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Helix Energy Solutions Group Inc (HLX) Q2 2019 Earnings Call Transcript

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Helix Energy Solutions Group Inc (NYSE: HLX)
Q2 2019 Earnings Call
Jul 25, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for your patience. Your conference will begin shortly. Once again, thank you for your patience and please continue to standby. Greetings, and welcome to the Second Quarter 2019 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. [Operator Instructions] And as a reminder, this conference is being recorded Thursday, July 25, 2019.

I'd now like to turn it over to Mr. Erik Staffeldt, Executive Vice President and CFO. Please go ahead, sir.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Good morning, everyone, and thanks for joining us today on our conference call for Q2 2019 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 under the that 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 Neikirk will make a statement regarding forward-looking information. Ken?

Ken Neikirk -- General Counsel

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 any associated presentation, other than statements of historical fact, are forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in slide 2, are most recently annual report on Form 10-K and our other filings with the SEC. Also during this call, certain non-GAAP financial disclosures in accordance with SEC rules, the final slide of our presentation, provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast are available under the Investors section of our website at www.HelixESG.com. Owen?

Owen Kratz -- President and Chief Executive Officer

Good morning, everyone. Thanks, Ken. We're going to start on Slide 5, which is the 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 at revenues of $201 million and net income of $17 million, we generated $53 million of EBITDA.

Moving to slide 6. 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, which is a small UK based engineering firm that designs and manufactures subsea hydraulic in 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 7, our utilization during the quarter benefited from the end of the winter season in the North Sea as expected. Well intervention vessel 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 we increased activity tthat followed.

On to slide 8. Our 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 repayment. During the quarter, we generated $70 million of operating cash flow, $30 million year-to-date. We generated $50 million of free cash flow in the quarter and are 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 amended 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 a $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.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Thanks Owen, and good morning everyone. Moving on to slide 10, the second quarter was a busy period, with all vessels contracted throughout the quarter, achieving high utilization across the fleets. We also completed the acquisition of STL, which we expect will enhance our in-house engineering and also enable Helix to offer further subsidy 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 profit in Q1.

In the North Sea intervention business, both vessels achieved high utilization for numerous clients with strong uptime performance, and successful completion of another shallow water riser-based coiled tubing project from the Well Enhancer. Both vessels are planned to be working into the 4th quarter. In the Gulf of Mexico, the Q5000 continued for BP throughout the quarter, Q4000 achieved very good utilization for the quarter, and currently has work into the 4th 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 GC2 leaving the Gulf of Mexico to work on a wind farm in Taiwan. It highlights our commitment to the geographically expanding renewable energy market. Due to the departure of GC2, we commenced a further charter for one year of a Jones Act compliant vessel for the Gulf of Mexico.

Over to Slide 11. Slide 11 provides a more detailed review of 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 One Subsea 15K IRS system. The vessel will remain with BP until the end of the 3rd quarter undertaking well enhancement works. The Q4000 achieved good utilization of 93%. The vessel performed well with minimal commercial downtime completing and a 12-well campaign for one client, prior to undertaking two P&As for another client. The vessel then commenced work on one well in our own 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 3rd quarter.

Moving to slide 12. Our North Sea Intervention business continued the year as planned, with both vessels fully contracted for 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 coiled tubing project. The Seawell also performed well working for three clients, achieving 97% utilization. The Q7000 continues mission preparation in Singapore. The vessel is now fully manned, and training on the vessel has commenced.Our subsea system IRS 6 has been mobilized aboard the vessel is currently being integrated. Trials and clients upset suits are expected to commence in August, with the vessel currently planning to be ready to commence transit to West Africa in the 3rd or 4th quarter.

As mentioned earlier, we completed the acquisition of SGL 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 implement some subsea system technologies for the markets.

Moving to slide 13. In Brazil, our operations for Petrobras continues 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 varied 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 four wells, undertaking two abandonment scopes and two production enhancement scopes. The Siem Helix 2 also achieved 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 year-over-year was much improved robotics, with strong operational performance and significantly better commercial utilization. We expect to see this continue through the second half of 2019. In the second quarter, vessel charter fleet utilization was 92% with two vessels utilized mostly on renewables projects in the North Sea, and the Grand Canyon II leaving 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 operations for 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 being returned to its owner in October, further reducing our cost base.

The Grand Canyon III had 79% utilization, mostly performing works on trenching projects and 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 contract in Taiwan .

