Oct 25, 2011
Executives
Stephen Powers – Director, Finance and Investor Relations Owen Kratz – Chief Executive Officer Tony Tripodo – Chief Financial Officer Alisa Johnson – General Counsel Cliff Chamblee – Executive Vice President, Contracting Services Johnny Edwards, Executive Vice President, Oil and Gas Lloyd Hajdik – Senior Vice President, Finance
Analysts
Jim Rollyson – Raymond James Joe Gibney – Capital One Michael Marino – Stephens Incorporated Roger Read – Morgan Keegan Mario Barraza – Tuohy Brothers Martin Malloy – Johnson Rice
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the review of Third Quarter 2011 Results and 2011 Outlook with Investors Conference Call.
During the presentation, all participants will be in a listen-only mode. Afterwards, we’ll conduct the question-and-answer session.
(Operator Instructions) As a remainder this conference is being recorded today, Tuesday, October 25, 2011. It is now my pleasure to turn the conference over to Stephen Powers, Director of Finance and Investor Relations of Helix Energy Solutions Group.
Please go ahead.
Stephen Powers – Director, Finance and Investor Relations
Thanks (Sharon). Good morning everyone and thanks for joining us.
With me today is Owen Kratz our CEO; Tony Tripodo, our Chief Financial Officer; Cliff Chamblee Executive Vice President, Contracting Services; Johnny Edwards, Executive Vice President of Oil and Gas; Alisa Johnson, our General Counsel; Lloyd Hajdik, our Senior VP of Finance. Hopefully, you’ve had an opportunity to review our press release and the related slide presentation material released last night.
If you do not have a copy of these materials, both could be accessed through the Investor Relations page on our website at www.helixesg.com. The press release can be accessed under the press release’s tab and the slide presentation can be accessed by clicking on today’s webcast icon.
Before we begin our prepared remarks, Alisa Johnson will make a statement regarding forward-looking information. Alisa?
Alisa Johnson – General Counsel
Thank you. Joining this conference, 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 Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual futures results may differ materially from our projections and forward-looking statement due to a number of variety of factors.
Including those set forth in slide two and in our annual report on Form 10-K for the year ended December 31st, 2010. Also during this call, certain non-GAAP financial disclosures may be made.
In accordance with SEC rules, the final slides of our presentation material provide a reconciliation of certain non-GAAP measures to comparable GAAP financial measures. The reconciliation along with this presentation, the earnings press release, our annual report and replay of this broadcast are available on our website.
Owen we are now make some.
Owen Kratz – Chief Executive Officer
All right will start the presentation with slide five, you will see high level summary of third quarter results. Quarter three continued our progression is successive quarterly revenue earnings an EBITDA increases in 2011, with earnings of $0.43 up from $0.39 from Q2 and EBITDA rising slightly to $178 million not from $176 million in the prior quarter.
Quarter three is revenues increased 10% over Q2, not were the about Q3 result of the underlying strong improvement in our contracting services business, which more than offset the various production disruption experience some oil and gas business. A matter will discuss bit more later as well as the high effective tax rate.
Our going slide six, Q3 was characterize by high utilization of our contracting services as I said led by strong performance in both well intervention and robotic. We’ve an achieved high utilization within real pipelay assets albeit at low margins.
Our visibility in the contracting services business is going stronger and that’s were able to increase our full year EBITDA outlook for 2011. Our oil and gas production second quarter averaged $127 million cubic feet equivalent per day with oil representing 69% of that production.
Again much of our oil production is sold Louisiana light sweet market rates, which is that a significant premium to the WTI prices you often see quoted. Pipeline disruptions particularly in the pipeline servicing our phoenix field along with the production slowdown due to tropical storm lee as down our production rates in Q3.
Tony?
Tony Tripodo – Chief Financial Officer
Yes, thank you. Over the slide seven, in addition to the sequential uptake in earnings the companies balance sheet continues to strengthen.
In Q3, we took advantage of our high liquidity levels and went into the open market to repurchase $75 million of our high-yield notes. Year-to-date we have paid down approximately $190 million of debt, well at the same time maintaining robust liquidity levels which now stands at $933 million at September 30.
