Helix Energy Solutions Group Inc (HLX) 2019 Q4 法說會逐字稿

Greetings. And welcome to the Fourth Quarter 2019 Earnings Conference call. (Operator Instructions) Please note, this conference is being recorded, Tuesday, February 25, 2020.

It is now with pleasure that I turn today's 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 fourth quarter and full year 2019 earnings release.

Participating on the call this morning are on Owen Kratz, our CEO; Scotty Sparks, our COO; Ken Neikirk, 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 investors 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, Ken Neikirk will make a statement regarding forward-looking information. Ken?

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 Slide 2 and our most recently filed annual report on Form 10-K and in our other filings with the SEC.

Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available under the For the Investors section of our website at www.helixesg.com. Owen?

Good morning, everyone. Now we're going to start on Slide 5 through 8 today, which provide a high-level summary of our results.

The fourth quarter marked the start of the seasonal slowdown of activity in the North Sea, affecting both our Well Intervention and Robotics segments. The slowdown typically starts in November and runs into April. The seasonality can be seen in our results as revenues in Q4 were $171 million, down from $213 million in Q3. The decline in revenue decreased our gross profit to $27 million or 16% compared to $55 million or 26% in Q3.

For the quarter, we recorded a net income of $8 million compared to net income of $32 million in Q3. The reduction in revenue resulted in lower EBITDA of $33 million in Q4 compared to $66 million in Q3. Considering the seasonal slowdown, our teams operated efficiently during the fourth quarter, managing high asset utilization and quickly reducing costs during the idle periods.

For 2019, revenues improved by $12 million to $752 million. Our gross profit improved by $16 million to $138 million. Net income increased by $29 million to $58 million. And our EBITDA increased to $180 million in 2019 from $162 million in 2018. Operating cash flow for the year was $170 million, resulting in free cash flow of $31 million. This marks the third consecutive year of sequential growth in revenue and EBITDA.

There were many factors that drove our operational and financial improvements in 2019. It all starts with our employees. I thank our employees for -- I thank our employees for their efforts and high level of execution in 2019. Executing safe and efficient operations for our customers has established us as a leader in the industry. Second, we recognize these are challenging times, but we're starting to see signs of an improving offshore Well Intervention market. The North Sea region has been consistent since 2017, with predictable activity and relatively stable oil prices driving our markets. In the Gulf of Mexico, 2019 saw increased activity offshore with immediate benefit to our vessel utilization. We're seeing signs of rational financial returns, driving investment decisions leading our customers back offshore.

Third, we benefited from the creative contracting that allowed us the flexibility to schedule Droshky work during scheduled gaps, limiting our downside. And last, we've benefited from the improving cost structure in our Robotics segment. We have rightsized the business for the current market conditions positioning us to generate positive returns.

From a balance sheet perspective, our cash level at year-end was $208 million, with an additional $54 million in restricted cash associated with the short-term LC. For 2019, we generated $170 million of operating cash, invested $141 million in capital expenditures with net free cash flow of $31 million. Our net debt at the end of the year was $143 million.

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

Thanks, Owen. Good morning, everyone. Moving on to Slide 10. The fourth quarter was a good period, considering we commenced the slower winter seasonal period and completed this year's BP campaign at the end of Q3. We achieved good results across the fleet with excellent operational performance in regards to safety, uptime and well work efficiency, achieving revenue uptime of 98% against contracted base.

The year ended with strong safety performance, by far one of our best years in regards to safety statistics. We are proud of our Helix team's performance this year, our staff and our partners, such as Schlumberger have been outstanding.

In the fourth quarter, we achieved revenues of $171 million compared to $213 million in the third quarter. Gross profit margin was 16%, resulting in profits of $27 million decreasing from 26% and $55 million gross profits in Q3.

Considering the start of the seasonal winter period, we obtained high levels of utilization. The Well Intervention fleet achieved utilization of 92% globally, Gulf of Mexico had 95%, North Sea had 82% and Brazil had 98% utilization. The Robotics' chartered vessel fleet achieved utilization of 73% globally.

In the Gulf of Mexico, the Q5000 completed the abandonment of our second well of 4 Droshky wells and then completed work for 2 customers, prior to commencing its 5-year regulatory inspection and maintenance program in late December. Q4000 worked for 2 customers completing 2 abandonment scopes for 1 customer. And then a number of production enhancement scopes for another.

