Helix Energy Solutions Group, Inc. (HLX) Q1 2018 Earnings Report, Transcript and Summary

Welcome to the Helix Energy First Quarter 2018 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, April 24th, 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 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 Jeff 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've not had 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 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 our slide two and in our annual report on Form 10-K for the year ended December 31st, 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. A 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 five, 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 from the Gulf of Mexico. This result was offset by the normal seasonal slowdown in well [Indiscernible] 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 non-cash 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 six, 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 days 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 continued to improve. The Siem Helix 2 was 88% utilized in Q1. Vessel performance has improved monthly after commencing operations mid-December. In the Gulf of Mexico, the 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 the seasonal slowdown during the winter months in the U.K. markets. The winter slowdown reduced the utilization of our chartered vessels and ROV. Production facilities continued to be a steady performer, operating at full rate in the entire quarter. On the slide seven, 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 $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 nine. Q1 us to a good start to the year, considering we're still in the seasonal [Indiscernible]. We had a good utilization in many parts of the company with very strong uptime performance. We also experienced the first full quarter of having the two vessels on contract in Brazil, both of which are performing well. Revenue in the first quarter was steady at $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. It's a good improvement in comparison to Q1 in 2017. Mostly due to higher utilization in the Gulf of Mexico for the key units in 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 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 performance in the Gulf of Mexico. In Brazil, as previously mentioned, it was in the first quarter having both the SH1 and SH2 on contracts where wells Petrobras. Robotics commenced the year slowly as expected, however, still achieving 56% utilization across the vessel charter fleet and has a much stronger contracted backlog in 2018 than to 2017 with numerous trenching projects secured. The long-term chart of 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. In Q1, creating much better staff to the previous in recent times. When we entered 2018, it was 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 to be the quarter working on two well locations side production enhancement activities. At the end of the quarter, the vessel commenced the planned mid-period underwater inspection originally planned to be undertaken in Q1. Due to client scheduling, we moved the inspection primarily into Q2. This inspection was completed ahead of schedule and the Q5000 is back to working on BP. The Q4000 had a great quarter, 100% utilized with no commercial downtime. The units under four wells for production enhancement and commenced the Free Well Temporary Abandonment program. The vessel has contracted work in Q3 and visibility of work into Q4. Regarding our intervention our IRS systems, IRS 2 continues to work with standalone renter units on the contract in West Africa and should remain contracted late into the quarter. IRS 1 is idle at our facility in Houston. In the mid-January, the Helix 1 subsea mobilized the 15K IRS onto the Q5000 completed its first high pressure oil. This is unique model offering the first of its kind system on a rental basis addressing the growing intervention requirements of high pressure subsea levels. We continue onto the alliance to contracts the consolidated package on the Q4000 with Helix providing the vessel ROVs and subsea systems and [Indiscernible] providing all services as one package to our clients. This mechanism seems to be working well and the works undertaken on the Q4000 have been 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] for the winter period. With both vessels commenced work in March, we've a strong contracted backlog for the year. Approximately 70% of the projects contracted this year will require our unique integrated dive-in services with one of the vessels working in that log entirely. The Well Enhancer worked 34% in the quarter to be warm stacked in Dundee in the U.K. then commencing work for three clients in production enhancement projects commenced early March. The Seawell had 28% for the quarter working on a dive-in 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 seven 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 downtime due to integrating and some mineralization of the crews, but currently, the vessel has completed five wells and is performing well. We have now completed 23 wells for Petrobras. IRS 3 has been installed in Brazil at our facility for approximately standalone rental opportunities. Moving on to slide 13 for the Robotics review. As expected, we had a slow start to the year with Robotics due to the harsh seasonal conditions. However, we still achieved 56% utilization across the charter fleet. In comparison to 2017, we have significantly increased contract backlog from trencher investment-based projects. The outlook for the year in Robotics has improved over 2017 and we've reduced our cost base to three vessels after returning the Deep Cygnus after its long-term charter. The Grand Canyon works in the North Sea completed 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-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 the slide detailing the vessels ROV and trenching utilization for your reference. As mentioned earlier, 2018 is shaping up to be 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 discussion on the balance sheet and our 2018 outlook.

