May 6, 2009
Executives
Cameron Wallace – Director of Marketing and IR Alisa Johnson – EVP, General Counsel and Corporate Secretary Tony Tripodo – EVP and CFO Owen Kratz – President and CEO Bart Heijermans – EVP and COO Robert Murphy – EVP, Oil & Gas
Analysts
Roger Read – Natixis Bleichroeder Marshall Adkins – Raymond James Joe Gibney – Capital One Southcoast Siyal Jawaney [ph] Mark Thomas – Simmons and Company International
Operator
Cameron Wallace
Good morning, everyone. And thanks for joining us today.
Joining me today is Owen Kratz, our CEO; Tony Tripodo, our CFO; Bart Heijermans, our Chief Operating Officer; Robert Murphy, Executive Vice President of Helix Oil and Gas; Alisa Johnson, our General Counsel; and, Lloyd Hajdik, our Senior Vice President of Finance. Hopefully, you got an opportunity to review our press release and the related slide presentation released last night.
If you do not have a copy of these materials, both can be accessed through the Investor Relations tab on our Web site at helixesg.com. The press release can be accessed under Recent News, and the slide presentation can be accessed by clicking on today’s webcast icon.
Before we begin our prepared remarks, Alisa Johnson will make a statement regarding forward-looking information. Alisa?
Alisa Johnson
Thanks, Cameron. This conference call and the associated presentation contain certain forward-looking statements.
All statements, other than statements of historical facts, 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 forward-looking statements due a number and variety of factors.
For a complete discussion of risk factors that could cause our results to differ, we direct your attention to our annual report and Form 10-K for the year ended December 31st, 2008, which is on file with the Securities and Exchange Commission and available on our Web site. Also during this call certain non-GAAP financial disclosure may be made.
In accordance with SEC rule, the final slides of our presentation material provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The presentation, together with the reconciliation, is available on our Web site.
Tony Tripodo will now make some opening remarks.
Tony Tripodo
Good morning, everyone. Let me move forward to slide four, which summarizes this quarter’s financial results.
Quarter one represented a sharp operating improvement from quarter four, even after we stripped out the net non-recurring items recorded during this quarter and the effect of our discontinued operations related to our sale of Helix RDS. The three non-recurring items mentioned in our press release, and we’ll talk about them a little later, contributed a net of $0.28 a share to the positive, while our discontinued operations was a loss of $0.02 cents a share.
So if you strip out these items, our normalized earnings per share amounted to $0.24 a share for quarter one. Over to slide five, again there were three non-recurring items that impact quarter one’s results.
First of all, the redemption of $30 million of the $55 million of the convertible preferred stock issue into common stock that occurred in January as well as the resetting of the conversion price on the remaining $25 million of preferred stock issue from 15 to 277 a share, resulted in the recording of a non-cash dividend charge totaling $53.4 million. This served to reduce net income available to common shareholders.
The additional common shares involved with this event are now included in our diluted share account. Secondly, and based on a favorable Fifth Circuit Court decision earlier this year, we reversed $74 million of accrued royalties booked in prior year is associated with the Deep Water Royalty Relief Act of 2005.
And lastly, we changed the accounting treatment related to our 2009 natural gas hedges to the mark-to-market method from hedge accounting treatment. This resulted in recording a mark-to-market gain of $55 million for unrealized gains on hedges that will be cast settled in Cap quarters two to four.
We continue to record our oil hedges on a hedge accounting basis, which means the account event for these hedges will occur when these hedges actually settle over the remaining course of 2009. I will now turn the next couple of slides over to Owen.
Owen Kratz
Starting with slide six, we continue to be focused on debt reduction. We’re able to – we were able to reduce debt on the consolidated basis by $50 million in the first quarter and $100 million for Helix on a stand-alone basis.
We continue to forecast CapEx in the $300 million range excluding Cal Dive for 2009. Bart will update you later on the status of the major capital projects.
