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Executives

Stephen Powers – Director, Finance and IR

Alisa Johnson – EVP, General Counsel and Corporate Secretary

Tony Tripodo – EVP and CFO

Cliff Chamblee – President, Canyon Offshore

Johnny Edwards – EVP, Oil and Gas

Lloyd Hajdik – SVP, Finance and Chief Accounting Officer

Owen Kratz – President and CEO

Analysts

Jim Rollyson – Raymond James

Roger Read – Morgan Keegan

Joe Gibney – Capital One

Martin Malloy – Johnson Rice

Michael Moreno – Stephens Incorporated

Helix Energy Solutions Group Inc. (HLX) Q2 2011 Earnings Call July 26, 2011 10:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the review of the second quarter 2011 results and the 2011 outlook with investors conference call. (Operator Instructions) As a reminder, this conference is being recorded Tuesday, July 26, 2011.

I would now like to turn the conference over to Stephen Powers, Director of Finance and Investor Relations. Please go ahead, sir.

Stephen Powers

Thank you. Good morning, everyone, and thanks for joining us today. Here with me this morning is Owen Kratz, our CEO; Tony Tripodo, our Chief Financial Officer; Cliff Chamblee, EVP of Contracting Services; Johnny Edwards, Executive Vice President of Oil & Gas; Alisa Johnson, our General Counsel and Lloyd Hajdik, Senior VP of Finance.

A special introduction to the investment community is Cliff Chamblee, who may be new to the position of Executive Vice President of Contracting Services, but a very familiar hand around Helix. He has been with the company since 1997, most recently serving as President of our successful Robotics business Canyon Offshore.

Hopefully you’ve had a chance and you’ve had an opportunity to review our press release and the related slide presentation release last night. If you do not have a copy of these materials, both can be accessed through the investor relations page on our Web site at www.helixesg.com. The press release can be accessed under the press releases tab and the slide presentation can be accessed by clicking on today’s Webcast icon.

Before we begin our prepared remarks, Alisa Johnson will make a statement regarding forward-looking information. Alisa?

Alisa Johnson

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. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in Slide 2 and in our annual report on Form 10-K for the year ended December 31, 2010.

Also during this call, certain non-GAAP financial disclosures may be made. And in accordance with SEC rules, final slides of our presentation materials provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliation along with this presentation and the earnings press release, our annual report and the replay of this broadcast are available on our Web site.

Tony?

Tony Tripodo

All right. Good morning, everyone. Moving on to Slide 5, which summarize the second quarter results. We reported a nice increase in earnings and EBITDA for quarter two with earnings of $0.39 and EBITDA rise to $276 million, up from the $149 million in the prior quarter.

Quarter two’s revenues increased 30% over quarter one primarily related to a sharp increase in our Well Intervention and Robotics businesses. Oil and gas revenues grew slightly over quarter one as higher realized oil prices offset the expected natural decline in production. Looking back to a year ago, Q2’s ‘11 represented a sharp increase in earnings, revenues and EBITDA mainly driven by higher oil production and higher oil prices.

Over to Slides 6 and 7, in addition to the nice uptick in earnings, the company’s financial condition continues to strengthen. In quarter two we repaid a $109 million of our term loan and at the same time upsized our revolving credit facility to $600 million. We also extended the maturity of our remaining term loan and the credit facility to July 15 and under certain circumstances the maturity will fall to 2016. Along with cash on hand, the $414 million at June 30 and available credit facility, our total liquidity at June 30 increased nicely to $965 million.

Our oil and gas production in the second quarter averaged a 139 million cubic feet equivalent a day. While lower than the 160 million cubic feet equivalent in the first quarter due to natural decline rates, production exceeded our own expectations due to better than expected well performance in the Phoenix field. Total production in the second quarter managed (inaudible) cubic feet equivalent.

The Little Burn well was successfully completed in late-May. Production of this well in the Phoenix field through the Helix Producer I commenced on a sustained basis in the last few days, slightly delayed due to the need to secure regulatory approvals for scheduled downtime on the third party operated export pipeline servicing the Phoenix field. Our overall production levels to July 24 averaged just a 114 million cubic feet equivalent a day due to the pipeline downtime serving the Phoenix field for approximately 10 days.

However, the pipeline is now back in service and with Phoenix ramping back up, we expected to exit July with a production rate of approximately 155 million cubic feet equivalent a day.

I will now turn the call over to Cliff for an in-depth discussion of our Contracting Services results.

Cliff Chamblee

Okay. Thanks, Tony. Good morning, everyone. Let’s move on over to Slide #9.

The Contracting Service revenues picked up considerably in the second quarter despite the continued weakness in the subsea construction market in the Gulf of Mexico. The incremental improvements since Quarter 1 is primarily attributed to the improved ROV support plus utilization of 99% in the second quarter versus 65% in the first quarter, as well as the 12% improvement in well intervention and vessel utilization from 77% in Quarter 1 to 89% in the second quarter. Margins also improved sequentially as a result of these increased utilizations, as well as the addition of (inaudible) system retainer fee.

So moving on to Slide 10, this slide shows the equity-earnings contribution of Independence Hub, Marco Polo and the Clough Helix Joint Venture. The results (inaudible) system for the first quarter so I’ll leave the slide for you guys’ reference.

Moving on to Slide Number 11. As I mentioned before, our Well Intervention business achieved 89% utilization in the second quarter and Q4000 worth of various projects were shelved throughout the quarter with minimal downtime for minor repairs and maintenance. Utilization in the North Sea improved from 68% in the first quarter to 87% in the second quarter. As a result, fewer downtime days were repairs and maintenance.

Contracting activity remained strong for the Q4000, the Seawell and the Well Enhancer and we maintained a strong visible backlog for all three vessels for the remainder of the year. Normand Clough continued to work on a day-rate construction project in China through their Clough Helix Joint Venture, which started in the first quarter this year and was scheduled to run through the third quarter this year.

Moving on to Slide 12. As we mentioned in our previous call, the first quarter was a slow period for the Robotics business but it has since rebounded quite nicely. During the second quarter, we kept all (inaudible) business in achieving 99% utilization and continued to improve (inaudible) structure utilization, particularly in Europe and West Africa. While the Gulf of Mexico continues to be a challenge for us. Our Robotics group truly is a global operation with over two-thirds of the revenues coming outside of the Gulf of Mexico each year.

While geographic reach has been instrumental to the resilience of this business, we believe that diversification of our services are offering us key to future growth. We completed upgrade of our two road-drill units during the quarter and are working with four of them on subsea coring projects in the coming months and we’re excited about the opportunities in this area.

You may also have noticed that on the cover page this quarter of the score of the slide deck, there’s a picture of offshore wind turbines in them. This boat is one of our chartered construction vessels, the Deep Cygnus, (inaudible) offshore wind farm project in the U.K. sector of the North Sea. We believe there’s substantial growth and opportunity in offshore new energy markets supporting windfarm development projects the entrenching cable burrow. We’ve begun making investments to achieve a leadership position in this area.

We’re currently constructing a new jet venture, the T1200, which will be packaged up next year with our other trenching and oil vee equipment aboard a new charter vessel that’s specially built for us. This will be a most sophisticated and capable trenching spread in the world and we believe sufficient demand of potential returns to make this significant growth catalyst of our modest business in the coming years.

So over to Slide 13. Our Sub-sea Construction business continues to lag as a result of a weak market in the Gulf of Mexico. Pald utilization for the Express and the Intrepid are improving and the combined backlog has doubled over the past quarter. It’s important to note that while permitting activity has improved, our customers are subject to permitting requirements for most projects so scheduling has been problematic. That said, the Express has achieved 82% utilization in the second quarter, and our backlog is growing and now includes projects in the North Sea next year.

The Intrepid was dockside for most of the second quarter, but went back to work the last couple weeks of the quarter. She is scheduled to perform some diving work for Chevron in the third quarter before deploying her to California.

Last but not least, the Caesar remained dockside in Mobile through the quarter and her planned maintenance and upgrades continue.

So on to Slide 14. This slide illustrates the design of our deep-water containment system. The Helix Fast Response System. During the second quarter we received our first quarter retainer fee from a consortium of 24 defendants including the system upgrades for a 15,000 PSI wellcap that’s capable of operating in water depths of up to 10,000 feet. That’s an improvement of over 5,000 feet and 5,000 PSI and 2,000 feet that we had previously.

Moving on to Slide 15. This slide shows the utilization we’ve achieved in the contracting services, services assets in the second quarter. I’ll leave that for your guys’ reference and turn that over to Johnny, now, for the lower GAAP business.

Johnny Edwards

Good morning.

Please turn to Slide 16. Slide 16 and 17 provide the financial highlights for the oil and gas for the second quarter. Additional details are provided in the footnotes for your review.

As Tony mentioned earlier, oil and gas revenues were up slightly over Q1, due to higher net realized oil prices. The production for Q2 was 12.7 days compared to 14.4 Bcf equivalent in Q1 and the Q2 production was better than expected with shelf production almost flat to Q1.

The better than expected second quarter results of oil and gas were mainly attributable to the performance of two of our fields. On the shelf we worked on five wells in South Marshall in thirty field in Q2 and oil sales from the small 130 field increased by over 50% from Q1 to Q2. In deep water, the Phoenix field had four producing wells in Q2. These wells outperformed our expectations, which resulted in over 60% increase in the PDP reserves at our midyear review.

We completed the Little Burn well in Phoenix field in Q2. This well adds about 4,000 barrels of oil equivalent net to ERT, which will bring our net Phoenix production rate back to over 12,000 barrels a day. We recently came up to full rate in our Phoenix field. As Tony mentioned, the gas oil pipeline was down for approximately 10 days this month for a scheduled re-route of the pipeline. The full Little Burn production, the total net production rate approximates 155 million and this is about 70% oil.

We continue to focus our capital dollars on oil projects in 2011 where we can develop our approved and probable undeveloped oil reserves. As part of our oil and gas CapEx budgeted at $165 million, we have two shale properties scheduled to start up in the second half of this year. Eugene Island 302 is expected to add about 800 barrels equivalent per day net in the third quarter. We have already set a platform, completed the well in Q2, and we’re waiting on the BOEMRE permit to install the sales line. Startup is expected in Q3. We’re installing a platform and facility in South 86 in Q3, which added 500 barrels in Q4 and allows us to drill two oil PUDs in 2012.

On the exploration front, we have plans to participate in the drilling of two Deepwater exploration wells contingent on permit approval by the BOEMRE and rig availability. The first prospect is Kathleen in the Bushwood field, and the Kathleen well is a look-alike to our Danny oil well. The permit has been filed with the BOE.

The second exploration well targets the Wang prospect in the Phoenix field, and the well is targeting an untested section of the main field play from which most of the other Phoenix wells produce. The permit has not been filed yet, but we expect to file soon. Both of these exploration wells target oil in existing fields with existing infrastructure to handle the production.

Over to you, Lloyd.

Lloyd Hajdik

Thanks, Johnny. Turning to Slide 18. Slide 18 details our commodity hedge position for a significant portion of our forecasted production for the second half of 2011 through December 2012. The 13.5 Bcfe hedge for the remainder of 2011 covers about 60% of our forecasted combined production. And since we are weighted about two-thirds to oil production, our remaining 2011 hedges are broken down about 68% for oil and 32% for gas.

In the second quarter we layered in additional hedge contracts for 2012 for both oil and gas. Further, we entered into some collar crude oil contracts based on Brent Crude Pricing. We did this to better correlate our financial hedges against the actual pricing we were receiving for our GOM crude sales, and will continue to opportunistically hedge our forecasted 2012 production depending on the current commodities markets.

Turn over to Slide 20. Slide 20 profiles our current debt and liquidity position at June 30. And as Tony mentioned earlier, in June we amended our senior credit agreement to, among other things, extend the maturity date for both the term loan and the revolver, and to increase the capacity of the revolver from $435 million to $600 million. We repaid $109 million of the term loan, and ended the second quarter with net debt of $833 million, a decrease of $83 million from the first quarter. And given the term loan payment, total cash decreased $27 million in the second quarter, but our liquidity position increased $128 million to $965 million at June 30, with the increase in capacity of our revolver. And based on our outlook for the balance of 2011, we expect further decrease in our net debt position from the June 30 level.

Tony?

Tony Tripodo

Okay. I’m going to turn to Slide 22 now, which outlines our updated outlook for the year. First, all our oil and gas production forecast remains at 50 Bcfe in 2011, which is up from the original 2011 outlook of 29 Bcfe equivalent. Again, this forecast assumes no significant disruption caused by tropical storm activity in the Gulf of Mexico. Forecast oil and gas price net of hedges at $95 a barrel for oil and 543 Mcfe for gas. On the oil side, we’re definitely benefiting from the Gulf crude pricing premium over West Texas Intermediate. And on the natural gas side, we’re benefiting from both our hedges in natural gas liquids byproduct production.

Due to the better than expected performance in Q2 and the improving outlook for our contracting services business, we now forecast EBITDA at $575 million in 2011, which is up considerably from the original outlook of $475 million, and up from the outlook we presented at the Q1 conference call of $550 million. You will note a plus sign on the slide next to the EBITDA forecast, which suggests we have upside potential in the 575 number. Again, the big variable that could impact this number to the downside would be significant disruption to our oil and gas business caused by tropical storm activity.

Capital spending’s pegged at $275 million, a slight increase due to planned spending on well intervention, equipment upgrades and engineering work on potential future well intervention assets. However, no fleet expansion’s planned at this time.

At the level of EBITDA and with the forecasted level of CapEx for the year, we should continue to generate free cash flow for the second half of 2011, allowing us to further reduce our net debt position from June 30th.

Owen?

Owen Kratz

I’d just add a little more color on the outlook. On the contracting service side, we booked a nice level of backlog for our Well intervention vessels. The Q4000 is nearly fully booked for all of the year and both the Enhancer and the Seawell are carrying a solid book of business as well. As previously mentioned, backlog for both the Express and the Intrepid has picked up. Both vessels are now working in the Gulf of Mexico and we still expect the Intrepid to sail for California later in Q3, subject to customer permitting. In addition, we’ve secured work for the Express in the North Sea next year. We’re – and finally we’re not counting on putting the Caesar to work this year after she completes her planned shipyard upgrades.

In Canyon, our Robotics business is seeing a marked increase in activity in Q2 trenching for the Renewable Energy business in Europe has opened up a new and exciting growth path for our Robotics business. The assets and operating know how for subsea oil field trenching and burial apply as well to the offshore renewable energy and we’re keen to pursue and expand in this space.

Our CapEx of $275 million breaks down to $110 million for Contracting Services and $165 million for oil and gas. The Contracting Services number of contains maintenance capital, some upgrades to the HP1 to enhance its build containment profile, some incremental investment in our historically profitable Robotics business and the thruster upgrade for the Caesar. Major items in the oil and gas spending of $165 million includes the Little Burn completion, which is now finished and the drilling of two exploratory wells, the Kathleen well and the Bushwood, Peeled and the Wang well in the Phoenix field. Both of these exploratory wells target oil and spending will be contingent upon securing the necessary drilling permits. In fact, just this morning we have received the permit for Kathleen. So this is a nice positive for the outlook.

Further and as a result of strong oil price environment, we’re quietly developing the shale fields as Johnny mentioned earlier.

So now back to you, Lloyd.

Lloyd Hajdik

Slide 26 and 27 are a non-GAAP reconciliation schedule percent for your reference here. I will not go over these schedules in detail. I’ll turn the call back over to Owen for closing comments.

Owen Kratz

All right, well I’ll debrief. It was a good quarter and there’s further upside potential. We’re pleased with a continuing improvement. Not only in our work performance, but also in the fundamentals of our financial health and positioning for the future. This is especially true since this is all occurring during a very difficult market with uncertain regulatory environment. Our people, quite honestly, have just been doing a great job. There’s still upside room for improvement and better results can be generated from our current asset base.

First, our pipe lay assets are contributing very little in this market, but there’s indicators to suggest a return of enough of a market for us to push better returns.

Second, our oil – our Well Ops division in Southeast Asia is now positioned for improved returns.

Third, Canyon is performing well, but in a weak market. Not only do we expect the market to improve, but Canyon also has some exciting potential in support of the renewable energy market. This market is increasingly drawing on traditional oil and gas contractors to apply the technology to the renewable industry.

Fourth, on the production side we have – we’ve initiated a program to convert existing PUD reserves to PDP. We expect to be able to hold annual production at approximately the current levels, as well as generate free cash flow. This conversion of PUD to PDP should enhance the volume of the remaining reserves. We will continue to seek buyers for some of our fields when the economics can be achieved, as we’ve always done historically in the past.

Finally, we now have greater flexibility under our newly amended credit facility that’ll allow us to consider further debt repayment that should have a positive impact on future earnings.

Beyond these inherent growth potentials, we’re pursuing some exciting growth initiatives such as the Cat B vessel opportunity for Norway, as well as other opportunities. Our financial position will continue to improve, allowing us to take advantage of these opportunities as they’re secured. Things look good now, but potentially brighter ahead.

And with that I’ll turn it back over to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Jim Rollyson with Raymond James. Please go ahead.

Jim Rollyson – Raymond James

It seems like Marine is kind of improving a little bit better maybe than expected. And obviously you’re starting to build some backlog for things second half and even into next year. Can you talk a little bit about just kind of the pricing and margin outlook, at least relative to our expectations? Margins came in pretty strong this quarter compared to last quarter for sure. And I’m kind of curious as to how you see margins trending over the next two or three quarters. And are we starting to get enough bidding activity that there’s room for that to improve? Or it’s mostly just on utilization that margins have picked up so far?

Owen Kratz

Well, I’ll let Cliff take that. But I’ll just start by saying that I think the market is still very, very tough right now. I really attribute our quarter to the performance pick-up and the efforts of the people we have here at Helix. But I’ll let Cliff comment more on what he sees out – ahead in the market.

Cliff Chamblee

Yeah, on the Contracting side I think – but just from the roll-off side, it’s just utilization that’s driving that. Where the downside is, we mentioned is in the Gulf of Mexico. So the utilization is still pretty low there. But it’s starting to come back. So on the subsea construction side, pipeline side we’re starting to pick up utilization there. Not great margins but we are up – to do – our backlog filling up. We are starting to increase those margins in the digital going forward. And on the canyon side, it’s primarily due to the West Africa, North Sea and a little bit of Asia stuff – the Gulf of Mexico for the canyon side – for the product side is still pretty weak.

Jim Rollyson – Raymond James

So getting a little bit better it sounds like.

Tony Tripodo

Yeah. Jim, I’ll add a comment here on margins. I think utilizations is definitely the key factor driving margins today. But I would say, based on what we’re sensing, in terms of rates and pricing, there’s probably a tendency more in the future on the upside than the downside.

Jim Rollyson – Raymond James

On the Grand Canyon charter that you guys have coming in next, is that replacing any of your existing charter vessels? Or is that completely incremental?

Tony Tripodo

In theory, it’s going to replace one of the charter vessels that we have now – the Island Pine here, which is over in the North Sea. That vessel – we’re supposed to get it in May – to May to June of next year. We’ll just play it by ear. We have the option to keep the Island Pine near if the market’s good, and if not we can give it back and use the deep canyon going forward on some of the wind forms dredging projects that we have.

Jim Rollyson – Raymond James

Then I guess the one incremental part at this part is the new trencher, right?

Tony Tripodo

Correct.

Jim Rollyson – Raymond James

Okay. Oh, and any update on the stat-oil feed study for possible new Q4000 type vessel?

Tony Tripodo

No real update. We’re still continuing to work hard on the re-submission. The re-submission is due September 15th. It was postponed to that date to allow us time to do the feed study for adding the cap – or, not the cap, the back to the submission. And then Stat-oil is saying award sometime between November 15th and the end of the year.

Jim Rollyson – Raymond James

Okay, treat. Great quarter. I’ll turn it back. Thanks.

Operator

And our next question comes from the line of Roger Read with Morgan Keegan. Please go ahead.

Roger Read – Morgan Keegan

Good morning.

Cliff Chamblee

Hey, Roger.

Roger Read – Morgan Keegan

Real quick, the Caesar laid up for the rest of the year, but what appears to be an overall – let’s say slight improvement in the market, are you bidding this vessel for 2012? And if so, where it would kind of be most likely to go?

Tony Tripodo

We’re – again, I’ll turn it over to Cliff. But we’re being very selective with the Seacor. Right now we’re not planning to work it. There’s nothing in our projections for it, yet we are remaining open especially when it comes to working with other contractors on larger projects.

Cliff Chamblee

Yes, that’s right. We’re bidding it directly as you like, but we’re also bidding it with other contractors on the effects projects – providing support on that project. But most of the stuff that we’re bidding for ‘12 and ‘13 is – as I was mentioning – is selective projects that we really want to go after. And they’re either here in the Gulf of Mexico or Brazil, primarily.

Roger Read – Morgan Keegan

And at this point what would you think – it could work half of 2012, most of 2012, very little of 2012?

Cliff Chamblee

I don’t think that you’re going to see us put any contribution for the Seacor into our forecast or projections.

Roger Read – Morgan Keegan

Okay, that’s helpful. Flipping over to the E&P side, permit to drill the Kathleen well – give us an idea of what your net ownership is in that. Maybe the rough costs as we break down this increase in CapEx – $250 to $275 on the near term but $225 to $275 from the beginning of the year. Is that driving a portion of that increase or was something like this already included in the $225?

Cliff Chamblee

Kathleen is in the Bushwood field and we haven’t included anything in our forecast for an expiration well as far as contribution on production side. To answer the first part of that question, Deep Gulf is our partner there in the Bushwood field and we’ve sold down an interest to 50%. We got a nice promote and we won’t go into those details so we will have 50% of the Kathleen well once it’s drilled. But as I mentioned none of the results of that well are included in our projections.

Tony Tripodo

But, Roger, CapEx has been in our number from the start for Kathleen. The $225 that we originally had for CapEx included Kathleen.

Roger Read – Morgan Keegan

So can you give us a little bit of an idea then what the $50 million increment is here? Is that the shelf work?

Tony Tripodo

It’s mainly on the services side, adding some capacity Canyon, netting some upgrades to well and invention. That’s where most of the increase in CapEx is coming from. It’s really not the MP side.

Cliff Chamblee

Yes, and Roger that was a $25 million increase overall from $250 to $275.

Roger Read – Morgan Keegan

Well from the original it was $225 that’s what I was trying to make sure of.

Tony Tripodo

Okay. Quarter one it’s $250.

Roger Read – Morgan Keegan

Yes, yes. Sequentially just $25 million, but $50 from the beginning of the year. Okay...

Tony Tripodo

Yes, that’s all in the service side as we’re starting to position and start growing again.

Roger Read – Morgan Keegan

That’s helpful there. And then, a final question, if Wang goes forward, is that included in the numbers or do you look at that at this point probably as more likely a 2012 expenditure event?

Tony Tripodo

Roger, Wang is included in our CapEx forecast but not the production forecast.

Roger Read – Morgan Keegan

Okay. And then, final question for me, as you look at the well intervention business, you’re at a high level of utilization. I know the long story of whether you’re going to go Cat B or a different version of the Q4000 set next generation. But given the high utilization in that area, what are you seeing in the way of pricing power there? I know ultimately kind of drilling rates impact that. We haven’t seen any problem on the drilling rate side. So maybe give us an idea of where we are on ability to raise prices there or improve margins going forward.

Tony Tripodo

Well, that’s the discussion that we’ve been having across the contract and service, not just in the well ops side of it. But we have had a discussion and we are pushing to price things slightly to test the market a little bit on little opportunities. But some release are NSA Type contracts. We’ve already got pricing established with the (inaudible).

Roger Read – Morgan Keegan

So ‘11 is set, but ‘12 has potential?

Tony Tripodo

There might be a little bit of room the back end of ‘11 in Gulf of Mexico but most of its set and ‘12 has potential. Correct.

Roger Read – Morgan Keegan

Great. Thank you.

Operator

And your next question comes from the line of Joe Gibney with Capital One. Please go ahead.

Joe Gibney – Capital One

Thanks. Good morning. This is a couple of vessels specific questions. Of course, if you can help me out a little bit, the Express contracts and moving in the North Sea in the back half of 2012, curious if this is a term oriented contract. I know Gulf of Mexico is showing some signs of life here as you indicated. Does this mean you’d also consider moving the Intrepid out? Just try to add a little color on where you stand on PipeLego, Mexico.

Cliff Chamblee

Well, as we said, the backlog for Gulf of Mexico pipe lay through this year is pretty full and is going up quite nicely into the first quarter next year. And we do plan – it’s a moving target there with permitting stuff but we do plan to send the Express to the North Sea probably early third quarter, late second quarter, early third quarter of next year.

Joe Gibney – Capital One

Okay. That’s helpful. And just if we could circle around a little bit on non-oil field demand, your robotics utilization, obviously on the ROV support side very strong. Tony, you indicated some upward bias here still hard to get much better than 99% utilization there. Has this turned aggressively here in the North Sea? You’ve referenced the wind farm development. Obviously, you’re making some investments on a little bit more sophisticated trenching systems. Just curious on the sustainability of your ROV support robotics utilization because it was a pretty stout core here in 2Q?

Cliff Chamblee

Well, between the North Sea and West Africa, we’re able to move those vessels back and forth from project to project. So the oil and gas status in our construction business is doing pretty well utilization wise and rate wise. And then we’ve got this added kicker of the energy business. It’s kind of a mirror of what the telecommunications business was more transoceanic cables of, maybe, 10 years ago or so. But if you keep up with it in Europe, there’s a whole bunch of great (inaudible) all kinds of energy.

And I think this is just the beginning of what’s going to happen in Europe, and hopefully come across to the East Coast of the U.S. as well. So we see a pretty big future in that market. We’re proud to position ourselves to be a leader in that market for another (inaudible).

Joe Gibney – Capital One

Okay, fair enough. A last one for me and I’ll turn it back. Just in terms of P&A expectations on the oil and gas side for the back half of the year, maybe a little bit of help there, kind of calibrating on what expectations are on your 50B production run rates. Should we be hovering in this kind of low $50 million per quarter P&A run rate?

Cliff Chamblee

Well, in terms of – on the gas side for a second. I think what you saw in Q2 is probably what you’re going to see, going forward, absent any major revisions up or down, okay. But I would expect our – if your question was limited, Joe, to the oil and gas side...

Joe Gibney – Capital One

It was. That’s fine.

Cliff Chamblee

I think that kind of second quarter DD&A rate should continue on. Again, the only wild card there are if we come to Q4, when we do our reserve report and we have a major upward or downward revision, that obviously could impact the DD&A rates.

Joe Gibney – Capital One

Got you. I appreciate it, gentlemen. I’ll turn it back.

Operator

(Operator Instructions) And our next question comes from the line of Martin Malloy with Johnson Rice. Please go ahead.

Martin Malloy – Johnson Rice

Good morning. Are there any dry-dock things we should be mindful of next couple of quarters?

Cliff Chamblee

No, not this year. The first major one we have will be Q4000 in I think February or March of next year. And that’s out of three or four we dry out.

Martin Malloy – Johnson Rice

Okay. And in the earnings release, you referred to a revision of your proof reserve estimate. Could you talk a little bit more about that during the quarter?

Cliff Chamblee

Yes. This was an internal look. We felt compelled in a certain field to take a look at our reserves based on production rates, and it wasn’t a comprehensive look. So, therefore we feel it would be prudent not to talk about what the mid-year reserves came out because it was a limited look at the reserves. But we felt compelled to increase the PDP reserves for Phoenix because the wells are out-performing the declined curves we assumed. But we also took some minor negative revisions in a few other fields, just based on production curves. But again, we don’t feel like the amount of work done was robust enough to publish numbers.

Martin Malloy – Johnson Rice

Okay. And then, I’m not sure if I heard correctly, but did you suggest that as you convert the PUD participating reserves that production should stay relatively flat from ‘11 to ‘12?

Cliff Chamblee

Yeah. We haven’t done our 2012 budget, but the big picture with the PUD conversions shows that we can maintain approximately a flat production from 2011 to 2012.

Martin Malloy – Johnson Rice

Okay. Thank you.

