Helix Energy Solutions Group Inc (HLX) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Helix Energy First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded, Tuesday, April 24, 2018.

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

Good morning, everyone, and thanks for joining us today on our conference call for our Q1 2018 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Scotty Sparks, our COO; Alisa Johnson, our General Counsel; and Geoff Wagner, our Chief Commercial Officer; 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 our 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 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 in our Slide 2 and in our annual report on Form 10-K for the year ended December 31, 2017.

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. We're going to start with Slide 5, which is the high-level summary of Q1 results.

Our first quarter 2018 results were comparable to our fourth quarter 2017 results. Our quarter was positively impacted by our first full quarter of operations from both vessels in Brazil and good utilization as well as execution from well ops in the Gulf of Mexico. This was offset by the normal seasonal slowdown in well ops U.K. and Canyon U.K.

Revenues in Q1 2018 were essentially flat to Q4 2017 coming in at $164 million. An increase in Well Intervention revenues primarily as a result of our work in Brazil was offset by a decrease in Robotics revenue due to the winter slowdown.

Our gross profit decreased in Q1 2018 to $13 million from $23 million in Q4 2017 driven primarily by our Robotics segment.

Our net income decreased to minus $2 million in Q1 2018 compared to $50 million in Q4 of 2017 due to a $51.6 million noncash benefit in Q4 of 2017 related to the U.S. tax law changes.

Our performance resulted in EBITDA of $28 million in Q1 2018 compared to $32 million in Q4 2017 and $15 million in Q1 of 2017.

Turning to Slide 6. Our Well Intervention utilization was at 73% in Q1, slightly down from 74% in Q4 2017. However, the startup of the Siem Helix 2, we benefited from 38 days of additional utilized day in Q1 compared to Q4.

In Brazil, the Siem Helix 1 was 99% utilized for Q1 compared to 98% in Q4. The performance of our crews and vessels continues to improve. The Siem Helix 2 was 88% utilized in Q1. Vessel performances improved monthly after commencing operations mid-December.

In the Gulf of Mexico, utilization for the quarter was 93%. The Q5000 was 87% utilized for the quarter, including the mobilization of the 15K IRS system. The Q4000 was 100% utilized in the quarter.

Our North Sea vessels were utilized 31% in Q1. The Well Enhancer and Seawell were activated in March and working at the end of the quarter.

Our Robotics segment results were impacted by seasonal slowdown during the winter months in the U.K. market. The winter slowdown reduced the utilization of our chartered vessels and ROV. Production facilities continued 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 increased to $274 million from $267 million at the end of Q4 2017. We generated $41 million of cash from our operations, offset by capital expenditures of $21 million and $13 million in principal payments and other payments in connection with our financing.

During the quarter, we issued a $125 million of convertible senior notes to refinance the required repurchase of approximately $60 million of 2032 convertible senior notes. We used the remaining cash to pay down $61 million of our existing term loan.

Our net debt position decreased to $193 million from $209 -- $229 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. Q1 show us off to a good start for the year, considering we're still in the seasonal harsher months. We had good utilization in many parts of the company with very strong uptime performance. We also experienced the first full quarter of having the 2 vessels on contract in Brazil, both of which are performing well.

Revenue in the first quarter was steady at a $164 million, equaling the fourth quarter. However, it was a significant increase to the same period in 2017.

Gross profit margin was 8%, resulting in a profit of $13 million, down from $23 million in Q4. That's a good improvement in comparison to Q1 in 2017, mostly due to higher utilization in the Gulf of Mexico for the key units and both the Siem Helix vessels being on contract for the first time in Brazil.

In the North Sea intervention business, as expected, both vessels remained in low-cost ready-to-go stacked mode until March and then commenced operations. Both vessels have a strong backlog of work for 2018. Both the Q4000 and the Q5000 had a strong quarter with high utilization and good uptime performance in the Gulf of Mexico.

In Brazil, as previously mentioned, it was the first quarter having both the SH1 and SH2 on contract working on numerous wells of Petrobras.

Robotics commenced the year slowly as expected, however, still achieving 56% utilization across the vessel chartered fleet and has a much stronger contracted backlog in 2018 than for 2017 with numerous trenching projects secured. The long-term charter for Deep Cygnus was included slightly earlier than planned and the vessel being returned to the owner.