With the GC II leaving the Gulf, we chartered the Ross Candie's ROV support vessel a near-term basis. The vessel is Jones Act compliant and is planned to operate in the Gulf of Mexico on the charter for one year, reflectable 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 the 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 in the 2019 outlook.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Thanks Scotty. Slide 17 outlines our debt instruments and the maturity profile. As previously mentioned, we amended our credit facility, extending both our revolver and term loan by 18 months, increasing our revolver availability by $25 million, and increase in our term loan to $35 million. With this amendment we reduced our principal payments in 2020 to a $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 30. 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-book capitalization was 9%.

Moving over to slide 20 for a discussion on our 2019 outlook, we are maintaining our guidance for 2019 EBITDA in the range of 165 to 190. Our year-to-date results are on par with 2018 results, and the perceived activity levels in the markets during the second half of the year 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 the 2019 North Sea well intervention market to maintain a high level of activity into Q4. We expect Q4000 to have good utilization including as supported by their [Indecipherable] 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 hedges -- exploration of the foreign currency hedges, and increased activity in the second half of the year. We expect marginal improvement in ROV utilization and trenching markets similar to 2018.

Production facilities is expected to be fairly consistent with the slightly lower results for the second half of the year. And as with last year, our annual EBITDA guidance includes approximately 20 million reduction related to [Indecipherable] costs 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 4th quarter for 2019. The 2019 forecast range includes nominal benefit from our oil and gas production, covering its operating expenses with planned facility downtime in the second half of the year. Any significant variation from these key assumptions could cause our EBITDA to fall outside of the range provided.

Moving to slide 21, we have $1 billion in backlog with 81 million currently scheduled and estimated to be completed during the remainder of 2019. Our backlog is heavily weighted to our BP Q5000 contract, the 2 Petrobras contracts, and the Helix Producer I contract. The Gulf of Mexico well intervention market Q4000 currently has work into Q4 with identified opportunities thereafter. The vessel is currently servicing the spot market and expect the vessel utilization to be driven by near-term opportunities and aided by internal work on the Droshky Assets. The Q5000 will continue its program with BP through Q3, the IRS 15K system is on a day rate contract with expected utilization through Q3. In the North Sea well intervention market we are assuming a continued base level of activity for our two vessels. We expect strong utilization through Q3 and the typical seasonal weakness during the winter months.

In Brazil, we expect a 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 4 and 14 days. The shipyard maintenance on the Siem Helix 1 has now been pushed into 2020; however, the vessel schedules are fluid and timing of the shipyard maintenance may change. The Robotics segment is expected to benefit from continued improvements to its cost structure, both charter vessel costs and hedge 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 with most of the capital related to completely in the Q7000 including a forecasted shipyard payment at delivery. Maintenance capex includes dry docks completed in the first quarter of the HP1, Seawell and Well Enhancer. Our schedule remaining debt payments 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.

Owen Kratz -- President and Chief Executive Officer

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 called downtime on the Q5000 BP contract. But the system has now been modified and it has been redeployed. Operations in Brazil continue to the executed at a very high level, and Robotics continues to improve, taking advantage of lower costs and increased activity. So far this year, we're on par with last year, but we expected to be ahead. We're not far off expectations, and we do see a second half of the year, which we hope to be strong, if not stronger than we expected, 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're currently mobilizing Q7000 for work in West Africa. Due to some delays outside of Helix control, that project is currently scheduled to begin early January. While it might be possible that we could 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 is 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 to 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 rate 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. The supply must be reduced or worked off. I do expect to see consolidations also on the rise before we see any meaningful improvement in rates. We are seeing production change hands with new A&P entrants into the offshore market. Once sufficient time passes for these new players to assess their assets and set plans, we'd expect that there'll be more aggressive in their management of the reserves, which should 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 asset. Helix is well known as the leader and 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 of our free cash flow, mindful that we would like to continue to work toward deleveraging the company. Looking forward, we should see growing, or continuing growth, in Robotics for a further cost reduction as charters renew a 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 deal should yield greater results on margin through reduce idle asset time risk.

The Q7000 delivery should see contribution by the beginning of the year and ramp up as acceptance and demand grows. All of this means further growth without excessive capital investment. We believe that we're well-positioned for the future. I really believe that over the next few years we will be approaching a period with ample opportunities for a company with a clean balance sheet and a robust business.

With that, Eric. I'll turn it back over to you to start the Q&A.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Okay Operator, at this time we are ready to take some questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question from the line of Marshall Adkins. Please go ahead.

