Helix Energy Solutions Group Inc (HLX) 2017 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, February 20, 2018.

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

Good morning, everyone, and thanks for joining us today on our conference call for our Q4 2017 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Scotty Sparks, our COO; Alisa Johnson, our General Counsel; 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 www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon.

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

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, other than statements of historical facts, are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number of variety of factors, including those set forth on 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 reconciliation, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website.

Owen?

Good morning, everyone. Let's skip over Slide 3 and 4 and start with Slide 5, which is the high-level summary of Q4 results. Our first -- fourth quarter financial results were in line with our third quarter results. Revenues in Q4 were flat, remaining at $163 million, a decline in Well Intervention revenues, primarily as a result of the usual winter slowdown in the North Sea, was offset by an increase in Robotics revenue.

Our gross profit increased slightly in Q4 to $23 million from $21 million in Q3, driven primarily by improved results of our Robotics segment.

Our net income increased to $50 million in Q4, benefited by $51.6 million noncash benefit as a result of the U.S. tax law changes. The improved performance in operations resulted in EBITDA of $32 million in Q4 compared to $30 million in Q3.

Turning to Slide 6. Our Well Intervention utilization was at 74% in Q4, down on 88% in Q3. In Brazil, the Siem Helix 1 was 98% utilized for Q4 compared to 96% in Q3. The performance of our crews and vessels continues to improve.

In mid-December, the Siem Helix 2 was accepted by Petrobras and commenced contract operations. The vessel did experience some start-up downtime, with a onetime negative impact of $2.4 million to EBITDA for the quarter. However, the vessel was on operational rates at the end of the quarter.

In the Gulf of Mexico, utilization for the quarter was 83%. The Q5000 was 100% utilized for the quarter after remobilizing for BP campaign in early September. The Q4000 utilization decreased to 66% in Q4 after experiencing a gap in the schedule at the start.

Our North Sea vessels were utilized 55% in Q4. The Well Enhancer worked into the November, while the Seawell worked into December. At the end of the quarter, both vessels were warm stacked as expected for the winter.

Our Robotics segment improved quarter-over-quarter, driven by increased trenching activity levels and utilization of the chartered vessel fleet. Production facilities continue to be a steady performer, operating at full rates the entire quarter.

On to Slide 7. From a balance sheet perspective, our cash levels at quarter-end decreased to $267 million from $357 million at the end of Q3. During Q4, we made a $69 million shipyard payment and invested an additional $31 million in another capital expenditure and $10 million of scheduled debt repayments. Our debt increased to 200 -- our net -- I'm sorry, our net debt increased to $229 million at year-end compared to $147 million in the third quarter, while gross debt was reduced from $504 million to $496 million at year-end.

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. As we entered the more challenging winter season, revenue in the fourth quarter remained flat at $163 million, equaling the third quarter. Gross profit margin increased to 14%, resulting in profits of $23 million, up from $21 million in Q3 due to achieving good utilization across the Well Intervention fleet and high vessel and trenching utilization in the Robotics fleet.

In 2017, we concluded the year completing well from 77 wells in total across the 6 Well Intervention assets for numerous clients globally. In the North Sea intervention business, as I expected, both vessels finished the year with good utilization for 2017. Most of the projects undertaken required our unique fully integrated diving services. In December, both vessels entered seasonal low-cost warm stacked mode for the winter.

In the Gulf of Mexico, the Q5000 had another strong quarter with BP, with 0 downtime through the period and we're continuously at depth for nearly 80 days. The Q4000 also completed our deepest well to date working at 9,356 feet water depth.

In Brazil, the SH2 finalized the acceptance program in December and commenced work for Petrobras. SH1 had a strong quarter of 98% utilization and very good uptime.

Robotics finished the year with a good quarter of utilization of 85% across the vessel charter fleets, working primarily on trenching projects. All business units, as I expected, produced strong results relating to safety performance.

Slide 10 provides an overview of our Well Intervention business in the Gulf of Mexico. Throughout 2017 in the Gulf of Mexico, we have seen our work scopes significantly increased to more production enhancement-related activity. Approximately 80% of the work undertaken by the key units was production-based and the remaining works are primarily abandonment activity. In previous years, the work has been more towards abandonment activity.