But of the $300 million forecast for the year, $60 million was incurred in the first quarter. This may be a little different from what we have said earlier and that how front loaded our CapEx is.
The variance is due to the fact that we’ve been managing successfully the pace of our capital projects completions to better match our cash flow. We were able to increase production in the first quarter to nearly 12 billion cubic feet equivalent, which was up from 6.4 Bcfe in the fourth quarter.
We were able to exit the quarter on a daily run rate approximating pre-Ike levels. But we had anticipated having production in higher rates than the 140 million cubic feet a day at March 31st.
However, lingering third-party pipeline issue continue to hold back production rates and Robert will get into this issue a little later. Given the lingering pipeline problems, we now forecast production for the year in the 45 Bcf to 55 Bcf range.
Switching over to slide seven, this slide details the approximate $100 million of net debt reduction previously mentioned. We expect to reduce that further by the end of the year.
We paid down $100 million on our revolver credit facility during Q1 and this leaves us with $159 million of unused capacity in this facility. Any significant non-core asset sales would certainly accelerate our ability to reduce debt levels to levels that we are little more comfortable with.
However, we intend to manage our business so that we can continue to reduce net debt organically. On to slide eight, high liquidity in 2009 is substantially enhanced by our hedging strategy.
For the balance of 2009, 80% of our remaining oil and gas production is hedged. We continue our efforts to monetize our non-core assets, which include our oil and gas properties, our ownership interest in Cal Dive, and our production facilities.
We have efforts ongoing associated with all of these assets. While we’re focused on major divestiture of these assets, we’ll continue to be opportunistic and take advantage of smaller sales when the opportunity presents.
To that end, in January Cal Dive repurchased 13.6 million shares of stock that we owned, generating $86 million of cash to Helix. We sold our interest in East Cameron 316, the Gulf of Mexico shelf property for $18 million.
At year-end, reserves associated with that property amounted to about 7.8 Bcf. After the quarter and as we announced last week, we sold Helix RDS, our Aberdeen-based reservoir consulting business to Bakers Hughes for $25 million.
With that, I’ll turn it back to Tony as you turn to slide nine.
Tony Tripodo
Yes. On slide nine, as we have in the past and given the focus on liquidity and balance sheet issues, we have included a couple of slides here on debt covenants and debt service.
And slide nine outlines our key credit facility covenants. At March 31, ‘09, we remain in compliance with these key covenants.
And there are more covenants than the ones mentioned here, but these are the three key ones that we remain focused on. Our collateral coverage ratio, which requires us to maintain collateral at a level of 1.75 to 1 of debt.
For example, at March 31, ‘09 we expect that to be about double that. So we’re well – have a lot of cushion with respect to our collateral coverage ratio.
Fixed charge coverage ratio, which requires us to maintain a ratio of 2.75 to 1. We expect to report a quarter to the banks where we’re excess of six.
Again, double of what was required for that ratio. And our toughest ratio continues to be our consolidated leverage ratio, which requires us to maintain a debt EBITDA on a trailing 12 months basis of less than 3.5 to 1.
And at March 31, we expect to be in the mid twos there. So furthermore, when we forecast out for the rest of the year, we expect to maintain compliance with these covenants throughout 2009.
Moving on to slide ten. Slide ten outlines our debt maturities and shows that we have no major debt maturities occurring into the middle of 2011, when our revolving credit facility comes due.
So we don’t have any major debt service payments coming up in the next two years. I will turn the next few slides over to Bart.
Bart Heijermans
Thanks, Tony. My comments will call for contracting services only, which are the Helix owned – wholly owned contracting services businesses.
Shelf contracting is Cal Dive business and this will be called by Cal Dive and their call is scheduled for eleven o’clock central time this morning. Slide 12 shows the highlights of our Helix Subsea construction business.
Six of our Subsea construction vessels worked in the quarter on two major Subsea projects, namely ENI Longhorn in the Gulf of Mexico and Reliance KGD6 Project offshore India. Good progress was made on both projects and production commenced from the Reliance KGD6 field – gas field offshore India on April 1st.
