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Helix Energy Solutions Group Inc
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Greetings, and welcome to the Second Quarter 2019 Earnings Conference Call. Drying the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session [Operator Instructions] Now, as a reminder, this conference is being recorded, Thursday July 25th, 2019.
I'd now like to turn it over to Mr. Erik Staffeldt, Executive Vice President and CFO. Please go ahead, sir.
Good morning everyone and thanks for joining us today on our conference call for our Q2 2019's earnings release. Participating on this call for Helix today is Owen Kratz, our CEO; Scotty Sparks, our COO; Ken Neikirk, our General Counsel; and myself.
Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through our Investors page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon.
Before we begin our prepared remarks, Ken will make a statement 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.
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 two, our most recently filed Annual Report on Form 10-K and our other filings with the SEC.
Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of 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 Investors section of our website at www.helixesg.com. Owen?
Good morning, everyone. Thanks Ken. We're going to start on slide five, which is a high-level summary of Q2 results. The second quarter results reflect increased activity in the North Sea, marking the end of the winter weather, benefiting both our Well Intervention and our Robotics segments. Revenue increased $35 million and our net income increased $16 million from the first quarter. Our results for the first quarter reported revenues of $201 million and net income of $17 million. We generated $30.3 million of EBITDA.
Moving to slide six, for the quarter, we recorded a net income of $17 million compared to net income of $1 million in Q1. We generated EBITDA of $50 million in Q2 compared to $30 million in Q1. Our operating cash flow was $67 million and our free cash flow was $53 million.
Our results for the quarter were negatively impacted by 20 days of unplanned downtime on our BP contract related to our 15K IRS system and a one-time $1.1 million charge related to employee stock compensation.
For our year-to-date results, we recorded a net income of $18 million compared to net income of $15 million during the same period in 2018. We generated EBITDA of $81 million in the first half of 2019 compared to $80 million in the first half of 2018.
In May, we acquired controlling interests in Subsea Technologies Group Limited, or STL. This is a small U.K.-based engineering firm that designs and manufactures subsea hydraulic and mechanical connectors. Although this acquisition will have no immediate material impact on our results, it does strengthen our position in the supply of subsea intervention systems.
Moving to slide seven, our utilization during the quarter benefited from the end of the winter season in the North Sea as expected. Well Intervention roughly utilization increased to 94% from 74% in Q1, with our downtime primarily related to the 15K IRS system. Our operations in the North Sea and Brazil performed very well with minimal downtime. Robotics also benefited from the end of the winter season and the increased activity that followed.
On to slide eight, from a financial statement perspective, our cash levels at quarter end increased to $261 million from $220 million at the end of Q1. We invested $16 million in capital expenditures and we made $7 million of net debt repayments.
During the quarter, we generated $17 million of operating cash flow, $30 million year-to-date. We generated $15 million of free cash flow in the quarter and were marginally positive for the year. Our net debt at the end of Q2 was $161 million compared with $209 million in the first quarter.
During Q2, we invented our primary credit facility, extending its maturity 18 months to December 2021. In addition to extending the maturity of our term loan and revolver, we increased our revolver capacity by $25 million to $175 million, and we increased our term loan by approximately $2 million.
I'll now turn the call over to Scotty for an in-depth discussion of the operations results.
Thanks Owen and good morning everyone. Moving on to slide 10, the second quarter was a busy period for all vessels contracted for either quarter achieving high utilization across the fleet. We also completed the acquisition of STL, which we expect to enhance our in-house engineering and also enable Helix to work for further subsea product development for new Well Intervention technologies.
In the second quarter, we achieved increased revenues of $202 million compared to $167 million in the first quarter. Gross profit margin increased to 20% resulting in a profit of $40 million increasing from 10% in the $16 million gross profits in Q1.
In the North Sea Intervention business, both vessels achieved high utilization from numerous clients with strong uptime performance, including the successful completion of another shallow-water riser base called Cuban project from the Well Enhancer. Both vessels are planned to be working in the fourth quarter.
In the Gulf of Mexico, the Q5000 continued for BP throughput the quarter. Q4000 achieved very good utilization for the quarter and currently has working for the fourth quarter with numerous clients. Performance in Brazil was strong again. Both vessels performed very well achieving high utilization of 99% with remarkable uptime. Robotics achieved another good quarter with a high-level of utilization across the chartered fleet.
For the first time, we contracted renewable energy work outside of Europe with the GC 2 leaving the Gulf of Mexico to work on a wind farm in Taiwan, highlighting our commitment to the geographically expanding renewable energy market. Due to the departure of GC 2, we commenced the further charter for one year of [Indiscernible] vessel for the Gulf of Mexico.