The Q5000 continues with BP for the quarter, working on 2 well locations to undertake production enhancement activities. As mentioned earlier, the unit completed its longest dive to date keeping the subsea system at depth for nearly 80 days, a good result after replacing the systems earlier in Q3 and the unit experienced 0 downtime throughout the period.

The Q4000 had 66% utilization in the quarter due to a schedule gap early in the quarter. It completed work for 1 client on the 2-well program, including our deepest IRS deployment and well intervention to date. The vessel ended the year completing the first well of a 4-well campaign for another client.

Regarding our intervention riser systems, IRS 1 is idle at our facility in Houston. IRS 2 mobilized on a stand-alone rental unit in October, commencing at full rates in December on a day-rate project with expected duration of 5 to 6 months of work in West Africa.

We have positive news regarding our alliance with Schlumberger and OneSubsea. The 15K jointly owned alliance IRS system completed testing and acceptance at the OneSubsea facility in Louisiana and is now currently contracted on the Q5000 for the BP and has commenced work.

We continue to partner with the alliance to offer a more consolidated package on the Q4000, with Helix providing the vessel ROVs and subsea systems and Schlumberger providing all services as 1 package to our clients. This mechanism was contracted numerous times in 2017, and we look to further enhance this during 2018 by keeping service equipment permanently installed and multiskilling of our offshore workforce.

Manufacturing on the ROAM continues. The Riserless Open-water -- sorry, manufacturing continues on the Riserless Open-water Abandonment Module with the system now the OneSubsea facility in Louisiana and expected completion during Q2.

Moving to Slide 11. Our North Sea Well Intervention business had a good quarter with both vessels experiencing good utilization considering the harshest season of weather conditions. Both vessels worked on projects that utilized our unique integrated onboard diving services for the quarter. The Well Enhancer worked 51% in the quarter, working for 3 clients and the vessel was then warm stacked in Dundee in the United Kingdom. The Seawell worked 60% in the quarter working for 1 client. The vessel then completed a small dry-dock for a thruster repair, was warm stacked in Denmark.

As mentioned above, both vessels are in low-cost, warm stacked mode for the winter period and are expected to commence work in March with a good backlog of activity for 2018. Most of the work in 2018 will also require our integrated diving services.

Moving to Slide 12. In Brazil, the Siem Helix 1 was utilized 98% working on 3 wells in the quarter and has now completed work on 10 wells for the clients, primarily in production enhancement activity. The vessel continues to perform very well with minimal downtime. The SH2 finalized the acceptance period and went on hire December 14 to Petrobras performing an intervention scope on the first live well. The vessel commenced the contract with a small amount of penalties that we quickly reduced and had some start-up downtime. Currently, the vessel is working on its third well.

Moving to Slide 13 for our Robotics review. Robotics finished the year with a good quarter, achieving 85% chartered vessel fleet utilization in the quarter. Grand Canyon worked in the North Sea completing 59 days of utilization undertaking 2 separate trenching projects. Grand Canyon II worked in the Gulf of Mexico, with full utilization on the walk-to-work project that will continue to provide full utilization for Q1 of 2018 with 0 downtime. Grand Canyon III completed 77 days of utilization performing trenching work in offshore Egypt. And the Deep Cygnus completed 72 days of utilization in Q4 providing ROV support services on a trenching project in Egypt.

The markets, as I expected, continues to be harsh in Robotics part of the business. However, in 2018, we have recently secured a good backlog of trenching projects in the U.K. for the Grand Canyon and Grand Canyon III as well as 3 high utilization walk-to-work projects in the Gulf of Mexico for the Grand Canyon II.

In February, we returned the Deep Cygnus early to the owner concluding its long-term charter, thus reducing our cost base in the Robotics business to only 3 vessels.

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

I'll now turn the call to Erik for a discussion on the balance sheet and our 2018 outlook.

Thanks, Scotty. Moving to Slide 16. It outlines our debt instruments and their maturity profile. I will leave the slide for your reference and move on to Slide 17.

Slide 17 provides an update on key balance sheet metrics, including gross and net debt levels as of year-end. Our net debt in Q4 increased to $229 million from $147 million in Q3. The increase in net debt during Q4 is directly attributable to the $100 million of CapEx outflows, including the Q7000 shipyard payment. Our cash position at quarter-end decreased to $267 million, reflecting the CapEx outflows and paydown of $10 million of our debt. Our year-end net debt to book capitalization was 13%.