The North Sea business performed well working for 4 customers, with the Well Enhancer working most of the quarter working through to the end of December. And the Seawell working into December before entering seasonal warm stack.

Performance in Brazil was strong again, both vessels performed very well achieving high utilization of 98% with excellent uptime.

The Robotics' chartered fleet was very active working between ROV support and renewable trenching works, completing 182 days of utilization. Our cost base is now further reduced with the expiration of the charter of the Grand Canyon in mid-November. We continued to be excited about expanding our products and service lines geographically. Q7000 completed transit to West Africa going on hire in January and has already completed the first well successfully.

Our financial performance increased year-over-year with increased revenues of $752 million compared to $740 million in 2018. Gross profit margin increased to 18% from 16%, resulting in $138 million gross profit. Cash flow from operating activities was $170 million.

Throughout 2019, we completed work on 86 wells across the fleet. We have split of work of 70% production enhancements activity and 30% abandonment type activity. Going into 2020, our forecasted work increases to approximately to 85% production enhancement activity.

Slide 11 provides a more detailed review of our operations for our Well Intervention business in the Gulf of Mexico. The Q5000 completed the abandon of the Helix owned second well at Droshky, and then performed 2/3 of intervention works for 2 clients prior to commencing its 5-year inspection and maintenance period. The vessel has now completed the inspection and maintenance period successfully and is now back to work.

The Helix 1 Subsea jointly-owned 15K IRS is currently undergoing its yearly maintenance program and is expected to be remodelized to Q5000 in the early in the second quarter. The Q4000 achieved good utilization of 98% in Q4. The vessel performed well, completing 2 abandonment scopes of 1 client, prior commencing a multi-well production enhancement campaign for another client.

Both of the Q units performed very well for the quarter, working in ultra-deepwater conditions with only 1 combined day of commercial downtime.

Moving on to Slide 12. Our North Sea Well Intervention business performed well, working in the harsher winter period with both vessels achieving good utilization considering the time of year. The Well Enhancer achieved 88% utilization, working for a client on 7 wells performing production enhancement works, prior to undertaking a diving scope for the next client. The Seawell achieved 77% utilization, working for 2 clients working on 2 production enhancement scopes and an abandonment scope with 100% operational uptime against contracted days. In December, the vessel commenced its seasonal warm stack and maintenance period. The Q7000 was fully mobilized with Schlumberger services equipment and then commenced to passage to West Africa, arriving in Nigeria in early January.

After completing regulatory inspections and final client testing, the vessel went on hire January 23 and have successfully completed the first well of the campaign.

Moving on to Slide 13. In Brazil, our operations for Petrobras continued to go extremely well. Again, produced another quarter of operational excellence, with a continued strong performance regarding safety, uptime and efficiency. Both vessels continued to undertake numerous scopes, mostly related to production enhancement and efficiently completed work on 28 wells for the year.

In the fourth quarter, the Siem Helix 1 achieved 95% utilization working on 5 wells, 4 wells being production enhancement works and 1 well for abandonment. The Siem Helix 2 achieved 100% utilization working on 5 wells performing production enhancement scopes in Q4.

Moving to Slide 14 for our Robotics review. Robotics continues to grow well. Strong operational performance and significantly better commercial results produced a good year for our Robotics team internationally. In the fourth quarter, chartered vessels fleet utilization was 73%, including 55 days from spot vessels. 2 vessels were utilized mostly on trenching projects in the North Sea, the Grand Canyon II works in the APAC region and the Ross Candies operated in the Gulf of Mexico. The Grand Canyon worked in the North Sea achieving 100% utilization on a combined hard and soft ground trenching projects until the vessel charter ended in November being returned to its owner further reducing our cost base.

The Grand Canyon II had a 100% utilization, performing works on ROV support projects in the APAC region.

Grand Canyon III had minimal utilization in the North Sea working 15 days trenching. Ross Candies is at 26 days utilization work in ROV support for 4 clients. In the North Sea, we also expanded our renewables offering and commenced the long-term wind farm site clearance and survey project from 2 smaller spot chartered vessels.

Over to Slide 15. I'll leave this slide detail and the vessels, ROV and trenching utilization for your reference.

I will now turn the call to Erik for a discussion on balance sheet and our 2020 outlook.