Slide 11, slide 11 provides a more detailed review for our operations for our Well Intervention business in the Gulf of Mexico. The Q5000 continued working for BP for the entire quarter, achieving 77% utilization due to a technical failure on the jointly owned Helix OneSubsea 15K IRS system. The vessel will remain with BP until the end of the third quarter undertaken while enhancement works.
The Q4000 achieved good utilization of 93%. The vessel performed well with minimal commercial downtime, completing a 12-well campaign for one client prior to undertaking two P&A for another client. The vessel then commenced work on one well in our Droshky field, completing the P&A this week. Initial estimates indicate this project was completed ahead of budget. Margin generated from this project will be recognized in the third quarter.
Moving to slide 12, our North Sea Well Intervention business continued the year as planned with both vessels fully contracted throughout the quarter with strong uptime performance. The Well Enhancer achieved 99% utilization, performing very well working for three clients and also completed another successful shallow-water coil tubing project.
The sea well also performed well, working for three clients, achieving 97% utilization. The Q7000 continues mission preparation in Singapore. The vessel is now fully manned and trading on the vessel has commenced.
Our subsea system IRS 6 has been mobilized on both of the vessels and is currently being integrated. [Indiscernible] are expected to commence in August, with the vessel currently plan to ready to commence transit to West Africa in the third or fourth quarter.
As mentioned earlier, we completed the acquisition of STL during the quarter. The acquisition enhances our in-house engineering capability, further reducing our reliance on third parties and should allow us to develop and influence some subsea system technologies for the market.
Moving to slide 13, in Brazil, our operations for Petrobras continued to go extremely well and we achieved another strong quarter, producing our best quarter-to-date in relation to uptime performance. Both vessels continued to undertake numerous various scopes mostly related to production enhancements and we've now completed work on over 50 wells for Petrobras.
In the second quarter, the Siem Helix 1 achieved 99% utilization, working on 4 wells, undertaking two abandonment scopes and two production enhancement scopes. The Siem Helix 2 also achieve 99% utilization working on six wells, performing five production enhancement scopes and one abandonment scope.
Moving on to slide 14 for our Robotics review. Robotics continues to recover well. Q2 in the first half of 2019 and year-over-year was much improved for Robotics with strong operational performance and significantly better commercial utilization. We expect to see this continue for the second half of 2019.
In the second quarter, vessel charter fleet utilization was 92% with two vessels which utilize most on renewables projects in the North Sea and the Grand Canyon to even the Gulf of Mexico for the APAC region being replaced by a one-year charter for a Jones Act-compliant vessel, the Ross Candies.
In the quarter, we achieved 138 days of trenching operation from numerous clients. The Grand Canyon worked in the North Sea, achieving 98% utilization on a combined hard and soft ground trenching project. The vessel is planned to remain busy until [Indiscernible] in October, further reducing our cost base.
The Grand Canyon III had 79% utilization, mostly performing works on trenching projects in ROV support works in the North Sea. Earlier in the quarter, the Grand Canyon II was located in the Gulf of Mexico and had 96% utilization working on Deepwater ROV support scopes before leaving the Gulf of Mexico in June to undertake a longer term contract in the Asia region and to undertake work on our first non-European renewables contracting in Taiwan.
With the GC 2 leaving the Gulf, we charted the Ross Candies ROV support vessel on a near-term basis. The vessel is Jones Act-compliant and these plant operated the Gulf of Mexico on the charter for one year were flexible utilization terms. The charter commenced late in Q2 and went straight to work achieving 16 days of Deepwater ROV support work and we have approximately 180 days already contracted with visibility for additional opportunities.
Over to slide 15, I'll leave this slide detail in the vessels ROV and trenching utilization for your reference.
I will now turn over the call to Erik for a discussion on the balance sheet and the 2019 outlook.
Thanks, Scotty. Slide 17 outlines our instruments and their maturity profile. As previously mentioned, the amended our credit facility, extended both our revolver and term loan on by 18 months, increasing our revolver availability by $25 million and increasing our term loan to $35 million. With this amendment, we reduced our principal payments in 2020 to $100 million and provide additional liquidity with the $25 million increase in revolver capacity to manage our maturing debt, if needed.
Moving to slide 18, it provides an update on key balance sheet metrics, including growth in net debt levels at June 30th. Our net debt in Q2 decreased to $163 million from $209 million in Q1. The decrease in net debt for Q2 is primarily attributable to the $67 million of operating cash flow, offset by $16 million of CapEx. Our net cash position at quarter end increased to $261 million. Our quarter end net debt to bill capitalization was 9%.