This project is one of the largest deep water gas developments ever with many technical, logistical, and environmental challenges. The Helix vessels and fabrication yards have performed well and having instrumental in delivering first gas for our customer within less than two and a half years of sign of the contracts.
Three of our construction vessels are still working in the Bay of Bengal and are working on completing the balance of our contracting work, which we expect to be finished by mid-year. Moving on to slide 14, our Well Ops business shows a dramatic improvement compared with the first quarter 2008 because of high contribution of the Q4000 and the Seawell.
But it could have been as good as the last quarter of 2008, had it not been for the one month plant outage of the Q4000 and the seasonal slow start of the Seawell in North Sea. The work on Q4000 was required to complete the marine upgrades that was started in late 2007.Took Rolls Royce a long time to rebuild one of the clusters that we reinstalled successfully in March.
Slide 15 shows gross profit margin of 20% for contracting services, which includes corporate and operational support overheads. Margins are comparable with the first quarter 2008 and higher than the fourth quarter of 2008.
Slide 17 shows utilization of our assets and our production facilities. Utilization of our Subsea construction vessels decreased year-over-year primary caused by our Seacor Canyon chartered vessel spending the whole quarter at the key site in Singapore.
That vessel is working out on a 50-day job in Thailand. And also the Island Pioneer chartered vessel spent the majority of month of March in a dry dock paid for the by the ship owner, Islands Offshore in Europe before leaving for India for a deep water trenching project that the vessel has completed.
And the vessel at this moment is on her way back to Norway for the next project. On the production facilities independent of platform process, 81.4 Bcfe of gas, which is an average of more than 900 million cubic feet a day.
For those of you who follow Anadarko, you have seen the large number of prospects Anadarko owns in the Independence Hub corridor, which they plan to drill and hopefully tie back to the hub if successful. Production from the field supply in the Marco Polo TOP was shut in for almost the whole quarter because of damage to a gas transmission pipeline on the outer continental shelf, which was caused by hurricane Ike.
We expect this pipeline will be repaired in the next couple of months and then the Marco Polo TOP should be processing production from the area fields again. Anadarko’s in the process of tying deck and other K2 production wells to the Marco Polo TOP.
And it’s drilling and exploration well in the area, if successful will likely be tied back to the Marco Polo TOP. Let me continue with the status of our new contracting service assets.
We have some pictures of these assets on slide 18. The Well Enhancer has been delivered by the Merwede Shipyard in Netherlands, and we have successfully installed the well intervention tower supplied by (inaudible).
The vessel’s currently in Rotterdam and we’re putting the finishing touches on the dive system, the deck skidding system, the core tubing launch frame, and the subsea suspension lubricator. We expect that the vessel will join our fleet by mid-year and we are seeing a lot of interest in this vessel for 2009 and 2010.
The second vessel that I want to talk about here is the Helix Producer I. The Helix Producer I received the class certificate from Lloyd’s in early April and left the shipyard in Greece in the second week of April.
She is in the Gulf of Mexico. She arrived a couple of days ago, and we are waiting to get access to Kiewet’s yards in Ingleside.
We expect the vessel to arrive there by end of this week and at this moment, we’re working on the final inter-phase engineering packages. The production modules constructed by Kiewet in Ingleside are complete, and are scheduled to be installed in the third quarter of this year.
The Caesar conversion is close to full completion. Our main focus is on the commissioning of the vessel systems and the pipeline systems.
We’re currently forecasting the arrival of the Caesar at our new deep water port in Ingleside by year end. This concludes my prepared comments and I’m looking forward to answering your questions in the Q&A session.
I’m now turning over oil and gas to Robert, one of our esteemed customers.
Robert Murphy
Thanks, Bart. I appreciate the compliment.
Good morning, all. Please turn to slide 20.