Thanks, Scotty. Slide 17 outlines our debt instrument and their principal maturity profile. I'll leave this slide for your reference and move on to Slide 18.

This slide provides an update on key balance sheet metrics, including long-term debt and net debt levels as of year-end. Our net debt in Q4 increased $143 million from $127 million in Q3. The increase in net debt during Q4 is primarily attributable to the $69 million final shipyard payment for the delivery of the Q7000.

Our total capital investments of $95 million, partially offset by $80 million of cash generated from operations.

Our cash position at year-end was $208 million, excluding $54 million of restricted cash.

Our year-end net debt-to-book capitalization was 8%.

Moving over to Slide 20 for a discussion on our 2020 outlook. For 2020, we're providing guidance and certain key financial metrics from our forecast. We're forecasting revenues in the range of $820 million to $890 million. EBITDA in a range of $180 million to $210 million. We expect to generate free cash flow between $110 million to $150 million. We expect to spend approximately $50 million in capital expenditures, primarily maintenance capital.

These ranges include some key assumptions and estimates. Any significant variation for these key assumptions and estimates could cause our results to fall outside the ranges provided.

We are assuming a good first year utilization on the Q7000. We expect the vessel primarily to work in West Africa. The vessel is currently under contract into Q2, and we continue to pursue opportunities in West Africa and other regions. We expect the 2020 North Sea Well Intervention market to maintain a consistent level of activity with continued seasonal fluctuations. The Seawell has completed its regulatory maintenance during Q1 with work scheduled for early March. The Well Enhancer completed its maintenance in Q1 and is expected to commence work in early March. We expect both vessels to have good utilization into Q4.

Moving to the Gulf of Mexico. The Q5000 entered the shipyard in late December and completed a trigger -- regulatory maintenance mid-February. The vessel is currently working in the spot market with a couple of projects scheduled prior to returning to its BP campaign in early April through the remainder of 2020. The Q4000 is currently undergoing regulatory maintenance, approximately 30 days. The vessel is expected back on contract in early March.

We expect the increased activity experienced in the Gulf of Mexico in 2019 to continue in 2020. We are forecasting high utilization for both vessels, the Q4 and the Q5, excluding the Q1 maintenance periods.

Moving to last Brazil. We expect a high level of performance and execution in our Brazil operations to continue in 2020 with both vessels on contract. The Siem Helix 2 completed its maintenance period in Q1 with minimal impact to operations. The Siem Helix 1 is scheduled for its maintenance period in Q2, anticipated to last approximately 10 to 15 days with up to 5 days of expected downtime.

In Robotics, we expect to continue to benefit from reductions in our cost structure for chartered vessel costs and hedges. We expect the ROV market to remain challenged. The renewables trenching market to be softer compared to 2019. The net impact for 2020 should be a modest positive to our Robotics' results. Production facilities will likely be negatively impacted by lower production from Droshky. The HP1 is expected to be operational all year with consistent performance and no scheduled maintenance periods. Once again, production should be markedly positive in 2020. We have not contemplated any Droshky work in our 2020 guidance, production enhancement or P&A work. Any work performed would impact our results.

To achieve the higher end of our range, the Q7000 would be operating all of 2020 with high utilization and little downtime. The Well Intervention spot market in the U.K., North Sea, and the Gulf of Mexico would provide for high utilization of our spot fleet. Any significant variation from these key assumptions could cause our EBITDA to fall outside the range provided.

The markets we serve will continue to be impacted by seasonal factors, especially in the North Sea. In addition to the seasonal impacts on Q1 and Q4, during Q1 of 2020, our results will be impacted by the regulatory maintenance on the Q5000 and the Q4000, forecasted at approximately 50 days and 30 days of maintenance, respectively. The Q5000 is scheduled to return to its BP campaign in early April. In addition, the Seawell, Well Enhancer and Siem Helix 2 all have maintenance periods during Q1. Therefore, we expect our Q1 to be our weakest quarter, marginally EBITDA positive. Based on our contracted work, we anticipate a significant rebound in the second and third quarter, with expected strong cash flow generation in the second half of the year.

