Q4 2019 Earnings Call
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Greetings and welcome to the fourth quarter 2019 earnings Conference call.
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Please note. This conference is being recorded Tuesday February 20 52020.
It is now with pleasure that I turn todays conference over to Mr., Erik Staffeldt C. F. Oh. Please go ahead Sir.
Good morning, everyone and thanks for joining us today on our conference call for our fourth quarter and for your 2019 earnings release.
Participating on the call. This morning, our own craft, our CEO Scotty Sparks, our COO couldn't might go 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 investors page on our website at www Dot Uxc S.G. dot com.
The press release can be accessed under the press releases pick up in the slide presentation can be accessed by clicking on todays webcast icon.
Before we begin our prepared remarks CAD My Kirk will make a statement regarding forward looking information Kim.
During this conference call, we anticipate making certain projections and forward looking statements based on our current expectation.
All statements in this conference call or I mean, most even presentation I live in statements of historical facts are forward looking statements that are made under the safe Harbor provisions of the private Securities Litigation Reform Act 1995.
Our actual future results may differ materially from all projections and forward looking statements mutual number in a variety of factors, including those set forth in slide two well. Most recently filed annual report on form 10-K, and then other filings with the FCC.
Also during this call certain non-GAAP financial disclosures maybe made.
Once once you see rule the finest line about presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations along with this presentation earnings press release, our annual report and a replay of this broadcast are available on or before the best 40, Investor section of our website at Www Dot helix.
He asked gene Dotcom Alan.
Good morning, everyone, though we're gonna start on slide five rate today.
Which provided a high level summary of our result.
The fourth quarter, Mark that started to seasonal slowdown, but activity in the north sea affecting both the well intervention and robotics, but most of the slowdown typically starts in November and runs into April with seasonality can be theme. In our result was revenues in Q4 were 171 billion down from 213 million in Q.
Three.
The decline in revenue decreased our gross profit grew 27 million or 16% compared to 55 million or 26% in Q3.
For the quarter, we reported a net income of <unk> million compared to net income of 32 million in Q3 reduction in revenue resulted in lower EBITDA of 33 million in Q4 compared to 66 million in Q3.
Considering the seasonal slowdown our teams operated efficiently during the fourth quarter, managing high asset utilization and quickly reducing costs during the idled periods.
For 2019 revenues improve by 12 million to 752 million or.
Our gross profit improved by 16 million to 138 million net income increased by 29 million to 58 million and our EBITDA increased 280 million in 29 team from 162 million and 28 team.
Operating cash flow beat for the year was 170 million, resulting in free cash flow 31 million. This marks the third consecutive year of sequential growth in revenue and EBITDA.
There were many factors that drove our operational and.
Financial improvements in 2019.
I'll start with all employees I. Thank our employees for I. Thank our employees for their efforts and high level of execution and 29 team executing safe and efficient operations for our customers is established us as the leader in the industry.
Second we recognize these are challenging times, but we're starting to see signs of an improving offshore well intervention market.
The North Sea region has been consistent since 2017.
Predictable activity in relatively stable oil prices driving our markets.
In the Gulf of Mexico.
2019 saw increased activity offshore with immediate benefit to our vessel utilization, we're seeing signs of rational financial returns driving investment decisions, leading our customers back offshore third we benefited from the creative contracting that allowed us the flexibility, but schedule dramatically worse during school.
Well gaps limiting our downside.
Let's we benefited from the improving cost structure and a robotic segment, we have rightsize the business for the current market conditions positioning us to generate positive returns.
From a balance sheet perspective, our cash level at year end with 208 million.
Within the additional 54 million in restricted cash associated with a short term notes the.
For 2019, we generated $117 billion of operating cash invested 141 million and capital expenditures were expenditures with net free cash flow 31 million, our net debt at the end of the year was 143 million.
I'll now turn the call over the Scotty for an in depth discussion of our operator.
Thanks, Good morning, everyone moving on to slide 10.