The higher effective tax rate mentioned by Owen earlier is 33% and is primarily due to higher proportion of US earnings. I will now turn the call over to Cliff discussion of our contracting services results.
Cliff Chamblee – Executive Vice President, Contracting Services
Okay, thanks. As I mentioned after innovation in contracting services business continue to improve Q400 achieved 9% utilization, and Express and Intrepid posted approximately 95% utilization, 95% utilization each innovation of ROVs and Trenchers increase from 54% the second quarter to 67% in the third quarter.
Is that activity levels translated into 30% increase an contracting services revenue with slight improvement gross profit margins to 27%. From the slide seven, this slide shows equity in earnings contribution of the independent Hub, Marco Polo and Clough Helix JV.
Results are fairly consistent with the second quarter and I’ll leave the slide for reference. On the slide seven, well I mentioned business achieve near four utilization in third quarter, Q4000 performed multiple projects were Shell and Anadarko in Gulf of Mexico.
Our side from the few days R&M down time for the Seawell to North Sea versus utilized everyday in the third quarter. Normand Clough was 100% utilizing construction projects offshore China.
Demand for our assets and services in the Wellhead remain strong in backlog in the Gulf of Mexico and North Sea its building well in 2012. Moving to slide 12, Canyon utilization and financial performance during improved in the largest business in the third quarter, we kept all of our chartered vessels follow US added two new all these fleet (indiscernible) new ROVDrill units an increase the ROV, Trencher utilization up to 67%.
The offshore removal hedge based used to be area focus and we have market and we are making incremental investments secured by firm contracts to expand the capacity. In the third quarter we utilize the trenching squares or the Deep Cygnus to perform rate cable installation and burial operations I think Greater Gabbard and Wind Farm, the UK Sector of the North Sea.
One of our other charter vessels, the Island Pioneer performs power cable trenching and burial operations in UK sector of the North Sea. In Q4, the Island Pioneer is scheduled to join the Deep Cygnus on the Greater Gabbard wind farm to continue our cable installation and burial project through February of next year.
On the slide 13 which is pipe lay, we mentioned improving activity levels for our pipe lay assets and our call with you last quarter, business got off to a rough star during the first half of year, but utilization of the Express and Intrepid beginning to improve toward the end of the second quarter. This trend continues in the Q3 as the two assets each achieved approximately 95% utilization.
Backlog to this Express continues to build in Gulf of Mexico and the Intrepid set sail for California about a week ago, which you remain through the end of the year and in the January. The Caesar had been in shipyard all year are undergoing planned maintenance and upgrades, which were completed at the quarter end after sea trails and Caesar sale in the middle of October and is now performing accommodations work in the Bay of Campeche.
On the next slide 14, this slide illustrates the design of our deepwater containment system, the Helix Fast Response System available to members that are consorting with 24 independent operators in the Gulf of Mexico. The system has been cited as still response containment plan in 38 approved deepwater permits to-date.
Moving on to the slide 15, the slide shows the utilization we achieved in our contracting services in access in the second quarter, which I’ll leave for your reference and now on our oil and gas business I’ll turn over to John.
Johnny Edwards – Executive Vice President, Oil and Gas
.
The increase in Q3 2011 over Q3 2010 is the cost associated with the Phoenix field. The Phoenix field has been in production now for one year with first oil produced on October 19, 2010.
Also during Q3, we continue to receive a premium for our wholesales about WTI excluding hedges ERT received over $13 of barrel for WTI for all of our GOM crude. Looking back at the third quarter, ERT brought on Little Burn well in the Phoenix field and we continued with the successful look over program in the South Marsh 130 field.
These wells headed over 4000 barrels a day equivalent to ERT’s 3Q production capacity. Looking forward, we have some exciting opportunities, the Green Canyon 490 well are wider, which was drilled in 4Q of 2009 is currently being tag back to a compliant tower in Green Canyon 260.
First production is expected in Q1, 2012. In the Bushwood field, we expected to add production from two wells in 2012.
