Q3 2020 Helix Energy Solutions Group Inc Earnings Call
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Thank you for your patience the conference will begin shortly once again. Thank you for your patience and please continue to standby.
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[noise] greetings and welcome to the third quarter 2020 earnings Conference call.
Plantation, all participants will be in a listen only mode. Afterwards, we'll conduct a question and answer session at that time. If you have a question you can press the one followed by the four on your telephone.
Any time during the conference you need to reach an operator, you can press star Zero and as a reminder, this conference is being recorded Thursday August 22nd I'm, Sorry, Thursday October 22nd 2020, and I'd now like to turn it over to Mr. Erik Staffeldt CFO. Please go ahead Sir.
Good morning, everyone and thanks for joining us today on our conference call. Our third quarter 2020 earnings release participating on this call for helix. They are a win kratz our CEO.
Scotty Sparks, our COO, Tim by Kirk, our General Counsel and Michael.
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 our investors page on our website at www dot feeling ESG dotcom.
This release can be accessed under the press releases tab in the slide presentation can be accessed by clicking on todays webcast icon before.
Before we begin our prepared remarks, Ken and I will make a.
And then regarding forward looking information Ken.
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 fact are forward looking statements and are made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
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 two in 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.
Stents with FCC 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 Dot helix DSG.
Dot com only.
Good morning, everyone.
I hope everyone out there on their families are doing will insane say Oh. This morning will review our Q3 performance our operations in this challenging environment, our view of the current market dynamics and provide our outlook for the fourth quarter.
Moving to the presentation slides five through seven provide a high level summary of our results.
Third quarter typically represents the peak activity period for our operations with operators, taking advantage of the summer weather did complete key projects.
But this is not a normal year are up.
Operations continued to be impacted by the depressed so with us market largely resulting from Covidien team.
We are incurring incremental costs would be additional logistics and safety protocols and controls required to operate in this environment.
It's difficult market on the operational challenges will continue until the pandemic is behind us and perhaps longer during the recovery period thereafter.
But our team continues to address these issues head on we have implemented strict cost controls.
We warm stack to see well in the Q 7000 in Q2 significantly reducing their costs. The robotics, we have expanded our renewables offering and are benefiting from our first site clearance project.
Revenue in Q3 room, where reported a 193 million with a net income of 25 million and EBITDA of 53 million.
Gross profit increased to 35 million from 30 million the previous quarter.
For our year to date results, our revenues were $574 million with a net income of 18 million compared to 581 million of revenues and net income of 50 million through the same period in 2019.
We generated EBITDA of 120 million through the first three quarters of 2020 compared to 147 million in the same period in 2019.
On to slide eight.
From a balance sheet perspective, our cash balance at the end of the quarter was 259 million compared to 178 million in Q2.
During the quarter $42 million of restricted cash was released we generated $53 million of operating cash flow and spent 2 million on capex during.
During the quarter, we issued 200 million of 6.75% convertible senior notes due 2026 to refinance 90 million of 2022 notes and $95 million of 2023 notes.
This financing refinancing provides us a longer liquidity runway, while allowing us to continue our goals of reducing our long term debt net debt at the end of the quarter was 98 million.
I'll now turn the call call over the Scotty for an in depth discussion of operating results.
Thanks, Aaron and good morning, everyone.
Moving on to slide 10.
We continue to operate in a difference in challenging environments presented to us by the COVID-19 pandemic, it's our teams and partners by fluctuating on show cause you continue to respond while doing a fantastic job.
In the third quarter, we had 13 vessels working in on Fiveg labeling for countries.
We haven't kind of sound corrective control measures designed to keep up vessels operation. We've tested the 6500 of our employees and fed policy personnel prior to joining the vessels have experienced very little exposure that meshes since testing protocols are adopted.
We continue to take appropriate steps to protect our employees clients and fed policies.
They didn't hold and abundant the surface pp supplies for the offshore teams mandates in the old fashioned that way masks, while some of the best it wasn't in our offices and facilities Weve continued to enhance revenue decreased in size your distance images.
And then they'll see in West Africa Sea vessels remain warm stacked with considerably reduced operating cost that those vessels and we've also reduced talk today I see a nice spending.
Hi, This is slide 11.
Even in this kind of at 19 environment. During the first quarter. We produced regionally strong results with revenues of 193 million, resulting in increased profit margin of 18% producing the profits of $35 million compared to 199 million revenue and 30 million gross profits in the second quarter.
Considering the effects of the virus and the continued warm stacking of two vessels, we attain good levels of utilization well intervention fleet, chief utilization of 68% globally and robotics chartered vessel fleet achieved utilization at 95% globally.