Moving over to slide 20 for a discussion of our 2019 outlook, we are maintaining our guidance for 2019 EBITDA in the range of $165 million to $190 million. Our year-to-date results are on par with 2018 results and the perceived activity levels in the market during the second half support our guidance. This range includes some key assumptions and expectations and estimates as follows; we are assuming full year benefit of the Siem Helix 1 and Siem Helix 2 in Brazil; we expect that 2019 North Sea Well Intervention market to maintain the high-level activity into Q4; we expect the Q4000 to have good utilization, including as supported by their Droshky acquisition; Q5000 is forecasted for 270 days with BP, with opportunities for the remaining 95 days.
In Robotics, we expect to continue to benefit from reductions in our cost structure for the vessel charters and the foreign currency -- exploration in the forward currency hedges and increased activity in the second half of the year; we expect marginal improvement in ROV utilization and trenching market similar to 2018.
Production Facilities is expected to be fairly consistent, with a slightly lower results the second half of the year. And as with last year, our annual EBITDA guidance includes approximately $20 million reduction related to the low cost for Brazil contracts paid previously but expensed over the term of the contract.
To achieve the higher end of our range, the Q7000 would be working in the fourth quarter for 2019. The 2019 forecast range includes nominal benefit from our oil and gas production covering its operational expenses with planned facility downtime in the second half of the year. Of course, any significant variation from these significant assumptions could cause our EBITDA to fall outside the range provided.
Moving to slide 21, we have $1 billion in backlog with $281 million currently scheduled and estimated to be completed during the remainder of 2019. Our backlog is heavily weighted to our BP Q5000 contract, the two Petrobras contracts, and the Helix Producer I contract.
Gulf of Mexico Well Intervention market, Q4000 currently has worked into Q4 with identified opportunities thereafter. The vessel is currently servicing the spot market are expected vessel utilization to be driven by near-term opportunities and aided by internal workers in the Droshky assets. The Q5000 will continue program with BP through Q3. The IRS 15K system is on a daily contract with expected utilization through Q3.
In the North Sea Well Intervention market, we are assuming a continued base level activity for our two vessels. We expect strong utilization through Q3 and the typical seasonal weakness during the winter months. In Brazil, we expect the full year of operations on both Siem Helix 1 and Siem Helix 2.
In a change from previous guidance, the Siem Helix 2 will now have downtime for scheduled maintenance in Q4 anticipated to be between four and 14 days. The shipyard maintenance on the Siem Helix 1 has now been pushed into 2020. However, the vessel schedules are fluid and are timing of the shipyard maintenance may change.
The Robotics segment is expected to benefit from continued improvements to its cost structure, both charter, vessel cost, and heads reductions and increased market activity in the second half of the year. We expect Robotics to be well-positioned for continued improving -- improved results in 2019.
Over to slide 23, CapEx for the year is forecasted at $145 million. Cost of capital related to completing the Q7000, including the forecasted shipyard payment at delivery. Maintenance CapEx includes dry docks completed in the first quarter on the HP1 to see Well Enhancer. Our schedule remain for the year approximate $23 million.
I'll skip Slide 25 and leave it for your reference. At this time, I'll turn the call back to Owen for closing comments.
Thanks Erik. Well, the second quarter picked up as we expected. We had a few issues that kept it from being even better. Operational downtime on the 15K IRS system again caused downtime on the Q5000 BP contract. The system has now been modified and it has been -- and is redeployed. Operations in Brazil continue to be executed at a very high level and Robotics continues to improve, taking advantage of lower cost and increased activity.
So far this year, we are on par with last year, but we expect it to be ahead. We are not far off expectations and we do see second half of the year, which we hope to be strong, if not stronger, than we expected. This should allow us to forecast meeting our objective, which is to be above the midpoint of our guidance. To reach the upper end of our guidance would require EBITDA contribution from the Q7000.
We are currently mobilizing the Q7000 for work in West Africa. Due to some delays outside of Helix's control, that project is currently scheduled to begin early January. While it might be possible that we can do other work ahead of this, it's difficult to say whether the engineering and long lead items could be made ready in time.
Following the first project, there's a number of clients considering taking advantage of the vessel while it's in the region, and after that, we intend to transit the vessel to the North Sea where several clients are keenly watching the work in West Africa.
The timing for bringing the Q7000 for market seems about right for its utilization. We're definitely seeing improving utilization across the fleet. It may still be too early to predict when great improvement might follow.
Earlier this year, we heard our service providers -- other service providers, I'm sorry, as well as ourselves comment on the improved tendering volumes. While this is true, we question how much of this tendering will actually translate into work. I still believe that we may remain in the challenging market for perhaps another year.
Supply must be reduced or worked off. I would expect to see consolidations also on the rise before we see any meaningful improvement in rates. We are seeing production change hands with new E&P entrants into the aftermarket. One sufficient time passage for these new players to assess their assets and set plans, we expect that they will be more aggressive internal management of the reserves, which would mean greater demand for our services. Helix is in the final year of our planned capital spend program. We do expect to be free cash positive for 2019, but strongly free cash flow positive in 2020.