Moving to Slide 22. In the Gulf of Mexico, the Well Intervention market, the Q4000 is expected to return to work in early March and has worked into Q3 with identified opportunities thereafter. The Q5000 has its 270-day program with BP from Q2 through Q4, working in the spot market from mid-February till contract commencement. The IRS 15K is expected to work in the second quarter and then, again, in the fourth quarter, with utilization similar to 2019.

In the North Sea Well Intervention market, both vessels are targeted to complete regulatory dry dock in Q1. The Seawell and Well Enhancer are scheduled to work in early March. We expect continued seasonal weakness during the winter months.

In Brazil, the Siem Helix 2 completed its maintenance period in Q1 with minimal impact to operations. The Siem Helix 1 is scheduled for its maintenance period in Q2, and anticipated to last approximately 10 to 15 days with 5 days -- up to 5 days of expected downtime.

Over to Slide 23. The Robotics segment is expected to benefit from its continued improvements in cost structure, the return of the Grand Canyon in Q4 2019 and lower charter cost due to hedges rolling off midyear. Although we're expecting softer trenching market, we are expanding our renewals offering and commenced a long-term wind farm site clearance and survey project from 2 smaller spot chartered vessels.

Over to Slide 24. The CapEx for the year is forecasted at approximately $50 million, with most of this capital for regulatory maintenance. Our scheduled debt payments for the year approximate $100 million. We expect to continue to benefit from strong operating cash flows and significant free cash flow in 2020.

I'll skip Slide 25 and leave it for your reference.

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

Thanks, Erik. The narrative given includes an awful lot of detail. I'll try and give a bit of a broader context.

We're still in a challenging market. Demand is off the bottom, as are rates, but services are still oversupplied and still needs to be absorbed before we see significant rate increases, although they are moving up slowly. While we're doing well on utilization, we have a lot of leverage to rates, which we expect to -- that will occur over the coming years. We have believed for some time now that we will have to enter a long gradual recovery. We see 2020 continuing to be challenging, but signs that supply-demand may hold promise for a meaningfully stronger 2021. However, we're not sitting back and waiting on a recovery story.

In this current market, investors want capital discipline, free cash flow yield, along with manageable debt. Our first priority was to complete our last legacy capital project, the Q7000. It's now working in Nigeria, at least into Q2. We have potential work identified that would keep the vessel in Africa for the remainder of 2020. We're also negotiating work that could potentially fill the first half of 2021. And after that, we're in talk for a contract that could last for most of 2022. None of that work is signed up yet, but timing for bringing the Q7000 to market seems to be right and the last of our major capital projects is now complete.

Going forward, our capital expenditure should run about $30 million to $50 million per year, primarily for maintenance capital. In 2020, we've anticipated the seasonally slow Q1 in the North Sea. So we took advantage of this to complete the maintenance periods on both the North Sea vessels. BP has elected to take their 270 days on the Q5000 after the first quarter. Therefore, we also scheduled its maintenance period in Q1. In addition, we also contracted the maintenance periods for the Q4000 and the Siem Helix 2 in Brazil in Q1. So all told, we've scheduled 5 of 7 Well Intervention assets for maintenance in Q1. This sort of sets up sort of an atypical abnormal Q1 for us, but it also sets up a very strong remainder of the year. And in 2021, it has a minimal -- it means we have to make an allowance in 2021 that's minimal.

Our second priority is debt management. With $143 million in debt -- net debt -- our debt levels are manageable. Our capital structure is manageable with our cash flows. We intend to focus the forecasted $110 million to $150 million in free cash flow in 2020 on further debt reduction. Our intent is to drive the company towards net debt 0 around the end of 2020. While our debt structure is manageable, we're always exploring ways to improve that structure with a view of returning value to shareholders. We need to gain clear visibility on the 2021 market before we're in a position to make that decision. But if, when and how we achieve that remains an ongoing subject of discussion.

We've also been working on evolving our business model to improve results without relying on the market recovery. Droshky type deals allow for greater certainty on utilization. Creative contracting offerings should start improving margins, even in the absence of higher rates. And geographically, we're expanding with the Q7000 now in West Africa and are looking to expand further into that region. We're also in discussions for work in the Asia Pacific region. The future should also see us expand the scope of work of what we can offer with our vessels in the North Sea. And we are also expanding our offerings, as Scotty mentioned, in the wind farm sector.

We're constantly assessing new opportunities, but they must be the right ones. Our future is bright, and we feel that we can be selective. We'll only look at those opportunities that enhance our market position, strategy, our low leverage and are accretive to free cash flow.