Moving over to Slide 19, which provides our initial outlook on 2018. We are forecasting 2018 EBITDA in the range of $135 million to $165 million. This range includes some key assumptions in estimates. We're assuming a full year benefit for the Siem Helix 1 and Siem Helix 2 in Brazil. We expect the 2018 North Sea Well Intervention market to maintain a high level of activity. We expect the Q4000 to have good utilization in the Gulf of Mexico. Although the robotic market continues to be weak, we expect to benefit from reduced chartered costs and an increase in trenching work. Any significant variation from these key assumptions could cause our EBITDA to fall outside of the range provided.

Moving to Slide 20. We entered 2018 with $1.6 billion in backlog, of which approximately $500 million is currently scheduled and estimated to be completed in 2018. Our backlog is heavily weighted to the BP Q5000 contract, the 2 Petrobras contracts and the Helix Producer I contract.

In Brazil, we expect to benefit from a full year of operations of both the Siem Helix 1 and Siem Helix 2. In the near term, we do expect to incur periods of downtime on the SH2, normal start-up issues for new vessel and crew. The Siem Helix 1 will have some downtime in Q2 during an approximate 17-day scheduled shipyard maintenance program.

In the Gulf of Mexico Well Intervention market, the Q4000 currently has worked into Q2, with identified opportunities thereafter. The vessel is currently servicing the spot market and we expect the vessel utilization to be driven by near-term opportunities. The Q5000 has this 270-day program with BP. The vessel will experience approximately 21 days of downtime commencing in Q1 as it performs a regulatory required underwater inspection. The 10K IRS rental unit is on a daily contract with expected duration into Q2 and the 15K IRS rental unit went into service in mid-January 2018 on a day rate contract with expected duration into Q2.

In the North Sea Well Intervention market, we're assuming the continued base-level activity for our vessels. Last year, the market provided strong support for the utilization of our 2 vessels. We expect 2018 to be similar. We currently have more than 65% of our forecasted work under the contract. We expect continued seasonal weakness during the winter months.

Over to Slide 21. The Robotics business segment is expected to continue to struggle as subsea infrastructure spending will likely lag any market improvements. However, we expect significant improvements in the segment over 2017 performance due to the return of the Deep Cygnus in Q1, lower chartered costs in the Grand Canyon I due to its hedge rolling off and a stronger wind farm trenching market. The first quarter will continue to be impacted by the winter season in the North Sea, with results expected to be similar to Q1 of '17. We expect significant improvement in Robotics starting in Q2.

Over to Slide 22. The CapEx for the year is forecasted at approximately $135 million, with most of this capital for the continuing construction of the Q7000, including a forecasted shipyard payment in Q4. Our net debt payments for the year are approximately $110 million, including $60 million of 2032 convertible notes that we expect to repurchase in March.

I'll skip Slide 24 and leave it for your reference.

At this time, I'll turn the call back to Owen for his closing comments.

Thanks, Erik. Well, 2017 is behind us as is the capital construction that we've committed to prior to 2014. The Q5000 is complete and working long term with BP, the 2 Siem vessels are complete, working long term for Petrobras and the Q7000 shipyard component of this construction is largely complete, including sea trials, pending the closeout of punch list items. We do have OFE work to complete installing and integrating topside equipment on the Q7 (sic) [Q7000], but the construction risk is largely over, and we're starting to see contract opportunity for the vessel.

Our 2018 CapEx budget includes the shipyard cost and the cost to complete all the OFE work throughout 2018. I'm pretty -- given this, I'm pretty excited looking forward to the potential of 2018, but some people have noted that our guidance of $135 million to $165 million EBITDA may seem a bit conservative and perhaps it is. However, in this market and given how difficult the past 3 years have been, we feel that it's a prudent level. We do feel that there may be some room for improvements in our budget through reduction of downtime, operational efficiencies and contracting. For instance, in the fourth of 2017 alone, we incurred a negative $2.4 million impact to EBITDA with respect to Brazil start-up downtime and another $3 million negative impact from a client dispute. Without these, Q4 results would have been even stronger. We plan to work on mitigating these types of issues to the extent possible.

To that end, in 2018, we'll be focusing on transitioning from the construction phase of our company and refocus on operating and contracting. We've added Geoff Wagner to the corporate team as chief commercial officer allowing Scotty to focus on operations. Leigh Beck, back from getting Siem Helix 2 up and running, will take up the role as our chief technical officer and will be focused on dry-dock, systems reliability and technical improvements.

