Helix Energy Solutions Group, Inc. (HLX) Q1 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the first quarter 2019 earnings conference call. [Operator Instructions]. And as a reminder, this conference is being recorded, Tuesday April 23, 2019. Now I'd like to turn it over to Mr. Erik Staffeldt, CFO. Helix Energy. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today on our conference call for Q1 2019 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Scotty Sparks, our COO; Alisa Johnson, our General Counsel; and myself. Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through the Investor Relations page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon. Before we begin our prepared remarks, Alisa Johnson will make a statement regarding the 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 and variety of factors, including those set forth in our Slide 2 and in our annual report on Form 10-K for the year ended December 31, 2018. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slides of our presentation material provides a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available on our website. Owen?

Good morning, everyone. We'll start with Slide 5, which is a high-level summary of Q1 results. Our first quarter financial results were up from Q4 driven by higher utilization and rates in the Gulf of Mexico for our Well Intervention vessels, offset by the typical seasonal slowdown in the North Sea affecting both Well Intervention and Robotics. Revenues in Q1 were $167 million, up from $158 million in Q4. The increase in revenue resulted in gross profit of $16 million or 10% compared to $14 million or 9% in Q4. Moving to Slide 6. For the quarter, we recorded a net income of $1 million compared to net loss of $14 million in Q4. We generated EBITDA of $30 million in Q1 compared to $23 million in Q4. Our operating cash flow was a negative $34 million primarily due to $17 million spent on dry dock and recertification costs and some timing issues of AR collections. Moving to Slide 7. Our utilization during the quarter was impacted by the winter season in the North Sea, as expected. In North Sea Well Intervention, we completed dry docks on our 2 vessels in early February and commenced their 2019 campaigns in mid-February and early March. In the Gulf of Mexico, the Q4000 and Q5000 were on contract the entire quarter with some equipment downtime on the Q5000. Our operations in Brazil performed well with minimal downtime. Robotics benefited from a winter-trenching project and increased activity in the Gulf of Mexico. In Production Facilities, the HP1 completed dry dock in early March with minimal impact to operations. On to Slide 8. From a balance sheet perspective, our cash levels at quarter-end decreased to $220 million from $279 million at the end of Q4. During the -- during Q1, in addition to the $17 million spent on dry docks, we invested an additional $12 million in capital expenditures, and we made $13 million of scheduled debt repayments. Our net debt at the end of Q1 was $209 million compared to $161 million in the fourth quarter. I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Thanks, Owen, and good morning, everyone. Moving on to Slide 10. 2019 is off to a good start with the Q5000 back on hire to BP for its annual campaign, both vessels performing well in Brazil and Robotics having a much stronger Q1 than in 2018. Across the company, we had good operational uptime and safety performance. Our fleet generated utilization efficiency of approximately 97% against contracted days. In the first quarter, we achieved revenues of $167 million and a gross profit margin of 10%, resulting in a profit of $16 million. In the North Sea Intervention business, both vessels remained warm stacked at the start of the quarter with the Seawell commencing work in mid-February and the Well Enhancer commencing work in early March. During this slower seasonal period, we also completed regulatory dry docks in both vessels. In the Gulf of Mexico, the Q5000 commenced our annual commitment to BP in January, and we expect the vessel to work for BP until the end of the third quarter. The vessel also currently has the 15K OneSubsea Helix IRS system contracted for a good portion of this period. Q4000 achieved very good utilization for the quarter and currently, it has worked into the third quarter working on -- for numerous clients. Performance in Brazil was strong. Both vessels performed very well achieving high utilization of 98%. Petrobras also awarded Helix the 2018 Supplier of the Year award for Maritime Rig