All business units produced strong results relating to safety performance. And Q1 was clearly much better start to the year than previous recent times. And we entered 2018 with a much stronger backlog than we entered in 2017.

Slide 10 provides an overview of our Well Intervention business in the Gulf of Mexico. The Q5000 continues with BP for the quarter, working on 2 well locations to undertake production enhancement activities. At the end of the quarter, the vessel commenced the planned mid-period underwater hull inspection originally planned to be undertaken in Q1 due to client schedule, and we moved the inspection primarily into Q2. This inspection was completed ahead of schedule, and the Q5000 is back working for BP.

The Q4000 had a great quarter, 100% utilized with no commercial downtime. And the unit undertook work on 4 wells for production enhancements and commenced the 3-well temporary abandonment program. The vessel has contracted work into Q3 and visibility of work into Q4.

Regarding our intervention riser systems, IRS 2 continues work as a stand-alone renter unit on a contract in West Africa and should remain contracted late into the quarter. IRS 1 is idle at our facility in Houston.

In mid-January, the Helix 1 Subsea Alliance mobilized the 15K IRS onto the Q5000 completing its first high-pressured well. This is a unique model offering the first-of-its-kind system available on a rental basis addressing the growing intervention requirements of high-pressured subsea wells.

We continue onto the Alliance to contract the consolidated package on the Q4000 with Helix providing the vessel ROVs and subsea systems and Schlumberger providing all services as one package to our clients. This mechanism seems to be working well and the real works being undertaken on the Q4000 to being contracted this way.

Moving to Slide 11. As expected, our North Sea Well Intervention business had a slow quarter with both vessels in low-cost warm-stacked mode for the winter period. With both vessels commenced work in March and have a strong contracted backlog for the year. Approximately 70% of the projects contracted this year will require our unique integrated diving services with one of the vessels working on that mode entirely.

The Well Enhancer worked 34% in the quarter, being warm stacked in Dundee in the U.K. then commencing work for 3 clients on production enhancement projects commenced in early March.

The Seawell had 28% for the quarter, working on a diving project early in March after being warm stacked in Denmark.

Moving to Slide 12. In Brazil, we had our best quarter-to-date and is very pleased to have both the vessels contracted fully operational and performing well for Petrobras.

The Siem Helix 1 had a very strong quarter and was utilized 99% working on 7 wells in the quarter. The vessel continues to perform very well with very little downtime in the quarter.

The Siem Helix 2 also performed very well in the quarter. We had some initial miner startup downtime due to integrating and familiarization of the crews. But currently, the vessel has completed 5 wells and is performing well. We've now completed 23 wells for Petrobras.

IRS 3 has been stored in Brazil at our facility for a possible stand-alone rental opportunities.

Moving on to Slide 13 for the Robotics review. As we expected, we had a slow start to the year with Robotics due to the harsher seasonal conditions. However, we still achieved 56% utilization across the chartered fleet.

In comparison to 2017, we have significantly increased contract backlog for numerous trenching and vessel-based projects.

The outlook for the year in Robotics has improved over 2017, and we've reduced our cost base to 3 vessels after returning the Deep Cygnus after its long-term charter.

The Grand Canyon worked in the North Sea completing 31 days of utilization, undertaking numerous short-duration IRM projects and wants more trenching scope.

Grand Canyon II worked in the Gulf of Mexico with good utilization, working 84 days on a walk-to-work project.

Grand Canyon III completed 40 days utilization, performing 29 days on trenching projects and a shorter 11-day IRM project.

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

As I mentioned earlier, 2018 is shaping up to be a better year compared to 2017 with far more contracted work across all businesses. We had a good start to the year with Q1, strong safety performance throughout and well-executed projects thus far.

I'll now turn the call over 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 the maturity profile at March 31.

And total funded debt at March 31 was $512 million, a reduction of $8 million from our year-end 2017 balance, primarily reflecting our scheduled principal payments. During the first quarter, we issued a $125 million of convertible senior notes due in 2023 with 4.125% coupon. This was done to refinance the 2032 convertible notes we were required to repurchase. The balance of cash remaining approximately $61 million was used to partially pay down the term loan balance. This transaction effectively refinanced the $59 million of convertible senior notes we will require to repurchase and $61 million of our term loan due in 2020, pushing them into 2023. It allowed us to strengthen our cash and liquidity position, align our debt maturities with our cash flow and maintain the low-cash interest costs.