We currently have a rig in the Bushwood field completing the Nancy well which was drilled in 4Q of 2008. We have received the drilling permit for the Kathleen well, which was renamed Danny II.
This well is an exploration well targeting oil productions just below the Danny oil well. The timing of the Danny II well will be depended upon securing a rig.
We also have drilling opportunities in the Phoenix field. We have submitted type of work towards receiving the drilling permit for our Wang exploration oil well and also a PUD oil, which we can drill our Phonies field.
And the timing of these wells will also be dependent on receiving drilling permits and securing a rig. Over to you, Lloyd?
Lloyd Hajdik – Senior Vice President, Finance
Thanks, Johnny. Slide 18 illustrates our commodity hedge position for the balance of 2011 as well as hedges put in place so far for 2012.
Quarter three we also layer in some additional crude oil hedges for 2013. The $6.6 billion cubic feet equivalent hedge for the remainder of 2011 covers about 60% of our forecasted combined production.
The remaining quarter four hedges are weighted about two-thirds to oil production, which is in line with our current production profile. In the third quarter, we layered in additional oil and gas hedge contracts for 2012 and some additional – some initial oil hedge contracts for 2013.
Our Q3 swap and costless collar hedge contract for crude were based on current brand crude pricing. And as we’ve mentioned before we’re utilizing the benchmark to better correlate our financial hedges, against the actual pricing we are receiving for our Gulf of Mexico crude sales.
We continue to opportunistically hedge our forecast of 2012 and now 2013 production, depending on the current commodities markets. Over to slide 20, slide 20 profiles our current debt and liquidity position at September 30.
As Tony mentioned earlier we paid down in total of about $190 million in gross debt since the beginning of the year. In the third quarter along we repurchased $75 million of our 9.5% high yield bonds, at a discount at January 2012 first call price 104.75.
We ended the third quarter with $375 million of cash on hand down from the $414 million at June 30. The decrease is largely attributable to the high yield debt purchases in the third quarter.
That significance our growth and net debt balances have decreased $855 million and $1.0 billion respectively since year-end 2008. Our liquidity position stands at $933 million as of September 30 and based on our outlook for the fourth quarter we expect further decreases in our net debt position from the September 30 levels.
Tony?
Tony Tripodo – Chief Financial Officer
Okay. Moving over to slide 22, which is an update of our 2011 outlook.
Despite the production disruptions mentioned earlier, our oil and gas production forecast remains intact at 50 billion cubic feet for 2011. Again that’s up from the original forecast of $49 billion cubic feet equivalent for the full year 2011.
We forecast oil and gas prices net of hedges at $96 a barrel for oil and 582 nm for gas. On the oil side we are definitely benefiting from the up or less Gulf crude pricing premium.
And in natural gas side, we are benefiting both from our hedges and natural gas liquids byproduct production. Due to the stronger near-term outlook and visibility for our contracting services business, we now forecast EBITDA at $625 million in 2011, up considerably from the original outlook of $475 and up from the outlook we presented a quarter ago of $550.
You will notice again a plus sign on the slide next to EBITDA forecast which suggest we have upside potential to the $625 number. CapEx spending is still forecasted at $275 million and that’s the same as last quarter.
At the level of EBITDA with forecasted level of CapEx for the year, we should continue to generate free cash flow for the remainder of 2011 allowing us to further reduce our net debt position from September 30. Slide 23 and 24 provide more color on our outlook.
On the Contracting Services side we have booked a nice level of backlog for our well intervention vessels. The Q4000 is nearly fully booked for all of this year and into 2012, and both the Well Enhancer and the Seawell are carrying a solid book of business as well going into 2012 with the exception of regulatory dry dock requirements for all three of these vessels in 2012 we anticipate very high utilization level.
As previously mentioned, backlog of both Express and Intrepid have picked up. Intrepid set sail for California which has two projects on the contract which will keep her there through January.
Both of these vessels have regulatory dry dock schedule in 2012 as well. The Express is currently operating in the Gulf of Mexico with fairly good backlog going into 2012 and the Caesar has gone to work as Cliff mentioned in the Bay of Campeche in an accommodations project.