Thanks Scotty. Moving to slide 16. It outlines our debt instruments and their maturity profile at March 31st. Our total funded debt at March 31st was a $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 [Indiscernible] 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 has effectively refinanced $59 million of convertible senior notes we will require to have repurchased and $61 million of our term loan due in 2020, pushing them into 2023. It allowed us to strengthen our cash and liquidity position and our net debt maturities with that 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 in net debt had been 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 pay down 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 are maintaining our forecast for 2018 EBITDA in the range of $135 million to $165 million. This range includes key assumptions in estimates. We are assuming full year benefit from the SH1 and SH2 in Brazil. With the start of 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 and they are 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 charter 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 two 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 worked 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 30th 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 a high level of activity for our vessels into Q4 with expected seasonal weakness during the winter months. Moving to slide 21, after a slow start to 2018, the expected slowdown during the winter months, we are expecting improvements in the Robotics segment performance for the remainder of 2018. We're expecting improvement stem from return of Deep Cygnus in Q1, lower chartered costs in the Grand Canyon due to its hedge rolling off 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, including the forecasted shipyard payment in Q4. Our remaining debt payments for 2018 approximate $33 million with scheduled payment on our Q5000 loan, MARAD debt, and term loan. I'll skip to slide 24 and I'll 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 rate utilization was better than a year ago. The Gulf of Mexico intervention vessel 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 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 have roughly $300 million of CapEx forecasted over the next three 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 portion of our debt to move from 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 level and the amount of timing of our remaining pre-payable 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 an 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 punch 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 has also showing maturity signs that could create an opportunity in that region. Brazil is 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 higher transit speed. This means that in addition to each region being an opportunity, the vessel was designed to be our twin vessel and can campaign in multiple regions successfully. Although we have the option with the shipyard to defer [Indiscernible] until 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 a preeminent non-rig intervention fleet and the best-in-class robotic capability, we'll be exploring in various ways to expand our service offering 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 creations. 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 Eric.

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

Thank you, sir. [Operator Instructions] Our first question comes from the line of Marshall Adkins. Please go ahead.

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

Thank you, Marshall.

Owen, your outlook for the Q7 seems to have a 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're seeing 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 we have been watching that region for a while. It has the high count of wellheads, but the maturity was not quite there to warrant the intervention activity. We're now seeing that starting 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 hobble together a sustainable schedule that warrants a vessel full-time present 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 there and that's our goal. So, that's probably the biggest changes maturity of the basement and the amount of work that needs to be -- that's piling up. Scotty, do you have a--

Yes, I think what we can say with the increase of price of oil, we're 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 rise of intervention and [Indiscernible] which is more suited to the Q7000. So, we've changed in production enhancement. We've seen the operators spend money on maintenance work they put off for the 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 like 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 the off-contract with BP is not filled. We are in negotiations with some clients to close out the portion of it and reduce the visibility in that hole. It will be BP rates, will be more market rates, but we're in discussions and we're quite confident that a good portion of the hole will be undertaken.

Okay. Last one from me, Scotty. You talked about the Q4000 is the Schlumberger alliance and 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 plan coming forward plan is that we'll have Schlumberger equipment installed on the vessel. And that gives us an advantage for two reasons. One, we can multi 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 for these less mobilization times, so when we jump from operator-to-operator and say it is 20 to 25-day well campaign, you probably used in about six days of time just mobilizing and demobilizing different service equipment. So, it allows an advantage and efficiencies of time against the overall well program. It allows us four days' clients to put forward one price and one 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 salesforce than us and that adds things up for the clients hopefully.

Okay, great. Thank you all.

Thank you.

Our next question comes from the line of Ian MacPherson. Please go ahead.

Thanks. Good morning. Congratulations on the quarter. Owen or Scotty, I guess, when we look back a few years ago at the last upturn, you were -- the North Sea was tiding 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 whey 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 2018-2019 winter season and 2019-2020 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. [Indiscernible] basin, there is more maintenance work required. So, I think catch-up starting to happen 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 Owen?

Okay.

Yes, I would just add to that, just to give you 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 a partner approvals on projects or whether or not they're just seeing 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 from here on now, that is either going to expand into the winter months or provide 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 the range of two to three weeks, is that appropriate?

Yes, we -- I think we put out there 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 that Brazil is going well and the downtime is reducing, but also what's reducing is the rates are impacted by [Indiscernible] that Petrobras drives. We're taking the opportunity during this maintenance downtime periods to resolve some of the outstanding [Indiscernible] on the Siem Helix 1, which should reduce -- correct if I'm wrong, Scotty, pier four tendencies will be eliminated and each [Indiscernible] is worth about $3,000 a day in revenue. So, it's a pretty positive uptick for us.

Good color. Thanks Owen.

Our next question comes from the line of Joe Gibney. Please go ahead.

Yes, thanks. Good morning. Just a question on the Q4000. Just curious, how much is 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 with 3Q for the vessel?

Yes, we've got work into Q3 that's secured with one of our premium clients and we're in discussions with others, that 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 the utilization. All of you indicated both of these vessels are operating above expectation. It sounds like you had some crew integration issues going in the quarter, but you got better every month. So, did you exit the quarter sort of at a run rate that you would expect to see commence 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 kind of gauge expectations for what your sort of exit rate on utilization is for this asset in Q2?

The run rate that we exited the quarter in was exceedingly strong. I would say we're -- 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 out there you might be able to secure these vessels now into December. Is that accurate?

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

Okay. Thank you. I appreciate it.

Our next question comes from the line of James [Indiscernible]. Please go ahead.