J. Marshall Adkins -- Raymond James -- Analyst

Good morning, guys. Owen, it seems like my take here is that you have virtually every part of your business exceeded expectations in this quarter, with the exception of the Q5000. And you briefly went through 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 the Q5000 are you going to get work in Q4? What's your outlook there?

Owen Kratz -- President and Chief Executive Officer

This was a recurrence of a problem, but Scotty is the one that's closest to it. So Scotty, do you want to fill in some of the details on what happened?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Sure. Yeah, good morning, Marshall. So over the start of the year and then 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 replaced 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 are 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, they feel we've got a good handle. We can never guarantee that there have been no downtime, but we've definitely got the gremlin and it's been causing trouble so far.

J. Marshall Adkins -- Raymond James -- Analyst

Perfect. And in the 4th quarter outlook? I know the BP stuff done in 3rd quarter. How your 4th quarter shaping up?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

So right now, we've been work in the 4th quarter of the Q5000. With it being one of the newer units, obviously there is interest. And also, if that were to fall apart we have the backdrop of the Droshky field to fill out some utilization there. Q4 schedule is looking quite good at this time. We've still got some gaps to fill out, but I can see a position where Q4 is packed out and then anything else will land on Q5.

J. Marshall Adkins -- Raymond James -- Analyst

Terrific. And then let's switch over the Q7. It looks 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 it to work, and 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?

Owen Kratz -- President and Chief Executive Officer

Okay I'll take that to begin with, and chime in if you guys have anything to add. But the contract was originally supposed to begin August 1. It then got deferred into the 4th quarter. And 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 to work now is January 1 to January 15. Both parties were moving forward. We're mobilizing the vessel. We're spending money. The producer 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're hopeful that one of them might be able to go earlier. But as the time run -- ticks here, because we've slowed down the process 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, too early to say definitively whether 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 interest in the vessel, all the way through with other clients talking about projects toward the end of next year. So I think the utilization on the Q7000, once she starts to work, I think the timing in the market is about right for her.

J. Marshall Adkins -- Raymond James -- Analyst

Sounds good, I'll requeue for more. Thanks guys.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

The next question is from the line of Ian Macpherson. Please go ahead.

Ian Macpherson -- Piper Jaffray -- Analyst

Thanks. Owen I honestly, just want to pick up on a couple of the same topics you just went over. Given the the visibility, the customer interest in the Q7000 and we're at -- it seems like we are 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 your own destiny, with regard to contract, sort of day rates? Or do you have customers who were 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 that three-year horizon? Or is it just too early to even contemplate beyond it's first two wells?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Yeah, I'll jump in here on that one in. 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, that have numerous wells that they are looking at and they are spending money into vessel acceptance already. They have visited the vessel in Singapore already and sent their acceptance teams down there and we have another client spending money in August to go and have their acceptance seems go down there. So

Owen Kratz -- President and Chief Executive Officer

We're starting to see interest. I would say the rates are somewhat in line with the rates we're starting to see in the UK market. The intervention rates for Q7 is going to be somewhat in line with the the rates that we're obtaining for the Seawell and Well Enhancer. It's going to have a UK-based cost base. It will also have the integrated package of [Indecipherable] on board, so will have less MOB costs going on board and some of the teams will be multi-tasked. So the market hasn't come back fully, but we're definitely seeing rates that were in line with the UK, and they're not bad, and they're better than rig rates that are in the UK Right now.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

is that , Yeah, I'm back on the line. Sorry about 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.

Ian Macpherson -- Piper Jaffray -- Analyst

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?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

The major event that we had been was and the start of Q2, Ian. Like I said, we could have bought the system on deck and changed out a few components. We took a view on that and took out all of the control valves, replaced with new, and updated our quality procedure on time and of a change out of those items in some of the components. So it was all back in April. Since then we've been redeployed. We have had one or two days come up here recently related to small things, not major downturn events here. So we're feeling a lot more confident, but again, what I need to point out, we can never take out downtime in these environments. We work in vast water depths of 7,000, 8,000 feet with the first 15K non-rig deployed asset and it's quite a large, complicated system. But we feel that the issue that we had in Q1, and the issue in Q2, we have a good handle of now.

Ian Macpherson -- Piper Jaffray -- Analyst

Got it. Thanks, Scotty. I'll pass it over.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

The next question is from the line of George O'Leary. Please go ahead.

George O'Leary -- Tudor Pickering -- Analyst

Good morning, guys.