Our CapEx at $275 million breaks down to $110 per contracts and services and $165 for oil and gas. Contracting Service numbers contains low spending above maintenance, some upgrades to the Helix produced to enhance the spill containment profile and some incremental investment in our historically profitable robotics business and the cluster upgrades for the Caesar.
The major items in the oil and gas spending $165 remaining to be spend, the drilling of the Katelyn well and the completion of Nancy well both in the Bushwood field. As Johy mentioned we expect the Nancy well to be bought into production sometime in Q1 of next year.
Back to you, Lloyd.
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Our CapEx at $275 million breaks down to $110 per contracts and services and $165 for oil and gas. Contracting Service numbers contains low spending above maintenance, some upgrades to the Helix produced to enhance the spill containment profile and some incremental investment in our historically profitable robotics business and the cluster upgrades for the Caesar.
The major items in the oil and gas spending $165 remaining to be spend, the drilling of the Katelyn well and the completion of Nancy well both in the Bushwood field. As Johy mentioned we expect the Nancy well to be bought into production sometime in Q1 of next year.
Back to you, Lloyd.
Lloyd Hajdik – Senior Vice President, Finance
Slide 26 and 27 are non-GAAP reconsolidation schedules that was presented here for your reference. I will not go over these schedules in detail during the call.
And at this time I’d like to turn the call back over to Owen for his closing comments.
Owen Kratz – Chief Executive Officer
All right, Lloyd. Our company and people continue to work well an improved performance.
We’ve been successful investing in oil and gas assets loss the value and convert PUD reserves to PDP. And will continue with this game plan and keep oil and gas reinvestment within its own cash flow our generation.
On the services side well intervention Canyon continued perform well and the construction group utilization is up by performance and margins have much more in the greatly improve. The seas are upgrades largely behind us, which makes vessel very capable global assets, we’ve not soft put back into the pipe lay market deployed on accommodations contract for the near term.
Going forward our focus will beyond an improvement to performance in this business unit and unlocking the value of the assets. In well intervention Canyon were asset constrained.
We’ve added some assets in Canyon which have an quite yet come to the market and we’re considering various operations to grow the well intervention business. Will be working further improved to growth potential of our services by adding assets and both well intervention in Canyon, well improving the value realize from our construction group.
We now reduced that levels to manageable levels liquidity is high in cash flow strong, coupled with opportunities and well intervention in Canyon we planned to embark on a growth plan in this areas. As we continue to unlock the value in our current oil and gas reserves we expect our financial condition to continue to strengthen.
With that I will turned back over to the operator for Q&A.
Operator
Thank you. (Operator Instructions) Our first question is from Jim Rollyson with Raymond James.
Please proceed.
Jim Rollyson – Raymond James
Good morning everyone.
Owen Kratz
Good morning, Jim.
Jim Rollyson – Raymond James
Owen, I guess first your well intervention business seems to be kick and but all of the businesses is improving pretty rapidly use pipe lay starting to pickup and if got backlog going into ‘12. Can you maybe spend just minute talking about the outlook in terms of bidding as to fill in ‘12 and you mentioned margins still have lot of room to go.
Just kind what’s developing on that side of the still kind started levels that we’ve been seeing or your starting to see things release and science Horizon that might start to pick up little bit?
Owen Kratz
And specifically on construction or where they are three groups.
Jim Rollyson – Raymond James
Yeah. All three groups.
Owen Kratz
Okay. Let me like Cliff speak to that because day-to-day involve with market here.
Cliff Chamblee
Yeah, well in general first things I’d say is (indiscernible) budgeting process for 2012 and so we don’t have all the quite figured not yet. But I see it from a operating service groups well also have a good 2012 as we mentioned the backlogs pretty substantial therefore for next year and both US, Gulf of Mexico, and North Sea little bit of work down Africa.
And the margins are improving slightly in that area. From the Canyon standpoint is probably pretty similar get their backlog usually as for our advanced, but we booked up some of the work in winter time for fewer vessels that we normally have I don’t time during the winter months due to some of trenching in renewable market.
