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Edited Transcript of HLX earnings conference call or presentation 22-Oct-19 2:00pm GMT

Q3 2019 Helix Energy Solutions Group Inc Earnings Call

HOUSTON Oct 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Helix Energy Solutions Group Inc earnings conference call or presentation Tuesday, October 22, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Erik Staffeldt

Helix Energy Solutions Group, Inc. - Executive VP & CFO

* Kenneth English Neikirk

Helix Energy Solutions Group, Inc. - Senior VP, General Counsel & Corporate Secretary

* Owen E. Kratz

Helix Energy Solutions Group, Inc. - President, CEO & Director

* Scott Andrew Sparks

Helix Energy Solutions Group, Inc. - Executive VP & COO

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Conference Call Participants

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* David Christopher Smith

Heikkinen Energy Advisors, LLC - Partner & Senior Oil Service Analyst

* George Michael O'Leary

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research

* Ian MacPherson

Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service

* Martin Whittier Malloy

Johnson Rice & Company, L.L.C., Research Division - Director of Research

* Praveen Narra

Raymond James & Associates, Inc., Research Division - Analyst

* Vaibhav D. Vaishnav

Scotiabank Global Banking and Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Third Quarter 2019 Earnings for Helix Energy Solutions Conference Call. (Operator Instructions) As a reminder, this conference is being recorded, Tuesday, October 22, 2019.

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

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [2]

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Good morning, everyone. Thanks for joining us today on our conference call for our Q3 2019 earnings release.

Participating on this call for Helix today is 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 investor's page of 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?

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Kenneth English Neikirk, Helix Energy Solutions Group, Inc. - Senior VP, General Counsel & Corporate Secretary [3]

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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 webcast, are available under the For the Investor section of our website at www.helixesg.com. Owen?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [4]

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Good morning, everyone. We'll start on Slide 5, which is the high-level summary of the Q3 results.

The third quarter results reflect improvements in operations with increased utilization in both our Well Intervention and our Robotics segments. Revenue increased $11 million, and our net income increased $15 million from second quarter results. Our results for the third quarter have reported revenues of $213 million and net income of $32 million. We generated $66.3 million of EBITDA.

Moving to Slide 6. For the quarter, the $32 million of net income represented an improvement compared to $17 million in the Q -- in Q2, and the $66 million of EBITDA in Q3 was an increase of $16 million, which is compared to the $50 million in Q2.

Our operating cash flow was $57 million and free cash flow was $39 million. For our year-to-date results, we recorded a net income of $50 million compared to net income of $42 million during the same period in 2018. We generated EBITDA of $147 million compared to $138 million during the same period in '18.

Moving to Slide 7. We benefited from high utilization across our business segments. Well Intervention vessel utilization increased to 97% from 94% in Q2, and we believe we've successfully addressed the downtime issues that plagued us during the first half of the year on the 15K IRS system.

Robotics performance also improved with utilization increasing to 96% on our chartered vessels and 44% on our ROVs.

Moving to Slide 8. From a financial statement perspective, our cash levels at quarter end increased to $286 million from $261 million at the end of Q2. We invested $18 million in capital expenditures, and we made $13 million of debt repayments. Our debt -- our net debt at the end of Q3 was $127 million compared to $163 million in the second quarter.

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

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [5]

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Thanks, Owen, and good morning, everyone. Moving on to Slide 10.

The third quarter was a good period and our best quarter since 2014 with all vessels contracted with strong utilization throughout the quarter. We've achieved good results across the fleet with minimal operational downtime, and all of our business lines are performing well.

In the third quarter, we increased revenues of $213 million compared to $202 million in the second quarter. Gross profit margin increased to 26% resulting in a profit of $55 million, increased around 20% and $40 million gross profits in Q2.

Across the fleet, we had same high levels of utilization. The Well Intervention fleets achieved utilization of 97% globally.

Gulf of Mexico had 95%, the North Sea had 96% and Brazil at 99% utilization. The Robotics chartered fleet achieved utilization of 96% globally.

In the Gulf of Mexico, the Q5000 continued for BP throughout the quarter; Q4000 worked on free wells, including successfully completing the abandonment of the first Droshky well owned by Helix.

The North Sea business performed well, working in vessel -- in the vessel weather seasonal period, with both vessels working on 13 wells in total for numerous clients.

Performance in Brazil was strong again, both vessels performed very well, achieving high utilization of 99% with remarkable uptime.

Robotics chartered vessel fleet was very active, working between ROV support and trenching works, completing 168 days of working renewable energy projects in the North Sea and in Taiwan.

On the Robotics side, the T750 trenching system achieved 92 days utilization in Mexico that continues into the fourth quarter.

We continue to be excited about expanding our product and service lines geographically. Q7000 is now being ready to transit from Singapore to West Africa in Q4 and is currently being a sort of a [Schlumberger] service equipment, so we can provide our integrated Helix Schlumberger alliance offering globally.

Slide 11 provides a more detailed review of our operations from our Well Intervention business in the Gulf of Mexico. The Q5000 continued working for BP for almost the entire quarter, achieving 93% utilization. On completion of this year's BP campaign at the end of September, the vessel commenced abandonment activities on our second Helix-owned Droshky well.

The Helix-OneSubsea jointly owned 15K IRS system was utilized 79% on the Q5000 for BP with minimal NPT throughout the quarter.

The Q4000 achieved good utilization of 97%, and the vessel performed well with minimal commercial downtime completing the abandonment of the first Droshky well owned by Helix on budget. The vessel then completed further production enhancement well for one client prior to commencing the 5-well campaign for another client.

Moving to Slide 12. Our North Sea Well Intervention business performed well with both vessels achieving high utilization throughout the quarter with near 100% operational uptime performance. The Well Enhancer achieved 100% utilization, performing very well on our well abandonment operation and completing production enhancement activity on 7 wells. The Seawell also had performed well working for 4 clients, achieving 92% utilization on 6 wells conducting production enhancement activities. Due to project time, the vessel had the short 7-day idle period between projects.

The Q7000 continues mission preparation in Singapore. The vessel is now fully manned and training on the vessel continues. Our short trials were completed without issue in the quarter, and the client acceptance process continues. The vessel is now being mobilized with Schlumberger service equipment and is very close to being ready to commence transit to West Africa in the fourth quarter.

Moving to Slide 13. In Brazil, our operations of Petrobras continue to go extremely well, again, producing another exceptional quarter at near 100% utilization and uptime performance. Both vessels continue to undertake numerous varied scopes mostly related to production enhancement.

In the third quarter, the Siem Helix 1 achieved 100% utilization working on 2 wells on production enhancement scopes. The Siem Helix 2 achieved 99% utilization working on 5 wells, performing 4 production enhancement scopes and 1 abandonment scope.

At the request of our customer, the shipyard maintenance period for the Siem Helix 2 has now been deferred to Q1 of 2020.

Overall, we continued to perform well in Brazil for Petrobras, and we're now starting to engage with some further tender activity from other operators as they expand into the region.

Moving on to Slide 14 for our Robotics review. Robotics continues to go well. Q3 is the best performing quarter in quite some time for Robotics with strong operational performance and significantly better commercial results. In the third quarter, vessel charter fleet utilization was 96%, including spot vessels. Two vessels were utilized mostly on trenching projects in the North Sea. The Grand Canyon II worked in the APAC region and the Ross Candies operated in the Gulf of Mexico.

In the quarter, we achieved 241 days of trenching operations, comprised of 149 trenching vessel-related days and 92 days for the T750 trenching system in Mexico on a client-provided vessel.

The Grand Canyon worked in the North Sea, achieving 100% utilization on a combined hard and soft ground trenching project. The vessel is to remain busy into November and then is being returned to -- so further reducing our cost base. The Grand Canyon II had a 100% utilization, performing works on ROV support projects in the APAC region, including 60 days on our renewable project offshore of Taiwan.

Grand Canyon III had 87% utilization in the North Sea, working 57 days trenching and 23 days ROV support.

The Ross Candies had 28 days utilization prior to commencing its 10-year dry dock being (inaudible) to Helix, available again to us in the fourth quarter.

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

I'll now turn the call over to Erik for a discussion on the balance sheet and our 2019 outlook.

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [6]

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Thanks, Scotty. Slide 17 outlines our debt instrument and their principle 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 September 30. Our net debt in Q3 decreased to $127 million from $163 million in Q2. The decrease in net debt during Q3 is primarily attributable to $57 million of operating cash flow, offset in part by $18 million of CapEx.

Our cash position at quarter end increased to $286 million. On quarter end, net debt to book capitalization was 7%.

Moving to Slide 20 for a discussion on our 2019 outlook. We are adjusting our guidance for 2019 to a range of $172 million to $184 million of EBITDA.

Our year-to-date results are in line with our expectations and the expected activity levels in our markets for the fourth quarter support our guidance. This range includes some key assumptions, expectations and estimates as follows: we're assuming full year benefit for Siem Helix 1 and Siem Helix 2 in Brazil, as previously discussed, the planned shipyard maintenance on both the Siem Helix 1 and Siem Helix 2 have now been pushed into 2020, the latter at the request of the customer. We expect the Q4000 and Q5000 will have strong utilization in the fourth quarter, although we have gaps to fill. We expect both North Sea Well Intervention vessels to work through November and expect to warm stack the vessels at the end of the traditionally slower winter season.

Overall, we expect to step down in the fourth quarter, but expect an improved market as compared to 2018. Any significant variation from these key assumptions could cause our EBITDA to fall outside of the range provided.

Moving to Slide 21. We have $800 million in backlog, of which, $150 million is currently scheduled and estimated to be completed during the remainder of 2019. Our backlog continues to be heavily weighted to the BP Q5000 contract, the 2 Petrobras contracts and the Helix Producer I contract.

In the Gulf of Mexico, the Well Intervention market, we expect the Q4000 to have high utilization. In Q4, the Q5000 began the quarter working on the Droshky field. The vessel has backlog into November with opportunities thereafter.

In the North Sea Well Intervention market, we expect both vessels to work through November and expect typical seasonal weakness during the winter months. In Brazil, we expect the full year from both vessels with the shipyard maintenance now being pushed into 2020.

Over to Slide 22. In the Robotics segment, we will see the typical slowdown with the onset of the winter season in the North Sea, the Grand Canyon should complete its trenching project early to mid-quarter. The vessels charter expires here in the fourth quarter.

Grand Canyon II is expected to have good utilization in the APAC region and the Grand Canyon III will look toward the spot market in the North Sea with gaps to fill on its schedule.

Over to Slide 23. Our CapEx for the year is forecasted at approximately $150 million, with most of it -- most of the capital being related to completing the Q7000.

During the fourth quarter, we plan to make our final shipyard payment, approximately $70 million and the vessel is scheduled to transit to West Africa for its first project, expected to start in early 2020.

Maintenance CapEx includes the dry docks completed during the first quarter of the HP1, Seawell and Well Enhancer. Our scheduled remaining debt payments for the year approximate $10 million.

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.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [7]

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Thanks, Erik. Well, another quarter is behind us in this, the fifth year of the longest down cycle in our industry's history in the last 40 years. The good news is that we're headed into what could be we considered the second year of the slowest recovery in our history, but it should continue. Uncertainty over the future of shale is making it more likely that we'll seek capital relocated to the offshore. The huge oversupply in the offshore service segment has kept rates down and very favorable for producers, we may see this positively impact the producer's 2020 budgets.

We were concerned that the increased tendering volume touted by some contractors earlier this year may not translate into actual work. It may be a slow process, but we do see the volume of working increasing, although slowly.

Rig utilization is improving, as our rates, but also slowly. Rigs in our universe are at 60% utilization and 80% of marketed utilization. I have a feeling that rig operators are also starting to wake up to the unsustainability of the rates at the bottom of the cycle and are starting to behave more rationally. The rate of rigs scrapping slowed this year. This is either a sign that all scrap-worthy rigs have been scrapped, which I don't believe or possibly, that operators truly see a pickup in utilization. The new rig contracts are definitely being priced higher.

Last year at this time, we were cautiously optimistic about a marginally stronger 2019, but we're very concerned with the fourth quarter of 2018. We have seen the marginally stronger 2019 with improved utilization across all of our service lines, although we still have gaps to fill and we'll need to execute. We have less concern over meeting our targets for the fourth quarter than we did this time last year. We are not yet able to see any meaningful rate improvement in 2019 over 2018. We've had some issues this year that will likely keep us from overachieving our guidance. The 20 -- the 15K system, a slower start to the well ops U.K. season, FX rates and deferred work for the Q7000 into 2020 are the main ones that we don't see repeating.

We have some uncertainties in Q4 that we need to fill, but nowhere near the level of uncertainty of last year. We also have opportunities that still might allow us to overachieve in Q4. At this time, we do expect it to be an improvement Q4 of 2018. As a result, we're narrowing our guidance while maintaining a similar midpoint. We're hopeful 2020 will show yet further improvement. Our cost in Robotics will continue to reduce, as our high rate charters roll off and FX hedges expire.

We're planning to test the market strength this coming year with marginal rate increases going into 2020. The Q7000 is planned to begin work in January, and we have good visibility for demand beyond the first project. It may be a bit early to quantify the Q7000 in contribution in its first full year, but we should have a good idea by February when we present the guidance for 2020.

We have some clients returning as a result of long-term rig commitments rolling off. And that, combined with a more active market, should support high utilization in the future.

Operationally, with the modifications completed on the 15K system and it performing well, our operational execution is at its highest level in years. The 2 vessels in Brazil are consistently rated the best performing in the Petrobras fleet each month, something we're very proud of.

With the results we're achieving in this challenging market, if 2020 is not the year for significant market improvement, then we're at least on the cusp. We expect a slow but continued improvement ahead, based on rate increases, cost reduction, marked demand increase, rig operator rational behavior and the entry of the Q7000 and ROAM device into the market. Helix is in a really good place right now, and we plan to proceed with caution and prudence towards further improvement.

With that color, I'll hand it back over to Erik.

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [8]

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Praveen Narra.

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Praveen Narra, Raymond James & Associates, Inc., Research Division - Analyst [2]

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I guess I wanted to start on the early discussions on 2020 and kind of what are -- what you're hearing from your customers and getting visibility and -- or tendering conversations. And then I guess 2, you mentioned a bit of the pricing power or potential price rates a little bit, we've seeing that with some rig contacts. So I guess could you give us some color on how operators are responding to that pricing press, I guess?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [3]

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Well, I think it's a little early. I think for 2019, we basically gave our pricing earlier in the year. And so they've been aware of that. Going into next year, we haven't given firm pricing yet to the clients, so they haven't seen the amount of the increase. But in general, we have told them that costs are starting to rise and therefore, they should start to expect higher rates.

And for the most part, the clients, and I'll let Scotty speak to the ones he's talked to, but the clients I've spoken with are expecting rates to go up, which is also prompting some early discussion on longer commitments. Of course, the producers want to lock in on low rates and the contractors are holding out for market improvement.

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [4]

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Yes. I think the clients do expect our prices to go up next year. And how far we can push them is another discussion. But we're definitely seeing our schedules pack out for next year better than we've seen in previous years. There's more volume of work out there and more structured discussions around that volume of work. As I already mentioned earlier, we have some historical clients coming back to the fore here, and that's going to help our schedule. As the schedules pack out, that should lead to an increase in rates. And that's the current plan right now.

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Praveen Narra, Raymond James & Associates, Inc., Research Division - Analyst [5]

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Okay. Great. Then I know we've talked about this before, but wanted to see if there's any updates. You guys are, certainly by our models, set to generate a lot of cash flow. So do you have any updates on how you guys are thinking about pushing up maturities or just doing something on a capital return to shareholders? How do you guys think about that today?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [6]

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That'll ultimately be a Board decision. But the management recommendation would be to, at some point, consider returning value to shareholders, more than likely through share repurchase. But the timing of that and the quantification of that I think we're a little early. I think we have to get closer to our contract renewals and rollovers and at that point, when we have longer-term visibility on our sustainable cash flow, we can make those decisions.

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Praveen Narra, Raymond James & Associates, Inc., Research Division - Analyst [7]

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Okay. If I could squeeze one more in just -- you mentioned normal seasonality for the winter season in the North Sea, I guess are we nearing a point where we may see the winter months expand in terms of activity, given the amount of activity that's out there? Or is it still a bit early to see that?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [8]

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I think it's slightly changing. We have both vessels in the North Sea booked into November with some weather that'll take us into December. We have discussions ongoing that could close out the vessels through the year, not there yet but we're in discussions with numerous -- a number of clients, not numerous. And we also are hopeful of an earlier starts which then brings the gap down from what it was a couple of years ago, 4 to 5 months to maybe a month or 2. So...

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Operator [9]

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Our next question comes from the line of Ian MacPherson.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [10]

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Good quarter. I have a question either for Owen or Scotty. When we look at the sensitivities around your fourth quarter outcomes, it sounds like the North Sea vessels are more likely to just hit the seasonal wall, but I guess there could be some variability with regard to the utilization for the Q4 and the Q5. And you still have, I guess what, 2 in a fraction of Droshky wells remaining in inventory. And I wanted to see what your plans are, if you have a plan yet, to get more into Droshky for maximum utilization in the fourth quarter in the Gulf of Mexico? Or if you intend to reserve the remaining couple of wells for next year?

And then following to that, if you're looking at any more Droshky-like opportunities next year to expand that inventory?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [11]

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Okay. Well, it's Scotty here. I'll take that Ian. And like we said, we're in discussions with a number of clients. The work is packing out in the fourth quarter, both in the North Sea and in the Gulf of Mexico. Right now, I do not envisage us having to fall back on to any further Droshky work. So we're quietly confident that we're going to max out the rest of the year. We're not there yet, but there's good structured discussions ongoing right now.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [12]

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I'll just add to that. We are looking at additional opportunities for Droshky-type deals, there's nothing imminent. But there is visibility of things out there. But we'd still have these 2 wells, so we're not really pressed to consider anything rash.

One thing I would like to mention though is that for the past couple of years, the BP work on the Q7 -- or the Q5000 has fallen into the latter part of the year -- I'm sorry, the earlier part of the year with the gap. They take it for 270 days and then there's a 90-day gap. That's been late in the year. Going into next year, that -- it flips a little bit. BP is planning to take the vessel later in the year, with the gap showing up in the first quarter. So everyone needs to sort of recalibrate their quarter by quarter expectations with that in mind.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [13]

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So I have that, and this -- the downtown for Q5000 does not eat into your 270 days then?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [14]

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No.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [15]

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Correct.

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [16]

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Correct.

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Ian MacPherson, Simmons & Company International, Research Division - MD & Senior Research Analyst of Oil Service [17]

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Okay. Last one for me. Erik, I know we'll talk about guidance for next year on next quarter's call, but when we think about Helix in a maintenance CapEx-mode starting next year, that's been only $20 million to $25 million per year in 2018 and '19. Is there anything that looks different than that next year?

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [18]

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Yes. I think in general, Ian, we have talked a big picture going forward that maintenance CapEx would be in about the $30 million to $50 million range. I recognize here probably the last 3 or 4 years, we have been running lower, you probably have to go to about '14 when we were closer to the $50 million range to last time we were in this $30 million to $50 million range.

I think we still feel that $30 million to $50 million is the right range. It will be lumpy next year. We will have a heavier or expect to have a heavier amount of dry dock or vessel shipyard maintenance, including the Q5 in the first quarter. And so I think $30 million to $50 million is the right way to think about the maintenance costs going forward.

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Operator [19]

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Our next question comes from the line of George O'Leary.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [20]

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Just tagging on to that last question. As you sit here today and look out at the 2020 time frame, are there any intriguing growth opportunities that you think you might pursue? Or should we expect CapEx, at least as you sit here today, I realize you have to go through the full budgeting process to move more towards that maintenance CapEx level in 2020. It looks like The Street is assuming that's where you guys are headed, so just don't want to set false expectation there.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [21]

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Yes. At this time we don't have any anticipated CapEx allocated towards growth. I think our focus on going into next year will be -- now that our utilization is at sufficiently high levels, we're going to be trying to push rates, maximize cash flow and focus on further debt reduction, and then possibly an earlier rather than later move to returning value to shareholders. That's probably the priority versus spending capital for growth. Personally, until rates improve quite a bit and the market conditions improve, I don't think that there's a place in our sector where you can deploy capital with an appropriate targeted return on capital. So we're going to be looking to go into harvest mode here for a while. It's not to say that we can't grow, I just don't think that it takes capital to grow. I think we have plenty of room to add adjacent services to what we do and to penetrate some new geographic areas, which should, again, spur -- that'll create more utilization, more demand and higher rates.

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George Michael O'Leary, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - MD of Oil Service Research [22]

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That sounds like a prudent approach in improving market. And to that point alongside rates, one of the other things that would be a positive sign is just the potential for you guys to see longer-term contracts signed and maybe ink up something longer term for that Q7000. So just how is dialogue with customers on reloading that backlog hopper with some long-term backlog? And then for the Q7000, in particular, do you need to get a bunch of reps under your belt before you can get a long-term contract there? Is there the opportunity in the next 6, 12 months to get a contract signed for that vessel?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [23]

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Well, keep in mind that Well Intervention, as an industry, is short duration contracts. There's very few producers out there that have sufficient well head counts to support a long-term contract. To my knowledge, there's only 5 long-term contracts in Well Intervention in the world. We have 3 of them. Aker Solution or Aker Oilfield Services has 1 in Norway for Equinor and Ireland has the other. Beyond that, I won't say that there's not a potential but there's not a likelihood of a long-term contract. It's more of a spot market, and that's also where we're very adept at. For years we've been able to build our schedule out from linking together shorter duration projects. So we actually see it as a competitive advantage. The only caveat to that is, as I sort of mentioned before, producers are looking at the hopper of work that they've got, realizing that they have more work and they're looking to try and lock in on the lower rate. So there is discussion about long-term partnering agreements, not necessarily contracts. But how that unfolds and what form that may take, we'll just have to keep working the issue and see if we can come up with a good deal.

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Operator [24]

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Our next question comes from the line of Vebs Vaishnav.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [25]

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And a good quarter. I guess I just wanted to clarify on the downtime. So -- order dry docking. On Q5, so you will have dry docking in 1Q, but it doesn't impact the BP work. So BP basically starts from 2Q to 4Q. Is that the way to think?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [26]

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Correct. Yes. Yes.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [27]

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Okay. And can you just talk -- remind us about any other dry dockings? I think there's some dry docking on Q4 on Siem Helix 1 as well?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [28]

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Okay. I'll take that. We only have one major dry dock next year, which is the Q5000. We do have some wet maintenance periods. So the SH1 and SH2 will have wet maintenance period relatively small time scale as compared to last dry docks in the first half of the year. And then we also have a wet maintenance period that we'll undertake in the winter season months for the Seawell, which, again, is a shorter period duration.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [29]

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Okay. And when you say like shorter term, is that like 10 to 15 days a good way of thinking about...

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [30]

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I think the best way to put it -- because we're in the planning phase right now, the best way to put it is it will be less than a month. So...

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [31]

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The only one I would add to that, Scotty, is in the -- with the Q7000 later on in the year, there'll be a down period of about 30 days in order to dry dock for a new bottom -- the final bottom thing.

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [32]

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Yes. Good point.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [33]

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Got it. Okay. If I think about Q7, and I understand it's too early, but I just wanted to see if we can book end that vessel. So let's say, at least my thinking is, let's say, if you have what, call it, 60%, 65% utilization for the year, that kind of breaks it even. And I was just trying to see if that is right. And if let's say, it has a good utilization, call it, like 85%, are we talking about, maybe like $10 million, $15 million of gross profit contribution? I don't know if you can help me get there.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [34]

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Well, it's very early in the process for us to really start quantifying a whole lot about the Q7000. I'll tell you, I think at 65% that utilization is a bit high, I would think, for breakeven. I think breakeven is more around the 50% of utilization. And then the total earnings of power for the vessel. We have a lot of visibility on work, how much of that falls in line is yet to the seen, but it could be anywhere from breaking even next year to a $20 million contribution is -- and I know that's a wide range, but that's about all I'd be willing to say at this point.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [35]

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Actually, no, that's very helpful. So if I just think about the puts and takes on Well Intervention EBITDA growth for next year or so, I just wanted to make sure of the bigger moving pieces. So I need to think about the -- obviously, the maintenance aspect and the Q7, but outside that -- outside those moving parts, I think like the market itself is getting better, so that should help you guys. Is there any other moving part that I should be thinking about when I think about just Well Intervention?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [36]

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Well, I think, right now, if you go through the details of what Scotty was outlining for each of the vessels, I think you'll notice that most of the work that we're undertaking right now is for production enhancement. There's an awful lot of talk about P&A becoming a much stronger market. Of course, I always take that with a grain of salt that seems to be the hockey stick that never arrives. But should that -- if that comes to fruition like people think, then there's definitely going to the more work than we can cover. So I don't know. You have anything to add, Scotty?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [37]

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Yes, I'll add a little bit of color there. We've definitely seeing an uptick in production enhancement-related activity throughout this year. Certainly in the last quarter, I think we undertook close to 25 wells, roughly, and 20 of those wells were all production and enhancement-based activities. So we're seeing the operators return to spending money on ways to get barrels out of the ground rather than focusing on abandonment activity and some costs there.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [38]

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Okay. And maybe one last question for Erik. Just -- could you remind us of how much cost savings should we think about in Robotics in 2020 versus 2019? And just the drivers?

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [39]

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So yes. So from -- the big initial driver is going to be obviously, the hedges that have rolled off. We had the Grand Canyon II hedge rolled off in July of this year, and we will have the Grand Canyon III hedge roll off in February of next year. And the cost that we incur on those is, say, $10,000 to $15,000 a day, associated with those hedges. So from that standpoint and those hedges going away you achieve the cost savings. And I think in general, we've talked in a $7 million to $10 million range of cost benefits associated with that going forward.

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Vaibhav D. Vaishnav, Scotiabank Global Banking and Markets, Research Division - Analyst [40]

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Okay. And I think Grand Canyon was supposed to be coming up for renewal in October. Is that correct?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [41]

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Yes. Right now, we plan to work the vessel into November. It's on a -- currently on a hard and soft ground trenching project. And at that point, we will demobilize the vessel and hand it back to the owner. We have had some discussions about keeping it for a longer term, but in a much different commercial arrangement with the owner. If it does go back then we will look to -- we'll look for all vessels throughout the year and see what requirement we need to pick up spot vessels to cover that.

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Operator [42]

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Our next question comes from the line of Martin Malloy.

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Martin Whittier Malloy, Johnson Rice & Company, L.L.C., Research Division - Director of Research [43]

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Just following up on some of the discussion there regarding the mix on Well Intervention. Could you maybe help us with -- I think the last couple of years, it's been kind of 50-50 P&A versus Well Intervention, kind of where you see that going? And then also on the Robotics side, the mix there in terms of the renewable-related work versus traditional oil and gas? And sounds like the market is pretty strong for the trenching.

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [44]

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I'll take that one. So the Well Intervention mix right now, I'd say over the current view looking back would be about 50-50 for the last few years. This year, I'd say, it's more 70% to 30% split production enhancement this third quarter, and they're older with production enhancement. So we are definitely seeing a change there.

The work that's planned or the discussion of work that's planned for next year, I would say is in that range as well. There's definitely more talk of production-related enhancement-type activities. Regarding the Robotics side of the business, all of our ROV type [rental] of ROV work is mainly oil and gas based, but the trenching side is predominantly on to the renewable side of the business. And by renewable, it can be either wind farm working or export cables. It's not just down into a wind farm, it can be quite large trenching activity. So this -- I think it was 168 days in this quarter was renewable-based activity. A good portion of that comes from trenching. We have work planned in 2020 all the way out to 2023 for renewables related trenching activity.

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Martin Whittier Malloy, Johnson Rice & Company, L.L.C., Research Division - Director of Research [45]

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Okay. And then just as a percentage of your revenue in Robotics from the renewables, is it 20%, 30%, 40%?

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [46]

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It's roughly 30% to 40%.

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [47]

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Yes, Marty, it's been, I think, in that range in 2018 and 2019.

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Martin Whittier Malloy, Johnson Rice & Company, L.L.C., Research Division - Director of Research [48]

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Okay. Great. And then just on the -- in terms of thinking about the BP contract, I think that ends in early 2021 and then the Brazil vessels later on in 2021. Could you maybe talk about thoughts in terms of timing and negotiations and when we might learn something about what those vessels are going to be doing going forward?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [49]

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I'll take the easy ones first. The Petrobras contracts, they don't enter into discussions about renewal until 6 months prior to the end of the contract. I think we've had some feedback from their operational group that they're very happy and they want to extend. But they will not talk about it until 6 months before the contract. But we don't see too great a worry about that with the way it's going down there. It's looking very favorable.

The other one with BP. BP, it's still probably early, but I think what you're going to see there is probably a reworking. Scotty, you're involved with it more, I'll let you sort of describe what's going on.

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Scott Andrew Sparks, Helix Energy Solutions Group, Inc. - Executive VP & COO [50]

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I think Owen's correct here. It is early to discuss the options of extension for the vessels with BP right now. But I do -- the way we're seeing them plan their work, they do have an awful lot of production enhancement-related activity coming up. And from that, I think the way it will work going forward is it's going to more of a trying to tie in subcontracts and taking more responsibility for the vessel and the work that we undertake. But again, early days and early discussions right now.

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [51]

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I think that goes along with our stated intention to expand our service offerings around our assets, the discussions with BP are precisely that. It's about what added services can we provide as part of the package. So it's a little bit more of a complicated discussion than just simply are we going to renew at rates or not.

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Operator [52]

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(Operator Instructions) Our next question comes from the line of David Smith.

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David Christopher Smith, Heikkinen Energy Advisors, LLC - Partner & Senior Oil Service Analyst [53]

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Congratulations on the quarter. First, the Q7000, you mentioned demand visibility past the first contract. Could you give us any color on that visibility in terms of geography or duration, where you're -- kind of where you're seeing that interest and maybe the nature of the work?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [54]

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Yes. I can't be too specific, but we do have a work order cut for the first project of 80 days. The work being planned is in excess of that. Typically, the projects grow rather than shrink. Behind that, I believe we have 4 clients, all of them -- all of which are looking to farm into the contract, each of them with varying scopes of work. So the vessel could be -- and I say could be because we don't have it signed yet, but it looks like the vessel could be in the West Africa region for most of this year -- or this coming year, I mean, 2020. Then beyond that, we've got discussions going with clients in the U.K., Asia Pacific and Brazil. So where it goes after that is still very much up in the air, it depends on which clients sign up first. But there's multiple clients in multiple regions. And the vessel was built with ship shaped pontoons so it transits at 11 knots, theoretically. So it was built to be our swing vessel to transit to different regions and to penetrate new regions. So far, everything's lining up about as we expected.

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David Christopher Smith, Heikkinen Energy Advisors, LLC - Partner & Senior Oil Service Analyst [55]

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That's great color. And the other one on -- you mentioned rig pricing picking up. I think we've seen some drillships from the Gulf of Mexico book rates more recently in the $180,000 to $200,000 a day range versus $130,000 to $150,000 earlier this year. Just wondering if that's enough of a pricing increase on the rig side to give you a cover to -- putting up pricing for the Q5000 -- the Q4000 or I guess the Q5000 won't have much availability next year. But if that gives you cover to bump pricing for you to have a lower intervention asset, kind of anything more than low single digit?

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Owen E. Kratz, Helix Energy Solutions Group, Inc. - President, CEO & Director [56]

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Well, keep in mind there -- in the North Sea, we compete against moored rigs. The moored rig rate we have seen increase rather meaningfully, so that's good news for the North Sea. In the Gulf of Mexico, you're right, some of -- the renewal rates, actually I think, are a little better than the $180,000 to $200,000. There's been one notoriously low-cost producer that renewed at a rate in excess of $200,000, so that's a very positive sign.

And then keep in mind when comparing our rates to rig rates, to get a comparable rig rate, you have to add the cost of ROVs and the cost of the lending string to a rig rate to approximate what our rates might be. So I think all of that means that we do have room to move our rates. Just how much we can move it depends on how it impacts the commerciality of the projects that the producers are looking at and how many producers there are in the queue. And like we've said before, especially if P&A work picks up, there's going to be more work than we can get to. So we're going to have the luxury of being able to high grade the better paying clients from those thinking that the downturn's going to last forever.

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Operator [57]

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(Operator Instructions) There are no further questions at this time.

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Erik Staffeldt, Helix Energy Solutions Group, Inc. - Executive VP & CFO [58]

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Well, okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter 2019 call in February of 2020. Thank you.

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Operator [59]

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That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.