The share continues to be our best performing paid in relation to safety statistics and operational uptime in the third quarter was no exception.
Our fleet, so practically at 99% uptime efficiency in the quarter was again LPI free which is extremely fees, even though our team continues to perform at such a high standard producing solid operational performance.
In the Gulf of Mexico, We achieved new records in the Q4 thousand completing the longest pipeline cleanup from an intervention vessel. The key 5000 continued throughout the quarter with BP wouldn't that commercial downtime.
In the North sea, the Seawell remained ones that can be Scotland.
The one time trying to cut cost at work and for for clients.
And the West Africa region. The Q 7000 remains warm stacked in the Canary Islands and is planned to commence transit back to Nigeria in Q4 commencing contracted work already in Q1 next year.
Usual high standards of performance in Brazil by vessels performed very well achieving high utilization of 99%.
There are about six chartered vessel fleet was very active working between RV supports trenching renewable works globally competes in 450 days of utilization across seven vessels. The five of the vessels working outside of the only gas markets on renewables projects.
Slide 12 provides a more detailed review of the operations for our well intervention business in the Gulf of Mexico.
The key 5000 had 100% utilization continuing to work to BP undertaken ultra deepwater production enhancement operations are performing extremely well with zero commercial downtime, but continued integration of lucky. It extends airlines teams the vessel remains on contract for the remainder of the year.
The Q4 thousand performed well with 85% utilization due to smoke and schedule alignment between projects competing work and ultra deepwater for free clients.
Let's see well production enhancement project was completed achieving record breaking deepest water that sets from an intervention vessel.
The vessel then went on to set another record for a client that for the next client by completing the longest and the pipeline cleanup set from an intervention vessel.
After short gap the vessel completed a production enhancement project for another client in the vessel is currently contracted for most of November and has recently been contracted for a good portion of Q1 next year.
Moving on to slide 13.
And obviously well intervention business has been most affected by the reduced work requirements due to kind of leading to the continued warm stacking that the seawell well.
Well enhancer. However has worked into October and has several other potential smaller work scopes identified for the fourth quarter.
There wasn't hence we achieved 92% utilization working to four clients in the quarter, including competes in free production enhancement scopes for free clients and then an abandonment Skype for another customer.
Investors recently completed work in this kind of being warm stacked and leave Scotland that remains operationally ready should the potential visible for two works become contracted.
I see well remains warm stacked in the Scotland, which significantly reduced operating cost reduced crew levels to a minimum and allowance.
We will keep life Monaco vessels in warm stacked condition throughout the winter seasonal period as in previous years and are optimistic we will react snakebite vessels in 2020, one future visibility of high activity levels.
The key 7000 remains in warm stack mode intend to refund the Canary Islands, and again significantly reducing our steady operating cost of the vessel vessel.
Vessel its plans to transit back to Nigeria at the end of Q4 to commence contracted work in Q1 2021 now to think country logistics allow [noise].
Moving on to slide 14 in bridge.
In Brazil, our operations to Petrobras continues to go extremely well again, producing another quarter of operational excellence were continued strong performance regarding safety uptime and efficiency.
Vessels achieved strong utilization in the first quarter and that continues to be ranked one of the top rig contractors by Petrobras.
The Siem helix, one completed abandonment work on three wells after conducting a client paid side the whole thing in order to meet strict environmental requirements price of working in a protected area. This.
The Siem helix two completed production enhancement work on two wells and abandonment work on two wells in the quarter.
Moving on to slide 15 for our robotic surgery.
Robotics had a good quarter and continues to have a very good year approaching seven vessels during the quarter with five vessels working on non oil and gas renewables projects.
We continue to expand our renewable energy services by product line and geographically now to include Trenching cycling Some survey accommodation and installation supports secure and renewable energy works in Europe East Coast USA in Taiwan. We have also recently been contracted to undertake fed renewables projects in Q4 in Japan.
The first well in the third quarter charter vessel fleet utilization was 95%, including 291 days from spot charter vessels.
In the North Sea four vessels, we utilized primarily on the renewable energy projects. The Grand Canyon free was utilized seven 3% undertaken renewables trenching and the Christian sand and the work tied up a 100% midsize continuing site clearance and semi works on the wind farm projects.
Also in the North Sea, we spot charter at a large construction vessels to undertake a decommissioning projects in conjunction with our luxury category.
Well, it's working on the sub sea wells and robotics can contracts and this vessel to relate to subsea infrastructure.
The APEC region, the Grand Canyon. So you had a 100% utilization performing works on the renewable energy projects in Taiwan provide.
