Q3 2023 Helix Energy Solutions Group Inc Earnings Call

Participants

Brent Alexander Arriaga; CAO & Corporate Controller; Helix Energy Solutions Group, Inc.

Erik Staffeldt; Executive VP & CFO; Helix Energy Solutions Group, Inc.

Kenneth English Neikirk; Executive VP, General Counsel & Corporate Secretary; Helix Energy Solutions Group, Inc.

Owen E. Kratz; President, CEO & Director; Helix Energy Solutions Group, Inc.

Scott Andrew Sparks; Executive VP & COO; Helix Energy Solutions Group, Inc.

Donald Peter Crist; Research Analyst; Johnson Rice & Company, L.L.C., Research Division

Gregory Robert Lewis; MD & Energy and Infrastructure Analyst; BTIG, LLC, Research Division

James Joseph Schumm; VP; TD Cowen, Research Division

Luke Michael Lemoine; MD & Senior Research Analyst; Piper Sandler & Co., Research Division

Presentation

Operator

Greetings, and welcome to the Third Quarter Helix Energy Solutions 2023 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded on Tuesday, October 24, 2023.
I would now like to turn the conference over to Mr. Brent Arriaga, Chief Accounting Officer. Please go ahead.

Brent Alexander Arriaga

Good morning, everyone, and thanks for joining us today on our conference call for our third quarter 2023 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO; Scott Sparks, our COO; Erik Staffeldt, our CFO; Kenneth Neikirk, our General Counsel; and myself.
Hopefully, you've had an opportunity to review our earnings 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 For The Investor page on our website at www.helixesg.com.
The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon.
Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken?

Kenneth English Neikirk

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations and assumptions as of today. Such forward-looking statements may include projections and estimates of future events, business or industry trends or business or financial results. All statements in this conference call or in the associated presentation, 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 risks, uncertainties, assumptions and factors, including those set forth in Slide 2 and our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q and in our other filings with the SEC.
You should not place undue reliance on forward-looking statements, and we do not undertake any duty to update any forward-looking statement. You disclaim any written or oral statements made by any third party regarding the subject matter of this conference call.
Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available under the -- For The Investor section of our website at www.helixesg.com.
Please remember that information on this conference call speaks only as of today, October 24, 2023. And therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. Owen?

Owen E. Kratz

Good morning. This morning, we'll review our Q3 highlights and financial performance. We'll provide insight into our operations and the key drivers to our results and outlook for the balance of 2023.
Lastly, we'll provide insight into the continued development of offshore energy market, our focus on the opportunities within our energy transition model and opportunities beyond 2023.
Moving to the presentation, Slides 6 through 9 provide a high-level summary of our results and key highlights for the third quarter of 2023. The underlying macro drivers of the offshore energy service market continue to be constructive and supportive of a sustainable long-term investment cycle.
Offshore services, both in the U.S. and internationally continue to be very active with traditional oil and gas competing with renewables for assets, creating high levels of demand for services.
In addition, our continued geographic expansion of our offshore renewable services into the U.S. and Asia Pacific markets has diversified our operations and broadened our reach in addition to maintaining high utilization and enhancing the current rate environment for our other services.
The fundamentals for decommissioning remained positive with favorable regulatory push and high commodity prices. With the positive market backdrop on top of strong seasonal activity, our third quarter results improved upon the solid performance delivered in Q2.
Our third quarter reflects -- results reflects our best quarter since 2014 and are illustrative of our earnings power of our focus and geographically diversified business model. Highlights for the quarter include the Q7000 worked the third quarter on decommissioning operations in New Zealand, strong well intervention utilization in the North Sea and Brazil, the Q4000 completed dry dock in July, returning to operations for the remainder of the quarter.
Robotics achieved strong seasonal utilization and operating results with high trenching and vessel activities. Helix Alliance improved in seasonal results with continued high levels of execution. We maintained strong cash generation and positive free cash flow, and we acquired 5 additional P&A systems for our shallow water abandonment segment.
Revenues for the quarter were $396 million, an increase of $87 million from our second quarter results. We generated net income of $16 million compared to net income of $7 million in the previous quarter.
Adjusted EBITDA for Q3 increased to more than $96 million compared to $71 million in the second quarter. During the third quarter, we generated operating cash flow of $32 million, including $18 million spent on dry dock and recertification costs. We spent $8 million on CapEx, including an initial $6 million in cash for the additional 5 P&A spreads. Our resulting free cash flow during the quarter was $23 million.
Our results were impacted by the regulatory certification and maintenance of the Q4000, which were completed at the end of July. Our year-to-date revenues were $955 million, an increase of $370 million from this time in 2022. We generated net income of $17 million compared to a net loss of $90 million at this time in 2022. Year-to-date adjusted EBITDA increased almost threefold from 2022, increasing by $131 million to $203 million.
For the year-to-date, our free cash flow was $42 million compared to a negative $4 million in 2022. These results represent significant improvements year-over-year and provide a glimpse into our earnings and cash generation potential. The significant improvements were achieved despite the high number of regulatory maintenance days in 2023 that have tampered our results but provide an opportunity for either further improvement in 2024.
I'd like to thank all of our employees for their efforts this quarter and in 2023. Executing safe and efficient operations for our customers has always been our hallmark, and we're committed to remaining an established leader in the offshore industry.
On to Slide 9. Managing our balance sheet continues to be a top strategic priority. During the quarter, we retired the final $30 million of 2023 convertible senior notes outstanding. We maintained strong liquidity of $279 million and reduced our net debt to $59 million at quarter end.
I'll now turn the call over to Scotty for an in-depth discussion of our operations.