As it is, it's my opinion that the market has at least put in a bottom. The North Sea showed improvement through 2017. We do expect this to continue in 2018, although the work will continue to follow a seasonal cycle. While the Gulf of Mexico may have bottomed, we fear that it's a little bit too early to say that any real recovery has begun in spite of stabilized and better commodity price.

The government regulatory body, for instance, in the U.S., has appeared to relax and grant more extensions on field abandonments than in prior years. The recovery will be dictated by supply/demand issues and I believe that Helix should be well positioned for recovery that would first be seen in the production enhancement segment of the market.

For us, Brazil, our third major market, seems to finally be settled with both vessels now working. The original estimates of EBITDA generation from these 2 vessels was originally estimated to be approximately $70 million. Due to delays in start-up and additional mobilization costs, which are amortized over the contracts, we now estimate reported EBITDA from these vessels to be approximately $20 million to $25 million from the Siem Helix 1 and $25 million to $30 million from the Siem Helix 2. We're using these estimates in our guidance and hope to achieve some improvement.

Canyon showed improvement in the fourth quarter, and we would expect 2018 to be a meaningfully better year than 2017. This is a result of one of our above-market legacy vessel charter roll-offs, as mentioned before, as well as a pickup in trenching work.

The ROV market itself is expected to continue to be challenging.

Our balance sheet remains relatively strong.

And with that, I'll just say that I think things are looking pretty good here, and I'll turn it back over to Erik.

Thanks, Owen. At this time, operator, we'll take any questions.

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

My first question, I wanted to clarify regarding the Q5000 with about 3 weeks of downtime this quarter. I assume that's carved out as a 270-day commitment from BP. And so that we should factor in that downtime in addition to the uncontracted quarter of time that would fall later in the year. Is that correct?

Yes. That is correct. The days for the (inaudible) come off, but they can be added by BP at the end of the contract, at the end of the 5 or 7-year period.

Okay. And then you made the comment that your recent Gulf of Mexico work slate has the more production enhancement bias compared to history, which has been, I guess, more abandonment-driven. How would you project that shifts into the future? And what does that mean with regard to the profitability for Helix with that mix shift?

I mean, if we try and break that down a little, we're seeing on Q4000 in the Gulf of Mexico, for instance, that's gone from about 40% production activity to more 66%, 67% production activity. All of the work on the Q5000 is all production-based activity. And we're seeing that, I think, because of an increase in the oil price and clients seeing that they can get it recovered quickly. The -- it doesn't affect our profitability much because the rates are somewhat the same whether we do abandonment or production enhancement.

Okay. That's helpful. And then if I can squeeze in one more just with regard to -- it sounds like there's going to be a pretty highly variable seasonal swing for Robotics as we roll out of Q1 into the rest of the year. If Q1 is going to be comparable to Q1 of last year, but then things are getting much better for a few different reasons that you've articulated, are the remaining 3 quarters of this year possibly or highly confidently EBITDA-positive for Robotics after we move past Q1?

I think from our expectations -- excuse me, we're seeing opportunities where in Q2 and Q3, which are our hire season that we would be in the positive range.

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

So I guess, if I look at the guide, revenues are in line or better than what was expected, but EBITDA is below. Can you help us reconcile or provide some color around that?

I think that has to do with different mix of utilization versus rate assumptions. The -- our costs are pretty consistent, but I don't know without digging into it a little bit further, that would be -- my guess is that there is probably a dip of -- departure from the rates assumed. I would assume that our budget is assuming lower rates and higher utilization and that would achieve that kind of a result.

Okay. If I think assuming like midpoint of $150 million EBITDA, I'm just using 2017 rate, so like $40 million corporate loss, $50 million production facilities EBITDA, maybe breakeven Robotics versus a $50 million loss in 2017. That implies like Well Intervention earns about, call it, $155 million, $160 million EBITDA in 2018 versus about $110 million in 2017. Am I thinking about it correctly? Or would you correct me in a significant way over there?

Yes. I think from a high-level standpoint, I didn't write down all your numbers, but I think you're thinking about it directionally in the correct manner.