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

Yes, let me say that the contracts can be structured ourselves or Schlumberger can take lead as one contract to the client, reducing the procurement issues that 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 the equipment can be installed. So, it allows the crews to get more used to working together and therefore should lead to further efficiencies.

Yes, I'll just add in the 1990s when we were still called out, we were leading the industry on the creativity on the types and formats of the contracting that we've offered. Schlumberger has been pushing performance contracting. There are several forms of performance contracting, but there is a number of different formats that we've used in the past very successfully. And 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 -- is one of the means for as being able to expand our margins even in a challenging market.

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

From our standpoint, beyond 2018, we have our capital program running through 2019 with the delivery of the Q7. Starting in 2020, we see our maintenance capital running between $30 million to $50 million and that will be driven mostly by the timing of the dry docks.

Okay. Thank you very much.

Our next question comes from the line of Bill Dezellem. Please go ahead.

Thank you. Would you please talk about your thoughts on the Q4's utilization today versus where your mindset was at the beginning of the year, I guess, when you had the Q4 call? It does 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 for you 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 have do some inspection work on the vessel. We've got work into Q3. We have good visibility. The clients that we contracts with quite a lot into Q3 and Q4. So, I'd looking the same if not better right now. We've always had high utilization on Q4000. We know the clients like, 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?

Certainly, at the beginning of the year, we were -- because of the late nature of the clients propensity of the 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. Thank you. 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 true-up of our cost plus items that came in a little bit higher in the first quarter. So, those are the two 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.

Great. Thank you all.

Our next question comes from the line of Vaibhav Vaishnav. Please go ahead.

Thank you for taking my questions. I guess the first question on Well Intervention. What is some one-time cost increases in first quarter 2018? The way at least I see is like if I look at COGS, it had been like $90 million for last three quarters and it increased to $110 million. I understand Siem Helix 2 was a part of it, but just wondering if there was something else in that cost?

No, the big driver of our cost increases is the addition of the six 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 increase. Our cost structure has increased now that we have six vessels operating in Well Intervention, but to that, we expect obviously revenue base increase as well.

I mean part of the conclusion also that during the first half of December, the cost of the Siem Helix 2 was being applied to a deferred mode and did not hit the P&L. And during January, full month and all of the cost go to P&L rather than deferred mode 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 the second quarter 2018 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 is 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 cost, 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 four vessels to three 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 from most of the year. So, 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. The cost base coming down three vessels and increasing 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 for the year three times above that for Canyon this year.

Okay. And last question on Siem Helix, I was -- 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 full dated or do we need some more additions -- do we still need -- can we see improvements from here on?

I think we -- well this sort of ties into the run rate. The run rate at the end of the fourth quarter was very -- 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 three or four of the [Indiscernible], which will increase revenue by around $3,000 a day per [Indiscernible]. 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 bed in on Siem Helix 2, a better performance from that vessel. Siem Helix 1 is better than very well and we got steady state running 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 than the original startup for the vessels.

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

All right. That's very helpful. Thank you for taking question and good quarter.

[Operator Instructions] We have a question from the line of David Smith. Please go ahead.

Hi. Thank you. Congrats on the quarter. 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. Just want to make sure, I get this right, is it fair to say North Sea pricing in 2018 looks comparable to 2017? And were you implying that 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 2017. Again, a lot of that is coming down to dive-in work. 70% of the work is contracted already has dive-in increase of revenue associated with the dive-in plus, we're seeing a small trickle up on the rates because for the net utilization and the uniqueness of having the dive-in assets on one of the vessels. We are still seeing right pressure in the Gulf of Mexico. The Q4000 is working in spot market activities as we close out the year. It's the only unit really that comes on the rig pressure. So, we do fight against the procurement teams at the operators saying they can rigs. Again, we expect utilization; we're seeing work from clients that we've continuously worked with.

Yes, I think it's important to note that you just said the Q4000 has been only vessel that we're really seeing under rate pressure. Relative to 2017, 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 2017 for the Q4000.

That's a good point.

That's good color. Appreciate it. And just thinking about the Gulf of Mexico spot pricing for the Q4, clear overhang has been the excess rig capacity. I think I remember you've describe 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 I 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 needs that shows that intervention vessel like 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 ones they do try once or twice, then we're seeing the ability to price in that efficiency gain. Relative to the Q4 versus 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 has been never been done before. But there is definitely a learning curve and we've taken some of those things and incorporated them into Q7. For instance, on the Q7 versus the Q4, we have the ability to the trolley the riser off to the side, which means when we are doing change outs, for instance, setting devices the downhole or the wrong device, we save two or three 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 there's no man writing. So, there is a great benefit safety concerns Q4 versus Q7, just more improvements. There's other differences, but those are the two of the main ones. Scotty, do you have any?

The transit speed is well for the unit is much quicker than Q4000 for instance. We plan to contract Q7000 in the same manner as Q4000 at Schlumberger, so we'll have permanently installed equipment and again, those enhancements will go Q4 will be available on Q7.

Great. Thank you very much.

Thank you.

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.