You may have noticed that we're beginning to roll out a new website. Going forward, we'll be highlighting our capabilities rather than just our assets. Helix is well known as the leader in Well Intervention and jet trenching, but lesser known for the full extent of what we're capable of with our assets.
We hope that an aggressive marketing approach along these lines should increase demand and margin over time. Our goal is to expand these capabilities in a capital-light manner. We're assessing our options for the best allocation for our free cash flow mindful that we would like to continue to work towards deleveraging the company.
Looking forward, we should see growing our continuing our growth in Robotics through further cost reductions as charters renew or roll off as well as improved utilization. In Robotics, we have sufficient capacity to accept greater market share with existing assets. The recent Droshky deal and potential for other similar deals should yield greater results on margin through reduced idle asset time risk.
The Q7000 delivery should see contribution by the beginning of the year and ramp-up as expectancy as demand grows. All of this means further growth without excessive capital investment. We believe that we are well-positioned for the future. I really believe that over the next few years, we'll be approaching the period with ample opportunities for a company with a clean balance sheet and a robust business.
With that, Erik, I'll turn it over to you to start the Q&A.
Okay. Operator, at this time, we're ready to take some questions.
[Operator Instructions] And our first question is from the line of Marshall Adkins with Raymond James. Please go ahead.
Good morning guys. Owen, it seems like my take here is that you have virtually every party of your business exceeded expectations in this quarter with the exception of the Q5000. And you briefly went through it in your conclusion, but give us a little more color on what the downtime was and how confident are you the problem is fixed? And lastly, at least relating to 5000, are you going to get work in Q4? What's your outlook there?
Well, this was a recurrence of a problem, but Scotty's the one that's closest to it so, Scotty, you want to fill in some of the details on what happened?
Sure. Good morning Marshall. So, over the start of the year and in the second part of the quarter, we had a hydraulic control failure. We decided to change out all of the parts in that -- the control parts of that failure. It wasn't just one or two items, we decided to have an extended period and replace 30 items with newer components and also, up our quality management system of those components and supply.
So, we do feel we've got a good handle of the issue. We've been operable since then and we're operable now. So, we feel we've got on top of it. It was an extended period because we decided to just go in and change out all of those components with new parts and new components within those parts. So, we feel we've got a good handle. Can never guarantee that there'll be no downtime but we've definitely got the gram that's been causing trouble so far.
Perfect. And then the fourth quarter outlook. I know the BP stuff's done in third quarter, how is your fourth quarter shaping up?
So, right now, we're bidding work in the fourth quarter for Q5000 when it be a newer unit, there's interest and also if that were to fall apart, we had the backdrop of the Droshky field for asset utilization there. Q4 schedule's looking quite good at this time. We've still got some gaps to fill out, but I can see position where Q4's is packed out and anything else will land on Q5.
Terrific. And then let's switch over to Q7. Seems like things have been pushed back a little bit there in terms of the start dates. Just give us a little more color on what you're seeing there, both in terms of the, kind of, near-term getting into work. It seems like you're getting a lot of interest both in North Africa and in the North Sea looking out to next year and beyond. So, give us your sense of what you're seeing on both the near term and looking out maybe a year?
Okay, Terry, I'll take that to begin with and chime in if you guys have anything to add. But I -- the contract was originally supposed to begin August 1, but then got deferred into the fourth quarter. Then we just more recently got word that long lead items and engineering was going to put it into the early part of January, I believe, the window for starting the work now is January 1 to January 15.
Both parties were moving forward. We're mobilizing the vessel. We're spending money. The producer is spending money. The teams are on board the vessel now going through the acceptance. Everything is moving forward. It's just we've slowed down the pace a little bit because of the delay on some of the items, not our items.
But then beyond that, there are a number of clients in West Africa that are interested in following on. We are hopeful that one of them might be able to go earlier. But as the time runs thick here because we've slowed down the process here a little bit because of the delay, it makes it a little challenging to get all the engineering and long lead items if we were going to put work ahead of this.
So, it's still possible. It's too early to say definitively we will or won't but it does look like strong follow-on activity after this first contract. And then once we are finished in West Africa, we do have clients that are looking to use it in the North Sea, and we do have our interest in the vessel all the way through with other clients talking about projects towards the end of next year. So, I think the utilization on the Q7000, once it starts to work, I think the timing in the market is about right for it.
Sounds good. I'll requeue for more. Thanks guys.
The next question is from the line of Ian Macpherson. Please go ahead.
Thanks. Owen, honestly I want to just pick up on a couple of the same topics you went over. Given the visibility, the customer interest in the Q7000, and we're at -- it seems like we're at the precipice of pricing inflection. You said maybe we might be a year away from real pricing power. But to what extent do you think you can control the -- your own destiny with regards to contracts thought of tenure?
Do you have customers who are looking to lock in lower pricing on the Q7000? And can you accommodate that? Can you resist that? How do you think about optimizing that asset's profitability over the three-year horizon or is it just too early to even contemplate beyond its first two wells?
Okay. I will jump in here on that when Ian. So, we have got a significant piece of interest on Q7000 after the first project. The first project is targeted to be multiple wells. And then we have a couple of majors after that with numerous wells that they are looking at their spending money into vessel acceptance already. They visited the vessel in Singapore already and sent their acceptance teams down there.
We have another client spending money in August to go have and their acceptance teams good down there. So, we are starting to see interest. I would say the rates are somewhat in line with the rates we're starting to see in the U.K. market. The intervention rates for Q7 are going to be somewhat in line with the rates that we're obtaining for the Seawell and Well Enhancer.
So, it's going to have a U.K.-based cost base. It will also have the integrated package of slum boards of you have multimode cost of their equipment going on board and some of the teams will be multitasked. So, the market hasn't come back slowly but we're definitely seeing rates that are in line with the U.K. and they are not bad than the rig rates that are in the U.K. right now.
Yes, I'm back on the line. Sorry about that, the call dropped. But I'd just like to add something to that. We have seven intervention assets now with the Q7, two in the North Sea, two Gulf of Mexico, two Brazil. We -- strategically, we have the desire to expand geographically West Africa, further in Brazil and the North Sea as well as Asia-Pacific.
The Q7000 then becomes our only really available asset. We have strong utilization on the others. So I think it bodes well for the utilization on the Q7000 without robbing any of the utilization from the other vessels, which should allow us to start pressing rates a little bit.
Thank you both, that's helpful. And then just going back to the technical downtime on the 15K IRS system. I know you said that you have made the fix and you've redeployed and everything is going well now. I just wanted to clarify, did any of the downtime creep into July or was it contained in Q2 and you've been at full uptime since the beginning of Q3?
The major event that we had and -- was the start of Q2, Ian. And like I said, we could have bought the system on deck and change the few components. We took a view on that and took out all of the control valves and replaced them with new and updated our quality procedure on time and change those items and some of the components.
So, it was all back in April. Since then, we been redeployed. We have had one or two days recently related to small things, not major downtime events here. So, we're feeling a lot more confident. But again, I need to point out we can never take out downtime in these environments. We working vast water depths, 7,000, 8,000 feet with the first 15K long rig redeployed asset and it's quite a large public system. But we feel that the issue that we had in Q1 and the issue in Q2, we have a good handle of now.
Got it. Thanks Scotty. I'll pass it over.
Thank you.
The next question is from the line of George O'Leary. Please go ahead.
Good morning guys.
Good morning.
Owen, I saw your commentary around independents and some private equity backed present offshore markets coming back with interesting. Wondering if you could characterize how your dialogue is with those players. If some of them may have decent programs for you to work on, but does seem like a green shoot for the industry. So, just curious for some more color there.
Yes, I think you have several categories with those new producers. Some of them are run like the old majors. But the vast majority, I think, the play that they are making is that they can come in and work these reservoirs more aggressively than they have been and, therefore, generate a lot of upside.
And we've been talking with them. I think you can't spread yourself too thin. I think it's a matter of picking the right ones, and we're moving towards more of a partnering ship -- relationship with some of these guys. And I do think that it will bring more demand for our services.
Great. And then the second question, just on the Robotics business. You guys have done a very good job of taking cost out of the system until this point. But I was just wondering if you could frame in order of magnitude of what's left to pull out from that business?
And then secondarily, the utilization for ROVs just broadly remains relatively sluggish. What is the outlook in the back half for the utilization in the ROVs in particular?
I think that's probably a two-part question with Erik. You're probably best positioned to answer the first part and then to Scotty.
Yes. I think from a cost standpoint, what's left to take out, we do have some hedges where we are underwater that is costing us roughly between 12,000 to 15,000 a day. So, those costs because we have some rolling off year in July and I think the next one is February of next year.
So, those are definitive because that you could take off. I think after that, it's really the point of minimizing you can see idle time on our chartered vessel fleet. We're going to be up at a point from the long term charter standpoint down to two vessels. And so I think we're in a better position to manage that idle time cost. But the definitive amounts coming off are obviously the charters rolling often and then the Grand Canyon 1 coming off in October of this year.
And with regard to utilization, obviously, the charter fleet utilization, that's very good throughout the end of the year. And the Grand Canyon 1 rolls off in October and that should be fully utilized up until that period. G2 was taken up long-term and now down in Asia and taking on some renewables workforce out of Europe and as that contract for just well.
And then because of that, we've taken on the Ross Candies. The Ross Candies we've already secured work, so from my vessel utilization point, we look good; from a trenching utilization point, we look good. The standard sort of rental ROVs. ROVs that go from other people's asset, I would say flat to a slight improvement as we go to the end of the year, but we're not seeing -- it's quieter flooded market for ROVs out there right now.
So, we do have a bunch of ROVs that were on certain client assets. I mean those assets are going to work here as the construction market starting to step-up. So, I'd like to think we're going to see a gradual improvement of ROV utilization, but nothing major yet.
Great, that's very helpful. Thanks to both you guys. And then just one more from me the competitive landscape seems like we've finally got floating drilling activity actually starting to march higher. I realize those are one of your largest competitors and as rigs are struggling, you find drilling world they were competing more intensely in the intervention market. With drilling actually migrating higher, has that competitive landscape improved or are you still seeing a similar level of pressure to what you saw three, six, nine months ago?
What do you think, Scotty?
I mean, certainly the rigs really affect us mostly in the Gulf of Mexico and if you look at -- compare last year to this year, our utilization that's better than last year for sure, our rates have increased slightly.
Rigs in the Gulf of Mexico last year I think there was about 17 floating assets out there. Now, I think there's a maximum of 25 and 24 taken up. I don't quite -- what we read in the press. But certainly, there's an increase in rig activity and that means that the overhang is removing the way and allowing work to come back to us. Some of our major clients that are out there that have had rig overhang have lost those rigs or moved those rigs to other countries or other basins. And then they're inquiring about work for next year.
So, I think increased rig activity certainly helping us. We're in a better place than last year. We've got more visibility to words per well that require work next year, and we've got some older favorable clients inquiring about our time for our assets again. So, it is an improvement.
Thanks again for the color guys. I will turn it back over.
The next question is from the line of David Smith. Please go ahead.
Thanks and good morning.
Good morning.
Most of my questions have been answered. So, I'll ask if we take the midpoint of your 2019 revenue guidance, that would imply a second half revenue outlook that's pretty flat versus the first half. If we take the midpoint of your 2019 EBITDA guidance, that would imply a second half that's about 20% better than the first half.
So, I just wanted to confirm first that, is it fair to think about the midpoint of guidance as a baseline for your expectations? And if so, wanted to ask, how much of that relative EBITDA improvement would you expect to come from Robotics?
Well, I think as far as the guidance expectations; our range of guidance includes a lot of pluses and minuses. So, it really depends on our -- where we are. But I wouldn't say you're too far off in saying that our expectation is -- well, like I said in the comments, our objective is to be above the midpoint of our guidance. I -- Erik, can you help me out there?
Yes. As far as the second half, I think that way that you're looking at our revenue and the EBITDA contribution is how we played it out and you think that we see revenue roughly flattish. I think we do see improvements in our cost structure. Canyon obviously is a big driver. Third quarter has historically been one of their strongest quarters. And so we do expect relative improvement there. We do expect improvement also in the Well Intervention side.
Our second quarter, like Owen said, was not necessarily what we expected with some of the downtime issues. But I think we were able to put that behind us, and we'll be in a position that will be able and target to deliver higher results in the second half of the year.
I think the only thing I would add to that would be in our expectations, we had I'd call it a subdued outlook for the fourth quarter, given how soft last year was. And I think where we are right now is that we're seeing the potential for the fourth quarter to be stronger than what our expectations were.
Appreciate that. And a follow-up, if I may. If we think about the Q7000 and the future contract being seasonally between the North Sea and West Africa, what kind of downtime should we think about for just mobilization if that vessel is working in the North Sea for six or seven months and then West Africa for the rest of the year?
It's a 14-day transit I believe. Is that correct, Scotty? Between West Africa and the North Sea?
Yes. Around that, depending on where in West Africa we are, yes.
Yes. Now that also assumes that we make that shift on speculation whereas our intent would be to try and put together a string of contracts and share that mobilization cost across the user clients and get the -- that time paid for so it wouldn't be considered downtime.
That's good color. Appreciate it. And last, being a little greedy here, just on that Q7000 generically, would you expect profitability under Q7000 similar North Sea versus West Africa or anywhere else in the Golden Triangle?
I would say, yes. Yes. I think it would be similar.
Great. Thank you very much.
The next question is from the line of Vaib Vaishnav. Please go ahead.
Hey, thanks for taking my questions. I guess just first on dry docks. Can you talk about -- we know the Siem Helix 1 dry dock has been moved to 2020. Can you talk about what are the other dry docks we need to think about in 2020?
Scotty?