The fourth quarter was a good period, considering we commence the slow winter seasonal period and completed this year's BP campaign at the end of Q3.
We achieved good results across the fleet, we have excellent operational performance in regards to safety uptime, and well work efficiency, achieving revenue uptime of 98% against contracts in place.
The year ended with strong safety performance by fall one of our best is in regards to safety specifics.
We are proud of all hit it seems performance this year, how stuff not partners such as some to have been outstanding.
In the fourth quarter, we achieved revenues of 171 million compared to 213 going into first quarter.
Gross profit margin of 16%, resulting in profits of 27 million decreasing from 26% and 55 million crush promising key free.
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Considering the start of the seasonal winter period, we had saying high levels of utilization the lights avention fleets achieve utilization of 92% probably.
Gulf of Mexico had 95% North Sea had 82% in Brazil at 98% utilization.
The robotics chartered vessel fleet to achieve utilization of 73% globally.
In the Gulf of Mexico to key 5000 completed the abundance of our second well a full Tuscany wells and then completed work could see customers.
Prior to commencing its five year regulatory inspection and maintenance program in late December.
Q4 thousand what for two customers completion say abandonment Skype for one customer and then a number of production enhancement Skype for another.
Well, Steve business performed well working for for custom is the one has to work in most of the quarter work in freight to the end of December let's see about walking into the ascending for answering seasonal warm stack.
Performance in Brazil was strong again, five vessels performed very well achieving high utilization of 98% with excellence uptime.
The robotics charts. Its fleet was very active working between Harvey supports the renewable trenching whats completing 192 days of utilization.
I'll call spaces now further reduced with the expiration of the Chaucer, if the Grand Canyon in mid November.
We continue to be excited about spending not products. The service lines geographically Q 7000 compete to try and West Africa, Kevin on hiring January homes and has already completed the first while successfully.
Our financial performance increased year over year, we've increased revenues of $752 million compared to 740 million in 2018.
Gross profit margin increased 18% from 16%, resulting in 138 million gross profit cash flow from operating activities was 117 knowing.
Perhaps 2019, we completed work on 86 wells across the fleet, we have a specific work of 77 production enhancements activity thats exciting abandonment type activity.
Into Twentytwenty, our forecasted work increases to approximately 85% production enhancements activity.
Slide 11 provides a more detailed review of our operations for well intervention business in the Gulf of Mexico.
The key 5000 completed the abandonment of the helix and second well at trustee and then perform to fed reintervention, what's the two clients prior to commencing its five year inspection and maintenance period.
Divestments now completed the inspection and maintenance period successfully and is now back to work.
He thinks one sub sea joining me on 15 KRS system is currently undergoing it's hitting maintenance program.
Expected to be Remobilize to key 5000, and adding the second quarter.
The key 4000 achieved good utilization of 98% in Q4 divest of performed well completion say battlements scopes of one clients.
Commencing a multi well production enhancement kind of paying for another clients.
Thanks of the key units performed very well for the quarter working and ultra deepwater conditions with any one combined they have come national downside.
Moving on to slide 12.
And obviously well intervention business performed well work and then the harsh winter period with five vessels achieving good utilization considering the talking with you.
Well I would answer achieved 80% utilization working for a client on seven wells performing production enhancement works price wanted to take an Italian Skype for the next clients.
Let's see what achieved 77% utilization working for two clients working on see production enhancement scopes and did not condiments, Skype with 100% operational uptime against contracts at dice.
In December the events vessel commenced its seasonal warm stacking makes sense period.
The key 7000 was fully mobilized Islam Jay services equipment, and then commence type assets to West Africa, arriving in Nigeria in early January.
That completes and regulatory inspections of a funnel client testing divest of when some high January expense you could successfully completed the first part of the campaign.
Moving onto slide setting.
In Brazil, our operations for Petrobras continues to grow extremely well again produced another quarter of operational excellence continued strong performance regarding safety uptime going efficiency.