We booked those up for the winter and we expect the spring and summer to be pretty substantially booked as well. And in the last just the pipe lay just the construction business, I think is going be not too much different from this year.
I think we’ll have a reasonable amount backlog for the real vessels, the Express and Intrepid. But just don’t see the margins greatly improving but I think our performance will improve the margin slightly.
Jim Rollyson – Raymond James
And do you think the Caesar will that some point find its way back into bidding work or you guys are talked about in the past possibly shown the vessel, you can of where do you stand on that?
Cliff Chamblee
We are looking both options there is secret, we’ve been looking trying to Caesar but were also chasing some work will start later part of next year for pipe lay work from Caesar as well.
Jim Rollyson – Raymond James
All right. And realize here in the budgeting process and you may want to defer this, but ask it anyway.
Since you brought up in the press release on the five dry dock for next year, you’ve got obviously some significant vessels going out for drydock. Have you thought about kind of how this might impact you on a year-over-year basis because it seems like it’s a little up year-over-year in terms of the number of drydocks and significant assets, but you also have some things coming into the market on the Canyon side, just kind of trying to think about how we should model this from a year-over-year perspective?
Owen Kratz
Yeah, I mean, Jim, I’ll take that question. Number one, we are going through a budgeting process so we haven’t ultimately determined our numbers for 2012.
I think it’s unusual that the five vessels coincidentally are having drydocks in 2012. We had non in 2011.
Just the way this cycle worked, the regulatory required a normally last 20 to 30 days beyond that it’s tough to give you guidance on the impact of that.
Jim Rollyson – Raymond James
All right, I appreciate it. It’s helpful.
And then last question from me, you guys brought back the 75 million of senior unsecured notes in the quarter. Any plans to pursue that option again in the fourth quarter?
Owen Kratz
Yeah, I would say this Jim, our first priority in paying down debt if we can opportunistically do that, and we feel good about the macro conditions, a lot of F slip there Jim. But we really would like to pay down the high yield debt if we can.
Obviously our liquidity position is good, it gives us the flexibility to do so. So a lot depends on market conditions and how we feel about the macro situation.
Jim Rollyson – Raymond James
Great, thanks guys.
Owen Kratz
That’s our favorite debt to pay down.
Jim Rollyson – Raymond James
I understand.
Owen Kratz
Okay.
Operator
Our next question is from Joe Gibney with Capital One. Please proceed.
Joe Gibney – Capital One
Thanks good morning. Just wanted to drill down a little bit more on the drydocks if we would, in terms of timing specifically on the queue, I think the expectation have been from some downturn there in the first quarter.
Is that still accurate for drydock as well, and as well for Well Enhancer well it be first half of the year, just trying to get a sense of timing on a progressive basis.
Owen Kratz
No, I think this is the one, I think you will see most of these drydocks front loaded in the first half of year. We would prefer to get them out of the way during the slower part of the season, and rougher weather.
Tony Tripodo
I think the Well Enhancer is scheduled for the last half of the year.
Joe Gibney – Capital One
That one.
Tony Tripodo
Yeah.
Joe Gibney – Capital One
Okay, that’s helpful. And then Johnny, if you could, I know you guys haven't formalized this, you’ve usually talked about production potentially being flat year-over-year ’12 versus ’11.
You’ve got, you’re waiting on a wagon carefully, your paper works have been submitted on Wang, Nancy is supposed to come on first quarter ’12. Has anything changed relative to your perception of timing impairments on Kathleen and Wang as you’re here in the third quarter versus 2Q.
I mean do you think it’s still an achievable target to be flat year-over-year at this point in production.
Johnny Edwards
Well, in 2011 we have done really well. We exceeded our budgeted number, our budget was 40 to 46 range, what we originally thought and we first hit the 49 and we did really well.
I think to keep it flat year-over-year that assumption would require us to be successful on both Wang and Kathleen and to get them drilled in a timely basis. And I don’t really know the rig market and permitting market is going to allow us to do that.
I really don’t want to speculate but if we have the ability to keep it flat, if we could get those wells drilled in a timely basis and if they are successful, because both Wang and Kathleen are exploration wells.