Scott Andrew Sparks

Thanks, Owen, and good morning. Moving on to Slide 11. The team's offshore and onshore outperformed again, producing another very well-executed quarter, been our best-performing quarter since 2014. In the third quarter of 2023, we continue to operate globally with minimal operational disruption with operations in Europe, Asia, New Zealand, Brazil, the Gulf of Mexico and off the U.S. East Coast. To continue to operate at high standards with strong uptime efficiency for the quarter.
During the third quarter, we generated gross profit of $81 million and a gross profit margin of 20%, up from a gross profit of $55 million in the second quarter of 2023 and this significantly improved year-over-year. For the first 9 months of 2023, we generated a gross profit of $151 million, and a gross profit margin of 16%, very much improved compared to a gross profit of $19 million for the first 9 months of 2022.
2023 has been a strong year for Helix and visibility across all sectors in 2024 and beyond is looking very positive, certainly more positive than in recent times. We have grown interest in some of our spot assets internationally, and our client base is increasing and there's a strong tender activity away from our usual areas of operations. We continue to contract at better rates with more favorable terms.
Slide 12 provides a more detailed review of our well intervention business in the Gulf of Mexico. The Q5000 had excellent utilization of 96% in the third quarter. The vessel performed very well, conducting production enhancements and abandonment work on 4 wells in ultra-deepwater working under a multiyear campaign for Shell.
In the latter part of the quarter, the vessel commenced a four-well campaign for another customer. The Q4000 had utilization of 68% in the third quarter, completing the scheduled regulatory dry dock in July. The vessel then undertook a hydrate coring project for one customer and commenced a three-well production enhancement campaign for one client in ultra-deepwater.
Positively, we expect both vessels will have high utilization for the remainder of 2023. We have work awarded in 2024 for both vessels with good visibility for potential further activity and increased rates compared to 2023. Both key vessels continue to operate under the integrated Helix SLB subsea service alliance package.
Moving to Slide 13. Our North Sea Well Intervention business continues to respond well to the increased demand in the region. Having an even stronger third quarter than the second quarter, achieving 98% combined utilization in the U.K. The Well Enhancer commenced the quarter working in the West of Shetland region before relocating to the Central North Sea later in the quarter. The vessel performed very well on production enhancement works on 4 wells for 3 customers and then completed decommissioned operations on 1 well for another customer.
The Seawell also had a very good quarter, working for 2 customers performing decommissioning works on numerous wells. Demand for our services continues to improve and our business is seeing much improved conditions in terms of rates, contract in terms and utilization. The Seawell is fully contracted well into the summer of 2024, and we shortly leave for the planned winter campaign project in the Mediterranean. The Well Enhancer is contracted for the remainder of 2023 and has contracted and awarded work in 2024 with further increased rates.
The Q7000 was 88% utilized conducting the decommissioning contracts in New Zealand throughout the quarter. On completions of work in New Zealand, the vessel is scheduled to carry out a paid transit to Australia to undertake several intervention scopes for 3 clients commencing in the fourth quarter. The Q7000 is then contracted for 12 months plus options to undertake well abandonment work in Shell in Brazil, including the paid transit to Brazil.
The work is estimated to commence mid-2024. The Q7000 is contracted well into 2025. We have good visibility on work globally following on in 2025.
Moving to Slide 14. In Brazil, we had good combined utilization of 97% in the third quarter. The Siem Helix 1 had a strong quarter and was 99% utilized in Q3, undertaking work on the 2-year decommissioning project for Trident Energy, performing work on 6 wells in the quarter. The Siem Helix 2 had 96% utilization, completing decommissioning activity on 3 wells with Petrobras.
Both SH vessels are contracted into the end of 2024, and there is increased demand and tender activity for the SH vessels post-2024 globally, including in Brazil.
In 2024, we look forward to bringing the Q7000 to Brazil and then commencing the Shell decommissioning contracts.
Slide 15 provides details of well intervention fleet utilization. Moving on to Slide 16 for Robotics review. Robotics continued their good performance and they had another strong quarter, improving their results over the strong second quarter and again being the best performing quarter in terms of revenue and EBITDA since 2015.
The business performed at high standards with strong utilization on 6 vessels globally during the quarter, primarily working between trenching, ROV support and site survey work on oil and gas and renewables-related projects.
In the APAC region, the Grand Canyon II had 100% utilization in Q3. The vessel continues to perform well on a long-term decommissioning project in Thailand. The T1400-1 trenching system onboard the Siem Topaz continued work on a renewables trenching projects in Taiwan, undertaking 92 days of trenching utilization for the quarter.
The T1400-1 trenching spread on the Siem Topaz has now been contracted by the customer until November of 2024.
In the North Sea, the Grand Canyon III was utilized 100% in the quarter, performing 2 renewable trenching projects for 1 customer and an oil and gas trenching project for another customer. The Horizon Enabler had 100% utilization in Q3, completing renewables trenching works for 2 customers.
We have now extended the vessel charter until the end of 2025 due to the amount of trenching activity expected by some of our established clients in the coming years.
Also in the North Sea, the Glomar Wave completed 60 days of operations in the quarter undertaking ordinance removal and site survey operations.
In the U.S.A., the Shelia Bordelon, a Jones Act Compliant Vessel, was utilized 85% in Q3. The vessel performed works in the Gulf of Mexico to support a seismic node installation project. Helix Robotics is performing well and have a good backlog and visibility globally. We're expecting strong performance in 2023 and in 2024.
Our service and geographical expansion in the renewable sector continues highlighted by the recent contract expansion of the T1400-1 and Siem Topaz until late 2024.
Slide 17 details our Robotics vessels are in trenching utilization.
Slide 18 provides an overview of our shallow water decommissioning business Helix Alliance. Helix Alliance had an excellent third quarter, producing a record performing quarter-to-date with strong utilization across all 3 divisions. The Offshore division had 9 liftboats operating in Q3 with a combined utilization of 85% performing decommissioning services.
Offshore also supplied 6 OSVs and had 1 crew boat with increased combined utilization of 91%.
The Energy Services division had increased operations of 1,272 days or 84% utilization for the P&A systems deployed during the quarter, conducting decommissioning services. The division had operations of 259 days or 47% utilization in the quarter for the 6 Coiled Tubing systems.
Due to our success in the shallow water, well decommissioning market in September, we completed the acquisition of 5 further P&A spreads for the Energy Services division, hiring the (inaudible) increasing our total P&A spreads to 20 units.
In Q3, the Diving and Heavy Lift divisions had increased combined utilization of 93% across the 3 diving vessels. The heavy lift barge, the Hedron, had utilization of 100% undertaking platform removal and other decommissioning activities.
In the first quarter, Helix Alliance commenced our most sizable decommissioning contract since the Helix Alliance acquisition. The contract is to decommission 39 wells, remove and dispose of 15 pipelines and remove and dispose of 7 platform structures.
The work we utilize all services that Helix Alliance offers highlighting that Helix alliance is the preeminent contracting company offering full field shallow water decommissioning in one package.
Helix Alliance had a good quarter. However, the work we undertake in shallow water is seasonal, and we will likely see a drop-off in activity across all divisions as we enter the winter period.
Slide 19 provides detail for the Helix Alliance Vessel and Systems recent utilization.
Before I hand over to Brent, I would again like to thank our global Helix employees and partners, who all helped to achieve an excellent quarter producing strong results, our best in a very long time. So thank you all. Stay safe and keep up the good work. We expect to finish 2023 strongly and are looking forward to what should be another very solid year for all of our businesses in 2024.
I'll now turn the call over to Brent.

Brent Alexander Arriaga

Thanks, Scotty. Moving to Slide 21. It outlines our debt instruments and maturity profile as of September 30. We had total funded debt of $233 million at quarter end. During Q3, we repaid the remaining $30 million of our 2023 converts entirely in cash as well as the semiannual installments of our MARAD debt. We have no more scheduled maturities of our long-term debt maturing during the remainder of the year. But as mentioned, managing our balance sheet continues to be a top strategic priority.
Moving on, Slide 22 provides an update on key balance sheet metrics including cash, long-term debt, liquidity and net debt levels. With cash of $168 million, our net debt position at quarter end was $59 million.
At quarter end, we had full $120 million of gross capacity under our ABL facility and no borrowings outstanding. After LCs our net remaining availability into the ABL was $110 million with resulting liquidity of $279 million. Given the cash repayments of our 2023 converts and installment of the MARAD debt during the quarter, we repurchased 174,000 shares of Helix common stock for approximately $1.9 million.
I will now turn the call over to Erik for a discussion on our outlook for 2023 and beyond.

Erik Staffeldt

Thanks, Brent. Our team performed well, delivering strong results in the third quarter. It is our most active and best quarter of the year and the market continues to be constructive for the remainder of '23 and into 2024. Our results through 3 quarters have delivered the year-over-year improvements we expected. Entering the winter months, we expect seasonal impacts to our operations in the North Sea, Gulf of Mexico and APAC regions. Given these expected impacts, we are tightening our guidance as follows: revenue in the $1.2 billion to $1.3 billion range; EBITDA $263 million to $278 million, a $15 million increase from the midpoint; free cash flow of $100 million to $140 million; CapEx of $75 million to $85 million. These ranges include some key assumptions and estimates. Any significant variation from these assumptions and estimates could cause our results to fall outside of the ranges provided.
Our fourth quarter results will be impacted by the seasonal weather in the Northern Hemisphere. Robotics segment will be impacted in the North Sea and APAC regions with a decrease in trenching activities. Our shallow water abandonment will be impacted in the Gulf of Mexico with a decrease in heavy lift and diving activities. We nevertheless expect the fourth quarter to generate solid seasonally adjusted results. Providing a key assumptions by segment and region, starting on Slide 25. First, our well Intervention segment. The Gulf of Mexico is expected to continue to be a strong market for the balance of '23 with the expected strong utilization on both the Q4000 and Q5000 and benefiting from market rates.
In the U.K. North Sea, both vessels have contracted work through Q4 and into 2024. Activity levels for our well intervention vessels in this market continues to be robust. During the fourth quarter, the Seawell is scheduled to undertake a 2- to 3-week transit for a project in the Western Mediterranean.
The Q7000 is currently completing work in New Zealand on the Tui project, the vessel is expected to transit to Australia for contracted work with 3 operators.
In Brazil, the Siem Helix 2 is contracted into mid-December of 24 with Petrobras and the Siem Helix 1 is contracted performing well abandonment work for Trident into Q4 of '24.
Moving to Robotics segment, Slide 26. The Robotics segment continues to benefit from the tight market, where currently both oil and gas market and the renewables markets are extremely active competing for assets and services.
In the APAC region, the Grand Canyon II is contracted for decommissioning and ROV support work in Thailand and Malaysia, with expected good utilization for the balance of '23 in that region. In addition, one of the recently acquired T1400 trenchers is contracted and working into mid-Q4 2024 on the Siem Topaz.
In the North Sea, the Grand Canyon III is contracting to perform trenching work, with expected good utilization in the fourth quarter, the Horizon Enabler with this flexible charter has trenching projects into December.
The Glomar Wave is pursuing multiple short-term scopes. In the U.S., the Shelia Bordelon is working on the Gulf of Mexico performing ROV operations with opportunities in the Gulf of Mexico, and the vessel is expected to have good utilization in Q4.
For production facilities, the HP1 is on contract for the balance of '23 with no expected change. We have expected variability with production as the Draftefield continues to deplete that Thunder Hawk Field is expected to be offline in Q4 for pending repairs.
Continuing on Slide 27 for the shallow water abandonment segment. The shelf decommissioning market continues to be very active. We've entered the period of time where we expect seasonal variability in activity. We expect the Marine Offshore division utilization to scale back seasonally on liftboats, OSVs and crewboats.
The Energy Services division should have good utilization on 12 to 14 P&A spreads and 2 to 3 Coiled Tubing units during the remainder of '23. There is seasonality in the diving and heavy lift division that will impact the fourth quarter.
Moving on to Slide 28. Our CapEx forecast for '23 has been heavily impacted by the dry docks and maintenance periods on our 2 vessels earlier in the year. In Q3, we spent an initial $6 million of cash to acquire 5 P&A systems. Our cash spend in Q3 was approximately $26 million.
With a heavy regulatory year and our recent acquisition, our CapEx forecast range for '23 is now $75 million to $85 million. The majority of our CapEx forecast continues to be maintenance and project related, which primarily falls into our operating cash flow.
Reviewing our balance sheet, our funded debt was $233 million at September 30, with the final payoff of the $30 million 2023 convertible senior notes in September and the semiannual stocks on MARAD debt.
I'll skip the remaining slides and leave as (inaudible). This time, I'll turn the call back to Owen for a further discussion of our outlook and for closing comments.