Yes, let's continue to undertake numerous skypes much they would like to its production enhancement and efficiently completed work on 28 wells for the.
In the fourth quarter, the same state Igs want achieved 95% utilization working on five wells for wells being production enhancement works and one well for abandonment.
The Siem helix to achieved 100% utilization working on five wells performing production enhancement Skus in Q4.
Moving to slide 14 from about six review.
Optics continues to go well strong operational performance and significantly better commercial results produced a good you if robotics team internationally.
In the fourth quarter charter vessel fleet utilization was 73%, including 55 days from spot vessels.
Two vessels, we utilize nicely on trenching projects in the North Sea the Grand Canyon see works and the APAC region loss candies operates in the Gulf of Mexico.
The Grand Canyon work to the North sea, achieving 100% utilization on a combined talk on self ground Trenching project and so the vessel charter ended in November that the image sensor, it's not enough further reducing our cost base.
The Grand Canyon. So you had 100% utilization performing works on RV support projects and the APAC region.
Bryan County entry had minimal utilization and then I'll see work in 16 days trenching.
Candies at 26 days utilization, what can RV support for full clients.
And then obviously, we also expanded our renewables off and then commenced alongside wind farms site clearance and survey project from too small a spot charter vessels.
I have it slide 15.
I'll leave the slight detailing the vessel is already in trench and utilization for your reference well now turn the call to Eric for a discussion on balance sheets and I'll Twentytwenty outlook.
Thanks Scott.
Slide 17 outlines our debt instrument and their principal maturity profile I'll leave this slide for your reference to move.
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This slide provides an update on key balance sheet metrics, including long term debt and net debt levels as of yearend. Our net debt in Q4 increased to 143 million from 127 million in Q3. The increase in net debt. During Q4 is primarily attributable to the $69 million final shipyard payment for the delivery of the.
Q 7000, our total Capex and capital investments of 95 million, partially offset by 80 million of cash generated from operations. Our cash position at year end was 208 million, excluding 54 million of restricted cash our year end net debt to book capitalization was 8%.
Moving to slide 24, our discussion on our 2020 outlook for 2020 were providing guidance insert and certain key financial metrics from our forecast we're forecasting revenues in the range of 820.
820 million Hpeight hundred 90 million EBITDA in a range of 180 to 210 million.
We expect to generate free cash flow between 110 to 150 million.
We expect to spend approximately 50 million in capital expenditures, primarily maintenance capital. These ranges include couldn't see key assumptions and estimates any significant variation from these key assumptions and estimates could cause that result of fall outside the room provide.
We are assuming a good first year utilization on the Q 7000, we expect the vessel primarily to work in West Africa.
Actual is currently under contract into Q2, and we continue to pursue opportunities in West Africa in other regions.
We expect to 2020, North sea well intervention market to maintain a consistent level of activity with continued seasonal fluctuations. The seawall has completed its regulatory maintenance during Q1 with work scheduled for early March.
Well enhancer, it's completed its maintenance in Q1 and is expected to commence work in early March we expect both vessels to have good utilization into Q4.
Moving to the Gulf of Mexico, The Q 5000 enter into shipyard in late December and completed its regular regulatory maintenance mid February.
Vessels currently working the spot market with a couple of projects scheduled prior to returning to its BP campaign in early April through the remainder of 2020.
The Q4 thousand is currently undergoing regulatory maintenance approximately 30 days vessels expected back on contracted in early March.
We expect the increased activity experienced in the Gulf of Mexico in 2019 to continue in 2020.
We're forecasting high utilization for both vessels the Q4, the Q five excluding the Q1 maintenance periods.
Moving to watch, Brazil, we expect a high level performance and execution in our Brazil operations to continue in 2020 with both vessels on contract. The CMBX two completed its maintenance period in Q1 with minimal impact operations.
Cm helix one is scheduled for its maintenance period in Q2 anticipated to collapse approximately 10 to 15 days, it's up to five days of expected downtime.