Owen Kratz -- President and Chief Executive Officer

Good morning.

George O'Leary -- Tudor Pickering -- Analyst

Owen, I thought your commentary around independence and some private equity backed players in the offshore markets coming back was interesting. I just wonder if you could characterize how your dialog is with those players, if some of them may have decent programs for you to work on? But it does seem like a green sheet for the industry, so just curious for some more color there.

Owen Kratz -- President and Chief Executive Officer

Yeah, I think you have several categories of those new producers. Some of them are run like the old majors. But the vast majority, I think, the play that they're 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 toward more of a partnering-ship, relationship, with some of these guys. And I do think that it will bring more demand for our services.

George O'Leary -- Tudor Pickering -- Analyst

Great. And then second question, just on the Robotics business. You guys have done a very good job of taking costs out of the system until this point. But I was just wondering if you could frame 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 utilization of the ROVs, in particular?

Owen Kratz -- President and Chief Executive Officer

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.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Yeah, I think from a cost standpoint, what's left to take out, we do have some some hedges were we're underwater that is costing us roughly between $12,000 to $15,000 a day. So those costs, we have some rolling off here in July, and I think the next one is February of next year. So those are definitive costs that you could take off. I think after that, it's really at the point of minimizing you could say idle time on our chartered-vessel fleet. We're going to be at point where from a long-term charter standpoint, down to two vessels. And so I think we're better positioned to manage that idle time cost. But the definitive amounts coming off are obviously the charters rolling off, and then the Grand Canyon 1 coming off in October of this year.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

And with regard to utilization, obviously, the charter fleet utilization looks very good through end of the year. The Grand Canyon 1 rolls off in October and it should be fully utilized up into that period. GC2 is taken up long term down in Asia, and taken on some renewables work for us out of Europe, and as the backstop contract for us as well. And then because of that we've taken on with the Ross Candies. The Ross Candies we've already secured work for. So from a vessel utilization point, we look good. From a trenching utilization point we look good. The standard sort of rental ROV that go on other people's assets, I would say it's flat to a slight improvement as we go to the end of the year, but we're not seeing it. It is quite a flooded market for ROVs out there right now. So we do have a bunch of ROVs that are on certain client's assets and we know those assets will be going to work here as the construction market is 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, so.

George O'Leary -- Tudor Pickering -- Analyst

All right, great, that's very helpful. Thanks to both of you guys. And then just one more from me, on the competitive landscape front, it seems like we've finally got floating drilling rig activity actually starting to march higher. I realize those are one of your largest competitors, is rigs. We're struggling to find drilling work -- they were competing more intensely intervention market. With drilling rig count actually migrating higher, is that competitive landscape improved at all, or are you still seeing similar level of pressure and what you saw 3, 6, 9 months ago?

Owen Kratz -- President and Chief Executive Officer

What do you think Scotty?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

I mean, certainly the rigs really affects 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. And our rigs in the Gulf of Mexico last year, I think there was about 17 floating assets out there. Now I think there is a maximum of 25, and 24 have taken up. Don't quote me on those numbers -- you know, what we read in the press. But certainly it is an increase in rig activity, and that means that the overhang is moving away and allowing work to come back to us.

Some of our major clients that are out there that have had rig overhang, have lost of those rigs or moved those rigs to other countries or other basins, and they are now inquiring about work for next year. So I think increased rig activity is certainly helping us. We're in a better place than last year. We've got more visibility toward -- per wells is 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.

George O'Leary -- Tudor Pickering -- Analyst

Thanks again for the color, guys. I'll turn it back over.

Operator

The next question is from the line of David Smith. Please go ahead.

David Smith -- Analyst

Hi, thanks, and good morning.

Owen Kratz -- President and Chief Executive Officer

Good morning.

David Smith -- Analyst

Most of my questions have been asked and answered. So I'll ask if we take the midpoint of of your '19 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 '19 EBITDA guidance, that would imply a second half that's about 20% better than the first half. 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, I wanted to ask, how much of that relative EBITDA improvement, would do you expect to come from robotics?

Owen Kratz -- President and Chief Executive Officer

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 that you're far off in saying that our expectations is -- well, like I said in the comments, our objective is to be above the midpoint of our guidance.

Erik, can you help me out there?

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Yeah, far as the second half, I think the way that you're looking at our revenue and the EBITDA contribution is how we've laid it out. I do 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 if we're able to put that behind us, we'll be in a position that we'll be able and on target to deliver higher results in the second half of the year.