Providing accommodation on installation support we have.
We have secured work and Twentytwenty one in Twentytwenty to provide an RV supporting the APEC region, which will provide the foundation for our continued presence in the region.
In the Gulf of Mexico, our payers, we gave vessel the Ross can these had 51 days of utilization working on RV support for six clients.
The T. 1200, Trenching unit, which utilize 100% on the client provided vessel in the U.S. East Coast conducting wind farm Trenching works spend.
As mentioned previously the robotics group is having a good year, especially expanding services globally into the renewable sector.
Slide 16.
I'll leave this slide detailing the vessel is already in trenching utilization for your reference.
Before I turn the call to Eric I would again like to thank our helix global team our offshore personnel, our onshore personnel and our partners for instructional work to produce another strong safe and efficient quarter, while staying with the new normal kind of its conditions.
Thanks, Scotty moving to slide 18, it outlines our debt instrument and maturity profile at September Thirtyth.
Our total funded debt was 415 million during the third quarter, we issued new 200 million convertible senior notes due 2026 with the six and three quarters percent coupon. This was done to extinguish $90 million of our 2022 convertible notes and $95 million of our 2023 convertible notes.
This transaction effectively refinanced $185 million of our convertible senior notes maturing in 2002, and 23 into 2026 allowed us to strengthen our liquidity position, providing greater flexibility to manage near term maturities during these challenging times.
Slide 19. This provides an update on key balance sheet metrics, including long term debt and net debt levels at September Thirtyth, our net debt approximately 98 million cash position at the end of Q3 was 259 million our quarter end net debt to book capitalization was 5%.
Moving over to slide 21 for a discussion on our 2020 outlook. We're refining our guidance for 2020 as follows revenue the $710 million to $735 million range EBITDA 135 to 145 and free cash flow in the 50 to 85 million.
Our year to date results are in line with our previous guidance represent an upward adjustment to nearly all metrics you 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 a full quarter the siem helix, one and two in Brazil.
We expect the Q4 thousand to 5000, we'll have good utilization in the fourth quarter. Although the Q4 has gaps to fill in the second half for fourth quarter, well enhancer is in warm stack. Although we are pursuing small projects later in the quarter.
Robotics activity will decrease commensurate with increased weather risk and completion or pausing of projects as is typical for our business. Overall, we expect the step down in the fourth quarter with the onset of the winter season in the North Sea anyway.
Any significant variation from the key assumptions could cause our EBITDA to fall outside of the range provided.
Providing more color by segment and region on slide 22 for us.
Of course, our well intervention segment, the UK North Sea. The long answer completed is contracted work in mid October.
Vessel has been stacked while small projects late in the quarter. So a possibility seawell remained stacked unlikely to work in 2021 until 2021 the key.
The Q 7000 is warm stacked with expected mobilization to start in late Q4 for work in Q1, the Gulf of Mexico. The Q 5000 is working for BP and expected to remain on hire for the balance of 2020.
Q4 thousand has contracted work into November is pursuing opportunities with expected schedule gaps for the balance of Q4.
In Brazil, the Siem helix, one and two are on hire for the balance of 2020 move.
Moving to our robotics segment robotic continues to be more resilient in this market that well intervention work into renewables wind farm sector has continued mostly incurred by current events, although activity will diminish in the fourth quarter as the norm as normal with the onset of the with winter season in the North Sea gas.
Grand Canyon, two and APAC is on contract into Q4 and is expected to have good utilization for the balance of 2020.
Great Canyon, three will be performing trenching in the north sea for multiple customers with expected strong utilization Ross candies is expected to continue to operate in a pay as you go basis over the near term our wind Farm survey insight clearance project continues into Q4 with the duration will be weather dependent we also can.
Preview the decommissioning project using a video and mid mid October.
With an additional project scheduled later in Q4.
Moving to production facility. The HP one is on contract for the balance of 20 with no expected change as well.
As we previously stated we intend to continue to aggressively reduce our cost commensurate with the levels of activity by asset in overhead.
Continuing on slide 24 billion to our Capex.
Forecast remains at $38 million for the year comprised primarily of the recertification cost of our vessels. The majority of which has already been spent in Q1.
Reviewing our balance sheet, our funded debt of $450 million is scheduled to decrease by $10 million as a result of scheduled payments in the fourth quarter revenue.
Scripted cash position of 42 million was released on July 17th although it may be required again with with return to work in West Africa, our cash balance at the end of the quarter was $259 million.
We anticipate tax refunds in the amount of approximately 19 million in the near term as a result of the tax changes from the Cures Act.