Operations. For our Well Intervention fleet in 2019, we are seeing a greater ratio of work towards the production enhancement side of the market. Approximately, 70% of our work this year will be planned towards production enhancement work scopes. Robotics achieved a very good quarter with much improved Q1 financial performance compared to Q1 of 2018. Utilization for all 3 Grand Canyon vessels was high with two of the vessels working on renewables trenching project in the North Sea. We also experienced 84 days a project works in the APAC region on spot-tied vessels. Slide 11 provides a more detailed review of our operations in -- of our operations for our Well Intervention business in the Gulf of Mexico. The Q5000 performed work for BP for the entire quarter, achieving 87% utilization, but the joint Siem Helix 1 Subsea 15K IRS system contracted for the entire quarter. The 15K IRS system had some start-up issues leading some -- to some unplanned downtime at the start of the period. The Q4000 achieved good utilization of 97%. The vessel performed well with minimal commercial downtime working on a 12-well campaign for a single client. The vessel is currently working into the third quarter and has good visibility for a tighter schedule in 2019. Our rental IRS units, IRS 1 and 2, were still the top facility in Houston. Leading to Slide 12. Our North Sea Well Intervention business started the year as expected with both vessels undertaking regulatory dry docks in the period and staying ready in warm-stacked until the start of this year's program. Both vessels have booked into third quarter with a high-level of visibility towards this year's works. The Well Enhancer commenced work in early March after completing the dry docks, then conducting diving operations for 1 customer and then intervention scope for another. Throughout the first half of the quarter, the vessel subsea intervention system, SIL 2, also completed its 5-year CSC Maintenance and testing. The Seawell also completed dry dock during the winter stack, warm stack period and then commenced work mid-February working for 3 clients undertaken diving and intervention programs. Annual routine maintenance was completed on the subsea intervention systems, SIL 1. Moving to Slide 13. In Brazil, our operations for Petrobras continue to go extremely well, and we achieved another strong quarter. Both vessels continued to perform well undertaking numerous varied scopes, mostly related to production enhancements. As I mentioned earlier, we are proud to receive the 2018 Petrobras Supplier of the Year award for Maritime Rig Operations. This is an outstanding achievement considering the relative small amount of time we've been operating for Petrobras. Well done to our teams in country and also the support from the other parts of the company. In the first quarter, the Siem Helix 1 achieved 98% utilization, working on three wells undertaken production enhancement works. The Siem Helix 2 achieved 98% utilization working on 5 wells performing production enhancement works. Moving on to Slide 14 for our Robotics review. Q1 2019 year-over-year was a much improved quarter for Robotics with strong operational performance and much improved commercial utilization. In the first quarter, vessel-chartered fleet utilization was 88% with two vessels utilized mostly on renewables trenching projects in the North Sea, and 1 vessel contracted on 2 ROV support projects in the Gulf of Mexico. We also contracted 84 days of project-oriented spot market vessel utilization. The Grand Canyon worked in the North Sea achieving 100% utilization on a hard ground trenching project, utilizing our high-performance hard ground trencher -- a jet trencher and 2 support ROVs. The Grand Canyon II, located in the Gulf of Mexico, had 72% utilization on 2 Deepwater ROV support scopes. The Grand Canyon III had 80% utilization, mostly performing works on trenching project and ROV support works in the North Sea. Our outlook for 2019 Robotics is currently improved with our loan cost improvements, and we've already secured meaningful utilization, and we continue to add more contracts to the fleets working in both trenching and ROV support. The Grand Canyon II has also been contracted on a longer-term ROV support contract with possible contracts extensions that will have the vessel leave the Gulf of Mexico for the APAC region in Q2. Over to Slide 15. I'll leave the slide detail and the vessels, ROV and entrenching utilization for your reference. I'll now turn the call over to Erik for a discussion on the balance sheet and our 2019 outlook.

Thanks, Scotty. Slide 17 outlines our debt instrument and their maturity profile. I will leave this slide for your reference and move on to Slide 18. Slide 18 provides an update on key balance sheet metrics, including growth and net debt levels as of March 31. Our net debt in Q1 increased to $209 million from $161 million in Q4. The increase in net debt during Q1 is attributable to the $12 million of CapEx and $17 million of dry dock outflows and timing of our AR collections. Our cash position at quarter-end decreased to $220 million, reflecting the CapEx outflows and pay down of $13 million of debt. Our quarter on net debt to book capitalization was 11%. Moving to Slide 20 for discussion on our 2019 Outlook. We are maintaining our guidance for 2019 EBITDA in the range of $165 million to $190 million. Our Q1 results were as expected in the pursuant activity levels and our markets support our guidance. This range includes some key assumptions, expectations and estimates. We're assuming full year benefit for the Siem 1 and Siem 2 in Brazil. We expect that 2019 North Sea Well Intervention market to maintain high-level of activity into Q4. We expect the Q4000 to have good utilization and potentially benefit from the Droshky acquisition. Q5000 forecasted for 270 contracted days with BP with the opportunities for the 95-day cap. In Robotics, we expect to continue to benefit from reductions in our cost structure for vessel chartered cost in foreign currency hedges. We expect marginal improvement in ROV utilization and trenching market similar to 2018. Production Facilities is expected to be very consistent throughout the year. And as of last year, our EBITDA guidance also includes approximately $20 million reduction related to mobilization cost for Brazil contracts paid previously, but expensed over the term of the contract. To achieve the higher end of our range for Q7000, we'd be working in the second half of 2019. The 2019 forecast range includes nominal benefit from Oil and Gas production covering its operating expenses. Any significant variation for these key assumptions could cause our EBITDA to fall outside of the range provided. Moving to Slide 21. We have $1.1 million of backlog, of which, $408 million is currently scheduled and estimated to be completed in 2019. Our backlog is heavily weighted to the BP Q5000 contract, the 2 Petrobras contracts and the Helix Producer 1 contract. In the Gulf of Mexico, Well Intervention market, the Q4000 currently has work into Q3 with identified opportunities thereafter. The vessel is currently showing seamless spot market, and we expect the vessel utilization to be driven by near-term opportunities. The Q5000 will continue as programmed with BP through Q3. The IRS 15K system is currently on day-rate contract with expected utilization similar to 2018. In the North Sea Well Intervention market, we're assuming to continue base level of activity for our 2 vessels. Both vessels completed regulatory dry docks in 2019 and commenced their seasonal campaigns in Q1. We expect strong utilization through Q3 and expect typical seasonal weakness during the winter months. In Brazil, we expect full year of operations in both the Siem Helix 1 and 2. Both vessels will have downtime for scheduled maintenance, Siem Helix 2 between 4 and 14 days in Q3, and the Siem Helix 1 between 7 and 12 days in Q4. However, their schedules of fluid and timing of the maintenance may change. Over to Slide 22. The Robotics business segment is expected to benefit from continued improvements to our cost structure, both chartered vessel cost and hedge reductions and marginal improvements in the market. With significant backlog and increased market activity, we expect Robotics to be well positioned to improve results in 2019. Over to Slide 23. Our CapEx for the year is forecasted at $140 million, with most of this capital for -- coming to complete the Q7000, including a forecasted shipyard payment at delivery. Maintenance CapEx includes dry docks completed in Q1 of the HP1 Seawell and Well Enhancer. Our remaining debt payments for the year approximate $34 million. Despite the Q1 timing issues, we still expect to generate strong operating cash flows from 2019. I'll skip Slide 25 and leave it for your reference. At this time, I'll turn the call back to Owen for closing comments.

Thanks, Erik. We've had a very good start to 2019 considering we still face a challenging market. The market is improving, and we're seeing this in better-than-expected utilization. We're still a bit ahead of seeing meaningful rate increases, but rates are stable. We're also seeing higher-than-expected levels of tendering activity. We acquired the Droshky field for the purpose of having control over the timing of the P&A work as insurance against holes that may develop in the schedule as they did in 2018. At this point, with the tendering levels we're seeing, we may not need to do that work in 2019 if the tendering activity translates into sufficient demand. I believe, right now, where we are planning to do one well that we need to get done by the first quarter of next year, but other than that, our schedule looks pretty full. Activity levels for Intervention work in the North Sea continue to be strong. The Gulf of Mexico is showing signs of increasing activity. Brazil continues to be strong and Helix was just awarded the Petrobras Maritime Rig Operations Supplier Of The Year award, as was mentioned. The future in Brazil appears to be very promising. As for our Robotics business, we're especially pleased with the activities levels improve both for trenching in the nonoilfield market as well as for our work-class ROVs. Our cost for this business unit continues to decrease with charter and hedge roll-offs. The Robotics is outperforming even the improvement that we were expecting. All is not perfect, however, so we had improvement that can't be captured. The Q5000 incurred 12 days of downtime and the Well Enhancer incurred 5 days of downtime in Q1. This is an area that we've been improving in, but still have further room to improve. The work in the North Sea kicked off later than planned, but the schedule was strong. This impacted the first quarter, but with a timing issues, so we should make it up on the back-end of the schedule. The other note of interest is that cash flow for the quarter was down. This is nothing but a matter of timing. Most of the decline is due to timing issues on receivables as about half the discrepancy was received after April 1, affecting the reporting. We also had a POC contract where the accounting did not match well to the receivables timing, along with another project where deferred payments were offered as an inducement to generate off-season work. The first quarter of 2019 was also a heavy quarter for dry docks versus the previous quarter, but we wanted to get them out of the way. All in all, it's been a very good start to 2019. It's still early, but we can report that with Q1 in the bag and what we see ahead, we currently are trending toward the upper end of the guidance range, previously given. As a final comment, I will try and give some -- the color that I can to the potential of the Q7000 delivery. As corporate policy, we don't make formal detail announcements of contracts until they're signed. Given the prolonged process required to obtain all authorizations in West Africa, getting to one of the contracts that we've been pursuing has been a bit unique. However, I can tell you that it appears that the project has been given the green light and although, terms are being finalized, the bureaucracy of getting formal sign offs is still a bit slow. We have now begun the mobilization process however, as we stated previously, we were not going to incur mobilization costs until we were reasonably confident in the work. The mobilization process and transit time from Singapore to West Africa is about a 6-month process. Therefore, we expect that the Q7000 will be in the market in Q4. The range of our guidance contemplates at least some contribution to EBITDA in 2019 from the Q7000. The contract that I've been describing is not a long-term contract, but we're seeing sufficient activity that, in our opinion warrants bringing the Q7000 to market. Again, it's not done, but we're comfortable enough in securing work to deploy, and we've begun the mobilization process. If all the activity we're seeing actually translates into sanctioned workforce, then we'd be hard pressed to provide the capacity required to meet all the demand that we're seeing. We believe that the Q7000 -- with the Q7000, we have the capacity to capitalize on any market recovery, while at the same time, beginning to see some possible meaningful rate movement. Our outlook remains confident in improving EBITDA over the next couple of years. We'll continue to pay down our remaining debt, and we'll control capital spending. Once the final payment is made on the Q7000 this year, we look forward to a strong fee -- free cash flow generation. The market is stirring, and we expect to be able to capitalize on any of the market improvements. With that said, I'd just like to add a little comment here at the end. I'd like to share with you that our General Counsel, Alisa Johnson, will be retiring as of the end of this month. Alisa came on board in 2006 just in time for a significant management change at the end of 2007. She's been an integral part of the team managing through that period as well as the financial crisis in 2009. The rationalization of our business model culminating in the sale of our production in 2012. She's also overseeing the legal issue in our aggressive capital build program, including with the Q7000. She's been a vital member of the team as we managed through the period following the commodity price collapse of 2015. She deserves a break, I'd say, at this point. She deserves my sincere thanks for her dedication and loyalty to our company as we navigated some challenging times. We'll miss her day-to-day involvement, but we'll certainly keep in touch. Going forward, we're proceeding consistent with the company's long-standing succession plan. You can look for an announcement here in the next week or so, and we expect nothing but a smooth transition. With that, I'll turn it back over for some questions, Erik.

Operator, at this time, we'll take the questions.

[Operator Instructions]. The first question's from the line of Ian Macpherson.

We definitely had a lot of questions entering the call, and you've answered a lot of them in the prepared remarks, so thanks for that. Owen, it sounds like the -- your bias towards the upper end of your guidance range for this year, but with -- it doesn't sound like that includes a meaningful contribution from Q7000. Given the lead time that you described, it doesn't sound like the contribution from that asset is necessarily a big component. I would surmise that it's probably the better Q4 utilization for your other assets that probably biases you towards the upper end. Is that a fair interpretation?

I think that's fair, Ian. The way that we worked the guidance is if everything -- if all the positives that we could possibly identify were to occur, we would exceed our guidance. So what we do is we take them -- all of the positives and we risk weight them. So there is a contribution from each of the positives, but it's hard to quantify exactly what we're planning from the Q7 versus others, but I think the statement is pretty much in-line.

Okay, okay. I wanted to ask you about the asset sale, the big asset sale the North Sea announced last week with Conoco selling to Chrysaor. And you've talked generally about these types of transactions being additive to your addressable market. And I suspect, that's the case here as well? Have you -- can you provide any color with regard to those assets? What -- and maybe you've done on those assets historically? And how you think the demand scope for those assets might change or might improve for you in sort of the extent of it?

Well, this particular asset base Conoco and Chrysaor don't have a large population at Subsea wells, which is the focus of our work, but they are adding to it. We've been in dialogue for a while with Chrysaor. We are in the process of negotiating an MSA with them. But you are absolutely correct. This kind of consolidation move in the Gulf of Mexico or in the North Sea, I think bodes well for the smaller producers taking over being a lot more aggressive on production enhancement, and therefore, I think it bodes well for increased activity levels in the North Sea.

Yes. Okay. Good. If I could squeeze in just one more small one. Scotty, did you say that both of the Brazil vessels had 7 to 12 days, one of them in Q3 and one of them in Q4, of dry dock?

Yes, roughly. We -- it's not dry dock, but it's some shipyard maintenance firm that we have planned.

The next question's from the line of Marshall Adkins.

Owen, oil price are up more than $10 since the last time you were on a call. Obviously, a $10 move in oil is a big deal for your customers. You did hit on some of this in the prepared commentary, but I'd just like to get a little more color from you in terms of customer conversations at higher the oil prices and things like the asset overhang in the Gulf of Mexico and pricing and stuff like that due to changes in the commodity environment. So just give us a little more color on what you're hearing from your customers, if you would give them a little price move.

Well, I think what we're seeing is that there -- in the North America, there's still a bias towards shale production, but I think that's waning and there's a returned focus to the offshore area, which is boding well. I think the rig activity is increasing. The role off legacy contracts with rigs is further reducing. So that's bringing more -- not only is the market starting to expand here, but a lot of it is starting to come back to us in the Gulf of Mexico. That's a real positive. In the North Sea and Europe, in general, I think the sentiment over there is far more bullish towards offshore and in the energy in general than it is in the U.S. I think that's driving a lot of the activity in the North Sea. And I see that continuing for a while. Brazil -- for what we're hearing down in Brazil is that there is an intent to ramp things back up again. So I think the demand for our assets only intensifies and probably demand increases to the point where they need additional assets. So all in all, it's starting to be a very positive story, but it's still early. I haven't -- we are not seeing tremendous rate increase, we were able to stabilize and see some marginal increase, but right now, we seeing it mostly on the utilization side.

Awesome. The Q7000, you gave us pretty good view of your insight there into West Africa. Given the improving market, is there a chance that thing ends up somewhere else a year from now? Like in Brazil or North Sea or some other place?

Well as I said, I think Brazil, if it ramps up to the degree that we're expecting and you can see a lot of new players show up in Brazil, I think there is a possibility of additional assets being required in Brazil. So that would be one market. I think in my color comments, I also said that if all the tendering activity that we're seeing right now actually translates into demand, then I don't think that we have sufficient assets in the Gulf of Mexico to meet the demand. So there could be a possible campaign scenario for the Q7000 even in the Gulf of Mexico. West Africa, definitely has the work. The problem with West Africa is just getting all of these authorizations and approvals out of the way. We're going to be focusing very hard this year on expanding our approved presence and ability to contract in all of the West Africa countries. As we progress with that, I think you see demand increasing there to the point of at least being a strong wintertime campaign. And then finally, the North Sea, the market that the vessel was actually built for, has the demand. I think it's a matter of showing up and proving its capabilities, which following this West Africa campaign that we'll be doing, that should open the door to starting the book some meaningful backlog in the North Sea. So I think, yes, all of the markets are showing the potential of being a future home for the Q7000. And remember, we built the vessel, we should shape pontoon. So for -- in transit at roughly the same speed as a monohull. And for a semisubmersible, that makes it a really valuable asset for working with -- between all of the regions.

Great, great overview. One last quick one. I was just curious on the Droshky stuff. Is -- do you benefit from higher oil prices? Is that a needle mover at all as oil prices go up given the Droshky stuff?

Certainly, the production that is remaining in Droshky will benefit from that commodity price movement. We didn't do the deal for the remaining production though. It's sufficient to cover our operating costs there. So yes, it'll help. How much it moves the needle, I'm not really sure.

There next question's from the line of George O'Leary.

I thought it was encouraging to hear that about 70% or more the opportunities that you guys are seeing are on the production enhancement side. Could you just remind us of the delta and to the extent there is one -- I believe, if I remember correctly, the production enhancement affords potentially higher margins or longer-duration work. Just the difference in the production enhancement work versus the Well Intervention-type work? And any margin or cash flow differences that, that offers you guys?

Scott, do you want to take -- talking about the different types of work that we do?

Yes. I mean, look we're seeing this year a trend towards more production enhancement, but there's not really a delta in the prices we put out to the clients there. Some of the production enhancement jobs do take longer than P&A-type activity, but there's not really a delta in difference. What it does show us is over the previous years, we've been sort of 50-50 between P&A activity and production enhancement, and now we're seeing a -- quite a significant move from our clients to get more oil out of the ground in achievable manner. So that hopefully should lead to better utilization, which we're starting to see in 2019.

Great. That's helpful color, and certainly encouraging to hear. On the IRS rental side, maybe you could just speak to the tendering activity you guys are seeing? And in terms of the spot opportunities that are popping up, is that increasing the likelihood that may be the systems go out on rentals as we progress through the year?

I wouldn't say we've seen a significant increase. There's 1 or 2 tenders out there that we're following with keen interest. But right now, we're seeing more of our assets being put to work with the full package rather than just rental opportunity right now.

The next question's from the line of Martin Malloy.

You sound much more positive on the Gulf of Mexico than I've heard from you in a couple of years and the outlook here. Can you talk...

Marty, that's a pretty low bar.

Okay. All right. Can you talk about the outlook for pricing and -- of your vessels in the Gulf of Mexico?

I'll start, Scotty, and then you can take over since you're closer to it. But I think you'll see us start to make a definite concerted effort from this point forward to start to push the pricing back up to a more rational level. We've made a few forays into that area. We've gotten some increases, others -- the -- I don't know if the word goes forward at the pricing but we've given -- but we're certainly starting to try.

We're definitely seeing our utilization tighten. And we also have the back spot there, the Droshky work that if we need to we can fill in, undertaken our own work, rather than going in at low rates now. So we're seeing rates stabilize. We are pushing rates as the rig prices increase as well, and we're starting to see 1 or 2 contracts come in, but they're seeing some increases. So it's moving in the right direction and certainly it's stabilized.