In robotics, we expect continued to benefit from reductions in our cost structure for chartered vessel class and hedges, we expect the RV market to remain challenged the renewables trenching market.
To be softer compared to 29 team does that impact for 2020 should be a modest positive to our robotic results.
Production facilities will likely be negatively impacted by lower production from Laski HP. One is expected to be operational all year with consistent performance and no scheduled maintenance period.
Once again production should be largely positive in 2020, we have not contemplated any drastically work at our 2020 guidance production enhancement or Pmeight work any work performed would impact our results.
To achieve the higher end of our range. The Q 7000 would be operating all 2020 with high utilization and little downtime, the well intervention spot market in the UK North sea in the in the Gulf of Mexico would provide for high utilization of our spot fleet.
Any significant variation from these key assumptions good cause our EBITDA the fall outside the range provided.
The markets, we serve we'll continue to be impacted by seasonal factors, especially in the North Sea. In addition to the seasonal impacts on Q1 in Q4. During Q1 of 2020, our results will be impacted by the regulatory maintenance on the Q 5000 end of Q4 thousand.
Forecast at approximately 50 days in 30 days of maintenance, respectively. Q 5000 scheduled to return to BB campaign in early April.
In addition to see well water transfer and Siem helix to all have maintenance periods. During Q1. Therefore, we expect our Q1 to be our weakest quarter largely EBITDA positive.
Based on our contracted work, we anticipate significant rebound in the second and third quarter with expected strong cash flow generation the second half of the year.
Moving to slide 22 in the Gulf of Mexico, The Waterman intervention market. The Q4 thousand is expected to return to work in early March and has work into Q3 with identified opportunities thereafter. The Q 5000 has a 207 day program with BP from Q2 through Q4, working the spot market permits.
Very till contract commencement.
Thats 15 cage expected to work in the second quarter, and then again in the fourth quarter with utilization similar to 2019.
In the North sea well intervention market blood vessels are targeted to compete regulatory Drydocking Q1, the seawell in well enhancer are scheduled to working in early March we expect continued seasonal weakness during the winter months.
In Brazil, the cm helix two completed its maintenance period in Q1 with minimal impact operations.
MPLX one is scheduled towards maintenance period, Q2, and two because anticipated collapse approximately 10 to 15 days with five days up to five days.
As expected downtime.
I'm going to slide 23, robotic segment is expected to benefit from its continued improvements and cost structure. The return of the Grand Canyon in Q4, 2019, and lower charter cost to the hedges rolling off the year, although we're expecting softer trenching market, we are expanding our renewals offering and cmss long term wind farm cycling.
For instance survey project.
From two smaller spot chartered vessels.
Over to slide 24, the Capex for the years is forecasted at approximately 50 million with most of this capital for regulatory maintenance.
Our scheduled debt payments for the year approximate 100 million.
We expect to continue to benefit from strong operating cash flows and significant free cash flow in 2020.
Ill skip slide 25 and leave it for your reference at this time I'll turn the call.
For closing comments.
Thanks, or the nerve give them a includes an awful lot of detail I'll try and give a bit of a broader context.
We're still in a challenging market.
Oh demand is off the bottom as our rates, but services are still oversupply and still needs to be absorbed before we see significant rate increases although they are moving up slowly.
What we're doing well on utilization, we have a lot of leverage of two rates, which we expect to that will occur over the coming years.
We believe for sometime now that we will have to enter a long gradual recovery, we see 2020, continuing to be challenging but find that supply demand may hold promise for a meaningfully stronger 2021.
However, we're not sitting back waiting on a recovery story.
In this current market investors want capital discipline on free cash flow yield along with manageable debt.
Our first priority was to complete our last legacy capital project, but Q 7000.
It's now working in Nigeria at least into Q2, we have potential work identified that would keep for both women that are for the remainder of 2020.