I'll Skip slides 26 and leave it for your reference at this time I will turn the call back to our for closing comments. Thanks.
Thanks, Eric.
Well you've heard the helix another company and say the market outlook is challenging this morning, I'd like to try and fill in a little color on what that means for Hewlett specifically.
Most other companies may be referring to their balance sheets. Fortunately, we took action earlier in this year to manage our balance sheet to minimize this is one of our challenges and extend the runway of debt maturities out to 2026 as we've said for a while now we feel that we have sufficient cash on hand, and forecasted cash flow to meet our debt obligations.
With the ultimate goal of achieving gross debt zero position with our balance sheet our.
Our intention will be to pay down another 101 million of our debt by the end of 2021 and continue to operate with low leverage going forward.
We all know what happened to commodity prices in the early part of this year and Depomed limited still obviously ongoing would know when they didn't want them reliably per foot per Bert.
During this time, it's become clear deal with us market has fallen out of favor with the investment community banks and investors and some producers that have begun to pivot to alternative energy and renewables.
Expectations of supply and demand have evolved to a forecast of a longer than expected recovery.
For the past few reporting cycles, we put it to the slow and gradual recovery and demand would balance supply and demand as early as sometime in 2022.
What commodity prices do depends on the extent of recovery in the unconventional market presence.
A successful conclusion of the covered.
Reaction and or timing of successful vaccines and therapeutics.
It also depends on Opex discipline.
It's clear as to what the effect of negative investor sentiment banks will have on our industry capacity to recover on top of this we are uncertain as to what the industry.
The industry's pivot to renewables means for their oil and gas budgets going forward.
Still need the cash flow the sustained investment in renewables.
We believe that the oversupply of the office market will persist in spite of the service supply destruction, taking place the rig and vessel market is going through recapitalization almost across the board. If this leads to consolidation done a rationalization of supply and may occur the company's emerge with cleaned up balance sheet.
Continue to irrationally fight for market share in an oversupplied market. We believe it will hamper unaware of the us market recovery.
Regardless of the adverse effect of all the uncertainties of particular significance to he looks of the number of reservoirs reaching maturity.
For example, having only PDP and ultimate abandonment will be a growing market no matter what else happens.
Well. This is a long term positive for helix is versus part this is.
As this part of the market grows and the RFS capacity declines.
Generating opportunities for helix, it will take patients adaptability and disciplined dip there he looks.
He looks operates the only riser base non rig intervention assets in the world and it's not likely that you will see others build anytime soon that would alter that significantly.
It is now generally accepted that these assets and methodology to both more efficient and have a significantly reduced carbon footprint relative to drill rigs. However, we must operate within the realities of the environment, we work in and unfortunately, the present environment is exceedingly unstable and marked by uncertainty.
In addition to some market stability an increase in commodity prices would go a long way to help us realize revenue is commensurate with our world class assets.
For the near term and as the pandemic has continued on this uncertain market is not conducive to long term contracts as the producers have begun to signal that they are less inclined to award long term multi year contracts to rigs there.
They got caught last time would be committed costs given.
Given the drop off of oil and gas related work. It's also our opinion that the lower first market and specifically the intervention market may return to being a spot market at least until the market stabilizes and commodity prices and order demand for work on mature wells increases it may be too soon to predict what will happen.
But we are inclined to believe the next year or two may see a return to spot market work award rather than multi year contracts.
We've had two or three long term contracts in our history and up until around 2014, when accessed intervention assets was perceived as an issue and.
Intervention has always been a spot market.
Very few producers have the well count to support multi year contract for intervention and that has not changed.
Our goal is all always to show our customers value proposition, we can deliver but we also recognize that at least in the near term those producers that can support long term contracts are also dealing with an uncertain market, where it's a challenge to commit to long term spending.
But our business was built on winning work in the spot market. The majority of our contracts are still one in the spot market and weve proven to be very definitely competing in this type of market.
We also have several ways to adapt and improve our offerings.
Oh creative contracting terms others can offer.
Our capacity to take on management and life extension of reservoirs through abandonment and we have an increasing geographic footprint.
And for those producers who are serious about sustainability and erroneous GE story based on our asset base and efficiencies. We believe the lower overall carbon footprint versus drill rigs is achievable. We also generated almost 10% of our 2020 revenues from the renewables market.
This was a foothold there will seek to increase before anyone jumps on this was being a game changer. Let me just say that the increase of interesting renewables and the projected exponential growth of the market almost.
Almost every contractor, including start ups and are all gravitating to renewables and.
An overly aggressive strategy and renewables is not without risk, we will be looking to grow our contribution from renewables.
