Oct 23, 2012
Executives
Terrence Jamerson - Director, Finance & Investor Relations Owen Kratz - President & CEO Tony Tripodo - EVP & CFO Cliff Chamblee - EVP, Contracting Services Johnny Edwards - EVP, Oil & Gas Alisa Johnson - EVP, General Counsel & Corporate Secretary Lloyd Hajdik - SVP, Finance & Chief Accounting Officer
Analysts
Jim Rollyson - Raymond James Joe Gibney - Capital One Martin Malloy - Johnson Rice Trey Stolz - IBERIA Capital Partners Michael Marino - Stephens Inc. Anthony Gugel - Upstream
Operator
Good morning. My name is Felicia and I will be your conference operator today.
At this time, I would like to welcome everyone to review third quarter 2012 results conference call. All lines have been placed on-mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, today’s conference call is being recorded, today, Tuesday October 23rd.
I would now like to turn the conference over to Mr. Terrence Jamerson.
Mr. Jamerson, you may begin.
Terrence Jamerson
Thanks. Good morning everyone, and thanks for joining us today.
Joining me, we have Owen Kratz, our CEO; Tony Tripodo, our CFO; Cliff Chamblee, Executive Vice President of Contracting Services; Johnny Edwards, Executive Vice President of Oil and Gas; Alisa Johnson, our General Counsel and Lloyd Hajdik, our SVP of Finance. Hopefully, you all have had an opportunity to review our press release and the related slide presentation released last night.
If you do not have a copy of these materials, both can be accessed through the Investor Relations page on our website at www.helixesg.com. The press release can be accessed under the Press Releases’ tab and the slide presentation can be accessed by clicking on today’s webcast icon.
Before we begin our prepared remarks, Alisa will make a statement regarding forward-looking information.
Alisa Johnson
During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation other than statements of historical 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 projections and forward-looking statements due to a number and variety of factors, including those set forth in our Slide 2 and in our Annual Report on Form 10-K for the year ended December 31, 2011. Also during this call, certain non-GAAP financial disclosures maybe made.
In accordance with SEC rules, the final slides of our presentation materials 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 a replay of this broadcast are available on our website.
Owen will now make some opening remarks.
Owen Kratz
Good morning, everyone. Let’s move on to slide five which is a high level summary of third quarter results.
Quarter three’s revenues decreased slightly from $347 million in Q2 to $336 million this quarter with the decrease attributable to lower oil and gas revenues resulting from production disruptions associated with Hurricane Isaac, normal decline curves as well as lower realized oil prices. On the other hand, our Contracting Services’ revenues increased from Q2 as the Q4000 and Seawell returned to service for full quarter off of their regulatory drydocks in the prior quarter.
Robotics also posted a stronger quarter reflecting robust activity levels particularly in the North Sea. I believe it’s important to note that for the first time in many, many quarters the significant majority of our overall EBITDA was generated by our Contracting Services business as opposed to our E&P business.
This reflects the very markets we’re operating in and the outlook for our well intervention and Robotics business remains very strong. On to slide six and seven, from an EPS perspective, Q3’s earnings had a fair amount of noise; posted EPS of $0.14 was impacted by a variety of irregular items.
First, we sold the Intrepid pipelay vessel in Q3 for $14.5 million resulting in a pretax book loss of $12.9 million. As you may recall, the Intrepid was the vessel we elected to cold stack the prior quarter due to the lack of market visibility along with the amount of expenditures that would have been required to maintain regulatory class certification.
I will talk some more about the divestiture of our entire pipelay fleet which we announced last week more in my closing remarks. Second, we took an impairment charge of $4.4 million to reduce the book value of certain of our Australian well intervention assets that are being held-for-sale.
We decided to pair back the scope operations in Australia where we have struggled to achieve consistently acceptable financial results. Third, we finally closed the book on our sole UK oil and gas property Camelot by completing the decommissioning activities and booking an additional pretax charge of $6 million associated with these activities.
Last, Hurricane Isaac shutdown our production in the Gulf of Mexico for all the part of 10 days in Q3 resulting in the deferral of approximately 130,000 barrels of oil equivalent with the pretax impact of $7.5 million. On an after-tax basis the impact of these four items amounted to $0.21 per share.
In addition to the above items, we flipped in $10.1 million non-cash hedge gain in Q2, to a non-cash hedge loss of $9.4 million. Non-cash hedge loss in Q3 neared $20 million swing.
Our oil and gas production in the third quarter totaled 1.5 million barrels of oil equivalent, down from 1.7 million barrels of oil equivalent in Q2. Quarter three’s production was affected by the previously discussed impact of Hurricane Isaac as well as natural declines.