Moving to Slide 17. It provides an update on key balance sheet metrics, including gross and net debt levels as of year-end. Our net debt in Q1 decreased to $193 million from $229 million in Q4. The decrease to net debt being directly attributable to the previously mentioned refinancing.

Our cash position at quarter end increased slightly to $274 million, reflecting improved operating cash flow of $41 million, offset by CapEx outflows of $21 million and the paydown of $13 million of debt. Our net debt to book capitalization was 11%.

Moving over to Slide 19. It provides an outlook on 2018. We're maintaining our forecast for 2018 EBITDA in a range of $135 million to $165 million. This range includes key assumptions and estimates. We are assuming full year benefit from the SH1 and SH2 in Brazil. With the start of the 2018 campaigns on the Seawell and Well Enhancer in March, we expect 2018 North Sea Well Intervention market to maintain a high level of activity into the fourth quarter. We expect the Q4 to have good utilization for the remainder of 2018, although there are gaps it is scheduled to fill. Although the Robotics market continues to be weak as reflected in our Q1 results, we expect the benefit going forward from the reduced chartered costs and an increase in trenching work. Any significant variation from these key assumptions could cause EBITDA to fall outside the range provided.

Moving to Slide 20. Our 2018 backlog remains at $1.5 billion backlog, of which about $426 million is currently scheduled and estimated to be completed in 2018. Our backlog is heavily weighted to our BP Q5000 contract, the 2 Petrobras contracts and the Helix Producer I contract.

In Brazil, we expect to benefit from a full year of both SH1 and SH2. SH1 will have some downtime in Q2 for scheduled shipyard maintenance program.

In the Gulf of Mexico Well Intervention market, the Q4000 currently has work into Q3 with identified opportunities into Q4. The vessel is currently servicing the spot market, and we expect the vessel utilization to be driven by near-term opportunities.

The Q5000 has its 270-day program with BP. The vessel experienced approximately 16 days of downtime, starting March 30 as it performed its regulatory required underwater inspection.

The 10K rental unit is on day-rate contract with expected duration into Q2. The 15K IRS rental unit went into service in mid-January on a day-rate contract with expected duration into Q2, with additional opportunities thereafter.

In the North Sea Well Intervention market, we're assuming high level of activity for our vessels into Q4 with expected seasonal weakness during the winter months.

Over to Slide 21. After a slow start to 2018 due to the expected slowdown during the winter months, we're expecting improvements in our Robotics segment performance for the remainder of 2018. The expected improvement stem from return of Deep Cygnus in Q1, lower chartered costs in the Grand Canyon due to [head drilling] and often stronger wind farm trenching market.

The CapEx for the year is forecasted at approximately $135 million, with most of this capital for the continuing construction on the Q7, included in the forecasted shipyard payment in Q4. Our remaining debt payments for 2018 approximate $33 million, with scheduled payments on our Q5000 loan, MARAD debt and term loan.

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

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

Thanks, Erik. Well, Helix has started 2018 with a strong first quarter relative to 2017 as well as compared to our own expectations. Revenues increased 57% year-over-year and EBITDA contribution is up 89% year-over-year.

We expect 2018 to be improved over 2017 in spite of the continued challenging market conditions. The improvement in the first quarter was driven primarily by it being the first full quarter that both Siem Helix 1 and Siem Helix 2 were on hire in Brazil. I might mention both vessels are operating above our expectations. On top of this, fleet utilization was better than a year ago. The Gulf of Mexico intervention vessels had strong utilization and the North Sea vessels are expected to have strong utilization with their season starting in March.

Pricing in the North Sea appears to be holding, while pricing pressure continues to weigh on Gulf of Mexico [wet rates]. In addition, I believe we're making meaningful progress on reducing downtime events and improving efficiencies, which is showing in the results.

Canyon had a weak start to the year as expected, but benefited marginally year-over-year as a result of cost reductions due to the end of the Deep Cygnus charter. We expect Canyon to show marked improvement year-over-year for the remainder of the year on the basis of greater utilization, driven primarily by a strong trenching market. We have better visibility on backlogs in Canyon this year as we -- than we did in 2017, as Scotty pointed out.