And with that, I'll now turn the call back to Erik.

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

(Operator Instructions) And our first question comes from the line of Vebs Vaishnav.

Well, I guess, you guys talked about going -- trying to get to net debt 0 by the end of 2020. Just trying to think about what your plans are for 2020 -- 2022 and 2023 converts, given like, I think, like about $100 million of debt payments you have scheduled already for 2020?

Okay. So I think that in general, we are definitely driving our debt levels lower. We have those scheduled payments that you talked about $100 million here in 2020. We recognize that we have the converts out there in 2022 and 2023. Based on our current market conditions and our current performance, I think, our expectations would be to keep that as a permanent level or semi-permanent form of debt out there. So our intentions would be more than likely to roll our balances associated with our converts in '22 and '23 in some type of instrument.

Okay. That's very helpful. Can you talk about the rate improvements that you're seeing in North Sea? And what you are seeing in Gulf of Mexico?

I'll take that. Yes, we are definitely seeing a slight increase in the North Sea. Our utilizations improved slightly as well. Last year, we had a couple of legacy contracts that were at lower rates, so we've readjusted to market in the North Sea. And in the Gulf of Mexico, very slight increases that, again, the utilization is packed up and by having the Droshky that means any gaps that come up, we can fill them with our own work. So starting to see rate improvements. There's still an oversupply of rigs. And so it's looking more for us in 2021, we'll see a larger increase in our rates as those rigs drop off. Also a lots of the work that we've undertaken are contracts this year was a bit at the end of '19 at lower rates as well -- not as higher rates as we could probably achieve. So we're seeing an increase, it's moving in the right direction but it's slowly.

Okay. And I guess you guys have done a very good job on cost cuts and also all the hedges going away -- like most of the hedges going away. Just trying to think if there are any other cost-saving opportunities that you guys see going forward?

Well, I'll take that for you, Scotty, because -- while we've been doing really well on the structural costs that you mentioned. I think operationally, there's still room for us. There's room for us to improve on our downtime allowances, which I think we're making great gains on, but there's still more improvement. Also, I think there is a -- there are areas with our strategic partner, Schlumberger, to cross train and integrate crewing and manning requirements that would allow us to lower personnel on board on each of our vessels. We're in the early stages of that. But that would be a significant cost reduction, it will just take some time for us to get all that training in place, the legal aspects covered and to effect it on the vessels. But I'd see, over time, that being a significant cost savings.

Our next question comes from the line of Ian MacPherson.

Owen, it's good to hear that the calendar is filling for Q7000, you mentioned you're bidding multiple work that goes out into next year. And I assume that you are working more at a level of [visionary] pricing this year that you would hope to improve upon as you move into the vessels second tranche of work. I wanted to confirm that with you and get a just a directional sense of what you're hoping for with regard to the Q7000 as it moves from this year into next year from a pricing perspective?

Well, I believe that if you go back, we've always been saying that the Q7000, the first year it comes out, it's a big uncertainty on the introduction to the market and they could contribute to EBITDA anywhere from 0 to $20 million. I think we've taken a -- I think, we definitely put out some introductory rates in order to get it started. And operationally, we're probably being conservative, although on its first well, it's performing very well. And that hopefully, that will continue.

Going forward now, the pricing that we are putting out for the Q7000, and in fact, all of the pricing for 2021 and beyond is at substantially higher rates. Whether or not we're able to achieve that or not, we'll see. But right now, there's a lot of interest in the Q7000 at the rates that we've given, which are higher than the introductory rates that we're working under. And I don't know, we'll see. We're far along in the producers expressing their interest. We're far along, in some cases, in actually, negotiating the Ts and Cs of the contracts. So things are looking fairly bright for the Q7000.

Good. Good. Good to hear that. I also wanted to ask about your looming renewals in Brazil, I think, SH1 hits its 4-year mark, a little more than a year from now, right? So I just wanted to get the updated outlook there on when you're in your renewal window and how the expectations are shaping up on that front?