But were in a and we feel like we're in a good position, but we will we are going to be prudent in carrying out this growth strategy. When we see opportunities and can minimize risk will be proactive on.
All of our participation in renewables.
I Hope this provides some context of what we mean when we say that we see the market continuing to be challenging for the next couple of years.
The ongoing pandemic events earlier this year have drastically change the landscape of the world and the and the Oh FX market has been bought back the market continues to constantly evolve the longer the uncertainty of our sector remains but.
So we positioned the company for a long term recovery and Thats not changed.
We still believe were well positioned to navigate the current environment, we've got tremendous leverage to an eventual market recovery. We believe the current challenges for the older. First market are also factors that will lead to a stronger market on the other side and will hasten that time, well through a more robust recovery we all.
We also see opportunities that can offset.
Some of the challenges ahead, and we are pursuing those.
With that I'll turn it back over to Eric now.
Thanks, Ellen operator at this time, we'll take questions.
If you'd like to register for a question you can press. The one followed by the four on your telephone and you'll hear three tone prompt technology request.
The first question is from line of in Macpherson. Please go ahead.
Thanks, Good morning, everyone.
Right now as I was.
I was interested to hear that you you.
Even though we're moving into more of a spot dominated contra.
Contracting environment, you you seem optimistic about.
Redeploying.
The Seawell next year in addition to mobilizing.
Q 7000 in early Q1.
Is the Q said is the Q 7000 already contracts secured for that work or you just have a good.
Good lead on it at this point and then.
As we look into next year, how how how do you how do you think about total fleet utilization shaping up.
Given the.
The drop off in 16 in terms secured work for the Q 5000, and some I think some rollovers commencing in Brazil as well.
Good morning, and I'll take that one to start and then pass I'd say, it's too low and that some decent visibility into.
DC visibility in the North Sea right now that will reactivate bite off PIF monopoles into Twentytwenty. One it's still early days, there's a lot of budget discussions the visibility that we need the oil prices are getting their budgets improve on but if they do say there's been a lot of work that's been put off from this year into next year as I said, it's a pretty significant.
Well placed.
Regarding the Q 7000, we have contracts already in place.
And we're close to having a third one very close to half of that when executed. So we we plan to start stepping up the vessel in Q4.
We will transit Nike, forcing Nigeria, and then we tend to be operational sometime in early Q1.
And now or sales you logistics of increase in Nigeria, we can get guys in and out of the country, whereas over the last few months. It was tightly closed down to us.
I drove slightly it was seen visit high visibility because of what guidance that off to initiate that needs to come.
At least a couple that with the fact that budgets aren't approved yet and its still early days in this process.
Yeah also set a general overview comment of the worked out there we see the work that needs to be done and as I said in my color comments, the number of fields maturing, which increases the amount of work that needs to be done is occurring the amount of abandonment work building up is.
Real but when that happens we don't know of the uncertainty for US is not visibility of the work. It's just what is the corporate stance of the producer is going to be going into this next person in your eyes.
I think we've already seen that long term contract for not being let to rigs.
So I think producers are of.
A little.
Averse to taking on multi year committed days in a market that's obviously oversupply.
I think they could but I think the work will be there I think it may return to more of a spot market work and then on top of that I'm not sure what the corporate budgets are going to have.
The relevant relative to the announced pivoting of the of some of the majors towards the renewable market does that mean that they're going to cut back on their budgets in the <unk>.
Oil and gas sector, but then again, they're going to need the cash flow from the oil and gas sector to fund the renewables. So it's a little bit uncertain and I don't know that we'll have a clearer picture until we see some of the budgets get finalized by the producers.
That's helpful. Thank you Bose, Oh, and also on or Scotty on the robotic side I think I I.
From a modeling perspective, and then probably positively surprised by the resilience.
Robotics, I think about half of that revenue stream now is coming.
The wind space right. So as you look out into next year.
Is that.
Is that half of the of the revenues for robotics still something with good year on year growth visibility out after next year, regardless of what happens on the oil and gas side.
Yeah, I'll start that one and then in conjunction we've had a very good gaming robotics as we said.
Globally, we've expanded the service lines on the renewable sector, we run our fast trenching projects in East Coast USA.
Next more wind farms to become announcing license from the East coast.
I had a very good year in Taiwan provide in installation and accommodation supporting a large wind farm and we expect that to continue for you. This quarter. We did commence RFS site clearance projects and that has gone far longer than we expected. So it's hard to say to that can be repeated next year that we are chasing tertiary projects next year or so.
The size and scale of their lives I like the path of next year.