We have added some references to cash flow in our presentation to better inform everyone of where we stand in this weak market. We've roughly $300 million of CapEx forecasted over the next 3 years and roughly $20 million of interest payments per year. We expect strong operating cash flow to continue. Even at current levels, we feel we have sufficient cash and cash flow to meet our objectives.

As a matter of prudence, with the required repurchase of our 2032 convertible senior notes in mid-March, we elected to refinance some of our debt by issuing a $125 million convertible note. The proceeds were used to pay off the 2032 notes as we mentioned. The rationale for the decision to issue new notes was twofold: first, we felt it prudent to restructure a portion of our debt to move a maturity date to the right; and second, we wished to keep our cash -- our cost of interest low and avoid unnecessary pressure on our cash flow. In addition, it continues to be our intent to aggressively reduce our debt levels and the amount and timing of our remaining prepayable debt should match our expected cash flows.

With our stated intent to cash settle our convertible notes, we felt that -- we felt this convertible offering provided us with both desired liquidity in a market with uncertain timing for recovery as well as optionality in the future. We currently expect our strong cash flow to continue and EBITDA to grow even if the current market conditions persist. Part of this expected continued growth stems from the Q7000 that's yet to be added to the fleet.

We're currently completing some integration of owner-furnished equipment and upgrades and expect to have the vessel ready to work around Q2 of 2019. The shipyard work is complete except for some punched list items, so the construction risk is behind us.

The current market is weak, but there is opportunity to work the vessel. The Q7000 brings a new level of capability to the North Sea for work that our existing North Sea assets can't do. West Africa is also showing maturity signs that could create an opportunity in that region, Brazil as well as new players as a result of the Petrobras divestments and other M&A activity. We expect interest from that region as well. The Q7000 is uniquely designed as a semi with a high transit speed. This means that in addition to each region being an opportunity, the vessel was designed to be our swing vessel and can campaign in multiple regions successfully.

Although we have the option with the shipyard to defer deliveries till the end of 2019, we're working hard on identifying opportunities to bring the vessel to market earlier in 2019. Once our capital commitments are dealt with over 2018 and 2019, we expect to be in a strong free cash flow positive position with greatly reduced net debt and a relatively low cost of any remaining debt.

Now that Helix has the preeminent nonrig intervention fleet and the best-in-class robotic capability, we'll be exploring various ways to expand our service offerings and contracting formats around these enabling assets. This is expected to improve our utilization as well as margins as we present additional ways for our clients to realize greater value creation.

Even though we've had a promising start to 2018, we prefer not to get ahead of ourselves with the uncertainties this market is capable of throwing at us. For that reason, we'll not be revising our guidance at this time other than to say that with this first quarter, we're trending towards the upper half of the range provided.

And with that, I'll turn it back over to Erik.

Thanks, Owen. Operator, at this time, we'll take questions.

(Operator Instructions) Our first question comes from the line of Marshall Adkins.

I don't know if I mentioned in the past that the presentation is very helpful and your guidance is helpful, and we and the analyst community do very much appreciate that.

Thank you, Marshall.

Owen, your outlook for the Q7 seems to have a more positive tone than I've ever heard before. So let me frame the question this way. We're now looking at Brent prices at $75 as we speak, at least on the front month. Has that changed bidding activity? Is that feeding into your more optimistic tone on the 7000? Or just give us an update on what you're seeing resulting from, I guess, the upward move we've seen in oil prices in the last -- since the last call?

Okay, Marshall, a few moving parts in the answer here. I think the upward movement of the oil price has not impacted the tendering market as yet. The tendering market tends to follow budgeting schedules and it's too late. The movement of the commodity price, I don't think, had much of an impact on the 2018 budget. What we're seeing in West Africa though is, we've been watching that region for a while. It has a high count of wellheads, but the maturity was not quite there to warrant the intervention activity. We're now seeing that starting to pile up. I don't know that there is a single -- West Africa is a very difficult market because each country has its own rules, each producer cannot contract across countries. So it's difficult to cobble together a sustainable schedule that warrants a vessel full-time presence in West Africa. That's basically, what we're wrestling with. We're now seeing enough work in West Africa that with some success on the negotiating side on the contracts we do believe that it's now probably the first year that we've seen a real opportunity to cobble together a schedule that warrants a full utilization of an asset over there and that's our goal. So that's probably the biggest changes, just the maturity of the basement and the amount of work that needs to be -- that's piling up. Scotty, do you have...