Okay. So I guess, like the major variance will come from Well Intervention. How would you rank vessels within Well Intervention from a risk perspective that will take the EBITDA down to $135 million? Which has the most risk?

Well, I think when you look at our vessels, we now have obviously the 6 vessels operating. We have 3 of the vessels with long-term contracts, the Siem Helix 1 and Siem Helix 2. We have the Q5000 that has 75% of its work in backlog. We have the 2 North Sea vessels, which are obviously going to be affected by the seasonal factors, but we clearly expect them to have good utilization during their core season from that perspective. So I'd say one of the swing factors that we have in Well Intervention will be the Q4000. It's a vessel that has been in the spot market. And I think it's going to be really a vessel that has -- that is going to be managing the near-term opportunities from that perspective.

So just see if I -- just for clarification, you implying Well Enhancer and Seawell should have similar profitability in '18 versus '17?

Yes, I think, high level, we expect '18 to be fairly similar to '17 for the North Sea activity.

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

Good to hear that the 15K system is on the Q5000 and that alliance with OneSubsea is progressing. I guess, does that improve the profitability of the vessel meaningfully for the 2018 time frame? Just on a per day basis. How much of a needle mover is that for the Q5000?

Q5000 is just the 15K. The alliance offering of 1 contract is for the Q4000. And that allows us to offer more integrated packages with more services, a 1-contract approach. So there is an uplift on the Q5000 for the 15K system going out to Q5000 but...

I think clearly stating, as Scotty would be, that the vessels in the 15K are not an integrated package. The 15K system is sold to the clients as a separate asset. So the vessels remain with their regular day rates and margins. And then the 15K revenue would be additive on top of that.

And once again, we only own 50% of the 15K.

Correct.

All right. Okay. That's super helpful. And then on the Siem 1 and 2, I just want to make sure I got these numbers right. You said EBITDA for the Siem 1 $20 million to $25 million, EBITDA for the Siem 2 $25 million to $30 million. And is that just the expectation for 2019? Or is that what we should kind of model for them going forward on an annualized basis?

I would hold off on annualizing that going forward. Our relationship with Petrobras is improving every day. We have certain assumptions in here given the difficulties that we've had in the past. We're outperforming right now the assumptions that we're using for our 2018 guidance. But given the difficulties of the past, we haven't uplifted that. So I don't know -- I would give it a little while longer for the relationship to settle in and see where the profitability actually lands before I extrapolate it beyond 2018.

Okay. That's fair. And maybe sneaking one more if I could. Just on the ROAM systems, it sounds like good progress is being made there. And I think you said, midyear, you could effectively be good to go with that. When do you expect that to be commercial or potentially revenue-generative for you guys?

Okay. So we haven't included any commercial drivers in the budget for 2018 for the ROAM. The ROAM will be completed towards the end of Q2. We're looking at opportunities in the Gulf of Mexico as an additive utilization days for Q4000. And also, it's an abandonment tool that really helps the Q7000 coming to the North Sea. So it's not really a factor for 2018.

Well, it's not a factor in our guidance, but the ROAM will be available for the second half of the year. We do have opportunities for it. Again, we've just been conservative and not added that to our guidance. So that just represents further upside.

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

So I guess, the first question is really kind of on the Well Intervention side. Can you talk about Well Intervention and how you're managing costs in 2018? Do you see any kind of inflationary pressure as we get through 2018?

No. If anything, our costs have come down slightly.

I think one of the benefits of the alliance as we continue this integration of the Schlumberger services with Helix Services is that there's going to be a continuation of cost reduction across the fleet.

Okay. I guess, I'll follow up on the Schlumberger alliance. The more integration you have, probably the blurrier the lines you get from revenue and EBITDA generation. Is there any talk about formalizing more -- doing a more formalized partnership? Maybe a JV or something here.

Not beyond what we've already done with them, which is basically a joint ownership in the assets that are co-owned.

Okay. Right. Moving on to Robotics, you've got some costs coming out with the Deep Cygnus being returned and some hedges that roll off. Can you maybe quantify how much of each of those will impact in 2018? And when they start impacting?

Yes. The hedge for the Grand Canyon I has already rolled off. It rolled off at the end of Q3 2017. The Deep Cygnus, where that one vessel has been returned, we will have costs hidden here in the first quarter, after which second quarter, going forward, no costs will be hidden for the Deep Cygnus from that perspective. I think the general guidance that we gave, I believe, for the Deep Cygnus was, I believe, $10 million to $12 million benefit from that. And I believe, the hedge roll-off was about -- in the $3 million to $5 million range.