Okay. So, first of all, the Siem Helix 1 is not a dry dock, it's a small maintenance period. So, it's a shipyard maintenance period. And we've been working alongside with Petrobras as to when we undertake that time and then we're happy now that we can move the Siem Helix 1 into 2020. And then some of that time gets offset because we have a contractual allowance with Petrobras that allows us to have a maintenance base.
So, it's not large dry dock of such a small replacing some surface type components and sort of annual maintenance on Siem Helix 1. The major dry dock that we'll have coming up in 2020 will be the Q5000's first five-year dry dock. So, at the start of the year, the Q5 will be out of action for a longer period. And estimate right now is 55 to 65 days.
And I think besides that, the other thing we may have is a [Indiscernible] on the Q4000. And I think there ought to be a small program on the C well, but we expect that to be done during the idle periods in the winter months.
Winter months, yes.
Okay, that's helpful. And is this -- just could you put some right color around the one-year charter for Ross Candies. So, just how did came along and what is the thought process there?
Yes. Do you want me to take that, Owen?
Yes. You're the one closest to it.
Okay. So, the main reason behind that one is the GC 2, that's an anchor contract in the APAC region and then also taking our first renewables contract in the APAC region. So, we didn't want to be in the Gulf of Mexico without a vessel. We partnered up for the Ross Candies in the Jones Act-compliant vessels which means that there is a bit more demand than normal ROV support vessels there.
We have it on a one-year charter, we have an option to take it longer. The charter has flexible utilization, it's not a full back-to-back 365 charter as with our other vessels, we have a bunch of flexibility in the charter and have already secured a good portion of the world that we would need to undertake that.
So, we're feeling confident, we've got quite a few opportunities out there. But the key drivers mainly want to make sure that we have a vessel availability for our Robotics division in the Gulf of Mexico due to the GC movement after the Asia region, which is good for our Asia region also so.
I just add a little bit of color to that. The Jones Act argument has been going on for a number of years about whether or not ROV vessel should be loaned better or not. There is no prescriptive requirements for Jones Act, but a lot of the producers are starting to show a preference for Jones Act vessels. So, seizing on this opportunity to relocate the GC 2 and bring on a Jones Act vessel should increase our opportunities for greater utilization in the Gulf of Mexico.
Okay, that's helpful color. And if I think about just the guidance, the annual guidance I talked about last quarter that it could be towards the high end, Siem Helix 1 we talked about it's a small maintenance program but still pushed out into 2020. Now we have Ross Candies as well. But still the guidance remains unchanged. Just wanted to think about the puts and takes around it. Is it more because we had some downturn on Q5 that's going to be offsetting it or if you can throw some color around that?
Erik, you can add something to this but basically, it's the Q5 downtime here has set us back a little bit and the Q7000 work is delayed. But we see the offset to that being a stronger second half of the year than what we were expecting. So, therefore, we held the guidance flat.
That's all that's needed. Thank you for taking my questions.
Thank you.
[Operator Instructions] The next question is from the line of Bill Dezellem. Please go ahead.
Thank you. I had a couple of questions. First of all, relative to the Q5000. Is BP indicating or inclined to use the vessel in the Q4, whether because of the work they have or because of the downtime that you experienced this quarter? Were you really looking to fill up that schedule with clients other than BP?
[Indiscernible] sorry.
Go ahead, Scotty.
Yes. We plan to fill out that schedule with other clients other than BP when obviously vessel in the fourth quarter. And we do have discussions ongoing to contract the vessel. And like we said earlier, if that falls over, then our backs up we do work on our own field the Droshky field so.
Great. Thanks Scotty. That's actually a great segue to my second question, which is relative to the Droshky well that you are completing this week ahead of budget, would you please discuss how the -- I guess you'd be accounting work through that and profit recognition that may come about as a result of being ahead of budget or lower cost than anticipated?
Yes. I'll go ahead and take that. Yes, so from an accounting perspective, we started working in late second quarter. So, we had a number of before the work in the second quarter. That was recognized essentially at breakeven gross margins.
Like you mentioned and we mentioned in our call, the work is being completed at this point in time this week. We do expect a small profit in that. And so I think that will be recognized to the point that we're able to achieve that here in the third quarter. That will flow through our numbered so be an adjustment to our abandonment estimates for that well that will drive the profit that we recognize.
So, basically, at the end of the contract, it's like a percentage of completion contract at the end of the well, if it comes in under budget, any -- that under budget differential versus your original estimate is then booked as profit?
That's the right way to think about it, yes.
Great. Thank you, both.
The next question is a follow-up from Marshall Adkins. Please go ahead.
So, just a follow-up real quickly on the free cash flow, Owen. You had a phenomenal free cash flow generation this quarter of over 4% just in a quarter. And our Matt said you generate maybe another $150 million next year. Walk me through your priorities on what you're going to do with that cash?