Yes. The Q5000 with BP will be coming up next year for renewal. We're in discussions, very informal. The producers don't want to start formal discussions until a certain time before the termination or the renewal period of the contract. But the vessel has been working very well. I think BP is very ecstatic about the results that have been achieved with the vessel. We're talking about changing the relationship, where we actually can offer greater value through the contract. So all the discussions are leaning positive. In Brazil, I have even less worry. I think, in Brazil, the 2 vessels have consistently been rated in their top 2 rigs. We were the marine contractor of the year, last night -- last year for Petrobras. They are adding rigs. I think it's obvious that they need the vessels and the vessels are performing extremely well. I mean to work on 28 wells in a year is a pretty phenomenal comparison when you look at what a rig could do. So the efficiency story has been brought into their improvement. So I'm very confident about the negotiations with Petrobras.

And our next question comes from the line of Praveen Narra.

I guess, if I could follow-on, on the Ian's question on the Q7. When you think about the interest in the out years for that vessel, are you seeing it from anybody who wants it for a single customer? Or do you expect it to kind of get to multiple customers and back-to-back work?

I think the way we're looking at the Q7 right now is that we have 2 vessels in each region, the North Sea, Gulf of Mexico and Brazil. We want to penetrate West Africa, Asia Pacific. And of course, Brazil is also a growing market. We're actually running out of availability. As soon as the rig market tightens up, I think that spells good things for us. We sort of view the Q7000 as our swing vessel right now. I think strategically, we have reason to want to build the backlog in all of those regions. While it's building, I see the Q7000 being a swing vessel transiting from region to region. And if you remember, one of the reasons we built it the way we did is that it does have a high transit speed for a semisubmersible. So that allows its application to that purpose perfectly. The one disappointment, I'll throw in, though, for transparency, is the vessel was originally built for a producer that said they had a lot of work in the North Sea. As things have turned out 3 years later, the greater interest and the greater demand is actually in the other regions than it is in the North Sea. I think that will come eventually. But for the next few years, I actually see her being more of an international asset transiting from region to region.

Yes. The more multi-client but longer campaigns, it's not going to be bouncing around on 15-, 20-day jobs. So all of the negotiations we have now are for a longer 100- to 180-day type campaigns.

That's very helpful. And then as we kind of think about the guidance and the profitability between Well Intervention and Robotics. How should we -- there's a lot of moving parts of Robotics, obviously, you have some cost structure benefits as well as trenching hits a low point. Can you talk about whether you expect Robotics profitability to be up year-over-year? And then also, can you talk about the trenching outlook for the next couple of years?

Yes, I'll take that. So we expect Robotics to be modestly higher than in 2019. We are seeing the benefits of the cost structure, the Grand Canyon gets returned -- has been returned. So that comes out of cost base. The hedges have come off the cost base. We are seeing a flatter trenching year, it's a lower trench year, but it actually goes down to some of the renewables, cables that have been in manufacturing, the timing of those coming out to when those installations happen and our trenching, obviously, follows behind that. Going into 2021, we have work contracted from 2021 out to 2023. A higher volumes of work that we see in 2020. And we're still in the -- still the oil and gas bid season for trenching ongoing right now. So it's -- we're not saying that all the trenching days are taken for the assets right now. We're also seeing an expansion geographically for trenching, where our trenching market for renewables has primarily been North Sea and where the wind farms are, or the regulatory fishing compliance has been required. We're starting to see a lot more tender activity for APAC and where wind farms are coming off Taiwan and other areas and the Middle East. So trenching is a flat year this year, but it's outlook looks very good for us.

I might just add though, it's a little different from the oil and gas markets that we've been in, where we're subject to sort of short-term visibility. The wind farm market, we have long-term visibility on the work that's out there. It's perhaps a bit lumpy, but it's far more certain -- our outlook is far more certain. So when we say that 2020 is an off year. It's going to be less than 2019, but we have concrete visibility on the outlying years of it coming back.

And our next question comes from the line of Michael Sabella.

If we just kind of think about the rig market more broadly, a lot of stress on the balance sheets for a lot of the driller peers, which really is restricting them from deploying capital to reactivate rigs. How do you anticipate this playing out kind of over the longer term? So have you seen the ability to push rates a little harder than you normally would have, given that backdrop?