We're also negotiating work that could potentially filled the first half with 2021 and after that were and talk for a contract that could last for most of 2022.
None of that worked with climbed up yet, but timing for bringing the Q seven thousands market it seems to be right and the last of our major capital projects is now complete.
Going forward, our capital expenditures should run about $30 million to $50 million per year, primarily for maintenance capital.
In 2020, we've anticipated the seasonally slow Q1 in the North Sea. So we took advantage of those to complete the maintenance periods on both the north sea vessels.
VP of selected the take their 270 days on the Q 5000, after the first quarter.
Therefore, we also scheduled maintenance period in Q1. In addition, we also contracted the maintenance periods for the Q4 thousand and with NIM, Hey look scheme in Brazil in Q1, So all told we scheduled five.
Well intervention assets for maintenance in Q1 goods or that sort of a.
Typical abnormal Q1 for us, but it also sets up a very strong remainder of the year and in 2021.
Minimal.
Oh it means we have to make an allowance from 2021 of its minimal.
Our second priority as Doug management with 143 million in debt.
Our net our debt levels are manageable our capital structure is manageable with our cash flows we intend to focus the forecast of 110 to 150 million of free cash flow and 2020 on further debt reduction.
Our intent is to drive to company towards net zero around the end of 2020.
While our debt structure is manageable, we're always exploring ways to improve that structure with a view of returning value to shareholders, we need to game clear visibility on the 2021 market before we're in a position to make that decision, but but if when and how we achieved that remains an ongoing subject discussion.
We've also been working on involving our business model to improve results without relying on a market recovery.
Crossview type deals allow for greater certainty on utilization creative contracting offerings should start improving margins even in the absence of higher rates.
And geographically, we're expanding with the Q 7000, now in West Africa and are looking to expand further into that region. We're also in discussions for work in the Asia Pacific region.
The futures you've also see are up expands the scope of work.
Of what we can offer with our vessels in the North Sea and we're also expanding our offerings that Scotty mentioned in the one farm sector.
We're constantly assessing new opportunities.
But they must be the right once our future is bright and we feel that we can be selective will only look at those opportunities that enhance our market position strategy, our low leverage and are accretive to free cash flow.
Ill now turn the call back there.
Thanks, Ellen operator at this time will take any questions.
Thank you very much we do welcome all questions or comments to register Please press Star one followed by the four on your telephone you will hear Athree town prompt to acknowledge your request. If your question has been answered any would like to withdraw and registration. Please press one three.
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And our first question comes from the line.
Ed possession have please proceed with your question.
Hey, good morning, and thank you for taking my questions.
Brian I guess.
You guys talked about.
Going trying to get to net debt.
End of 2020.
Just trying to think about what we have plans I.
22, and funny getting too when you put into the conduits.
Given the I think about commitment enough debt payments you have schedule all before 2020.
Okay. Thanks, Kelly in general we are definitely driving.
Our debt levels lower we have those scheduled payments that you talked about 100 million here in 2020.
We recognize that we had the converse out there in 2022 in 2023 based on our current market conditions and our current performance. Our I think our expectations would be to keep that as a prominent level or semi permanent form of debt out there. So our intention.
I would be more than likely to roll our balances associated with our converts and 22 in 23.
In in some type of instrument.
Okay, that's very helpful.
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Can you talk about that rate improvements that you're seeing in Nazis and what you're seeing in Gulf of Mexico.
I'll take that yes, we are definitely seeing a slight increase in the north sea utilizations in increased slightly as well.
Last year, we had a couple of legacy contracts that are lower right. So weve readjusted to market in the north sea and in the Gulf of Mexico, very slight increases fit so again, the utilization as pets ethylene by having the jockey sale there that means any gaps that come up we can we can fill them if they move around what.
Pharmacy rights improvements there is still a lot of the supply of rigs so.
It's Nick and more Frost and Twentytwenty, while we'll see.
Roger increasing our rights.