Okay, great. And then on the robotic side, it sounds like the visibility has improved there and particularly, with trenching that's continued to remain pretty strong on the outlook. Can you talk about the pricing for those assets?

Scotty?

Yes. I mean, our pricing is slightly increasing in both trenching and ROV support works, when its vessel related. Our utilization year-over-year is certainly increased. Since it's the Grand Canyon I, I expect that to be fully utilized minus any breakdown until we hand the vessel back in late October. We've just been awarded a good long-term contract in the APAC region for the Grand Canyon II and Grand Canyon III schedule looks quite solid right through into the fourth quarter as well. So we're seeing much stronger utilization. Obviously, our costs have decreased in that business, and we're backing the -- blocking up contracts and utilization. It's moving in the right direction also.

Great. It sounds like positive things are developing here.

Yes, I'd just like to add, we are back into a positive contribution from the Robotics to the EBITDA on the guidance. So we expect that to just grow over the next few years.

The next question from the line of Bill Dezellem.

First of all, what would you say that rates in the Gulf of Mexico were fully bottomed? And where are we at today relative to -- where is spot pricing today relative to prior peak?

Do you want me to take that?

Yes, you go ahead -- no, go ahead, Scotty.

Yes. Like we said, our rates have stabilized. They've stabilized above the bottom that we're seeing in parts of 2016, '17 and '18, and they're now increasing. So we're following the -- as the rig market changes and as our utilization is tightening up, we're starting to increase rates. They're definitely off the bottom and they've definitely stabilized, and we are -- like Owen said, we are continuing to start to push them.

I would say that 2016 and early 2017 represented the bottom of the market for us on rates. They have come off of the bottom, but not meaningfully. We're still probably down, I'd say, 30% from peak periods.

Yes, 30% or 40% from the peak period. Yes, like you say, we're definitely off the bottom.

So were those peak rates -- and would you consider those achievable in this next cycle? Or were those really very, very peakish? I guess what I'm trying to differentiate between is a spike in rates versus normalized rates?

I think the peak rates that we saw in '14 were a bit abnormal. I think going forward, it largely depends on what happens in the rig market. How many rigs actually come out of stack? Once a rig is stacked for multiple years, the cost of bringing it out is almost prohibitive. But I think it remains to see -- be seen as the rig market is tightening up now, as it tightens up, I think we have to watch where rig rates go to and how many rigs actually come back to the market before we could give an accurate answer as to when the next peak would be and what that would look like.

And then continuing down this path, you had 92% utilization in the Gulf of Mexico this quarter. I wasn't able to find what that number was a year ago?

I think last year we had very high utilization in the first quarter -- actually in the first half of the year, the Q4000 on the spot market and the Q5 working for BP. I wanted to say it was high 90% range last year at this time.

Yes, I'll just add the utilization -- we're usually able to keep the utilization high, but we have to crash rates in order to achieve that. At the ultimate bottom of the market though, we were actually -- the -- all of the contractors were down working at near-cash breakeven levels, and there still wasn't enough work to keep assets busy. So that's how bad it was, but we are able to get the utilization it just depends on what rate its at.

That's helpful. And finally, OneSubsea, how much that relate -- is that relationship responsible for a higher level of conversations and/or tenders that you're now experiencing?

I'll take a real brief -- it's helping. It has helped. It's introduced us into doors where we previously hadn't been, and it's shortened the time period that it would've taken up to penetrate those same clients. I think we're a long ways from seeing the ultimate fruition of that relationship. I think we're in discussions with OneSubsea as to how we can maximize the collaborative efforts and the types of work that we can go after. So I think we're -- we've only scratched the surface of the benefits that, that could generate in the future.

[Operator Instructions]. And next question's from the line of Vebs Vaishnav.

If I think about just, let's say, 2019's EBITDA of $175 million and try to work it toward the free cash flow. So you have about $10 million of interest expense. Can you say how much cash taxes do you expect for '19?

Erik?