Yes, I think what we can say with the increase in the price of oil, we are seeing a swing to more production enhancement and maintenance activities inside the wells compared to P&A work. And because of that, that leads to more of heavy based riser intervention and (inaudible), which is more suited to the Q7000. So we've seen a change to production enhancement. We've seen the operators spend money on maintenance work they put off for a long time. And that leads more to heavy intervention base, which Q7 is built for.

Perfect. And so that leads me to my next question, which is on the Q5, it seems like there's some holes in schedule, I think you mentioned August to November. Give us your sense of how we should think about the -- your ability to fill those holes in the schedule? Or were you just being conservative there?

Right now that the off-contract period with BP is not filled. We are in negotiations with some clients to close out the portion of it, and we do see visibility in that hole. It would be a (inaudible) BP rates, it'll be more market rates that we're in discussions, and we're quite confident that a good portion of the hole will be undertaken.

Okay. Last one for me, Scotty. You talked about the Q4000 is the Schlumberger alliance, but you kind of went through that really quickly. Could you come back and revisit that? Give us more detail on exactly what you're doing there and so we can understand what's happening?

Okay. So the going-forward plan is that we'll have Schlumberger equipment permanently installed on the vessel. And that gives us an advantage for 2 reasons: one, we can multi-skill the crews, firstly with the Schlumberger crews and bring down the headcount on the vessel and therefore, the cost base; secondly, it allows that each project of these less mobilization times, so when we jump from operator to operator and say it is a 20- to 25-day well campaign, you probably used in about 6 days of time just mobilizing and demobilizing different service equipments. So it allows an advantage and efficiencies of time against the overall well program. So it allows us 4 days' clients to put forward 1 price and 1 contract where we will take on the Schlumberger services as a subcontract and just put it forward as a price to the client. Then you've to deal with one subcontractor, less invoice and less procurement issues. And likewise Schlumberger can also take the lead and put that forward. And then, having Schlumberger behind us, they have a much larger sales force than us and that brightens up further clients, hopefully.

Our next question comes from the line of Ian MacPherson.

Owen or Scotty, I guess, when we look back a few years ago at the last upturn, you were -- the North Sea was siding up that you really didn't have seasonal debts in utilization. You haven't described that dynamic coming back just yet. But do you think that, that's -- is there any reason why that would not happen if the North Sea continues to sort of progress as it seems to be now with higher oil prices as we look out to 2018, '19 winter season and '19, '20 winter season? Do you think that it's possible that could -- that sort of 90% to 95% full year utilization for those North Sea assets could be revisited?

I think it has the potential. We're not at those levels yet. We have a very strong backlog for the North Sea. Right now, we see both vessels contracted into -- virtually contracted into Q4. And we have visibility taken both vessels into December. If you take this a year ago, we were looking at having to find work in Q3 and Q4. Now we're contracted up and we're quite confident of filling a good portion of Q4. Again, I feel that this comes down to the operators. With the price of oil increase, they're spending more money on maintenance work. In the North Sea, our split of work is about 60% production enhancement and maintenance work. The (inaudible) basin, there is more maintenance work required. So I think catch-up starting to happen here, where they will have to use the winter months, but we're not there yet, not fully. I don't know if you want to add on?

Yes. I would just add to that. Just to give you a gauge as to where we are, the one dynamic that's recurring is for some reason this year, the producers have held off on contracting their work longer than they have historically. And I don't know if that's because they see that they have optionality in the spot market or whether or not they have issues with getting partner approvals. That's a big driver. It's taking them a long time to get partner approvals on projects or whether or not they're just thinking how their budget for the year goes. But it is -- having said that, if all of the work that we're in negotiations on comes to fruition, and we sign the contract, we would be hard-pressed to fit any more work within our season in both regions. To the extent that there is a pickup in work then from here on out, that is either going to expand into the winter months or right opportunity for the Q7000, which is probably leading into some of the positive feelings we're having about the Q7000 now for 2019.

Good. Thank you both for that answer. Just a follow-up from me on the expected downtime this quarter for maintenance for the Siem Helix 1. I was thinking in a range of 2 to 3 weeks. Is that appropriate?