As as opposed to mix profile also lots of the what we undertake no contracts is up this year was bit at the end of launching at lower rates as well not as high rates as we could probably achieve.
The same an increase it's moving into right direction, but is slowly.
Okay.
I guess.
You guys have done a very good job on cost cuts and also.
Hi, Jason.
Great and like most of that just going away just trying to think if there any cost saving opportunities that you guys see.
Thanks Robert.
Well I'll take that reported scholarships as.
Well, what we've been doing really well along the.
Structural cost that you mentioned I think operationally, there's still room for there's room for is to improve on our downtown.
Allowances.
Which I think we're making great games on but Theres still more improvement also I think there though.
There are areas with our strategic partner Schlumberger.
Who cross train and integrate Crewing and Manning requirements that would allow us to lower personnel on board each of our Brocal, we're going in the early stages the.
But that would be a significant cost reductions it'll just take some time for us to give all that training in place the.
The legal aspects covered and to effective on the vessel, but I'd see over time that being a significant cost savings.
All right.
That sounds to me. Thank you for taking my questions again.
Our next question comes from the line of Ian Macpherson. Please proceed with your question.
Thanks, Good morning, everyone.
Oh and it's good to hear the calendars filling for Q 7000, you mentioned, you're bidding multiple work that goes out into next year and.
I assume that you're working more at a level of missionary pricing. This year that you would hope to approve upon as you move into the vessels.
Second tranche of work I wanted to confirm that with you and.
Good I'm, just a directional sense of what you're you're hoping for with regard to the Q 7000 as it moves from this year into next year from a pricing perspective.
Well I believe it if you go back we've always been thing, but the G 7000, the first year comes out.
It's a big uncertainty on the introduction to the market and that could contribute to EBITDA anywhere from zero to 20 million I think when taken they I think we.
We definitely put out some introductory rates in order to get it started.
And operationally, we're probably being conservative although on its first well with performing very well.
Hopefully.
That will continue.
Going forward now the pricing that we are putting out for the Q 7000, and in fact, all of the pricing for 2021 and beyond is that substantially higher rates.
Whether or not we're able to achieve better not we'll see.
But right now there's a lot of enters into Q 7000, the rates that we've given which are higher than the introductory rate that were working under and.
I don't know will locally we're we're far along in the.
Of reduces expressing their interest we're we're far along in some cases in actually negotiating booties and scenes of the contract, though so things are looking fairly bright for the Q 7000.
Good good good to hear that thanks, I also wanted to ask about your.
Youre looming renewals in Brazil, I think SH one hits its four year Mark.
Little more than a year from now right. So just wanted to get the updated outlook there on when you're on your renewal window and.
The expectations are shaping up on that front.
Yes.
The Q 5000 would the will be coming up next year for renewal.
We're in discussions of very informal there the producers don't want to start go formal discussions until a certain time before the termination or the renewal period the contract.
At the vessel has been working very well I think VP very ecstatic about the results that have been achieved with the vocal.
We're talking about of changing the relationship where we actually can offer greater value through the contract. So all good discussions are leaning positive.
In Brazil, I'll have even less worry I think in Brazil. The two vessels have consistently been rated in their top quality rigs.
We were the marine contractor the year last night, Robert last year for Petrobras.
They are adding rigs.
I think it's obvious that they need the vessels and the vessels are performing extremely well I mean do work on 28 wells on a year is.
It is a pretty phenomenal comparison, when you look at what rig could do.
So the efficiency of story has been bought into better.
And proven so.
I'm very confident about the negotiations with Petrobras.
Good stuff. Thanks, So I'll pass it over.
And our next question comes from the line Praveen Narra. Please proceed with your question.
Hi, good morning, guys.
I guess I guess, if I guess, if I could follow on to Ians question. The Q seven when you think about the interest in.
In the out years for that vessel are are you seeing it from anybody wants it for a single customer or or do you expect it to kind of go from multiple customers and then back to back work.