Significant improvement in our production volumes, in addition with the reversal to previously disputed royalty payments drove increased revenues and profits for ERT in the first quarter. Our production restoration efforts in the Gulf resulted with volumes nearly double that in Q4.
Additionally, our current producing rate is approximately 140 million cubic feet of gas equivalent per day. However as Owen mentioned, we are still experiencing continued problems with third party-owned export pipeline that transports our Bushwood deep water development.
After repairs were made to this pipeline during the first quarter, hydro testing of those repairs indicated the line had still failed to hold pressure due to additional areas of damage upstream of the completed repairs. Efforts are under way to repair this damage but have pushed back the reopening of this line until Q3.
Adjusting for the ramifications of the continued pipeline delay, we’ve reduced our production guidance for the year by 5 Bcfe, and have marked our remaining 2009 GAAP hedge position with a $55 million gain. I’ll discuss our hedge position in more detail in a moment.
Moving on to slide 20, our improved production volumes in Q1 significantly reduced our operating cost on a unit basis when compared to Q4. Operating costs net of hurricane expense declined to $2.06 per unit compared to $2.15 for the same period last year.
We expect continued reduction of our operating cost as we streamline our shelf operated production loops in the Gulf of Mexico. Further expense related to hurricane damage will continue over the next three quarters as we are moving into the major well and platform removal stage of our recovery program.
We do feel that we are adequately insured to cover all of the remaining Ike-related damage to our property. Slide 22 summarizes our remaining 2009 commodity hedge position.
Our average realized price expectations for 2009, with hedges currently in place, is over $66.50 for oil and over $7.25 for gas. On an average daily basis, approximately 80% of our estimated 2009 production is hedged.
And furthermore, in anticipation that we will continue to hold some portion of our own gas production in 2010, we have hedged approximately 11Bcfe at $5.80. We continue to evaluate our hedging strategy for 2010, and may pursue additional hedges throughout the year.
And hand it back to Tony.
Tony Tripodo
All right. Slides 23 and 24 and 25 are for reference purposes only.
They reconcile our income statement on GAAP basis to EBITDA. I won’t go through those so hopefully they help you.
And if you have any questions, give Cameron or I a call. So with that I’d like to turn it back over to Owen for closing comments.
Owen Kratz
Operator
Thank you. (Operator instructions) Our first question comes from Roger Read.
Your line is open, sir.
Roger Read – Natixis Bleichroeder
Good morning, gentlemen.
Owen Kratz
Good morning.
Roger Read – Natixis Bleichroeder
Thanks for the rundown. It’s pretty good.
I was just curios. With the third party pipeline issues on the oil and gas production and what appears to be another reduction in CapEx for ’09, how much of that five is absolutely third party pipeline issues and how much of that 5 Bcf is – okay, you’re going to spend less, you’re re-fencing the E&P assets out?
Tony Tripodo
Roger, this is Tony. All of it is related to the pipeline issues.
In terms of the lower guidance on production for the year?
Roger Read – Natixis Bleichroeder
Yes.
Tony Tripodo
Yes, it’s all related to the pipeline issues. So it’s really dependent upon when the issues get resolved.
There is potential for us to beat the estimate, but I think right now it’s a safer bet to be within the range of 45 to 55. Certainly if you look at first quarter production at nearly 12 and multiply it out, we’re safely in the range.
So if that production comes on in the summer, we have the potential to beat it. But we’re also expecting that there will be hurricane disruptions in the Gulf of Mexico and that’s factored into our forecast for production.
So if we have a light year for hurricanes, we are set up to beat the range of 45 to 55.
Roger Read – Natixis Bleichroeder
Okay. And a little more on that particular part of the business.
Can you tell us what the Noonan field is doing now in terms of production? And we saw obviously the step up in the first quarter.
Is it still the most affected – one of the most affected by the pipeline or is it basically getting on its run rate at this point?
Robert Murphy
Yes, it’s on at a restricted rate. And that is principally around 30 some odd million a day growth.
And the pipeline that is – continually has more problems with it. That will allow us to ramp it up to that 100 plus million a day rate on a gross basis.
So we’re disappointed. We continue to work with the third party company any way we can with our assets, our ability.
And we hope to see that thing pressure up and start flowing in August.
Roger Read – Natixis Bleichroeder
Okay.
Owen Kratz
Roger Read – Natixis Bleichroeder
Okay. Thanks.
And then as you look at the well intervention business in the North Sea, do you expect there’s enough work to keep the Well Enhancer there? Do we see that vessel going somewhere else in the second half of ’09?
Bart Heijermans
Roger Read – Natixis Bleichroeder
Okay. And my final question to you Tony.
If you look at the second quarter from a cash flow from operations standpoint, is it reasonable at this point to presume that you’re – no disruptions on the production side, all the vessels worked, our model says that you should be free cash flow positive in the second quarter. Is that a reasonable assumption or is that still too optimistic given the challenges out there?
Tony Tripodo
Cooperationally we expect to generate a little bit of free cash flow from operations, and I’m not including the proceeds from the sale of Helix RDS in that comment. So yes, we expect to build on our liquidity position in the second quarter.
Roger Read – Natixis Bleichroeder
Okay. Thank you.
Operator
Our next question comes from Marshall Adkins. Your line is open, sir.
Marshall Adkins – Raymond James
Morning. Let’s shift gears to the contracting side.
Nice balance in margins this quarter. Can you help me get my arms around margins going forward?
I know there are a lot of things going into that, how well your projects go, et cetera, but give us some insight on the expected margins and then also utilization, like some of the key assets like the Intrepid and the Q4000.
Bart Heijermans
Marshall Adkins – Raymond James
All right. Along the same lines, can you give me some insight on how bidding activities are shaping up in those markets for those kinds of assets?
Maybe some comment on backlog as well?
Bart Heijermans
We are seeing bidding activities for the Express and the Intrepid. It’s a little bit lighter than a year ago.
But that should be no surprise. But we still see healthy amount of interest in both assets.
Not that my focus is really on 2010, where several of our customers are – have teed up a whole bunch of projects that can be executed pretty quickly. But they are still holding on to their cash and looking forward if the fundamentals of the market will improve, which we expect is going to happen.
And so I think, once the fundamentals have approved and improved, and our customers are – have sanctioned these projects, I would expect that the 2010 will be a pretty busy year for the Intrepid and the Express.
Marshall Adkins – Raymond James
Okay. And Tony I vaguely remember, didn’t you all give some backlog numbers last year or last quarter?
Tony Tripodo
Yes, we gave backlog numbers. Our backlog right now is roughly the same as it was at year end.
I will add to Bart’s comments on utilization. I think and as we expressed last call, we expect the back half of the year to be softer.
Based on what we know now, Bart mentioned lighter bidding activity. We do have some holes in our vessel schedule so we do now believe that the back half of the year will be softer than in the first half.
It could be filled. Some of the holes could be filled.
But right now I think everybody should think that the back half will be softer.
Marshall Adkins – Raymond James
Okay.
Bart Heijermans
Marshall Adkins – Raymond James
Very helpful for our modeling. Last question from me.
Can you just update us on dry dock schedules? Anything that we need to plug in the model on that front?
Bart Heijermans
Marshall Adkins – Raymond James
Anything in 2010 that we can plug in?
Bart Heijermans
Marshall Adkins – Raymond James
Okay. That’s very helpful, guys.
Thank you.
Operator
Our next question comes from Joe Gibney. Your line is open, sir.
Joe Gibney – Capital One Southcoast
Thank you. Good morning, everybody.
Robert, question for you. Just curious on the production guidance in the outlook there.
How should we think about oil and gas mix now in this 45% to 55% range for production this year?
Robert Murphy
Well, right now at the 140 million approximate rate that we have, it’s about 9,500 barrels and about 82 million cubic feet of gas.