Well, you really have to break the rig market down into the different categories of rigs. All floaters aren't the same. The harsh environment rigs are enjoying quite a revival in the rig rates. The lower fourth gen, fifth gen, not so much. There's still an oversupply. I think the rig rates are far from the point that warrants reactivation. The costs incurred, plus the longer that the rigs sit, the higher the reactivation costs rise, so I would not expect to see -- I'm not even going to put a number on it. But I don't expect to see that many rigs reactivated coming back into the market. I think just the utilization rate right now, I believe, is at about 60%, 80% on marketed rates. We're on the cusp of where you can see meaningful rate increases. I don't see the underlying fundamentals of the oil and gas market in 2020, driving that beyond that trigger point. But I do -- am seeing signs that 2021 could see a tightening of the supply-demand that spurs the market to actually exceed that trigger point. I still don't think, though, even in 2021, you're going to see rig rates high enough to warrant the capital cost or the reactivation. So I see 2021, 2022, not being maximum rig rates but that rig rates that really mean -- meaningful profitability increase for us.

Yes. Great. That's really helpful. And then when we kind of circle back to capital allocation. So you guys haven't passed, talked about the possibility of buyback. If you kind of approach net debt-neutral territory. Keeping in mind that we really need to know more about 2021 before you're making firm decisions. Is there a leverage target that you all are comfortable sharing that would kind of allow you to start returning cash to shareholders and just sort of talk about where M&A fits into that kind of broader capital allocation decision?

Yes, I think from -- this is Erik. I think from the -- from our standpoint, we are driving the company towards the net debt 0. I think there's multiple factors rather than just leverage. I think that, as Owen mentioned, we definitely do need visibility in 2021. Obviously, a stronger market would allow us to be slightly more aggressive in our leverage position. A weaker market, I think, we would obviously be more conservative. So there's multiple factors. But obviously, in general, we are operating as a low leverage company.

I don't mind sharing some specifics on it though. A company our size, I believe, can and perhaps should for efficiency carry about $300 million to $400 million in gross debt. You -- I prefer to see us around that $300 million. I'm not a high debt guy. But in a strong market, I can see $400 million, but more likely, $300 million. Liquidity wise, I think, between $300 million and $400 million of liquidity. And our intent is to try and carry about a $200 million cash balance. That's sort of where we feel very comfortable that we could face anything that the market may throw at us.

Now as far as how that plays into returning value to shareholders. I think that gets into the question previously raised about what do we do with the converts out there, our capital structure. Do we create a softer lending, creating greater liquidity and, therefore, a greater ability to return the value to shareholders early. I think that depends strongly on how robust we really think 2021 is going to be. As I said, by putting all of these dry docks into the first quarter of this year, we're setting up a strong 2021. We're starting the discussions on the contract renewals. And if all that goes well, then our confidence builds in our ability to share value back with the shareholders.

(Operator Instructions) Our next question comes from the line of James Schumm.

So most of my questions have been answered, but is there any way you can help us think about the economics of the renewable energy support project with 2 vessels in the North Sea. How should investors be modeling as we're thinking about this?

Okay. I'll take that one. First of all, it's much lower revenue type work, it's 2 small vessels doing a site clearance. So each of these large wind farms that are out there, you have to remove any unexploded ordnance or any [bombs] that get in the way of the field development. So it's all about removing those problems for the wind farm operator and then doing site surveys. So the revenue on each boat is around $40,000 a day. And the margins are flexible depending on the type of work we're doing, sort of $15,000 a day. The project that we have is the first for us. It started very well. Both vessels have been working from December and are targeted to go well into the third quarter of this year. But because of that, we are seeing that's an area that we could enter in. There's not a lot more bid activity coming up. And it's something that we're really focusing on and is better returns to ROVs on customers vote. So we're looking to diversify our Robotics offering.

Okay, great. And then the 15K IRS unit, it looks like it's lined up for 1 well in the second quarter. I think in the past 2 years, you've talked about utilization close to the 50% range for the year. Is the expectation right now that this would be a lot lower in 2020? Is this -- should we -- I mean, I know it's early, but should we be thinking of this in more of a 30% to 40% range?

Right now, I would expect it to be in line with previous years. We have 1 well for 1 client. But it's lined up to go back to a legacy client, that's come back to us in the second half of the year, and we do expect utilization to be somewhat similar.

(Operator Instructions) There do not appear to be any further questions in the queue at this time. I'll turn the call back to you. Please continue.

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our first quarter 2020 call in April. Thank you.

That does conclude today's presentation. We thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone.