Helix Energy Solutions' (HLX) CEO, Owen Kratz on Q2 2016 Results - Earnings Call Transcript

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Helix Energy Solutions Group Inc. (NYSE:HLX)

Q2 2016 Earnings Conference Call

July 20, 2016 10:00 am ET

Executives

Owen Kratz - President, Chief Executive Officer

Anthony Tripodo - Executive Vice President, Chief Financial Officer

Alisa Johnson - General Counsel

Scotty Sparks - Chief Operating Officer

Erik Staffeldt - Vice President, Finance and Accounting

Analysts

Greg Lewis - Credit Suisse

George O’Leary - Tudor Pickering Holt

Matt Marrieta - Stephens

Martin Malloy - Johnson Rice

Haithum Nokta - Clarksons Platou Securities

Bill Dezellem - Tieton Capital

Joe Gibney - Capital One Southcoast

Igor Levi - Morgan Stanley

Ian Macpherson - Simmons & Co.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 2016 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, press the one followed by the four on your telephone. If at any time during the conference you need to speak to an operator, press star, zero. As a reminder, this conference is being recorded today, Wednesday, July 20, 2016.

I will now turn the conference over to Mr. Erik Staffeldt, Vice President, Finance and Accounting. Please go ahead, sir.

Erik Staffeldt

Good morning everyone and thanks for joining us today for our conference call for our Q2 2016 earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Tony Tripodo, our CFO; Alisa Johnson, our General Counsel, and Scotty Sparks, our COO.

Hopefully you’ve had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through the Investor Relations page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today’s webcast icon.

Before we begin our prepared remarks, 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 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 our Slide 2 and in our annual report on Form 10-K for the year ended December 31, 2015.

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

Owen?

Owen Kratz

Good morning everyone. We’ll start on Slide 5, which is a high level summary of Q2 results. Generally speaking, Q2 results were marginally better than the first quarter as revenues increased from $91 million to $107 million, and EBITDA improved from $1 million to $15 million. The improvement in second quarter financial performance reflected the start-up of the BP Q5000 contract, albeit later than expected, along with improved utilization within our North Seawell intervention fleet. After nearly a one and a half year period of not working, the Seawell finally was put into service in June. The robotics business also realized a modest improvement in financial results during Q2.

Turning now to Slide 6, if you will, the Q4000 continues to see high levels of utilization operating in the Gulf of Mexico. We expect the Q4000 to continue to see high levels of utilization for the remainder of 2016. The Q5000, once she commenced operations in mid-May, worked continuously for BP the remainder of the quarter. In the North Sea, the Well Enhancer realized 75% utilization, but more importantly successfully conducted coil tubing operations. After spending a majority of 2015 undergoing her life extension program and subsequently idled due to weak market conditions, the Seawell successfully re-entered service in early June.

Two other noteworthy items occurred in Q2, both involving our contracts with Petrobras. First, we fully executed the amendments to our previously announced two-vessel contracts with Petrobras and construction of the Siem Helix 1 was completed in Germany. The vessel is now in Holland for topside integration. We expect her to sail for Brazil later in Q3 with the expectation that she’ll enter service in Q4.

On to Slide 7, from a balance sheet perspective, our cash levels remain relatively steady from year-end 2015, ending the quarter with $492 million of cash compared to $494 million at 12/31/2015. We did sell 5.1 million shares of common stock under our previously disclosed ATM program, netting $39 million of cash. Furthermore, we paid down $24 million of our principal on our debt obligations, including the repurchase of 7.3 million of convertible notes in open market transactions. Erik will provide more detail on that later.

Our revolving credit facility remained undrawn, although access to the revolver is presently very limited based on our trailing 12 months of EBITDA. You may recall in February, we amended the credit facility to provide us with more cushion with respect to covenant compliance.

I’ll now turn the call over to Scotty for an in-depth discussion of our operating results.

Scotty Sparks

Thanks Owen. Moving on to Slide 9, revenue in the second quarter increased to $107 million from $91 million in the first quarter. Gross profit margin returned to being positive, increasing to 5% compared to a negative 19% in Q1, resulting in a profit of $6 million. Again, to mitigate costs, a number of vessels remained stacked until operationally required for contract commencement.

In the U.K., the Skandi Constructor remained stacked for the entire quarter and the Seawell remained stacked for two months of the period. In robotics, the Rem Installer was returned to the owner and cold stacked until the charter concluded mid-July. In the Gulf of Mexico, the H534 remained cold stacked and completely [indiscernible].

Moving on to Slide 10, throughout Q2 we achieved a number of highlights for the well intervention business. In the Gulf of Mexico, we commenced the BP contract and after completing mobilization, the vessel worked the rest of the quarter on full rates with no downtime. The Q5000 is on contract to BP for the remainder of 2016. Q4000 worked for the entire quarter for three clients with 99% utilization. The schedule for the Q4000 for the remainder of 2016 is fairly full. IRS 1 and 4 are being stored [indiscernible] available to the market.

In the U.K., the Seawell was reactivated after its winter stacking period and went to work on a successful project, activating all the new equipment from its 10-year life extension, including a new tower. The Well Enhancer was operational for most of the period with some small gaps between projects. The vessel completed its first-ever [indiscernible] coil tubing intervention project successfully. This is a development that has been anticipated by the North Sea oil and gas industry for some time and should add benefits to clients’ future works.

The Siem Helix 1 completed sea trials and acceptance from the FSG yard in Germany. The derrick has been installed onto the vessel and we are currently finalizing the mobilization and commission of the remaining topside components at the [indiscernible] yard in Holland. At this time, we expect the vessel to commence transit to Brazil in the first part of August, arriving later that month to commence client acceptance.

Moving on to Slide 11 for our robotics review, Deep Cygnus continued the walk-to-work project in Equatorial Guinea [indiscernible]. The vessel commences numerous seasonal trenching and construction works now in the North Sea. The Grand Canyon had some smaller ROV supports and IRM contracts this quarter. The vessel will now also undertake seasonal trenching and IRM work. Grand Canyon 2 had good utilization, conducting ROV support work to various clients in the Gulf of Mexico. As mentioned earlier, the Rem Installer was stacked with the owner and the charter was terminated mid-July.

On to Slide 12, I’ll leave this slide detailing the vessels’ ROV and trenching utilization for your reference, turning the call over to Erik for a more in-depth balance sheet discussion.

Erik Staffeldt

Thank you, Scotty. Slide 14 outlines our debt instrument and maturity profile. I’ll leave this slide for your reference and move on to the next slide.

Slide 15 provides an update on some key balance sheet metrics, including our year-end growth and net debt levels and as of June 30. Our net debt position decreased to $219 million in the second quarter from $244 million in the first quarter. Our funded debt at June 30 decreased to $733 million, reflecting our scheduled quarterly principal payments of $7.5 million on our term loan and $8.9 million on our Q5000 loan, and the repurchase of $7 million of convertible senior notes during the second quarter.

Our cash position increased this quarter by $4 million driven by the receipt of the $39 million of proceeds from our ATM offering program and the cash generated by operations, offset by debt repayments - $23 million - and capital expenditures of $35 million. Our liquidity at June 30 was approximately $543 million, comprised of a cash balance of $492 million and revolver availability of $51 million.

I will now turn over the call to Tony for a discussion on our 2016 outlook.

Anthony Tripodo

Thanks Erik, and I’m going to move over to Slides 17 through 20. I’ll just say the industry environment remains very weak and difficult, although the price of oil has bounced off its early 2016 lows. We believe our customers will not change their approach to spending and continue to adhere to their 2016 budgets.

For the remainder of 2016, we expect our business to shape up as follows: on the well intervention side in the Gulf of Mexico, we anticipate both the Q4000 and the Q5000 to see good utilization for the remainder of the year, although the Q5000 is currently experiencing repairs to its subsea system. We are not as confident for the North Sea. Although our financial performance for the North Sea well intervention business should improve in quarter three as both the Well Enhancer and Seawell are presently working and have decent visibility for the remainder of the quarter, fourth quarter has a little less visibility. In fact, some work we had previously anticipated landing is likely not to materialize. More on this later when we talk about our updated guidance.

We are not forecasting either the Skani Constructor or the H534 working the remainder of 2016. The Skani does have some prospects for work in West Africa, but we plan to keep the H534 cold stacked unless a lot more incremental work develops for the Q4000.

The robotics business should turn from loss-making to profit-making on an EBITDA basis first half to second half. Some of this improvement is normal seasonal patterns; nonetheless, 2016 will turn out to be a very off year for the robotics business. Overall, our backlog held steady at $1.7 billion with the substantial majority associated with the BP and the Petrobras contracts.

The capex forecast for the year is $230 million, with most of this capital for the build-out of the two Siem Helix vessels and continuing construction of the Q7.

As a result of a more muted outlook for the North Sea well intervention business the second half of the year, plus the fact the Q5000 is not operating at full contracted rates at this time during repairs to its subsea system, we have adjusted our EBITDA guidance range to $90 million to $120 million.

On Slide 21, a bit more color on our balance sheet outlook. Our gross debt is set to decrease close to $80 million in 2016 due to scheduled principal payments on our debt instruments as well as the previously mentioned repurchases of our convertible notes in quarter two. Our net debt levels are forecasted to end the year somewhere between $330 million and $390 million. This range of course is based on a number of assumptions which could vary quite a bit, including the amount of operating cash flow that is ultimately generated, working capital changes, tax refunds, et cetera.

I’ll skip Slide 23 and leave it for your reference and turn the call back over to Owen for closing remarks.

Owen Kratz

Thanks Tony. Well, there’s not much new to report on the market to you. The market remains extremely challenging. A combination of factors is contributing to make 2016 the perfect storm for us. Included in these contributing factors are low utilization as a result of clients simply not doing the work, low rates as service provider compete for the work there is, operational issues, continuation of vessel charters we don’t need, and delayed start-up dates for the contracts for our new assets.

The producers are simply not spending the money to do the work their operations groups are proposing. There have and continue to be cancellations of projects previously identified to us as being planned. With many producers, the final sanctioning of work is being rejected at upper management level. The resulting late cancellation is extra-hard on us as no time is given to find alternative utilization or rescheduling other work to fill the utilization gaps.

That being said, we know that there is work that needs to be done. Next year is appearing to potentially bring greater volumes of work, but the uncertainties persist in the absence of demonstrable intent on the part of the producers. However, for Helix there are reasons to have a more optimistic outlook beyond the tough 2016.

One, the Q5000 should have the start-up issues behind us and will provide the first full-year contribution. The issues we’ve had to date are not marine issues with the vessel; in fact, our clients have expressed how impressed they’ve been with the vessel. Second, the visibility for ROV trenching next year is improved. Third, vessel charters will continue to roll off charter with substantial cost savings; and four, the first Siem Helix 1 vessel will make a full-year contribution from its contract in Brazil, with the second vessel to follow in Q4, providing greater upside for 2018.

For now, we’ll just focus on two main things going forward. One is just managing the balance sheet, reducing debt and strengthening it as we can, and the balance sheet remains strong. Two, finding the issues that might incentivize producers to go forward on the work that needs to be done.

While it seems we’re being conservative with our guidance revision, 2016 seems to be relentless to the downside. Hopefully it’s an upward trend from here.

Having said that, I’ll turn the call back over. Erik?

Erik Staffeldt

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

Question-and-Answer Session

Operator

[Operator instructions]

Our first question comes from the line of Gregory Lewis. Please go ahead.

Greg Lewis

Yes, thank you and good morning.

Owen Kratz

Good morning.

Greg Lewis

Owen, could you talk a little bit more about the Well Enhancer and the successful coil tubing project? Just any color you can provide in terms of the duration of the project, and just as I think about—you know, you talk about the good utilization in Q3 and into November. Has it been able to win any more coil tubing projects, and just sort of how you think about that going forward.

Owen Kratz

There are a number of clients that have expressed interest, and there was a lot of focus on watching what would happen out there with the Well Enhancer. I don’t have the exact numbers here. I want to say - and Scotty, you may know, do you know the duration of this last project?

Scotty Sparks

Yes, it’s a 27-day project.

Owen Kratz

So it was 27 days, it went as planned, a very successful result. A real gold star for us with a lot of clients watching. Now, we did have other clients behind it, which that’s one of the cancellations that I’d mentioned, but it wasn’t a total cancellation - they’ve just moved it into next year with a commitment to do the work at that point, now that they’ve seen the successful operation. It’s very important because in the North Sea, there are no riser intervention vessels capable of coil tubing. All of the coil tubing work must be done from mo-do [ph], so to be able to successfully conduct it off of a relatively small monohull is a pretty big technical achievement.

Greg Lewis

Okay, great. Then just shifting gears over to the EBITDA guidance, clearly you called out that the Q5000 is going through some, I guess, maintenance, and you kind of laid out that the opportunities or on-the-books for the Well Enhancer and Seawell. When we think about the EBITDA or revenue guidance for well intervention, how much of that at this point is sort of un-booked work that the company is seeing things in the market and hopeful to get?

Owen Kratz

I’d say at this point, almost all of the work that’s visible for next year is un-booked, relatively speaking. I mean, we do have some work booked, and we have clients that have made verbal commitments to a certain number of days, and then we also have multi-year partial utilization contracts where the producers have an obligation to take days. So compared to where we were last year, I’d say next year is looking better for us.

Greg Lewis

Okay, thank you very much.

Operator

Our next question comes from the line of George O’Leary. Please go ahead.

George O’Leary

Morning guys.

Owen Kratz

Good morning.

George O’Leary

Any discussions with customers who have been deferring P&A or intervention work, for that matter, that are looking to ramp that activity back up potentially later this year, and I guess how would you just frame customer conversations generally at this point? Is there any pressure you’re seeing from sort of the regulatory entities, either on the Gulf of Mexico or the North Sea, seem to be pushing guys to actually execute their P&A or intervention programs, P&A in particular?

Owen Kratz

Again, there’s two markets there. One is the P&A market, and then there’s the other one, which is the production enhancement market. You have two different regions with different drivers. In the Gulf of Mexico, the P&A program is regulatory-driven, and we’ve seen no let-up from the regulators as to fulfilling the regulator obligations by the producers, so that market remains fairly robust. Production enhancement in the Gulf of Mexico is actually more robust than in the North Sea, for instance.

Turning to the North Sea, the North Sea regulations are less strict on timing of the P&A. There is a concern about the safety because a lot of the wells have left down there in an unsafe manner, meaning there’s no barriers whatsoever, there’s just a shut entry. So there is interest in getting the work done, but there’s no regulatory pressure on the producers in the North Sea to do so. On the production enhancement side, most of the work cancellations that I’ve been talking about are in the North Sea where the economics just have not—initially, the economics were deemed to be sufficient to go ahead with the work, but other factors such as cash-on-hand, I guess, and balance sheet and making dividend payments has overrode it at the upper management level, so we’ve seen a bit of cancellation of work.

Most of the work that has been cancelled is being talked about being deferred into next year, and that’s where we are in the discussions with most of the clients, is their—I would not expect to see a lot of additional work hit in the third and fourth quarters here versus what we already had booked and are aware of. Most of it is being talked about for next year.

I hope that answers.

Scotty Sparks

Just to add to that, in the Gulf of Mexico where the P&A is regulatory-driven, we have seen the Q4000 schedule almost fill out for the year, and the Q5000 schedule for BP is all well intervention production enhancement for the next five years, so that sort of shows how the market scripts that.

George O’Leary

Got it, that’s all very helpful commentary. Thank you. Then, could you just frame the competitive landscape, in particular in the Gulf of Mexico? Are you seeing rigs try to get more aggressive in capturing some of that share of the intervention market, and is there anything to read into—I think we’ve seen a couple of rigs pick up some six month-ish programs primarily directed towards doing P&A work, and then alongside that competitive landscape discussion, how would you frame sort of the pricing dynamics that you’re seeing in the market today?

Owen Kratz

Scotty, you want to take that, about what you’re seeing with the rigs?

Scotty Sparks

Sure, yes. We have seen one or two rigs take work. Usually it’s been as those rigs have rolled up contracts and they’ve managed to keep the rigs fully manned up, and obviously because of that they’ve gone in at lower rate to enable that utilization. As we’ve seen those rigs take that work, we’ve also seen as the work’s dropped off, those rigs have then been stacked and possibly scrapped as well, so the rig guys aren’t going to keep the rigs around for a one-month P&A job fully manned up - the costs are just too prohibitive.

Owen Kratz

I’m sorry - I was just going to add, in the North Sea, also the rigger works that you see in the North Sea are a direct result of the fact that light intervention vessels cannot pull tubing, so in a full P&A, the only part of the work that we’re doing in the North Sea is the lower P&A and then clients must get a mo-do [ph] to be able to pull the tubing and do the upper section. Now, that will change next year as we bring on a new technology that we’ve developed in concert with OneSubsea, our partner, which is an 18 ¾ inch well control system for being able to pull tubing without a mo-do [ph].

George O’Leary

That’s really helpful, and that was actually my next question. So you expect to be able to pull the tubing open water and work in the 7-inch tubing next year in the North Sea?

Owen Kratz

We won’t be pulling it exactly open water - it’s yes and no. We’ll be pulling the tubing open water, but we’ll have 18 ¾ inch well control on the wellhead that’s capable of shutting in and making the well safe in case of an incident.

George O’Leary

Great. Thanks very much for that color, guys.

Operator

Our next question comes from the line of Matt Marrieta. Please go ahead.

Matt Marrieta

Hey, thanks guys. I really appreciate you taking the questions today. I wanted to dig into the guidance a little bit, specifically in robotics. When you kind of back into what’s implied in the back half of the year, it sounds like we’re really expecting a pretty nice pick-up in the third and maybe even fourth quarter. The intervention business is somewhat locked in, it sounded like from your comments earlier, Owen. But when I look at robotics year-to-date, the top line guide, how can we think about the rest of that revenue within guidance? Is this going to occur mostly in the third quarter? Should we expect the fourth quarter to decline from the third quarter, or is it going to be pretty flat into the fourth quarter? Maybe help us understand the timing of what’s implied in the guidance.

Anthony Tripodo

Okay, I’ll take that, Matt. I think from a robotics perspective, you’re going to see your typical seasonal pick-up in Q3, so we do expect better financial performance. Our visibility, while not 100%, is pretty decent for the third quarter, but we expect—our forecast assumes that we’ll continue to do better in the fourth quarter than we did the first half of the year, but when we get to the fourth quarter - and this is pretty normal when it comes to the robotics business - the visibility isn’t as clear. I mean, that’s not unusual - I mean, we have some expectation for work that may or may not happen, but like I said, that’s a typical style visibility for the robotics business.

Matt Marrieta

What would be your gut in terms of an oil price, or how can we think about how much of the robotics work in the fourth quarter is locked in or already on the book to occur? I’m trying to just get a sense for if there were to be another shoe to fall, I guess, in the guidance, how impactful could it be in the robotics business if the fourth quarter were to suffer a little bit more?

Scotty Sparks

I’ll take that, Tony. A good portion of the work that we have contracted in the fourth quarter is our standalone ROV and personnel contracts, but for two of the vessels we have trenching works that have contracted. The largest trenching [indiscernible] we have is not oil price related, it’s wind farm related.

Matt Marrieta

That’s helpful, I appreciate that color. Thanks. Then the last one out of me, we talked about some of the work being pushed out by your customers. Can you help us with their psychology or what they’re thinking here in delaying some of these projects that they were initially talking about earlier in the year? Are they stacking stuff into 2017? Are they delaying their entire budget and backlog of projects that they would have had? How can we think about kind of catch back up in some of the stuff that’s getting delayed, or if this is just simply moving everything to the right?

Owen Kratz

That’s a tough one, because I really—number one, I think each producer has their own drivers. Some of them have very strapped balance sheets; others have debt covenant issues, others have dividend payments that take precedence over paying for the work. I think each producer is different and it would be almost impossible for me to give an across-the-board answer to that. All I know is that there are some producers that are moving ahead with their planned work; there are others that are taking advantage of the lower pricing, but the vast majority are just still sitting on their cash on the balance sheets.

Matt Marrieta

Okay. I’m just trying to get a sense if we should think about some of the stuff that’s been pushed out, could that be incremental to what, I guess, we kind of expect in our models for 2017, or if we should think about that as the whole—you know, everything kind of moving. But thanks a lot for the color there.

Scotty Sparks

I think also it’s regional. Like we said, the Q5000 next year has a good portion of its schedule doing intervention work with BP. The regulatory side in the Gulf of Mexico will drive utilization for Q4000. Where we’re really seeing the effect of the clients is more into the North Sea, and that is just to delay spend as much as they can at this time.

Matt Marrieta

Got it. Thanks a lot.

Operator

Our next question comes from the line of Chris Cook. Please go ahead.

Unidentified Analyst

Hi, thanks for taking my question. On the capex guidance of $230 million for the year, how much of that is new build/growth capital, and is there any capitalized interest in that number, and if so, how much?

Erik Staffeldt

Yes, the number does contain capitalized interest from that standpoint. I believe the majority of it is growth-related. I think $220 million of the $230 million is what we’d consider growth capital for our Q7000 vessel and then the Siem Helix 1 and 2. In addition, there is capital also for the new intervention riser systems that are being built.

Unidentified Analyst

Got you, and how much capex—excuse me, capitalized interest is in the number?

Erik Staffeldt

I think it’s approximately $10 million or so.

Unidentified Analyst

Got you. So what would your expectations be for capex in 2017? Do you have any new build or contractual obligations to fulfill in 2017?

Anthony Tripodo

Yes, we have the Q7000 that we’re continuing to progress, albeit at a slower pace, so there will be capital associated with the continuing build-out of the Q7. A little bit of Siem Helix 2 to spill over into 2017. Owen, beyond that, there’s not much beyond those two items, right?

Unidentified Analyst

And how much of the—and so how much of the Q7000 and the Siem Helix, what are those going to cost you in 2017?

Erik Staffeldt

The Q7000, we have a scheduled shipyard payment of roughly $70 million. In addition to that, there will be additional costs associated with that, I think the $10 million to $20 million range. The Siem Helix, I believe is just the final—

Scotty Sparks

The final payments and the mobilization costs of the equipment onto the vessel, so it’s not a big number going into ’17, the Siem Helix vessels.

Anthony Tripodo

Yes, we have the [indiscernible] as well that we’re going to complete next year, but that’s not really significant in terms of total dollars. Owen, do you want to add to that?

Owen Kratz

No, other than to go back to the last earnings presentation, I believe we did put out the capex guidance for the next three years, and I believe—off the top of my head, I believe the number for next year was 135.

Unidentified Analyst

One-thirty-five? Okay, with sounds like $100 million associated with growth capex, or construction capex?

Erik Staffeldt

Almost all.

Owen Kratz

Almost all of it.

Unidentified Analyst

Okay. Then there are no—I’ll take a look at that. It sounds like there are no big initiatives or obligations for 2018 and beyond?

Owen Kratz

I’m sorry - go ahead, Tony.

Anthony Tripodo

Yes, 2018 we’ll have a final shipyard payment on the Q7 at the very end of the year.

Unidentified Analyst

Okay, I’ll take a look. Thanks. How big is that payment, just off the top, for the end of 2018 for the Q7000?

Erik Staffeldt

It’s approximately $140 million at delivery.

Unidentified Analyst

Okay, thanks. Thank you.

Operator

Our next question comes from the line of Martin Malloy. Please go ahead.

Martin Malloy

Good morning.

Owen Kratz

Hey Marty.

Martin Malloy

Just had a question about the IRS system - it’s idle. Can you maybe give us a feel for the discussions around that with customers, as well as what’s in your guidance for that working the rest of the year?

Scotty Sparks

We have nothing in the guidance for it working for the rest of the year. We are in discussion with two clients to take it on a—both clients are looking at two-well programs of 60 to 90 days, but it’s by no means firm. It’s more inquiries and discussions at this pont.

Martin Malloy

Okay. Then on the renewable wind side in the North Sea, can you maybe give us a little commentary about what you see out there for the next year or two in terms of potential work there? I think there is some large wind projects planned for off the coast of the U.K.

Scotty Sparks

Yes, there is, and we monitor it closely. Over the last six, seven years, we’ve done an awful lot of power cable and wind farm trenching. This year, we have about 120 days of trenching work left in the forecast that’s contracted that’s related to wind farm work, and next year we’re seeing our bid total days increase. We have one project booked for wind farm work next year, but we’re seeing the bid number increase about twofold for work going into ’17, and then we’re also seeing an incremental increase going into ’18 for wind farm related projects.

Martin Malloy

Okay, great. Thank you.

Operator

Our next question comes from the line of Vevs Vishnev [ph]. Please go ahead.

Unidentified Analyst

Hi, good morning. Thanks for taking the question. On the Q5000, can you talk about how much day rates are you getting, like what percent of normal day rates are you getting right now while it’s undergoing repairs, and how long is that repair expected to last?

Scotty Sparks

I’ll take that one. Don’t really want to get into rates - that’s between us and the clients, but they’re good rates and they’re rates that everybody is happy with. The repairs that are currently underway at the moment, where they could have possibly 10 to 14 days of work, and they’re repairs and modifications at this time.

Unidentified Analyst

Okay. On the Siem 1, is it fair to say—like, when should we think about it going to work? Is it early fourth quarter or towards late fourth quarter?

Scotty Sparks

Well, we’re currently on schedule to sail in early to mid-August. We expect to get to Brazil at the end of the month, and then have some [indiscernible] that’s quite minor. Then, the big question there is acceptance with Petrobras and getting onto the first well [indiscernible] when everything’s working. So I would say sometime in the fourth quarter we will be working, but until we get to Brazil and start going through the basic acceptance criteria, it’s hard to put a definite date on it. The client does have planned work and well dates for us to target to, but again we’ve got some acceptance to get through.

Unidentified Analyst

Got you, okay. For the Deep Cygnus, the work is expected to start from September through November. Is the implication that July-August, we expect it to be idle, then?

Scotty Sparks

No, we expect work for July and August. There’s going to be some gaps in schedule, and then as we go later in the year, we have contracted work for oil and gas trenching [indiscernible]. Towards the end of that, when that project finishes, then we expect the vessel to come out.

Unidentified Analyst

Okay. Last one for me - Rem Installer went off charter in July. Can you help me just think about the cost savings from that? If I say about $5 million a quarter cost savings from that, am I in the ballpark?

Scotty Sparks

Not far from it, yes.

Unidentified Analyst

Okay, that’s all for me. Thanks gentlemen.

Scotty Sparks

Thank you.

Operator

Our next question comes from the line of Haithum Nokta. Please go ahead.

Haithum Nokta

Hi, good morning guys. Looking to reconcile a bit of the change in revenue per day from the first quarter to the second quarter. I guess the real question is did the Q4000 go to a meaningfully lower rate for spot work in the second quarter compared to the first quarter?

Erik Staffeldt

Yes, that’s correct. I believe the first quarter, we were working off some legacy contracts, and second quarter was primarily, you could say, spot-level type work.

Haithum Nokta

Okay. I guess just to carry that forward, what would be the expectation for the second half of ’16? Is it going to be kind of a mix or where should we think about that pricing?

Anthony Tripodo

Yes, it’s going to be kind of a mix, actually. Q3 should be sort of a continuation of quarter two, and then Q4, our contractor rates will improve substantially just based on the fact that we’re working with customers where we have these multi-year contracts, and those contracts are at higher rate. So it’s going to be a mix, but the way it’s schedule out right now, Q4 rates will be dramatically better than Q3.

Haithum Nokta

Okay, all right. Then you guys have mentioned in your press release a couple months ago that you entered into an agreement with Petrobras. Can you give us any kind of level of guidance on what the disparity is in rates between those two vessels, qualitatively or quantitatively?

Anthony Tripodo

Owen?

Owen Kratz

Yes, I think that the—I’m trying to figure out how to phrase this because we’re--. I’d say there’s probably a $5 million a year EBITDA difference between the two vessels on rates.

Haithum Nokta

Okay, all right. Thank you, that’s very helpful. I’ll turn it back.

Operator

Our next question comes from the line of Bill Dezellem. Please go ahead.

Bill Dezellem

Thank you. Would you please discuss the Seawell being reactivated this quarter?

Scotty Sparks

Yes. We completed the 10-year life extension towards the end of last year. We stacked the vessel for the winter, just because of the weak market, and the vessel is now reactivated and we expect it to work for a portion of the second quarter, and it’s looking good for all of the third quarter, and then we’re chasing work down for the fourth quarter. The new tower has been installed, the new cranes have been installed, all the engines have been replaced, so the vessel is working well and the life extension has been a success.

Bill Dezellem

So the stacking and reactivation was really as much a seasonal phenomenon as anything, just recognizing that it was going to be pretty quiet in the Q1?

Scotty Sparks

Yes, correct. All of the life extension was completed last year. We had some minor certification as we ramped up the vessel in June, but it was just basically weak markets through the winter that forced us to stack the vessel.

Bill Dezellem

Thank you. Then Scotty, I believe that you made reference in an answer to a question, or your opening comments, about something that should lead to some increased activity in the North Sea. Would you please circle back to that and dive into some more detail, please?

Scotty Sparks

It wasn’t increased activity, it was more increased benefit to the clients, and that’s relating to the Well Enhancer being able to undertake coil tubing operations now. So the coil tubing operations would usually be undertaken by a mo-do [ph], as Owen mentioned earlier. By being able to do this with dive-interfaced vessel, small monohull, we can mobilize much quicker to the job sites, and by using coil tubing we can penetrate further into the well, use different and more complex tools, and it allows the client to do more work into the well. You can almost pinpoint where in the well the coil tubing will end up, so you’ve got far more accuracy with the work that you’re undertaking to the well.

So to be able to undertake coil tubing in shallow water in the North Sea that would generally be undertaken by a mo-do [ph] and have anchors or jack-ups to set up, we’re far more efficient and we can offer far more tools and then benefits to the client.

Bill Dezellem

To what degree are the clients recognizing this, or was that the project that was being watched carefully and now that it was successful, it’s all eyes are on?

Scotty Sparks

That’s correct. This has been something the industry’s being hunting for, for many years. We’ve finally taken those technologies and completed a commercially successful project, and virtually every operator, every client we have is aware of the job and is watching with keen interest.

Bill Dezellem

That’s helpful. Finally OneSubsea, would you all provide an update with any activities and/or benefits seen there?

Scotty Sparks

I’ll take that again. Yes, we are working very well with OneSubsea. We have very good joint marketing and sales efforts that are going on globally. We are close to—or we’ve actually landed some work that brings both parties in an alliance point of view to the client as a one-stop shop, and we’re developing the 15K system that should be ready for June-July of next year, and that will open up 15K wells to the market in the Gulf of Mexico. So we’re very happy with the alliance, we work very well together, and we’re also looking at other technologies that Owen mentioned earlier that could enable other types of work from our vessels.

Bill Dezellem

Thank you.

Operator

Our next question comes from the line of Joe Gibney. Please go ahead.

Joe Gibney

Thanks, good morning. Just a couple quick questions. I was just trying to understand on the Q5000, is this 10 to 14 days of work associated with a repair, or is this a customer-directed modification? I was just trying to understand specifically what was going on, and does this pertain to the IRS system once again? Just if you could give a little bit more color there, I’d appreciate it.

Owen Kratz

Joe, I’ll try and cover that. The system in question that’s on the vessel had modifications done to it in 2013 at the client request, and we’ve had a—whether it’s—the root cause hasn’t been done yet, but for one reason or another, a piece on it broke. Now, I might add, though, that the system had been down for over 50 days working non-stop, which is a pretty envious track record for any intervention company to have a system that’s able to work that long. So what’s going on right now, the reason for it is just an abundance of caution to have a third party come out and inspect everything. There are some modifications that we’re going to take the time here, at the client direction, to make to the system, and then just do the repairs and some maintenance that’s just due on the vessel to be done, and then we’ll be going back into the water with it.

Joe Gibney

Okay, that’s helpful. A question on the Skandi. I know you talked about bidding some work for it in West Africa - you referenced that on the call it could potentially come through in the fourth quarter if it did happen. Is it sounding increasingly unlikely that you’re seeing that happen? I know you referenced, Tony, that you don’t expect it to work in your forecast in the fourth quarter. I mean, quarter over quarter, has that outlook just sort of gotten a little bit more bleak for the opportunity set there in West Africa for the Skandi?

Scotty Sparks

I’ll take that one. We have bid numerous projects in West Africa and we currently are doing so. The problem is to take a boat down there, it’s quite high mobilization cost, so in this environment the client has to pay a larger mobilization cost and the works we’ve chased to date have not been sanctioned at the top end because of those high costs.

Joe Gibney

Okay, makes sense. Last one, on the notion of long-term charters rolling off in robotics, you referenced for ’17 charters rolling off, I thought, on the call. Could you just clarify that a little bit? I thought with some recent charter reductions you had on your Grand Canyon vessels, that term had extended out maybe into 2019. What is up within your sort of long-term chartered fleet there on the ROV support side that would be coming around in ’17? I know the Rem Installer’s now been put back, you sort of pushed out the delivery of the Grand Canyon 3 activation, but is something coming due in ’17 on that long-term charter side?

Erik Staffeldt

Joe, this is Erik. In ’17, we don’t have a vessel scheduled to be returned. I think the next one is in ’18—

Scotty Sparks

Yes, in early ’18 we have the Deep Cygnus.

Erik Staffeldt

The Deep Cygnus. I think the statement may have been made in comparison to where we stand this year, where we’ve been carrying four vessels in our robotics. We’re now down to three, and we’ll be down to—we’ll remain at that level up until, I think, May of ’17 when Grand Canyon 3 is scheduled to join the fleet.

Joe Gibney

Okay, makes sense.

Owen Kratz

Joe, specifically what I was referring to there is we do have the Skandi Constructor that charter term ends April 1, so what happens there is an optionality, and then also the Rem Installer is coming off a charter this year in July, but next year we’ll have a full year of that [indiscernible].

Joe Gibney

Okay, makes sense. I appreciate it, guys. I’ll turn it back.

Operator

Ladies and gentlemen, as a reminder, for a question it’s one, four. Our next question comes from the line of Igor Levi. Please go ahead.

Igor Levi

Yes, good morning. The customers that you just earlier mentioned that you won over with the help of the JV with Schlumberger, is that incremental to what you talked about last quarter, and have there been incremental jobs awarded in the second quarter or the first half of the third quarter as a result of the JV?

Owen Kratz

I’ll try to answer that a little bit from a little different direction. The global presence that the JV gives us on marketing is showing a lot of potential. Right now, a lot of that is out of the North Sea and out of the Gulf of Mexico - it’s in other regions. I think it’s a little premature—there’s nothing in our forecast for it, and I think it’d be premature to talk about the specific award potentials, but there are a number of opportunities that have come to us because of the joint venture. Then in the Gulf of Mexico, we have a couple of new clients that also resulted as a result of our joint venture. We did some work for them this year with the expectation that if it went well and they were pleased, which they were, then that would lead to an increased amount of work later on.

Igor Levi

Great, thank you. Could you also talk a bit about what are the efficiency gains that the JV allows the customer to capture that will compel them to give you the work?

Owen Kratz

Scotty, could you take that? Hello?

Operator

I believe the other line disconnected. One moment please, I’ll try to reconnect it.

Igor Levi

While we’re waiting, could you quickly maybe touch on the BP contract into 2017? I know last time, you mentioned that by middle of this year, they would let you know if they were planning to give you less days next year, since they only are obligated to take 270 days. So have they said anything or given you any indication at this point?

Owen Kratz

Right now, they are obligated to take 270 days. They have not fully exercised their option on the others, but they have told us that if they don’t use the vessel, they intend to take a break during the July-August time period, which would be very beneficial because that’s at the height of the season where we could easily capture days with it.

Igor Levi

Great, very helpful. Meanwhile, I can just turn it over, and if you’re able to reconnect, you could answer that second half. Thank you.

Owen Kratz

Okay.

Operator

Ladies and gentlemen, this is the Operator. Both the presenter lines have disconnected. I’ll place the line on musical hold until we reconnect to confirm the end of the call. One moment, please.

Anthony Tripodo

--that hopefully people hung in there. We’re ready to take questions again.

Operator

Okay. Mr. Levi, you’re still connected. Please go ahead.

Igor Levi

Yes, hello. So back to the second part of the question on the JV. I was hoping to get some insight into the types of efficiencies that the JV provides to compel the customers to award you the work.

Scotty Sparks

Yes, it’s not a JV, it’s an alliance, but first and foremost we have a very good sales and marketing effort going on. The efficiencies that are provided to the client are that we can offer a complete service from the vessel. The client would usually take on Schlumberger services, OneSubsea services and other services and that would be separate contracts with the vessels, and then our services would then also be separate contracts. As an alliance, we’ve teamed up, we’ve looked at personnel efficiencies and how we can share the risk and just offer one price to the client, so the client therefore doesn’t have to contract with numerous different contracts, just one point of contact, one contract, and shared risk from the alliance.

Igor Levi

Great, thank you.

Operator

This is the Operator. We’re now reconnected with Mr. Kratz. Should we proceed to another question?

Anthony Tripodo

Yes, let’s proceed to another question.

Operator

Okay, perfect. Our next question comes from the line of Ian Macpherson. Please go ahead.

Ian Macpherson