Joe Gibney – Capital One Southcoast
Robert Murphy
Well, we still have considerable work to do on the HP1, but obviously the vessel’s here and that’s progress forward. So we look at that for 2010.
And then we’re looking at – the Noonan gas export line has been a real thorn to us, because we brought that field on in record time, 18 months from initial discovery and the large export line that we’re going into – the large 30-inch line that continually has holes showing up in it. So I don’t want to have egg on my face again, saying we’re going to see that within the next 90 days because we don’t have any control over it.
As I mentioned earlier, we’re doing everything we can with the third party owner to get it on. But still it’s their property.
So we see that coming on in Q3 and then we have our Danny development that we’re looking at commencement of production, hopefully sometime in 2010 – early 2010.
Joe Gibney – Capital One Southcoast
Early. Okay.
And Owen, just surfing back to you, your comments on the Caesar there. Any further definition on where you might be targeting?
I know you mentioned potentially looking at Trinidad or China, anything new on that front?
Owen Kratz
Joe Gibney – Capital One Southcoast
Great. And–
Bart Heijermans
Joe Gibney – Capital One Southcoast
And one last modeling-housekeeping question. Tony if you could just expectations on run rate out of tax and share count for us to hear.
Tony Tripodo
I think the share count will be pretty steady from this point on. We took our hit on the preferred stock dilution in the first quarter.
That’s behind us now. It can’t get any worse than it is now, so to speak.
So share count should be pretty steady at 106 million shares. In terms of tax rate, I think tax rate will look a lot like Q1 the rest of the year.
Joe Gibney – Capital One Southcoast
Okay. Helpful.
I appreciate it, guys. I’ll turn it back.
Operator
Our next question comes from Siyal Jawaney [ph]. Your line is open, sir.
Siyal Jawaney
Yes. Hi.
I just wanted to get some color on the assets that are for sale. Obviously the issue is not just to sell them.
It seems like the sale actually has to be accretive on an EBITDA basis, obviously to reduce debt covenants and debt – EBITDA coverage. Can you rank for us in order, your expectations for sales that would be accretive along those lines?
Tony Tripodo
Yes. I think if you look at it from an accretion standpoint, I think right now the best asset to sell from an accretion standpoint will probably be the production facilities.
So that would rank number one. Number two, from an accretion standpoint, I think the shelf will be second.
Of course, it’s price dependent, but right now the shelf from the EBITDA standpoint is weak, from an EBITDA contribution. And third will be Cal Dive.
But Cal Dive would be accretive at certain price levels. So at above certain price points, the disposition of Cal Dive would be accretive and certainly it’s accretive at above $9 a share where it is now.
And it’s accretive even at levels below that.
Owen Kratz
The only thing I would add Tony, is that it sort of explains the only reason we’re interested in parting with that portion for all of the Caesar at all is because that doesn’t contribute any EBITDA. So that’s totally accretive.
Tony Tripodo
Right. And I think to that end, certainly the Caesar’s contributing zero today.
So any dollar of proceeds would be very accretive on the Caesar.
Siyal Jawaney
That would be my – hard to argue against, isn’t it?
Tony Tripodo
Yes. And certainly, any sales of pot assets on any – along gas sales should be very accretive because we’re not producing any EBITDA contribution.
But you’ve got to measure the disposition of all those assets against what you really believe the value should be for it. And that’s the other part of the equation that enters into this is, “Are you getting decent value even in a depressed environment?”
And versus what you think you might get that value a year or two years from now.
Owen Kratz
I’d like to just add also, what we’re looking at up until this point we were really focused on the near term. We’re becoming more and more comfortable with the value we’ve lost.
It’s obviously tied to accretion of EBITDA, but it’s also you have to look a little bit further. You have to get sufficient value to retire enough debts so that you’re not just pushing your problem off to the future.
We’re spending a lot of time doing long term modeling in that regard.
Siyal Jawaney
Okay. And then an extension of my question, what’s the total amount of capital recently spent on Caesar?