Owen E. Kratz

Thanks, Erik. Well, things are good, and we expect even better returns going forward. We continue to outperform our expectations, resulting in an additional increase to our 2023 guidance to an EBITDA range of $263 million to $278 million.
We're in the budgeting process for 2024. So we don't have specific guidance to share at this time. With what we see so far, it could be upwards of 10% growth for 2024 over 2023 from our current assets. This includes legacy below market rates previously contracted that start to roll off by the end of 2024, which would indicate even further growth opportunities in 2025 over 2024. We've already pointed out that 2024 will have approximately 200 fewer scheduled maintenance days than 2023. Assuming market rates and that we're able to manage costs and execute on our maintenance programs, this could turn into approximately $25 million to $30 million in EBITDA.
We have 4 major assets currently impacted by legacy rates. The SH1 is on a 2-year contract to the end of 2024 with a small escalator in rates for 2024 over '23, offsetting higher costs.
By 2025, we expect the vessel to be able to achieve market rates, which could be a 50% to 60% increase to the current rates. The SH2 is on a 2-year extension of a 4-year contract that has a flat rate until the end of 2024. At that time, we expect the vessel to be available at market rates, which could be approximately 40% higher.
The Q5000 has a partial year commitment contract that ends at the end of 2024. There's a year-over-year escalator for 2024 over '23, but we'll not see market rates until '25.
The Q7000 is contracted to work in the APAC into mid-2024 before transitioning to Brazil for 12 to 18 months. The rate and cost differences between APAC work and the Brazil work should generate $20,000 to $30,000 a day increase in EBITDA contribution starting in 2025 before reaching market rates in 2026.
When I refer to market rates, I'm referencing current market rates as we don't know what the market rates will be in '25 or '26 other than to say that current market rates are not yet back up to 2014 levels. Rig rates continue to increase and supply is expected to remain tight.
At this time, we don't have sufficient assets to meet the expected demand. We don't anticipate adding any new Helix purchase or new build vessels, but instead, could look to partner with select vessel owners to provide Helix systems and expertise to cover demand as an alternative to adding excess capacity to the market.
We'll be assessing our spread deployment strategy with consideration given to maintaining our presence and relationships in all the regions where we work. To this end, we added 2 additional intervention systems and 2 trenches at the end of 2022.
In the renewables market, we forecasted growth rates for the work in the market that would allow us to grow our -- which would allow us to grow our trenching and site clearance business within those 2 areas without a need to expand into other segments of the offshore wind market where adequate returns could be a challenge.
Last year's acquisition of Alliance and the extension of our decommissioning business once again into the Gulf of Mexico shelf has been a good success. This business has seen EBITDA contribution more than triple since our acquisition and then 2023 is on track to generate roughly double the initial guidance given at the time of the acquisition as demand has increased faster than we expected.
A recent study indicates over 14,000 wells to be abandoned in the Gulf of Mexico and thousands of structures and pipelines with 90% of wells being in shelf waters. The recent Fieldwood and Cox bankruptcies have kickstarted an intense desire to see this work done from both successor owners who will assume the liability as well as regulatory bodies pushing for a solution.
A full field abandonment process begins with assessment and making the old structure safe to work on. Then the focus turns to the P&A of the wells. Following this, the pipelines are abandoned and the platforms removed with the last phase being debris clearance of the ocean floor. After a flurry of well P&A work in 2023, we can expect the potential slowdown in well work and a ramp-up in pipeline and platform removal. This may be the trend until the more recent Cox bankruptcy work begins, at which time all phases of the work should be active.
Helix is the preeminent shelf contractor that owns all the main asset classes needed to perform all aspects of full field abandonment work. We expect the work to continue for years to come based on the work that exists. We believe the business lines Helix has developed for the end-of-life oil and gas and the development of offshore wind has positioned the company well with a strong balance sheet for the generation of double-digit free cash flow yield going forward.
I believe this gives you a good perspective on why I'm saying things are good. but we expect them to get even better. Erik?

Erik Staffeldt

Thanks, Owen. Operator, at this time (inaudible) for any questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from James Schumm with TD Cowen.

James Joseph Schumm

Can you just help me understand the free cash flow guide for this year? I mean you have EBITDA going up nicely versus the prior guide. And I think you got free cash flow down $30 million or so at the midpoint. It looks like CapEx is up, I don't know, $6 million or $7 million. So you called out working capital in the press release. But is that it? Or like why would you not be able to reverse the working capital build in the fourth quarter, that's kind of typical for OFS. So just help me understand what's going on with the free cash flow, please.

Erik Staffeldt

Yes, you're right, Jim. I think the primary driver for the adjustment to the free cash flow is the working capital increases. You're right about, obviously, the increased EBITDA that comes with also an increase to our revenue by over $50 million just quarter-over-quarter. So overall, this is primarily a timing issue. I think from what we are forecasting in the fourth quarter, I think we see some flowback in the fourth quarter as we're projecting strong free cash flow between $60 million to $100 million in the fourth quarter alone. I think there's a good chance some of that will happen in the early first quarter as well.
Once again, the seasonal impact activity levels remain strong into October, November before we see the seasonal dip in December. And so it is primarily working capital. And once again, it's primarily just a timing issue. There is the impact of the slight increase to CapEx that we've outlined but those are the 2 main drivers.

James Joseph Schumm

Thanks, Erik. And just to confirm, like there's no -- you have no collection issues or anything like that. It's just timing. And so we should -- this should reverse by the fourth -- sorry, by the first quarter, if not in the fourth quarter. Is that fair?

Erik Staffeldt

I think that's fair. I think overall, Jim, once again, activity levels for us as a whole this year over last year, revenues were up by over $400 million. And so I think the impact of the working capital on our cash flow generation has been obviously quite strong. I also think that we've had a little bit of shift in our schedules that has impacted the working capital as well. At this time, we don't expect or see significant collection issues.

James Joseph Schumm

Okay. And then the last one for me. Can you just give an update on the 2026 converts? What's the strategy? Or what's the most likely outcome there?

Erik Staffeldt

I think from that standpoint, Jim, we have been advised and expect that the converts that we have are -- is an instrument that we could hold to maturity. Once again, managing our balance sheet has always been our top priority. And then from that standpoint, we continue to weigh our options on how to manage this. Several years back, our focus was primarily on cash generation. Now as the market has improved, we're looking at our options from the debt standpoint, Obviously, we haven't been shy about talking about wanting to a more traditional debt instrument rather than convert.
So really, all options are on the table and focus really top priority is managing our balance sheet.

Operator

Our next question comes from Luke Lemoine with Piper Sandler.

Luke Michael Lemoine

Owen, I just wanted to kind of clarify a couple of your comments on the initial 24 outlook. When you said up at least 10%, were you referring to EBITDA for '24?

Owen E. Kratz

Yes. .

Luke Michael Lemoine

Okay. And is that inclusive or exclusive of the $25 million to $30 million of dry docks that you had in '23? .

Owen E. Kratz

That would be primarily based on the $25 million to $30 million of enhanced EBITDA from lower maintenance CapEx. .

Luke Michael Lemoine

Okay. Got it. So just at that amount, would those absent plus rate group on top of that, right?

Owen E. Kratz

Right. That does not include any anything other than continued operations from our current assets. It doesn't include any acquisitions of production or other impacts that may also increase it. So that's why we said greater than 10%.

Operator

(Operator Instructions) Our next question comes from Greg Lewis with BTIG.