And we're also seeing more increased activity in Taiwan, and just recently been awarded Fs partnerships in Japan said the visibility that we have at least see increased price or whether it normalizes. The shift towards this year is yet to be seen but it's certainly a satisfying were chasing and were executing very well.
Well, John Thanks, guys I'll pass it over.
Thank you.
The next question's from the line of Michael Sabella. Please go ahead.
Hey, good morning, everyone.
Morning.
I was wondering if you could kind of go back to the I guess, the re contracting and I. Appreciate the commentary around just kind of shorter term work and I know I know its you know sensitive as you know as we kind of think of rate for for where these things get re contracted you guys are talking to clients right now, but when we look out C.
Kind of where floater rates.
Floater rates are today can you just kind of help us think about where you think the.
Proper rate or.
Your vessels are you know kind of relative to what we see in the market.
Well, that's a that's a tough one.
I'll I'll start Scott than you do.
But the rates are certainly are not anywhere near what they were pre 2015.
They're probably.
Pass or just a little better than where they were in 2016 right now we're not seeing the rigs being as aggressive as they were in 2016, which is a good thing for us.
But then again, we were not necessarily competing against the rigs at this point so much as we are competing against the commerciality commerciality of the projects that we're working on.
We need to be able to offer a value proposition to the producers but.
That makes it.
That incentivize them to go after the incremental additional production that's possible how.
How how successful how what that means going forward again, it gets back to the budgets and how much spending they allocate toward because I think over the next few years, you're going to see a greater reliance on intervention or across the board.
Which is a good thing, but I think the rig overhang is going to continue to weigh on the pricing.
Essential as and as long as the commodity prices are perceived to stagnate and the $40 range. I think is going to be hard to see of a meaningful price increase I think we have to get into 2022 with the balancing of both supply and demand before you start seeing.
Got an upward movement in commodity pricing before you see a significant ability on our part to increase our pricing utilization is really not our major issue right now it is the pricing.
Yeah, I think I'll add to that as well you have to remember that it is regionally based as well so the seawell unless enhance their own okcupid rig rates in the north sea because of the coffins. They have a world class asset is not drill rigs they burn about 50% less field. Another then direct sales.
We have efficiencies that we can add into the piece that I'd say, it's happens when where and when utilization not necessarily increased rights fastening moment. These efficiencies of our assets offer against rigs mobilizing time, the nightlife in time Fuelband. The way we run our work is far more efficient and using the generic pet.
Kemets seems to show he used to create win rates against us.
Yeah I appreciate that and then as we think about kind of the potential for.
For for renewables growth to continue next year.
From your perspective is there any meaningful you know capital that you need to invest it and realize that growth and you know if we think about where it kind of chartering. Some of these vessels are today just talk about you know that market and the ability for you all to get to.
Charter rates, perhaps charter vessels as as you need them.
Yeah, we look we've been looking at the renewables market for quite some time as to how we could leverage our current foothold into a larger pros presence the.
The issue with the renewables market right. Now is every time, you think you've found a niche where there's an opening that need needs.
Need need so.
Solution.
If you identify that on Monday by Thursday, its oversupplied.
Yes, everybody is chasing the W. Giving you. An example, we recently signed up to participate in a tender for providing a service vessels to a wind farm a they're turned out to be almost of there were 35 tendering companies for that all offering newbuilds. So.
From my perspective, and that's what I was alluding to in the color comments that.
A lot of companies are just for the sake of being able to announce in the U.S.G. components are making big capital commitments.
Personally I think it's going to be challenging for them to see your sustainable return.
We're more we're more focused on trying to manage and protect our balance sheet. So the way we plan to play than renewables would be to look at the incremental services that we could provide either through a alliances contracting.
But contracting them on a more integrated basis with what we already add it.
Expanding our geographic footprint and taking a more modest approach.
The renewables market grows and evolves and matures a little bit and we'll follow the market, where where the competitors go and we'll watch that but we're not we're not going you won't see us stepping out and investing large sums of capital on a flyer and renewables.
Hello.
Yes, that's great. Thank you.
I will I will just say I'll just add one thing, though to what Scott is that we did benefit this year from a pretty large on site clearance projects that may or may not.
Repeat at that level, but I think the expansion that we are already showing in Taiwan and now Japan.
The the incremental additional areas that we are adding in renewables would probably offset any failure to replicate the site clearance work. Although it is possible that the cyclists work does replicate.
Thanks.
Oh.
The next question is from line of Georgia O'leary. Please go ahead.
Good morning, good morning, guys.
Huh.
[noise] and extension as a as a few questions asked already I just curious with the assets you have any in today and given that.