Joe Gibney – Capital One
Understood and drilled on a timely basis, you mean first half of the year correct?
Johnny Edwards
Early 2012.
Joe Gibney – Capital One
Okay. Thank you gentlemen, I appreciate it.
I’ll turn it back.
Operator
Our next question is from Michael Marino with Stephens Incorporated. Please proceed.
Michael Marino – Stephens Incorporated
Good morning. Owen you mentioned possible, I guess growth opportunities in the wells ops business and intervention markets outside the much talked about stat oil bid.
What other opportunities are you seeing, is that a market you may approach from a new build standpoint with that oil?
Owen Kratz
In a word yes, there are several sectors of that market though you have the light intervention market which we have never, we dominate the light intervention market in the North Sea, but we have no light intervention asset in the Gulf of Mexico. So that’s an option, whether that’s a new or an existing vessel there is options there to consider.
And then as far as additional vessels we, every time we build one we start designing the next one. So there has been one on the table for quite a while.
And when we pull the trigger I think that is another option that we’ll consider. Like I said in my remarks we’re looking at a lot of options, those would be organic and there is also M&A options.
So we’re looking at quite in the way right now.
Michael Marino – Stephens Incorporated
And at this point is it more, is it something looks more like the Q or something looks more like the well enhancer or both?
Unidentified Company Speaker
I prefer not to speculate to, obviously for competitive reasons I’d like to keep it and our rest as long as possible. But also until the decisions made I think it would be wrong to preannounce anything.
Michael Marino – Stephens Incorporated
Sure, understandable. And just one housekeeping Tony, the SG&A line I guess that came down a quarter is it something that will continue or to kind of bounce back Q4 and need a help there.
Tony Tripodo
I think it’s going to be relatively flat maybe to be concerned of slightly up in the fourth quarter.
Michael Marino – Stephens Incorporated
Okay, that.
Tony Tripodo
We are not really doing anything to change activity levels in SG&A to cause it move higher or lower that much.
Michael Marino – Stephens Incorporated
Okay great. Thanks.
Operator
(Operator Instructions) Our next question is from Roger Read with Morgan Keegan. Please proceed.
Roger Read – Morgan Keegan
Good morning.
Owen Kratz
Good morning, Roger.
Roger Read – Morgan Keegan
I guess lot of stuff has been asked but maybe looking at the amount of drydock time you’re going to have, you’ve got the Caesar at least out and floating doing a little work. What’s the potential for putting it into more the conventional market is it that you’ve mentioned reel lay versus I guess J–lay system I mean is that the difference here it’s a reel lay is more in demand and just a better more cost effective type vessel, as we look at 2012?
Owen Kratz
Yeah the Caesar is an Essalay vessel.
Roger Read – Morgan Keegan
Actually (indiscernible).
Owen Kratz
Yeah the other two vessels are reel lay. Reel lay is there is far more reel lay vessels on the market than there are S–lay.
And reel lay actually fits more with all type of construction which is the surf market in the field construction work. S–lay is usually reserved for export lines or lines of with large enough diameter where you need a weight code and there for can’t be reel.
That sort of standalone market and outside of where we are headed which is why we’re passing right now the sea whether options are on own divesting – divestment of Caesar. But there are opportunities like Cliff mentioned then we are planning, we’re in the planning stages to man up and start to rebid the vessel.
But we’re going to be taking it little bit slow so that we can make sure that when we do contract the vessel our performance will be up.
Roger Read – Morgan Keegan
Okay. Should we think about it as staying basically in an accommodation mode for the near term or is the short term work and then back to the dock?
Owen Kratz
As we think it will be in accommodation mode for the first half (indiscernible) quarter may of first half of the year.
Roger Read – Morgan Keegan
Okay. And then I don’t know if you want to go into it given maybe your hesitation on the previous questions.
But the Cat–B, Owen can you give us maybe an update where we stand and that was originally kind of February of this year and then push back to year end where do we stand on ones Statoil move forward with that.