Gregory Robert Lewis

I was hoping that you could talk a little bit more about the shallow water abandonment market. I guess one question was the handful of assets you purchased, I guess, it was like $6 million. Were those acquired from existing, I guess, competitors? Or were those -- was that new equipment that was ordered and you took delivery of?

Owen E. Kratz

That was -- no, we're not looking to add capacity to the market. That was an acquisition from an existing competitor. It was very attractive because it also came with quite a number of offshore workers and people are the biggest bottleneck to your ability to cover greater market share in this market. So adding the people would be actually more important than adding the equipment.

Scott Andrew Sparks

The 65 original employees that, that division had we managed to hire 62 of those people direct. So it's a really good win for us.

Gregory Robert Lewis

And then just -- and just as we try to piece together the fragmentation of the shallow water market and realizing it's also geographic specific. Do you see as this market unfolds, obviously you guys are in a pretty great position from a balance sheet and liquidity and cash. Could there be opportunities to do more such similar? I mean you did mention potential for -- or that the guidance was exclusive of any acquisitions. Is this an area where the company could continue to look to grow over the next 1 to 2 years?

Owen E. Kratz

Yes. I think we'll keep a close eye on the market and talk to all of our major clients. One of the advantages that we have is that we already have the systems and our policies in place that qualify us to work for the majors, which are the recipients of the liability as it were from the Fieldwood and Cox bankruptcy. So depending on their demand and if it gets to the point where we're exceeding our capacity to supply, then there are opportunities that we could look at.

Gregory Robert Lewis

Super helpful. And then just one more for me. Realizing that -- when we talk realizing that sometimes well intervention assets have to compete against offshore drilling rigs. A big theme across the drilling space has been white space and idle time as rigs look to get back to work. It's interesting because when we listen to you, it doesn't seem like we're really facing -- it doesn't seem like the well intervention assets are facing much white space. Is that -- I guess my question is, are we starting to see drilling rigs kind of look to take some of the short-term well intervention work? Or is the white space that we're seeing in offshore drilling, really transient and rigs aren't looking to compete against your well intervention assets?

Scott Andrew Sparks

So I'll take that. I think that there are certain rigs that are entering the -- on the decommissioning market. There's been a couple of contracts awarded in the Deepwater Gulf of Mexico, a couple awarded in Australia, but we are expecting high utilization for all of our assets in '23 and as we go into '24.
You also have to look at it geographically, we don't really compete with rigs in the North Sea, for instance, our vessels are very specific to the type of work that happens in the North Sea being diver enhanced and older wells in the North Sea. So there is a few contracts that have been awarded, but I wouldn't say it's greatly impacting us, and we're expecting a good utilization through it.

Operator

Our next question comes from Donald Crist with Johnson Rice.

Donald Peter Crist

I wanted to ask one quick question about the convertible debt. I mean, obviously, all options are on the table. But would you expect any of the current noteholders to convert given where it's trading today? Seems at least to us that -- doesn't really seem like anybody is going to convert at this stage given where they're trading today.

Erik Staffeldt

I think the advice that we've gotten from the experts in this area is to generally not expect any of the holders to convert because the notes trade at a premium to our stock price. And so that's the advice that we've been given. And I think that you can see from the trading value of the converts that they are trading at a slight premium to our stock price. And therefore, we would not expect there to be a conversion.

Donald Peter Crist

Okay. And I wanted to ask one question on the Alliance payout. It seems like it impacted your EPS, but not your EBITDA this quarter. Can you remind us when that actually goes out the door -- when that cash goes out to door to the ex management team?

Erik Staffeldt

So yes, the measurement period, Don, goes through the fourth quarter of '23, so it includes the upcoming quarter as well at which point, we'll true it up, as of the third quarter (inaudible) up to fair market estimate of $74 million. The payment is expected to happen in the start of the second quarter of 2024.

Donald Peter Crist

Well, I think we're all in agreement that Alliance has significantly outperformed. So we don't mind paying a little bit more to them. So I appreciate the time today. Thanks.

Erik Staffeldt

Yes. And to your point there, once again, it is $74 million through the third quarter. We expect, obviously, we'll adjust it upwards as they continue to outperform here in the fourth quarter. .

Operator

Gentlemen, there are no further questions at this time.

Erik Staffeldt

Okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter call 2023 in February. Thank you.

Operator

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.