Yes, I think from a overall standpoint, I think the cash taxes that we would expect would be more from a income tax withholding for some of our foreign work. So we don't expect foreign taxes to be significant -- we don't expect our taxes to be significant.

Okay. And then I basically take out the CapEx. Is there -- like, you spoke about some Brazil amortized cost, do I need to add it back to think about free cash flow?

Yes, I think when you look at free cash flow, and I think we've identified that for you. In the comments, we have the deferred cost that are expensed but were paid in previous years.

Got it. And then as I think about next year, can you remind us how are you thinking about maintenance CapEx or CapEx for next year?

I think in general, the maintenance CapEx, we've said that -- I think we expect it to be in the $30 million to $50 million range on a go-forward basis, once the Q7 is delivered.

Got it. So basically, like if I think about next year's free cash flow that's like just from a lower CapEx standpoint, that's a significant step-up. Can you talk about how you think about prioritizing your use for free cash flow? How do you think about dividend versus buybacks?

I'll give you my personal opinion but qualify it with saying that, that's ultimately a Board decision, and there'll be a lot of discussion at the Board because we are certainly heading into a period of significant free cash flow generation. One thing I can definitely tell you is that we will not be building another ship. Beyond that, I -- we're a growth company, so we'll always be open to opportunities that the market presents. Right now, the market is starting to stir, but I don't know that there's any -- there's not that many meaningful places where I would consider deploying capital. So that then leaves us returning value to shareholders. My personal view is that returning value to shareholders is best done through share repurchase rather than dividend, but again, I'll just qualify that in saying that, that's ultimately a Board decision.

Got it, that's helpful. And just on Q4000, it sounds like you guys have worked through May, but I also heard like it could work into 3Q. Just could you help me just think about what work you have in Q4000? And how long is that?

Would you like me to take that one, Owen?

Yes, Scotty.

Yes. So right now we have work put into the third quarter this year. We're also in final discussions with some clients that will book out the rest of that quarter and into the fourth quarter. And so we're expecting a much tighter schedule for 2019. And if any of that falls away then we also have the backdrop of our Droshky work to cover that. So that's -- right now, like Owen said, we're planning just one well for Droshky because we're seeing the market from a utilization point-of-view come back to us and a much tighter schedule.

Just like that -- whether we do Droshky this year or next year is not the real value or it's not the total value picture. Just that the fact that we have that insurance of that utilization in our back pocket allows us to be a lot more aggressive and combine -- aggressive on our pricing. Combine that with the fact that we are seeing a tighter schedule just means that this year is looking so much more robust than last year.

Okay. And maybe one last question for me actually, just thinking about Robotics. Can you talk about how much cost savings we expect in '19 and '20 from the hedges rolling off from Grand Canyon going away?

Yes. I think that the overall...

Erik?

Sorry. The overall benefit that we expect this year for all those items that you identified is probably $7 to $10 million. You have rolling off of the Deep Cygnus chartered, the rolling off of the hedge in Q3, and you have the return of the Grand Canyon I in the fourth quarter. So overall, that's a cost reduction from 2018 of $7 million to $10 million. In addition to that, we won't have a hedge that rolls off in February of 2020 that will be an additional cost reduction there. And so we'll probably provide more color on that as we get closer.

Your next question's from the line of Ian Macpherson.

Thanks for the follow-up. I wanted also just go back to the operating cash flow relationship with EBITDA and I think that you indirectly answered that for debt in the last question. But Erik, do you have an operating cash flow target in mind that corresponds with the midpoint of your EBITDA for 2019?

Ian, I think that we've spoken qualitatively of our expectations. I think we said that we expect to have a strong operating cash flow in 2019 and our statement is consistent. We also expect to be free cash flow positive in 2019. It'll be marginal, but that is our expectation going forward.

There's no other questions at this time.

Well, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our second quarter 2019 call in July. Thank you.

That does conclude the conference call for today. We thank you for your participation, and you can now disconnect your lines.