Owen Kratz -- President and Chief Executive Officer

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.

David Smith -- Analyst

I appreciate that. And follow-up if I may. If we think about the Q7000 and the future kind of transiting seasonally between the North 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 West Africa for the rest of the year?

Owen Kratz -- President and Chief Executive Officer

It's a 14-day transit, I believe. Is that correct Scotty between West Africa and the North Sea?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Yeah, around that, that depending where in West Africa we are, yes.

Owen Kratz -- President and Chief Executive Officer

Yeah, 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.

David Smith -- Analyst

That's good color, I appreciate it. And last, being a little greedy here, but just on that Q7000 generically, would you expect profitability on the Q7000 to be similar in the North Sea versus West Africa, or anywhere else in the Golden Triangle?

Owen Kratz -- President and Chief Executive Officer

I would say yes. Yeah, I think it would be similar.

David Smith -- Analyst

Great, thank you very much.

Operator

The next question is from the line of Vaibhav Vaishnav. Please go ahead.

Vaibhav Vaishnav -- Cowen & Company -- Analyst

Hey, thanks for taking my questions. I guess just first on the dry docks, can we 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?

Owen Kratz -- President and Chief Executive Officer

Scotty?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Okay, so first of all the Siem Helix 1 it's 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 maintenance days. So it's not a large dry dock as such, it's more replacing some surface type components and sort of value and maintenance on SH 1. The major driver 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 of action for a longer period. The estimate right now is 55 days to 65 days.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

And then I think besides that, I think the only thing we may have is on the Q4000. And I think there also may be a small program on Seawell, but we expect that to be done during the idle period in the winter months.

Vaibhav Vaishnav -- Cowen & Company -- Analyst

Okay, that's helpful. And is this -- could you provide some color around the one-year charter for Ross Candies? So just how it came along and what's the thought process there?

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Yeah, do you want me to take that Owen?

Owen Kratz -- President and Chief Executive Officer

Yeah, you are the one closest to it.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

Okay, so the main reason behind that was the GC2 getting an anchor contract in the APAC region, and then also taking on our first renewables contract in the APAC region. So we didn't want to be in the Gulf of Mexico without the vessel. We partnered up for the Ross Candies with it being a Jones Act compliant vessel, which means that there is a bit more demand than normal ROV support vessels there. We have it under 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 that charter, and we've already secured a good portion of the work 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, we want to make sure that we have vessel availability for our Robotics division in the Gulf of Mexico, due to the GC movement up to the Asia region, which is good for our Asia region, also.

Owen Kratz -- President and Chief Executive Officer

The thing I'll 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 vessels should be Jones Act or not. There is no, there is no prescriptive requirement 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 GC2 and bring on a Jones Act vessel should increase our opportunities for a greater utilization in the Gulf of Mexico.

Vaibhav Vaishnav -- Cowen & Company -- Analyst

Okay. And that's helpful color. And if I think about just the guidance annual guidance you had talked about last quarter that it could be toward the high end, Siem Helix, as 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. I just wanted to add, think about the puts and takes around it, is it more because we had some downtime on Q5 that's got to be offsetting it? Or if you can provide some color around that?

Owen Kratz -- President and Chief Executive Officer

Erik, you can add something to this, but basically it's the 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.

Vaibhav Vaishnav -- Cowen & Company -- Analyst

All right, that's all that needed. Thank you for taking my questions.

Operator

[Operator Instructions} The next question is from the line of Bill Dezellem. Please go ahead.

William J. Dezellem -- Tieton Capital Management -- Analyst

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 it's 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?

Owen Kratz -- President and Chief Executive Officer

Sorry, go ahead. We will be yeah.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

We plan to fill out that schedule with other clients other than BP. BP will not be taking the vessel in the fourth quarter. We do have discussions ongoing to contract the vessel, and like we said earlier if that falls over and our backs, but will be to do work on our own field at the Droshky field, so.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thanks Scotty. That's actually a good 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 kind of how the, I guess it would be the accounting works for that and profit recognition that may come about as a result of being ahead of a budget or lower costs and anticipated?

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Yeah, I'll go ahead and take that. Yeah, so from an accounting perspective, we started to work in the late second quarter, so we had a number of days that we performed the work in the second quarter. Ehat was recognized essentially at break-even 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 numbers, so there will be an adjustment to our abandonment estimate for that well, that will drive the profit that we recognize.

William J. Dezellem -- Tieton Capital Management -- Analyst

So basically, at the end of the contract, it's like a percentage of completion contract at the end of, 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?