Owen Kratz
To my knowledge all of the submissions from the three bidders are all submitted to Statoil they’re in the process right now of evaluating the submissions. It will then turn into a sort of back in forth clarification dialogue probably with all three and Statoil announcing the big plan to go to contract in February.
So, it’s wait and see here now the work –all the works done.
Roger Read – Morgan Keegan
So, February ’12 is the date to expect something.
Owen Kratz
Yes, that’s what we’re told right now.
Roger Read – Morgan Keegan
Okay. And then final question, along the well intervention you’ve mentioned some work in West Africa next year.
Can you maybe give us a little more on is that a specific to one customer that you’ve been working for in the North Sea or something totally and new as you think about whether you had a light or heavy well intervention vessels that what we should be thinking about more of a Southern Hemisphere opportunity.
Unidentified Company Speaker
Well, we have an opportunity down in Africa and from the well offset for the North Sea operations they have never been there in Africa, but from the Canyon side we’ve been working down there, so we leveraged a little bit also that experience and it is a wintertime campaign which is typically a slow time in North Sea so we take advantage of slow time and there is no deepwater activity picking up off the coast West Africa so taking advantage of that and treat it just like any other project. I think it’s about 60 day campaign and other.
But specifically Roger is the Well Enhancer it’s going down there and its with major ENP customer.
Unidentified Company Speaker
Okay. Let’s if you may, thank you.
Operator
And our next question is from Mario Barraza with Tuohy Brothers. Please proceed.
Mario Barraza – Tuohy Brothers
Hi, thanks. Good morning guys.
Unidentified Company Speaker
Good morning.
Mario Barraza – Tuohy Brothers
Hi, I know pretty much guys are run down the majority my questions for can you just talk a little more about the renewable energy opportunity going forward?
Unidentified Company Speaker
We’ll this is pretty broad question, but..
Mario Barraza – Tuohy Brothers
No just more in offshore in the UK and North Sea you guys are picking up some activity there?
Owen Kratz
Right, we have maybe 1.5 vessels can working in that market full time right now. And the partner market is after installation of the actual turbines is doing the interconnect cables between the turbines and varying those for protection and then also the trunk lines going from the wind farm to beach for protection trunk lines.
And that market is picking up another vessel somebody at Grand Canyon was come out next year having another asset the T-1200 Trencher will go on there. As I mentioned is talk about contract that really assets for base in the back to the contract.
So that’s drilling market for us in the Canyon spinoff of the pipeline market that we were already in. There are some talking the first one going of the East Coast to the US.
That does few years away ever goes quite few potential against the right now. We believe so market activity is in Europe and I think..
Mario Barraza – Tuohy Brothers
Okay, all right. Thank you guys.
Operator
(Operator Instructions) Our next question is from Martin Malloy with Johnson Rice. Please proceed.
Martin Malloy – Johnson Rice
Congratulations on the quarter.
Unidentified Company Speaker
Thank you.
Martin Malloy – Johnson Rice
Could you is there any help you could give us in terms of thinking about the impact of your investments from the ROV and Canyon in 2011 first half of ‘12, in terms of either revenues or return looking forward on the investment how much you’ve invested?
Unidentified Company Speaker
Marty, I’ll just say we expect our Robotics business to grow next year. Again were not quite through the budgeting process but we’ve made investments based on committed backlog and that meets our return hotels at least 15% after tax return on capital.
So I just say that when support vessel that Cliff mentioned the Grand Canyon we’ve acquired ROVs we are building a trencher for the renewable market. And then all that back by from backlog.
Cliff Chamblee
Yeah. Just to add to that, budget-to-budget 12 in the Canyon side, the budget will go up even though we finalize it, it will go up over the 11 budget and one of the just Grand Canyon was that going be replacement vessel for chartered vessels and we have.
And becomes backlog work right now or Grand Canyon come up and keep the vessels that it was supposed to replace. So we have added capacity in our fleet for next year, at least for the busy part of the year through the summer and fall
Martin Malloy – Johnson Rice
Okay. And then the ROV drill upgrades, is that enabling ROVs to working drill support what is that.