Yes. We -- I think we've put out that, that we plan to be in -- of Petrobras contract for 17 days in total that includes transit to sites the work up the yard. The yard is regulatory and then back out to the Petrobras locations.

Okay, got it.

Yes, I'd just like to point out there that Brazil is doing well and the downtime is reducing, but also what's reducing is the rates are impacted by these [condensers] that Petrobras rights. We're taking the opportunity during this maintenance downtime periods to resolve some of the outstanding condensers on the Siem Helix 1, which should reduce the -- correct me if I'm wrong, starting 3 or 4 condensers will be eliminated and each condensers is worth about $3,000 a day in revenue. So it's a pretty positive uptick for us.

Our next question comes from the line of Joe Gibney.

Just a question on the Q4000. Just curious, how much of the third quarter is now spoken for in backlog? I know you'd indicated some of 3Q is now booked and indications in the 4Q, but how much is actually secured now for 3Q for the vessel?

We've got work into Q3 that's secured with one of our premium clients, and we're in discussions with others, that they're all clients that we work with year in, year out, and when we have good visibility into Q4.

Okay. The Siem Helix 2, just a question there on utilization. Owen, you indicated both of these vessels are operating above expectation. It sounds like you had some crew integration issues as you got going in the quarter, but you got better every month. So did you exit the quarter at a run rate that you would expect to see commensurate with Siem Helix 1 mid-90% utilization or better? Are you still sort of -- this vessel getting going here in its initial quarter? Just trying to gauge expectations for what your sort of exit rate on the utilization is for this asset into 2Q?

The run rate that we exited the quarter in was exceedingly strong. I would say we are -- you could probably use a run rate that's stronger than Q1, but probably not quite up to the level. I mean, I'm just being cautious of the end of the quarter, we've done exceptionally good run for on both vessels. But quarter-over-quarter, I think, you'll see improvement in Brazil.

Got you. And Scotty, just one clarification. I think you referenced it, but the prospects into 4Q for the North Sea vessels, did you indicate that it could go into December now? I think last year, they both worked, say 50% to 60% utilization in the fourth quarter, but some of the prospects that are out there you might be able to secure these vessels now into December. Is that accurate?

Yes. I think that's quite likely. Again, they're not contracted that we're in good discussions, and we feel that it's just a matter of time as locking one or two final contracts happen that -- should see that happen.

Our next question comes from the line of James Wicklund.

This is actually Radi on for Jim. Just one quick question. You guys talked about looking at different contracting structures. I know your partner, Schlumberger, is pushing performance-based contracting for a few years now. Could you talk a little bit about what are the different ways contracts could be structured? And what are sort of the roadblocks to achieving that in actuality?

Like we said earlier the contracts can be structured. So even ourselves or Schlumberger can take the lead as one contract to the client, reducing procurement issues. It allows less headcounts on the vessel, increases mobilization time, it allows us to lump sum portions of the contracts sort of mobilization per site because we know the cost base, we know we have the equipment currently installed. So it allows the crews to get more used to working together, and therefore, should lead to further efficiencies.

I'll just add, in the '90s, when we were still called out, we were leading the industry on the creativity on the types and formats of the contracting that we were offered. Schlumberger has been pushing towards performance contracting that there's several forms of performance contracting. But there is a number of different formats that we've used in the past very successfully. It's a matter of sitting down with each of the clients and determining what their drivers are and then applying the right format. So without getting into a lot of details on what we plan to do, there's a lot of optionality for us, and I think we're pretty excited about that as our -- as one of the means for us being able to expand our margins even in a challenging market.

Okay. That's helpful. And then, last one from me. What's sort of the run rate level of maintenance CapEx beyond 2018?

From March standpoint, beyond '18, we have our capital program running through '19 with the delivery of the Q7. Starting in '20, we see our maintenance capital running between $30 million to $50 million and that will be driven largely by the timing of the dry docks.

Our next question comes from the line of Bill Dezellem.

Would you please talk about your thoughts on the Q4 -- Q4's utilization today versus where your mindset was at the beginning of the year, I guess, when you had the Q4 call? It just seems as though that has picked up, but I'd like some clarification to make sure we understand where you're -- what you're seeing today versus then, please?