Okay. All right. In the implied EBITDA range for Robotics in '18 guidance, do you care to share kind of that range that was implied in the $135 million to $175 million?

We don't get into the specifics from that perspective, Chase. Obviously, we've said that we expect first quarter to be similar to '17 and then see the improvements from the changes that have been made to our structure and our improved contracting on the trenching side.

The only thing I would add is that in our guidance, we are assuming significant improvement over 2017, but nowhere near the potential that we see beyond 2018.

Okay. When you say significant improvement, does that get back to EBITDA positive or breakeven?

Yes. Or slightly negative. One of the 3.

We have a lot more contracted work for the Robotics side of the business in '18 than we did in '17 going forward.

Our next question comes from the line of Igor Levi with Morgan Stanley.

Could you comment a bit on pricing trends in the Gulf of Mexico and the North Sea? And as I remember previously, you mentioned the Gulf of Mexico was still under pressure, but North Sea could see some improvement. So I was hoping to get an update.

Yes. I think if you want to break it down, I think we hit an inflection in the North Sea towards the end of 2016. 2017, we were able to see a modest recovery in rates, nowhere near historic norms. Clients are still getting a great deal. I do see that potential continuing. Given the visibility of the works in the North Sea, I think there will be modest, but very slow, improvement in rates there. Turning to the Gulf of Mexico, I think the ROV rigs out there are still offering the clients proposals that are keeping a firm lid on the rates. We are -- as we mentioned earlier, we are seeing a shift away from abandonment near term more to production enhancement, with production enhancement being such a value-adding proposition to the clients versus P&A, which is nonrevenue-producing. There's potential for coming up with creative contracting terms that allows us to improve margins, but in the spot market on a 3-bids-and-a-buy basis, I think it's going to be very challenging to get the rates to move meaningfully higher. If we're in the early -- if we're in a recovery here, it's very, very early and we won't see anything meaningful, I don't think.

Great. And turning to the Q7000, what are the discussions like lately with customers? Do you think there's a chance you'll take it -- you'll take delivery earlier than the year-end 2019 extension that you just recently received?

That is our hope, but there's nothing in our guidance for 2018 for the Q7000, although we are pursuing a number of potential bankable contract opportunities that would allow us to bring it out early. But I think it's too early to either talk in detail about that, obviously for competitive reasons, but also, I think it's too early to start assuming anything in our guidance for any kind of positive results. So we're -- again, we're taking the conservative route and assuming that we're going to have the vessel idle through '18. But we are talking with a number of potential opportunities.

Would you need to at least have a 1 year plus contract to take delivery of that ahead of time?

I think that's just something that has to be at best on a case-by-case basis depending on how strategic it is, who the client is, what the commercial terms were. I don't know that I can give a yes or no answer to that.

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

Most of my questions have been answered, but I think I'll try to ask them in a slightly different way. I think -- yes, you pointed to North Sea rates firming for Well Intervention. And it sounded like what you might have in backlog for '18 might be slightly higher than '17. One, is that correct? And then two, if we see you add any incremental work for '18 for the North Sea, should we assume that, that would be at even higher rates than what you've booked so far?

I wouldn't say at higher rates. I think the seasonal market for the North Sea, I think, we've had pretty well in hand. I think last year was possibly impacted by a high percentage of diving work that carries the higher rate. This year, it's uncertain as to what that percentage is going to be, but I think this year also has the potential of generating more coiled tubing operations, which carries a higher rate. So we'll have to make -- we'll just have to wait and see. If we see any incremental work in the North Sea, I think it's going to have to fall into the fourth quarter. And as such, in order to entice the clients to move back out of just a strictly seasonal cycle, there -- I wouldn't expect to see the rates in the fourth quarter as being opportunistically raised.

Okay. And was there any mix shift in that region at all around work scope like in Gulf of Mexico? Or is it kind of what was seen?

No, it's pretty much the same.

Okay. And then on Siem Helix 1 and 2 the EBITDA guidance, I appreciate that for those vessels. But is that assumed that both vessels are at a similar, call it, level of revenue utilization and uptime? Or is that kind of assumed that the second vessel is still kind of perking up through -- working through the commencement?