Unidentified Company Speaker
That is a question, I guess it is a little confusing here, no it’s well drill maybe not the greatest name, but business in the geo technical business and we have first acquiring job in the actually in the renewable rig one business as well doing core samples so they can determine what type foundation we need to put the (indiscernible).
Martin Malloy – Johnson Rice
Okay, thank you.
Operator
Our next question is from (indiscernible) with Siemens & Company. Please proceed.
Unidentified Analyst
Thanks good morning.
Unidentified Company Speaker
Good morning.
Unidentified Analyst
The first question you guys have historically given pretty good colors surrounding the permit process in the Gulf of Mexico and where extend. Could you talk about if it’s you’re still seeing a constrainer is it largely better understood today been where you were in the summer?
Owen Kratz
Tony do you want that.
Tony Tripodo
Well, we have received the Kathleen which we renamed any two permits. The process is still rigorous and the rigorousness of it is because it’s 1000 of pages required to fulfil the requirements that therefore it’s very time consuming.
And if you make any mistakes but or mistakes we don’t fill it out properly it’s back to square one and restart. So, the process is a lot more time consuming and stretched out than it used to be.
Maybe not all that bad I’m not saying it’s bad is just more time consuming and therefore it will take us longer and everyone longer and that’s probably the color I could give.
Owen Kratz
On more of the macro view I think permitting is up substantially from where it was it’s not back to premier condo levels. But I think the bigger bottle neck and correct me if I’m wrong Johnny, but the bigger bottle neck is not so much getting permit through although it is lot tedious than it used to be.
The biggest bottle neck right now is the lack of rigs in the Gulf of Mexico. We saw a lot of rigs exit in getting actually getting your hands on the rig it’s very difficult and of course to permit you have to specify which rig you’re using and if you can’t mail the rig down then it’s - that you says another hurdle delay on the permit.
Tony Tripodo
There is not a lot of free rigs.
Unidentified Analyst
And then Tony one for you on the tax rate. If you could just sort of provide us some color I think why Q3 just guide to 27% net payment higher so which we will be thinking about Q4 and then also into ‘12?
Tony Tripodo
Well, year to date we at 30% we book 33% in the third quarter to catch up to a 30% rate and we think 30% is going to be rate the fourth quarter as well. And that’s largely being driven by much higher earnings in the U.S.
where we have a higher effective tax rate here higher statutory tax rate. Because of the strong earnings being produced while the E&P business.
And I still contain the go forward basis where we see our business falling out globally we still expect our rate to be between 25% and 30% ongoing basis.
Unidentified Analyst
All right. Thanks I’ll turn it back.
Operator
Mr. Powers there are no further questions.
We do have another follow-up question from Michael Marino with Stephens Incorporated. Please proceed.
Michael Marino – Stephens Incorporated
Thanks I want to follow–up on the guidance for 2011. And I guess the implied EBITDA number that you guys are getting to what’s kind of the delta there between I guess Q4 and Q3 is it I mean you give the production guidance.
So is there some seasonality to the vessel utilization or?
Tony Tripodo
Yeah there is always some seasonality Michael in the fourth quarter in our business we take a dip. We don’t expect the dip to be as pronounced in Q4 as it has been prior years namely because we’re sending a well an answer down to West Africa, Canyon is sizing up a bit better in the fourth quarter than it normally does, at the same time we expect maybe Canyon utilization in the fourth quarter to be slightly lower.
So, we normally take a dip and I think if you back into the fourth quarter number where sort of guide into a bit of dip based on where we are year–to–date. But we feel pretty good overall about where we are right now in terms of our backlog and utilization for the remainder.
Year-to-date we are at $500 million of EBITDA. So that would suggest slight decrease in EBITDA but we noticed we did have the plus sign behind that 625 number two.
Michael Marino – Stephens Incorporated
Okay sounds good. Thanks.
Operator
I’m showing no further questions at this time. Mr.
Powers?
Stephen Powers – Director, Finance and Investor Relations
Okay thanks (Sharon). Thanks everyone for joining us today.
We very much appreciate your interest and participation. We look forward to having you participate on the fourth quarter call in a few months.
Operator
Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your line.