I guess in the last two or three years, a lot is being worked upon?
Owen Kratz
Just off the top of my head, I don’t have that information here. But it’s rough – just under $200 million.
And we have probably $40 million of payments remaining. $30 million of that though, is a milestone payment for work already completed that’s due upon delivery.
So it shows you how close the vessel is to being completed. She’s essentially ready to go.
We’re in the commissioning phase now of starting up all of the equipment.
Tony Tripodo
The incurred costing of March for about $165 million.
Siyal Jawaney
Okay. And lastly, again with the asset values for construction vessels, any comment on what you’re seeing?
Because if you look at what’s happening between the Norwegians, Arctic Covernor [ph], and Subsea, and a few others, there is a pretty healthy backlog of new vessel deliveries. Have there been any transactions recently on – with these kind of vessels that you can point to that would indicate the current status at the market?
Owen Kratz
We’re following it loosely, the shipyard deliveries and things. There is a large number of vessels coming out.
We’ve also seen some – a fairly high number becoming distressed in the shipyard with financing falling apart. But I need to point out that most of these are the more speculative build, multi-purpose DP-2 kind of vessels.
It’s what Bart was referring to. We’re seeing a softening in that market, which is actually a good thing for us.
We charter that type of vessel. We choose not to own them.
We charter them on a rolling basis so we’re able to let higher charter rates roll off a contract and replace them with a actually lower costs for us in our robotics group. The rest of our vessels, we’ve really tried to develop a deep water mark business model that focuses on specialty niches.
And if you look at things like the Caesar coming out, there just aren’t that many of those vessels in the world and there’s not that many coming out of the shipyards. It’s really the more multi-purpose in nature.
And of course, the well intervention vessels are very specialized in nature. So one of the reasons we’ve picked the niches we have and target the types of assets we do is so that we do avoid the supply driven softening in the down cycles.
Siyal Jawaney
Appreciate all your answers. Thank you.
Operator
(Operator instructions) Mark Thomas, your line is open, sir.
Mark Thomas – Simmons & Company International
Good morning, guys.
Owen Kratz
Good morning.
Mark Thomas – Simmons & Company International
Just a couple of quick questions here. Circling back around on the targeted asset disposition, can you give us an update on how those are progressing and your confidence level on how soon any deals might get done?
Owen Kratz
I think what I spoke to from my notes is about all that anyone is going to let me say.
Mark Thomas – Simmons & Company International
Okay. And then, just a clarification with regard to the Noonan production.
I think you mentioned it was 30 million cubic feet per day currently, and about 100 million cubic feet.
Robert Murphy
Yes. Those are gross numbers.
Mark Thomas – Simmons & Company International
Gross numbers. And net would be just your working interest?
Robert Murphy
Net to us is about 20 million a day on to 30 million.
Mark Thomas – Simmons & Company International
Okay. And then finally, just a housekeeping question.
You did a good job on cost control in SG&A. How should we think about that going forward?
Will it continue to trend down?
Owen Kratz
Yes. It’s a big focus here.
We’re going to continue to improve operating. I’ll let Bart throw in his two cents here.
Bart Heijermans
Yes. I mean SG&A in cost will continue to come down.
And then the cold question is, “What revenue is going to do from an SG&A percentage of revenue?” But we have some healthy cost savings initiatives.
Of course, our customers are telling us to lower our costs to them. And we are working hard with our vendors and our sub-contractors to tell them to lower their costs.
And we are successful. So our overall cost of our business, operating cost, SG&A, Ops Support is going to continue to come down.
Mark Thomas – Simmons & Company International
Okay. Thank you very much.
Operator
Currently we have no additional questions at this time.
Tony Tripodo
All right. Let’s just give it another 20 seconds here to see if there are any questions.
All right. Well, first of all in closing, thanks for joining us today.
We very much appreciate your interest and participation. And we look forward to speaking to everyone on the next call.
Good day.
Operator
This concludes today’s conference. You may disconnect at this time.