filled out the first hole of the 90-day break very well. So there's quite high utilization in Q5.

And then lastly, Scotty, can you remind us how many of your -- for the Q4000, how many of your days this year have been insulated by that legacy backlog when we think about the calculation of pricing -- average pricing decline from 2017 into '18?

I'd say nearly all of the legacy work has been undertaken so far. We have 1 program coming up later in the year that'll still be at legacy rates.

However, the majority of the Q4000 in the second half of this year will be on current market rates then?

I'll say the majority of it will be on current market rates. Now I would say probably 1/3 of the entire year would be at legacy rates. Is that a good assumption, Erik?

Yes. I think that's right. I think we entered the year with a higher percentage but I think one of the jobs that we moved over to the Q5000 was one of the legacy rates on that. So I think about 1/3 is probably about a good assumption for the year.

Our next question comes from the line of Martin Malloy with Johnson Rice & Co.

Just have 2 quick questions here. Anything on the dry docking side that we should be aware of second half of this year and '18?

Nothing that we have planned. We've just completed the major drydock on Q4000. That went very well. Came in on schedule and under budget. There's been no major dry docking planned in '18.

Okay. And then as we look forward to thinking about '18 CapEx, and on the growth CapEx side, really the only item to think about, is it the Q7000 final payment of about $140 million?

Yes, that's correct. Just going back to the previous question, we will have a U weld on Q5000 next year, but that's an underwater inspection. That's not a major dry docking as such.

Our next question comes from the line of Bill Dezellem with Tieton Capital.

I'd like to come back to the Siem Helix 1, if we could, please. As a reference that we really ought to be looking at the year-end day rate run rate. And so I'm going to ask the question in that way. Would you please compare the year-end run rate that you anticipate versus the Q2 average that we just experienced?

The run rate on the -- let's see.

Yes. I think when you look at the -- we've said that we had expected and I think Q2 came in that we were marginally cash positive on the Siem Helix 1. We expect that towards the end of the year, we would be in a position where we would start seeing the returns that we would expect or that we consider acceptable for that vessel.

And we will quantify that later on. Right now to be able to quantify that requires a completion of the negotiation process on the redrafting of the technical terms. That will have some impact on the end of the year. So it's a little early for us to give that run rate, but we will, as soon as we finalize things with Petrobras.

And then relative to the North Sea specifically, would you discuss pricing and any opportunities that you're seeing in increased pricing there with the utilization as it is?

Pricing year-over-year compared to last year has increased and will continue to push rates where we can. We've already locked up working for 2018, which is a much better position than where we were a year ago going into 2017. And we've signed up our first multiyear contract with one of the clients in the North Sea. So if we continue to see those moves, then we'll push pricing where it's possible. Again, I'd like to point out that a lot of our work is because the vessels are very different to other vessels in the market over there and nearly all of our work this year is utilizing the integrated diving services that we have on the vessels, and that allows us to push the rates up further as well.

Mr. Staffeldt, there are no further questions at this time. I will now turn the call back to you.

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

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