Yes. At the start of the year, we were expecting a few more holes free to schedule. And Q1 has gone very well. Q2, we expect to be fully contracted apart from a 10- to 12-day gap that we've to do some inspection work on the vessel. We've got work into Q3. We have good visibility. We've -- the clients that we contract with quite a lot into Q3 and Q4. So I'd say it's looking the same, if not better, right now. We've always had high utilization on Q4000. We know the clients like it. So I'm quite confident.

Okay. So we were under the impression though that it was more utilized in terms of what you have contracted for the year now than what you were looking at say a couple of months ago. Is that not correct?

Yes. Certainly, we're -- at the beginning of the year, we were -- because of the late nature of the clients' propensity to contract, we were looking at very little, if any, utilization for the second half of the year. And that's starting to fill in now. So our visibility is improving as we go.

All right. That's helpful. And is that essentially where the increase in your revenue guidance is coming from, specifically the Q4? Or is it that and other vessels?

No, I think the marginal uptick in revenue is a true-up of our FX rates with our North Sea vessels and also a true-up of our cost plus items that came in a little bit higher in the first quarter. So those are the 2 marginal drivers of our revenue increase.

I think, also, I would add on top of that, Brazil was performing much stronger than what we expected in our guidance from a revenue standpoint.

Our next question comes from the line of Vebs Vaishnav.

I guess, the first question on Well Intervention. Was there some one-time cost increases in first quarter '18? The way at least I see is like if I look at COGS, it had been like $90 million for last 3 quarters and it increased to like $110 million. And I understand Siem Helix 2 was a part of it, but just wondering if there was something else in that cost?

Yes, the big driver of our cost increases is the addition of the 6 vessel, the Siem Helix 2. In the fourth quarter, we only had that vessel in there for roughly 15 days. So we had it in there now for a full quarter. And so that was a significant driver of our cost. Our cost structure has increased now that we have 6 vessels operating in Well Intervention, but to that, we expect that, obviously, our revenue base has increased as well.

I think, part of the confusion also is that during the first half of December, the cost of the Siem Helix 2 was being applied to a deferred mob and did not hit the P&L, and during January, with a full month and all of the cost go to the P&L rather than a deferred mob charge.

Okay. That's helpful. If I think about last couple of years, the Well Intervention EBIT has increased typically, call it $15 million to $20 million from first quarter to second quarter. It seems there is higher visibility this year. Would it be fair to think that $15 million to $20 million maybe towards the higher end of increase for second quarter '18 over first quarter?

Yes. Moving to second quarter, the big change in our Well Intervention is, obviously, the uptick of our North Sea vessels. Obviously, first quarter, they're not a contributor from that standpoint. Their season started in March. So we expect a full quarter of contribution. So that's the significant uptick that you have historically seen in the second quarters. The activation of the North Sea Well Intervention vessels.

I think also Robotics has forecasted to have -- to show a significant increase Q2 over Q1.

Actually, that was going to be my next question. So like, again, just looking at last couple of years, EBIT has increased $5 million to $7 million, sequentially. This year, you have more visibility, and you have more cause and effect. So maybe we should be thinking $10 million to $15 million EBIT improvement in Robotics, 2Q versus 1Q?

Yes, I mean, first of all, the cost base goes down from 4 vessels to 3 vessels. And a good portion of returning Canyon back to where it should be, comes from that. And then, the trenching work has been secured. One of our vessels is trenching all the way up to the end of the year. Another vessel has trenching work for most of the year. Say, you're going to see an increase in cost because of the trenching work, but also an increase in revenues and the trenching work has been secured and contracted. So the cost base coming down 3 vessels and increasing in trenching secured work is a big difference over previous years. I think looking back, at this time last year, we only had a few hundred days booked for the year with 3x above that booked for Canyon this year.

Okay. And last question on Siem Helix, I dropped the call. So maybe you have answered that question earlier. Apologies, if you have. The Siem Helix 1 and Siem Helix 2 day-rates at the end of March, are they at the full day-rate? Or do we need some more additions? Do we still need -- can we see some improvements from here on?

I think -- well, this sort of ties into the run rate. The run rate at the end of the fourth quarter was very strong -- the first quarter was very strong. Overall, you'll see an increase in revenue quarter-over-quarter. This yard period coming up, as I mentioned before, is going to eliminate 3 or 4 of the [condensers], which will increase revenue by around $3,000 a day per [condenser]. So you should see an improvement -- at least an improvement quarter-over-quarter, whether or not it's sustainable at the end of the quarter run rate, we'll have to see.