I think the way we're looking at the Q seven right now that we had two vessels with needs regions in the north the Gulf of Mexico, and Brazil, We want to penetrate West Africa Asia Pacific If of course, Brazil is also growing market.
We're we're actually running out of availability.
The rig market tightens up I think thats those good things, Florida, we sort of you did Q 7000, as our swing the full right now.
I think strategically we have reason to want to build of the backlog in all of those regions.
Wallace building likely the Q 7000, being a swing vessel trends moving from region to region and if you remember one of the reasons, we built it the way we do that it does have a high transit speed for let me submersible so that that allows the.
Applications about purpose perfect.
The one disappointment called outflow in though for transparency as though.
The vessel was originally built a for a producer that they had a lot of work in the North Sea.
Ah things have turned out here three years later.
Greater interest in the greater demand is actually on the other regions than it is in the North Sea I think that will come eventually.
But for for the next few years, but actually see her being more of an international asset trends willing from region to region.
Yeah, that's super helpful color, sorry, B, B mall, multi client, but longer campaigns since it's not going to be bouncing around on 15 20 day job. So all of the negotiations we have now of longer.
At 190 day type campaigns.
That's that's very helpful. And then as we kind of think about it.
The guidance and the profitability between intervention or robotics, how should we there's a lot of moving parts of robotics, obviously, you have some cost structure benefits as well.
Trenching, it's a low point.
Can you talk about whether you expect robotics profitably be up year over year, and then also keep talking about the trenching outlook for next couple of years.
I'll take that so we expect robotic device modestly.
Hi, along that in 2019, we are seeing the benefits of the cost structure the.
The Grand Canyon gets response has been its onsite so that comes out of cost base. The hedges have come off the cost base. We are seeing a flatter trenching years as a lot of trenching EBITDA actually goes down to some of the renewables cable the of being in manufacturing the timing of those coming out c.. So when those installations happen will not change and obviously.
All right behind that guidance of 2021, we have contracted from Twentytwenty went out to Twentytwenty free high volumes of what we see in Twentytwenty.
We're still in that theme that is still the oil and gas bid season with a trenching ongoing right now so that's not something that older trench and size of heightened sense of the assets right now.
We're also seeing on expansion geographically for extension.
Our trenching market for renewables, as primarily being north sea and where the wind farms all the on the regulatory fishing Compliances will require we're starting to see a lot more contracts and see for apacs on wind farms are coming up Taiwan them and operators and the middle East So.
So turning assumption is flat to add to ship.
That's very good for us or margins, though it's a little different from the oil and gas markets that we've been in where we are subject to sort of short term visibility. The windfarm market. We have long term visibility on the work that's out there, it's perhaps a bit lumpy.
It is far more certain our outlook far more certain so when we say the 2020 is an off you're going to be less than 2019, but we have concrete visibility on the outlying years the coming back.
Absolutely. Thank you very much guys.
Okay.
And our next question comes from the line of Michael Sabella. Please proceed with your question.
Hey, good morning, all thanks for taking my call.
If we just kind of think about the rig market more broadly lots stress on the balance sheets for a lot of the driller peers, which really is restricting them from deploying capital to reactivate rigs.
How do you anticipate displaying out kind of over the longer term sheet. You have you seen the ability to push rates a little harder than you normally would have given that backdrop.
What are you really have to break the rig market down into the different categories of rigs of all floaters aren't the same the harsh environment rigs are enjoying a quite a revival in the rig rates the lower fourth Gen fifth Gen. Not so much there's still an oversupply I think the rig rates are far.
From a.
The point that warrants reactivation.
The cost incurred plus the longer that the rig fifth the higher the reactivation costs rise so I would I would.
I would not expect to see.
I'm not even going to put a number on it but I don't expect to see that many rigs reactivated coming back into the market.
I think just the utilization rate right now I believe goods and about 60%, 80% on market and great. You were on the cost of where you can see meaningful rate increases.
I don't see the underlying.