Prior comment about you're not necessarily wanting to jump headlong or get overly aggressive on the renewables. Brian do you have any assets you have and the work you've done already in the wind space.
Is there any kind of natural extensions of the trenching and the same clearance work that you can do today did you just haven't pursued as of yet.
And we know where you don't have to go out and that's a bunch of capital to get into that in a market in like what types of opportunities are there to the extent does exist.
I'll take that one George and we feel like we have the best in class assets, the trenches and we've been independent market leader for some time, we've been changing in the wind farm space for over 10 years, and we have contracted wind farm trenching works out until 2024.
Weve like we said, we just completed our first U.S. wind farm trenching projects and we believe that the wind farms that would be licensed in the U.S. move required Trenching said is an expansion that we also.
We also know that next year, we are tendering a couple of projects in Taiwan. So we've seen an expansion into the APAC region Thats a win from a revenue boost trenching and <unk>.
We are seeing an expansion in Europe on the other side of that is the trenching assets or at least our testing at a quite expensive to see to build and timely to do it to get into say, we feel we're in a good place in the trenches side, we have a very good track records and we are seeing the expenses lately. So I think that's a good market for us.
Great. The rest of my questions have been asked and answered. Thank you.
Thank you.
And as a reminder, if there's other questions. Please press one for and then.
And the next question is from the line of James Schumm. Please go ahead.
Hey, Thanks, and good morning.
Good morning, I'm, just trying to understand the 7 million increase in EBIT in well intervention off of.
5 million decline in revenues from the second quarter.
Is it.
Reasonable to think that you know you obviously you pointed out the Q 5000 better use.
Better utilization I was thinking maybe that gave you the $5 million benefit and then the balance maybe came from cost cuts does that make sense or is there some.
Is there some other onetime benefit in the quarter.
Yes, I think there are.
Jim I think there were a few items that benefited us I think you know we have aggressively move towards stacking.
The Q seven into FY, well in Q2, and reducing additional he would say operation support costs associated with that and there's probably some additional.
Additional cost that were incurred in Q2 associated with with the stacking that those vessels and so our Q3 reflects a a really you could say stable daily cost of stacking of those vessels also in Q2. The Q 5000 did have some downtime and some.
Testing time, where it.
Where it was incurring additional cost and so I think yeah, I think that was a a one time also in the second quarter and so those are some of the moving parts that have really driven the improvement.
Okay, Thanks, Eric and and then just.
To the refinancing of the convert what do you think the year cash interest payments are going to be next year, and then and then what do you think cash taxes will be next year.
Yes from a cash tax standpoint [noise].
[noise] will be painful would really be associated with our withholding taxes on or for your work I don't foresee as being a pure cash tax payer in this environment. So it will be for work in Brazil, and West Africa, the withholding taxes.
As far as our interest I think it's probably looking I think in the less than 20 million dollar range for poor cash taxes and going down as we continue to pay off our debt.
Okay and then just just lastly on Capex. So you had 33 million.
Sort of maintenance Capex this year and.
Hi.
I think I recall, you guys, saying that you had heavier.
Maintenance costs this year, but I could be wrong. So I'm just wondering if next year's Capex is more like a 25 million dollar number.
You know it's still early in the process. Jim This year. It was a heavy year for us for vessels. We did have five in the first quarter.
And so from that standpoint, it's still early in the process I think yeah I think at this point I would probably caveat in 20 to 40 million dollar range for next year, but I think theres the possibility to drive that down now to said this was a big maintenance year, but were still under 40 mill.
I am looking next year, the maintenance cost is down but there were going back to the discussions on renewables for instance.
We said that we're not going to invest large amounts of capital to increase our footprint in renewables, but that doesn't mean no capex. So.
So until we have those plans purely out and you're truly identified or we can't really say what it is but I would expect next year's capex to be kind of consistent with this years.
Okay, great. Thank you guys.
The next question from the line of David Smith. Please go ahead.
Hey, good morning, and congratulations on a great quarter.
Thanks, Ellen and in your opening remarks regarding your ability to compete in a well intervention spot market you mentioned the ability to adapt and improve offerings I was hoping you might give some more color on that.
Yeah [noise].
One you saw last year step out in a acquired the drastic field from marathon that is.
That essentially builds backlog for abandonment.
Think we're uniquely placed of you know when you see the majors pivoting towards or of renewables. Then you know there's a divestment that's going on on the reservoirs, they're going into the hands of smaller producers. They are more aggressive so we can partner with them or we can.
Take payment and in time, a we can offer lump sum contracting, which I don't believe any other company can or would be willing to do but based on our track record in our history. It's something we can offer.
[noise] no other other.