Operator

And our next question comes from the line of Michael Moreno with Stephens Incorporated. Please, go ahead.

Michael Moreno – Stephens Incorporated

Good morning. My question – question on, I guess Kathleen, with the permit in hand how long before you can actually get up there and start drilling and what’s the time line in terms of bringing production on line, there?

Tony Tripodo

Currently, we’re negotiating for a rig to drill the well. Having a permit allows you to do the rig negotiations. So getting the rig, we expect to get a rig this year. The Bushwood field has the Danny well, there. We have the infrastructure in place. It will be a Danny look-alike, a Danny twin almost, just a little deeper. So the infrastructure’s there, once it’s drilled and completed – but it is an exploration well – once it’s drilled, completed it’s successful. It’s a short time to hook it up – probably a couple of months, and in deepwater a couple of months is pretty quick.

Michael Moreno – Stephens Incorporated

Okay. So sort of late Q4 before we see some production from Kathleen, probably?

Tony Tripodo

We’re not going to budget any production in Q4. We’re going to start it at 2012.

Michael Moreno – Stephens Incorporated

Okay. And maybe help us understand how the government’s working with your other pending permits. What kind of time line are you looking at in terms of start to finish on the permitting front, now that you’ve gotten Kathleen, I guess?

Tony Tripodo

Well different permits seem to take a different amount of time. Thinks we would expect to get quickly, a pipeline permit for example, we’ve waited a full quarter on a gas pipeline permit at Eugene Island 302. So it’s hard to estimate. It’s uncertain as to what they will do. It almost depends on who in the government gets your permit to work on. So when we get the Wang permit in, I believe the Kathleen permit took about three months. So I don’t know that that’s going to be the same. It depends on who in the government gets our Wang permit.

Cliff Chamblee

I’d like to just jump in to add my two cents regulatory. It really is to the point now where it’s not just permitting process but also regulatory. We just saw that on the delay on Little Burn driven by another regulatory body and it wasn’t connected with permitting. Cliff is looking and he’s mentioned earlier the difficulty of scheduling the assets on pipelay projects because of the erratic nature of the permitting and the scheduling there.

It’s really getting to the point where the government and the regulatory process and the permitting is dictating our management portfolio and management of our assets. And I think it’s not too well appreciated as to how difficult that really is in this market, which is why my earlier comment that I think a lot of our performance here is down to the scrambling of the Helix personnel to try and accommodate all this.

Michael Moreno – Stephens Incorporated

Okay. Great. Appreciate the color. One kind of follow up on the robotics group. I guess historically, Tony, you’ve talked about visibility there being more short term and having maybe six months of kind of visibility. With the stuff going on in the North Sea, do you have more visibility there than maybe you’ve had historically? Kind of maybe talk about the visibility of that segment.

Tony Tripodo

Well, the North Sea in general always has a positive plan further in advance than they are in the Gulf of Mexico. It’s historically been that way and it continues to be that way now. So, yeah, there is more visibility for long-term planning and projects in the Gulf of Mexico and we’re hoping that it’s even more so in this visible Energy/Wind Farm business. I don’t know if that answers your question or not.

Michael Moreno – Stephens Incorporated

Do you have kind of a year? Can you look out a year and say that business is going to be pretty busy for the next year?

Tony Tripodo

It’s not really that we have contracts that we see out for a year other than on some of the variable stuff we have frame agreement with two different companies that go out five years with X amount of numbers of days per year that we’re guaranteed. So on that variable side there is a little bit of that but on the – most of our revenue still comes from the long and robotics and that’s more just consistent with this historical trends than it is any real visibility. I mean, like six months there’s quite a bit of visibility in the Robotics business for us, and I don’t see that improving dramatically when we can look out and see a year out in advance.

Michael Moreno – Stephens Incorporated

Okay. Okay. Thanks.

Operator

There are no further questions on the phone lines, but as a reminder 1-4 for any questions. And there seems to be no further question. I will turn the call back to you, sir.

Stephen Powers

Okay. Well, thanks, everyone, for joining us today. We very much appreciate your interest and participation, and look forward to having you participate on our Q3 call here in a few months.

Operator

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

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