Fundamentals of the oil and gas market in 2020.
I think that the on beyond that trigger point, but I do.
Same thing that 2021 could see tightening of the supply demand that spurs the market to actually it feedback trigger point I still don't think though even in 2020 ones are going to see rig rates of high enough to warrant the capital costs with the reactivation.
So I see 2021, 22 wanted me to not being maximum rig rate, but that rig rate that really mean.
Meaningful profitability increase for us.
Yes, great that's really helpful.
And then when we kind of circle back to capital allocation. So you guys haven't past talks about the possibility of buyback you kind of approach that neutral territory.
Keeping in mind that we really know more about 2021 before making from decisions is there is there a leverage target that you all are comfortable sharing that would.
Kind of allow you to start returning cash to shareholders and just sort of talk about where M&A fits into that kind of broader capital allocation decision.
Yes, I think from this is Eric I think from the from our standpoint, we are driving the the company to toward the net zero I think theres multiple factors rather than just leverage I think that as Ellen mentioned that we definitely do need visibility in 2021, obviously as a stronger market would allow us.
To be slightly more aggressive in our leverage position a weaker market I think we would obviously be more conservative. So there's multiple factors, but obviously in general are we are operating as I as a low leverage low leverage company.
I don't lung churn from the specifics on the growth.
Our SaaS I believe can perhaps should for efficiency carry about three to 400 million in gross debt.
Oh, you I prefer to see it's around that 300 million about a high debt.
But in a strong market I can see 400, but more likely 300 liquidity was.
I think between three and 400 million of liquidity and our intent is to try and carried about a 200 million dollar.
Cash balance.
Thats sort of where we feel very comfortable that we could face anything that the market may throw at us now as far as how that plays into returning value to shareholders. I think that gives into the question previously raised about what do we do with the converts out there are plentiful structure.
Do we do we create a softer lending, creating greater liquidity and therefore, a greater ability to return value to shareholders. The early.
I think that depends all strongly on how how robust we really think 2021 is going to be as I said by putting all of these dry docks into the first quarter of this year, we're setting up a strong 2021.
We're starting the discussions on the contract renewals and that fall that goes well then our confidence bill in our ability to share value, but with the shareholders.
That's great. Thanks, so much guys.
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Our next question comes from the line of James Schumm. Please proceed with your question.
Hey, Thanks, and good morning.
So most of most of my questions have been answered but is there any way you can help us think about the economics of the renewable energy support project with two vessels in the North Sea, how should how should investors be modeling that you're thinking about this.
Okay I'll take that one that some first of all it's it's much less revenue top work on it's too small vessels during the spot. So each of these large wind farms are out there you have to remove any unexpected orders so any bogus they'll get into way as the field development. So it's small about extra maven.
Is that those problems for the wind farm operator on lending insight surveys. So the revenue on each sites is around $40000. A day on the margins are like flexible depending on the type of equipment and that sort of $15000 are they.
The next.
We have is the first for us they started very well on five vessels have been working from December.
I'll now targets, it's a good Watson for the full quarter in this year.
Because of that weight, we are seeing the that's an area that we could answer when there's a lot more bid activity coming up and it's something that already folks normal.
If you were talking to into our visa on the customers about so we're looking to diversify up a bunch of cellphone.
Okay, great. Thanks for that and then.
The 15, K IRS unit looks like its lined up for one well in the second quarter I think in the past two years, you've talked about utilization close to the 50% range for the year.
Is the expectation right now that this would be a lot lower in 2020 is this should we I.
I mean, I know, it's early but should should we be thinking of this and more first 30% to 40% range.
Right now I would expect it to be in line with previous years, we have one well for one client, but as lined up to go back legacy client, let's come back for us in the second half of the and we'd expect utilizations be somewhat similar.
Okay, great. Thanks, guys appreciate it.
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Thanks for joining us today, we very much appreciate your interest and participation and look forward to having you on our first quarter 2020 call in April Thank you.
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