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

That's the right way to think about it, yes.

William J. Dezellem -- Tieton Capital Management -- Analyst

Great. Thank you, both.

Operator

The next question is a follow-up from Marshall Adkins. Please go ahead.

J. Marshall Adkins -- Raymond James -- Analyst

So just a follow-up real quickly on the free cash flow here, Owen, you had a phenomenal free cash flow generation this quarter of over 4%, just in a quarter. And our math says you generate maybe another $150 million next year. Walk me through your priorities on what you're going to do with that cash?

Owen Kratz -- President and Chief Executive Officer

I'm just thinking about how to phrase this because I don't want to get ahead of myself. I've got ongoing discussions with the Board now on assessing the options. We have a strategic meeting in September that will be discussing these issues. Keep in mind what I said in the of notes is that we do want to keep deleveraging the company. At what rate I think is up to for a discussion, and then like I also said, I think that our growth opportunities going forward, do 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. It's a Board decision, and we have those conversations pending here.

J. Marshall Adkins -- Raymond James -- Analyst

Okay. So first part, I mean just -- and I know this conceptual and subject to the Board, but first priority, a little bit of debt pay down, 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?

Owen Kratz -- President and Chief Executive Officer

Definitely not. We're 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, 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.

J. Marshall Adkins -- Raymond James -- Analyst

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'll be probably some more of that from time to time. This specific acquisition was Subsea Tech, I think it was, What does that bring to you, just out of curiosity?

Owen Kratz -- President and Chief Executive Officer

This is a small engineering and fabrication company here Aberdeen. By the way, that's where I'm taking this call from, which is why it 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 use them for years. This was an opportunity for us to consolidate it, and by doing so we recapture 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 anyway. So by internalizing it, it sort of applies that third party cost to the acquisition price and makes it worthwhile.

J. Marshall Adkins -- Raymond James -- Analyst

Thank you. And last one for me, Droshky Just give us an update of where you stand there. I think you're about, or you just completed one abandonment. But there's -- give some 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?

Owen Kratz -- President and Chief Executive Officer

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's 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 a recompletion. It's in the planning stages still. If we do that, it would be -- it's 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 and 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.

J. Marshall Adkins -- Raymond James -- Analyst

All right. Thank you.

Operator

The next question is a follow-up from Ian Macpherson. Please go ahead.

Ian Macpherson -- Piper Jaffray -- Analyst

Hey, thanks for the follow-up, I just want to squeeze in one more, kind of hunting and pecking around the guidance. It just occurred to me with the Ross Candies charter and just the improving legs of visibility in robotics, is that business now, as you see it a structurally positive EBIT contributor through quarters and seasons at this point? I'm asking specifically, is this, the guidance assume that robotics is EBIT positive in Q4?

Owen Kratz -- President and Chief Executive Officer

Short answer, yes, and then I'll let Scotty fill in the details.

Scotty Sparks -- Executive Vice President and Chief Operating Officer

I think one thing you need to keep mindful of here, Ian, is the Ross Candies charter commenced in June, and it's over one year, so some of that work is going to be into the next year that we've already secured. That's the minimum sort of utilization deal we have with the vessel. But we have seen a year-over-year improvement, quarter-over-quarter improvement from Robotics. We expect it to be stronger in the second half of 2019. We've secured trenching work into 2020, and further and beyond. So we are seeing an improvement. I'll have to refer to Erik if we are positive in Q4, to finish off the question.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Yeah, so, as we mentioned with 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 for the year, Canyon would be EBITDA positive.

Ian Macpherson -- Piper Jaffray -- Analyst

Okay. Good enough. Hey, thanks again. I'll pass it over.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Thanks, Ian.

Operator

There are no other questions in queue.

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Okay, so thanks for joining us today. We very much appreciate your interest and participation and look forward to having you 3rd quarter 2019 call in October. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Erik Staffeldt -- Executive Vice President and Chief Financial Officer

Ken Neikirk -- General Counsel

Owen Kratz -- President and Chief Executive Officer

Scotty Sparks -- Executive Vice President and Chief Operating Officer

J. Marshall Adkins -- Raymond James -- Analyst

Ian Macpherson -- Piper Jaffray -- Analyst

George O'Leary -- Tudor Pickering -- Analyst

David Smith -- Analyst

Vaibhav Vaishnav -- Cowen & Company -- Analyst

William J. Dezellem -- Tieton Capital Management -- Analyst

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