Yes. So first, from a high level, obviously, the amendment that was done in 2016 set different rates for the vessels. So the vessels are at different rates and that's built into our assumption. I think overall, our trend for the year is that it would be similar utilization and uptime for the vessels. Obviously, here, the start-up -- we've made adjustments here for the start-up of the Siem Helix 2 in the first quarter. But I think the overall trend would be similar utilization and uptime on the vessels.

Okay. And then Q7000. Can you just maybe map out some -- how the opportunities are looking? And are those kind of geographically in any particular region? Or any particular work scopes? Just a little bit more color on that would be interesting.

It's pretty diverse. The vessel was specifically built for working in the North Sea, so I would probably rank the opportunities in the North Sea as the highest potential. The second market that we're chasing opportunities in is West Africa. There's a number of opportunities there, but West Africa has always been a market that is not quite mature to the point of requiring a long-term dedicated vessel in the region. So that's sort of a hurdle that we have to overcome, and that's just a matter of negotiating and working the relationships with the clients. And then I think there is potential that the Q4000, historically, has always generated the required utilization. So with just 2 vessels in the Gulf of Mexico, if there is a pickup in the market activity here, then something for the Q4000 -- or Q7000 here is not out of the question, although I put that probably dead last as the potential. And then finally, I think as you're seeing new players moving into Brazil, there is an upswing in the demand for this kind of an asset in Brazil. Our 2 vessels down there are working very well. I think Petrobras is very happy. They're fully utilized. So there is no opportunity to add any work there. But to the extent that some new players in the region have a need, then that represents another opportunity.

See, the vessel design allows us to move between regions as well and then we have a high transit speed vessel here. So we can come down -- we can work the North Sea in the summer months and then come down to Africa in relatively quick time compared to the semi.

Yes. It does sort of get back to the prior question as to whether or not it would require a 1 year bankable contract. We have optionality with this vessel based on its technical ability to transit quickly.

That's great. If I can just actually squeeze one more in, I'm sorry. The midpoint of the guidance, does that kind of assume Q4000 as on a more less breakeven level of utilization, at least the higher and lower kind of based on up and downside to that?

Our assumption in there is that the Q4000 will have good utilization. It won't be -- we are not assuming it's the traditional high level of utilization that it had. If it reaches that, that would definitely provide upside to our midpoint in our guidance.

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

Just a follow up on that last question on the Q4000 on spot utilization. So backlog into 2Q, I'm just trying to understand if you're indicating full utilization in that backlog. Are there pockets between jobs, given the fact that it's working in the spot? Just understand you're indicating a lower run rate than certainly what it's enjoyed in the past couple of years, but -- relative to the backlog that you have secured now. So near term, is that -- is it full utilization that you're looking for in the first quarter? Or are there gaps in the scheduling given the nature of spot?

Certainly, in the first quarter, we had full utilization. Obviously, we always allow some breakdown allowance for each month. And we have good visibility into -- towards the end of Q2. And after that, that's where we're seeing as a spot vessel. We've lots of discussions going on with the clients. It could have strong utilization like we've always had or it could be slightly less. As we go into Q2, Q3, we have allowed some gaps. As we work in a spot vessel, we appreciate that all clients won't just be out following one after the other. So there will be some gaps in the schedule. And so our guidance allows us some gaps between projects.

So, Joe, just to follow up on that -- just to give you a little flavor for the dynamics of the market, historically, we would have always probably just assumed full utilization on the Q4000 because it has always achieved it. What we're seeing in the market right now, though, is that due to the options that the clients have given rigs and the rates that rigs are willing to work for right now, the clients are sort of taking a wait-and-see attitude, knowing that they have optionality and, therefore, they're not committing to the work as early as what we've seen historically. It's not that we're not seeing the work out there. It's just there's a new element of uncertainty that we're just trying to be cautious about.

Okay. Understood. And just to clarify again on the Siem vessels. I'm still a little confused. So we have the $80 million original EBITDA expectation and then it shifted with your initial amendment to $70 million and now this run rate of $55 million. So the Well Intervention revenue outlook, as indicated by another caller, that doesn't look a little better than what we would have thought. So I'm just trying to understand the shift, I understand it's a developing relationship. But is just the cost base is a little bit higher than anticipated for these assets out of the chute? I mean, is the punch list related to rate is still sort of a lingering issue? Just trying to understand as to little bit lower run rate out of the chute we were anticipating.