I mean, there's there's a we have to have a whole page of different contracting models that we can employ a it's a matter of now getting out and trying to market. So all of those in a manner that of retains our competitive advantage and so we'll probably be going identifying producer by producer.
Who who is likely to.
Like that or not so will we.
We'll keep you posted on that but I don't want to I don't want to get into too much detail about the specifics of what we can do.
Oh, sorry that today.
Also in a unique position that we have our alliances schlumberger.
They are in a position where they can help with the reservoir management and the well optimization that can lead to then have enough work that way, it's a contract and he's the contracts with and with the alliance. We're in a good position that we can take different contracting mechanisms that gives us an added benefit on the second half.
Okay appreciate that and compared to the six months ago.
Wanted to ask if there's any any change and discussions or are your outlook regarding the potential to take on yeah.
Well then be in a obligation similar to the dry skin deal.
We are following brosky that made a little splash with the producers and we had a number of producers that were engaged in dialogue with us that have an interest in pursuing similar model a when the commodity price of sort of blew up at the beginning of this year that left or uncertainty and how to value those deals. So there.
For the whole of the discussion sort of ended just recently I think there's enough stability that's returned to the market.
But the interest is being expressed again and there are a number of dialogues that are starting back up so it's a matter of being patient and waiting for the right deal.
Great I appreciate it thank you.
And what's more if there is any other questions. Please press one for the next question is from line of Smith. Please go ahead.
Hi, guys. Thanks for taking my question actually we've covered a lot of fans Jane I was wondering if we could spend some time talking about pricing.
Hi, Andy.
And specifically, yeah, alright, there really much variation.
Turning to profitability.
All right you know both black and she is yes.
Well I'll take that one pinnacle.
Well I think I saw any operations in past defined as I'm sure everybody nice fit a nice place such as transition we've managed to hold the rights for the last few years and the way we can avoid it recently home sales getting rates and that meant that suddenly traditional sort of oil and gas rights to say on that on the renewable side and even the oil and gas trenching side because.
Yeah, I mean should we maybe able to hold rates at a good level and have what contract to that's the Twentytwenty four like I said previously yeah.
The other renewable services that were looking at there is plenty of spot vessels available. So I feel that me lets have to commit to long term charters ourselves as we go forward and we'll be able to be opportunistic and pick up spot charters to take on projects that should need to us having that less cost and therefore, you know Keith Keith Unlockings in line.
And just in terms of the examples that you're picking up globally here or there are variations in and just sort of mostly local standards and having them being.
In in place by keeping.
Keep in country for example, flared.
Need to establish like an operation in this region actually just kind of wondering if there's any sort of increase in capital that is required switches.
That's going to flow into the Opex guidance, you expand globally for both.
I don't think sales I mean, we were established working in Taiwan right now I mean, we obviously can work in the U.S. and the logic sanctioned is in Europe and that given current that for the last 10 years. So I think what we're well placed to that.
Great. Thanks.
Thank you.
There is a follow up from the line of James Schumm. Please go ahead.
Yeah.
Hey, guys. Thanks for putting me back in and Im sorry, if you already covered this but R&D to 7000, you mentioned two contracts in place and potentially close to.
Good one did you say, what what kind of contract duration are we talking about for these I'm just trying to get a sense of maybe what utilization might look like early next year.
Oh right right now I guess I would say Oh. This is we probably are looking at a 120 days minimal which could or this is not con contractor.
No the two.
It's sort of hard because the you know there's a lot of lead in times and as a final details worked out on the contracts, but in general our expectations are that we're looking at something like a 100 and 120 days of base work to begin with a with a follow on potential of that expanding to 200 plus days.
Yeah, all of the contracts that we have currently have a fixed base period, and then options and say, we're obviously in discussions regarding those options and that is what gets the.
The guidance, there and on top of that real starting discussions for other websites not just these three contracts which Jason.
We have also been awarded some work in Australia that has a final kind of decision in March of next year. So it's.
Yes, we're seeing a lot more visibility for Q 7000, they've got some found work and then the options on it sounds like.
We wouldn't do many thanks and just.
Sorry, we wouldn't be sorry, just to be.
Okay.
[laughter] sorry to be clear.
On your 120 days per contract not for both the two contracts right now.
That's that's our base across the TV and then like I said, we like to add to that.
And in discussions with others.
Okay. Thank you very much thank you.
Thank you.
There are no other questions.
Okay. Thanks for joining us today, we very much appreciate your interest and participation and look forward to having you on our fourth quarter 2020 call in February of 2021. Thank you.
That does conclude the conference call for today, we thank you for your participation and you can now disconnect your lines.
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