I'm just thinking about how to phrase this because I don't want to get ahead of myself. I have got ongoing discussions with the Board now on assessing the options. We have a strategic meeting in September that we'll be discussing these issues. Keep in mind what I said in the notes is that we do want to keep deleveraging the company. At what rate, I think is up to -- up to for discussion.
And then like I also said, I think that our growth opportunity going forward to not require a lot of capital. So, that either builds cash or it means returning value to the shareholders. I can tell you, my own personal preference would be share repurchase. But I'll stop at that and just leave it that as a Board decision and we have that -- those conversations pending here.
Okay. So, first part I mean, just -- and I know this is conceptual and subject to the Board, but first priority, a little bit of debt paydown, although you don't have a whole lot of that relatively speaking. And then with the excess stock buyback and/or something other return of capital depending on what the Board says, but not building another Q8000 or something like that?
Definitely not. We are past our aggressive capital spending phase. We have the best fleet in the industry right now for Well Intervention. It's time to reap the harvest here. But I would point out that we don't have that much debt but if you look at our debt profile, we do have some pretty meaningful maturities.
So, we want to make sure that we are strong enough to meet those. Now, part of our discussion with the Board will be the options of refinancing, stretching it out versus going ahead and eliminating it. But we do want to be in a strong cash position to have that optionality.
Right. And last one on that issue. It does seem like you kind of made a small acquisition here in the quarter. It sounds like there will be probably some more of that from time-to-time. This specific acquisition, Subsea tech I think it was, what does that bring to you, just out of curiosity?
This was a small engineering and fabrication company here out of Aberdeen. By the way, that's where I'm taking this call from which is why I dropped out, but I'm working over here out of Aberdeen. They are our preferred provider for intervention of engineering and fabrication solutions. We've used them for years. This was an opportunity for us to consolidate it.
And by doing so, it -- we recaptured some of the innovations that we've been working on, innovation for the future, and it also bolsters our internal engineering staff, which following 2015, we laid off an awful lot of people and it's necessary for us to start rebuilding.
This acquisition made sense, not so much from what it generates for the EBITDA line. But it's a third-party cost that we would incur any way. So, by internalizing it, it sort of applies that third-party cost to the acquisition price and makes it worthwhile.
Thank you. And last one for me, Droshky, just give us an update of where you stand. I think you're about to -- or just completed one abandonment but there's -- give us an update on your ability to increase production there, how does that look? And/or do you see more tag-ons like Droshky anytime in the near future?
We are working the market. We do have a universe of potential Droshky-type add-ons. We don't have anything that I could say is imminent. We don't really need it right now. It looks like the schedule is filling out and the reason we would do those deals is to have the hedge against our utilization risk. So, we have time to be picky about that.
With regard to the upside on the production of Droshky, we have identified early completion. It's in the planning stages still. If we do that, it would be sort of in conjunction with the timing of the next P&A by going out and doing it then.
If it's successful, it's a great upside. If it's not successful, then the incremental additional cost to go ahead and do the P&A is not material. So, the timing really depends -- we bought it to have the flexibility on the scheduling. And therefore, the timing of when we do all of this is very much market-dependent.
All right. Thank you.
Our next question is a follow-up from Ian Macpherson. Please go ahead.
Hey thanks for the follow-up. Just wanted to squeeze in one more kind of hunting and pecking around the guidance. It just occurred to me with the Ross Candies and just the improving legs and with the ability Robotics, is that business now as you see it structurally, positive EBIT contributor through quarters and seasons at this point? I'm asking specifically does this the guidance assume that Robotics EBITDA positive in Q4?
Short answer, yes. And then I'll let Scotty fill in the details.
I think one thing you need to be mindful here is that Ross Candies charter commenced in June and it's over 1 year so some of that work is going to be into next year that we've already secured against the minimal sort of utilization deal have been the Russell.
But we have seen a year-over-year improvement, quarter-over-quarter improvement in Robotics. We expect it to be stronger in the second half of 2019. We've secured trenching work into 2020 and further and beyond. We are seeing an improvement. I'll have to refer to Erik if we are positive in Q4 to finish off the question.
Yes. So, as we mentioned, we've got Robotics for the year. Our real focus this year was getting to the point where we'd be gross profit positive for the year. And I think we're definitely on track to do that. On a quarter-by-quarter basis, we don't necessarily give specific quarterly guidance. But I think our expectation at this point in time is that for the year, Canyon would be EBIT positive.
Okay. Good enough. Hey thanks again, I'll pass it over.
Thanks Ian.
There are no other questions in queue.
Okay. So thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our third quarter 2019 call in October. Thank you.
That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.