It all boils down to the delays that we incurred in going on contract and the extra cost associated with complying with the Petrobras imposed penalties. All of that was accounted for as deferred mobilization, which then gets amortized over the term of the contract. And therefore, it's a noncash charge to EBITDA, and that's the difference that you're seeing between the $70 million and the $55 million.

(Operator Instructions) Our next question comes from the line of Marshall Adkins with Raymond James.

Owen, a few years ago, the only question you seem to get was the impact of these drilling rigs coming down into your market and competing and I haven't heard anyone ask that in a while. What's the status of that? And you were pretty clear a few years back why you didn't think they were competing. It seems as if that assumption is right, but I'm not as close to it as you are.

It's different for each region, Marshall. The North Sea, we do not compete against the rigs, which is probably why we've seen the opportunity to start using the rates back to a more normalized level. In the Gulf of Mexico, though, you still have some of the lower-class rigs that are sitting there trying to avoid being stacked. And therefore, their sales efforts out there giving them away at really low cost. And you've got a certain group of clients that are trying to sustain that optionality in the market by awarding the work. I don't see it as a long-term threat, but it's certainly keeping rates -- cap on rates. There's no way around it. It's hurting our rates here.

Okay. The U.S. tax reform, how does that impact you? How does it -- is it healthy? Or is it a nonissue?

Well, Marshall, we still -- obviously, we recorded here our estimate for the year and the initial impact of that tax law. And the -- I guess, impact on the forward-looking basis is something that is still being designed. There's, I guess, a lot of technical issues that have to be clarified from that standpoint. I think from a high level, in a normalized view, we would expect that our tax range would be obviously in the low 20%, obviously, with the U.S. tax rate at 21% and then our other main region in the U.K. being roughly the same range. So I think long term, normalized prior to this, we were in the mid-20s. In a normalized situation, we probably expect this probably to be in the low 20s from that perspective on a normalized basis.

Right. So modest positive then?

Yes.

Okay. Then really this last kind of summary question here, Owen, for you. It sounds like just paraphrasing what I've heard you say, you are starting to see green shoots in the conversations with customers, particularly in the North Sea, whereas the -- even so much of an improvement that you might even consider the 7000 early if things get even better. But is that what I've heard correctly that basically the rise we've seen in oil price is creating more interest than you would have had 6 months ago?

Certainly helping the cash flows and the producers, I think, are the supply and demand. As I said in my color comments, I think that's really going to dictate the pace of what happens offshore. I do think that the producers, for 2 reasons, are looking at doing more work rather than less. One is related to the higher commodity price that we're seeing an increase in production enhancement work. So that's picking the low-hanging fruit by the producers. And the second is the wells can only go for so long without having remedial work done on the wells. And I think that's also sort of catching up with the industry. I'd like to just go back a minute, Marshall, to what you mentioned on the rigs. I've said in the past that I don't think that the rigs are a serious long-term competitive threat to us. And that's been the premise of our model. We still maintain a 25% to 30% of competitive advantage on time versus a rig. But in this marketplace right now, which is driven by supply chains on 3 bids and a buy, just looking at a day rate and the rig -- not all the rig operators, some -- a lot of the rig operators are being rational. But there's a rig operator that is being a little irrational trying to offset -- moving less, I guess, would be the term versus stacking a rig. And that -- the discounts that they're offering are approaching the point where it overcomes our advantage of that 30% additional competitive advantage we have on time.

I think also, by adding the alliance in for the fleet allows us to contract there from just a rig and by keeping the equipment permanently installed allows quicker mobilizations and demobilizations, which again adds to the efficiency that we have over a rig coming in on a low day rate spending 5 days to mobilize this equipment and then starting against the efficiencies that we used to have. So those are the benefits that we can put out there and that mechanism is working very well to date.

I think I'll add also, Marshall, the third element that may be driving a little uptick in the volume of work is that we are seeing a roll-off of the legacy rig contracts, whereas in the past years, we were losing a lot of work to rigs that were on long-term contract producers. They had no drilling plans for them. Therefore, they were doing our work. And I think you're starting to see that roll-off and over the next year or 2, that will accelerate and continue.

And we have no further questions at this time.

Okay. Well, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our first quarter call 2018 in April. Thank you.

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