We should also see as the crews betting on Siem Helix 2 a better performance from that vessel. Siem Helix 1 is embedded in very well, and we've got a good steady state running the system on that vessel. We expect the same from Siem Helix 2. So as we go forward, one, we expect the cost to come down slightly on both vessels, the operating costs; and two, we should see less downtimes in the original startup for the vessels.

I might point out that the downtime that we're mentioning for the Siem Helix 2 really had very little to do with the vessel that we have damaged umbilical. And due to sourcing issues on finding a replacement umbilical, we went on downtime, but it was not related to the vessel performance.

(Operator Instructions) We have a question from the line of [David Smith].

Wanted to circle back to your Well Intervention pricing comments. I think I heard North Sea pricing is holding and Gulf of Mexico remains under pressure. I just want to make sure, I get this right. Is that fair to say North Sea pricing in '18 looks comparable to '17? And were you implying that the Gulf of Mexico spot pricing is softer than last year or still remains under pressure like last year?

Okay. So it's twofold. North Sea, the rates are slightly above from '17. Again, a lot of that is coming down to diving work. 70% of the work is contracted already has diving set as an increase of revenue associated with the diving, plus we're seeing a small trickle up on the rates because of -- for the net utilization and the uniqueness of having the diving assets on both the vessels. We are still seeing right pressure in the Gulf of Mexico. The Q4000 is working and spot market activities as we close out the year. It's the only unit really that comes under rig pressure. So we do fight against the procurement teams that the operators saying they can get rigs, but again, we expect good utilization, we're seeing work from clients that we've continuously worked with.

I think it's important to note that you just said the Q4000 is the only vessel that we're really seeing under rate pressure. Relative to '17, I'd say that the spot market rates are the same, if not slightly improved, but we are seeing a roll up of legacy rates. So year-over-year, I'd say the pressure on our rates, in general, is a little greater than '17 for the Q4000.

I think that is a good point.

That's a good color, I appreciate it. And just thinking about the Gulf of Mexico spot pricing for the Q4, clear overhang has been the excess rate capacity. I think I remember you've described the Q4000 as performing well intervention work. Owen said 30% to 40% kind of more efficiently versus a rig. And just wanted to make sure that was right, but also wanted to ask if there were any advantages that you expect on the Q7000 versus the Q4000, and if so, any comments to qualify or quantify those advantages?

Yes, the percent of the efficiency factor depends on what kind of work and the duration of the work that we're on. But it's anywhere from 20%, and I believe Statoil did a study for their need that shows that an intervention vessel like the Q4000 actually generates 40%. I'd say the actual number is somewhere between there. But a lot of it is perception. A lot of clients just prefer rigs. Other clients, that are not as familiar with us, are less likely to give us the benefit of that efficiency gain, although once they do try it once or twice, then we are seeing the ability to price in that efficiency gain. Relative to the Q4 versus the Q7, the Q4000 came out in 2002, well ahead of any need for this kind of a vessel, and I'm just amazed sometimes how right we got it, considering it's never been done before. But there is definitely a learning curve. And we've taken the advantage -- some of those things and incorporated them into the Q7. For instance, on the Q7 versus the Q4, we have the ability to trolley the riser off to the side, which means when we are doing change outs, for instance, setting devices downhole or the wrong device, we save 2 or 3 days depending on the water depth on not having to retrieve the risers we do on the Q4. So there is a big efficiency gain there. Beyond that, the Q7 has a unique tension frame that allows the well control devices to be interchanged very quickly. It also provides walk-to-work so that there's no man writing. So there is a great benefit in safety concerns Q4 versus Q7, just more improvements. There's other differences, but those are the 2 of the main ones. Scotty, you have any?

Yes. The transit speed as well for the unit is much quicker than Q4000, for instance. We plan to contract Q7000 in the same manner of Q4000 with Schlumberger. So we'll have some of the installed equipment set in and again, those enhancements we're gaining on Q4 will be available on Q7.

There are no further questions at this time.

Okay. So thank you very much for joining us today. We very much appreciate your interest and participation. We look forward to having you on our second quarter 2018 call in July. Thank you.

Ladies and gentlemen, that concludes today's call. We thank you for your participation and ask you to please disconnect your lines.