We continue to benefit from a high majority of our production being oil 72%, as well as oil sold at Louisiana Light Sweet prices which is currently at a significant premium to West Texas intermediate prices. We realized $98.5 a barrel, net of our oil hedges, hedge contracts in Q3.
In addition, NGL production along with our natural gas hedge contracts allowed us to realize $5.69 per 1,000 cubic feet for our natural gas production in Q3. From a balance sheet perspective, our cash and liquidity levels remained strong.
Cash decreased from $650 million at June 30th to $584 million at September 30th mainly owing to our acquisition of the Transocean D534 drillship, which we’ve renamed the H534 for 85 million in August. We're in the process of converting this vessel to well intervention assets; our liquidity levels of more than $1 billion remains high.
I'll now turn it over to Cliff for an in-depth discussion of our contracting service results.
Cliff Chamblee
As you can see, contracting service revenues improved quarter-over-quarter by approximately (inaudible) in the Q4 return from [dry dock] offsetting Well Enhancer dry dock in Q3. The benefit of having only one vessel in dry dock in the third quarter versus two vessels in Q2, can also be seen as a gross profit improvement.
Q3 profits were 27% was 7% higher than gross profits in Q2. Collectively, the third quarter utilization across all three business units and contracting services were at the highest level for the year.
Both well intervention vessels return from dry docks in Q2, the Seawell and Q4000, were at 100% utilization for the quarter. All the intervention support vessels were at nearly (inaudible) utilization also at 98% for the quarter and the Express season rent, 93% utilization in Q3 on a combined basis.
Turn over to slide 10. Again as I mentioned on the previous slide, the Q4000 was fully utilized in the third quarter.
Her backlog now extends completely through the end of 2014 with customers interest remaining strong in the years beyond 2014. The Intervention riser system number two was a significant contributor to Well Intervention profits for the quarter as well, as that was deployed off the Ocean Victory drill rig for 55 days in Q3.
Conversion of our newly acquired drill ship, Helix 534 remains on schedule, as she is expected to enter the Gulf of Mexico in mid-2013. We're seeing strong customer interest (inaudible) and is anticipating adding significant sand backlog in the near future.
In the North Sea, the Seawell was also fully utilized for the third quarter while, the Well Enhancer was in dry dock for a total of 52 days. The drydock was completed earlier this month and the Well Enhancer is now back in service.
We continue to add 2013 backlog for both vessels, which now stands at over 500 days next year between the two. As many of you are now aware, we signed a long-term charter with the Skandi Constructor vessel in Q3.
We now take over the chartered vessel till next year, we’d already have over 75 days of backlog signed on this vessel and we already expect it to commence in the middle of 2013. We move on to slide 11, under Robotics.
We saw another great quarter for this business unit, as strong utilization in both long-term charter and spot vessels, and this business improved quarter-over-quarter. Our next trencher the T1200, which is pictured on the right on the slide successfully completed its first job in quarter three.
We also placed two more ROVs in service in the third quarter, two more ROVs were purchased earlier in 2012, and we’re extremely excited about signing one of our [ROV] drill units to a multi-year agreement expected to begin in January of 2013 as well with the performing of the geotechnical survey work. We plan to place two more ROVs in the service in Q4, both of those ROVs will be placed on our newest charter vessel the Grand Canyon, which has finally entered our fleet this month.
On to slide 12, in Subsea Construction, the Express had another strong quarter with 94% utilization as she wrapped up the campaign in the North Sea and transited back to the Gulf of Mexico in September, where it’s currently working. The Caesar continued its accommodations work down in Mexico where she is remaining through until July of 2013.
And last, just a brief touch on the last two [ports] (inaudible) here. Last week we announced an agreement to sell all three of our pipeline vessels, which Owen will be addressing in more detail in his closing remarks.
On to slide 13, I’ll leave this slide (inaudible) utilization for your reference and with that I will turn it over to Johnny for the oil and gas slide.
Johnny Edwards
Good morning, please turn to slide 14. Slides 14 and 15 provide the financial highlights for oil and gas for the third quarter.
Production and revenue for Q3 2012 were lower than Q2 for oil and gas, the difference as Owen mentioned is, production was mainly down from hurricane Isaac about 130,000 barrels of oil equivalent and the revenue was further reduced by about $9 a barrel reduction in average realized oil price in the third quarter compared to Q2. Our production mix in Q3 remains 72% oil which is consistent with Q2.
Turning over to slide 15, our operating cost were 7 million higher in Q3, with the difference being the timing of the cat bond of $8 million in Q3. Most of the cat bond charge is allocated to Q3 which is the peak of the hurricane season.
Looking forward, we are excited about the new oil discovery in our Danny II well in the Bushwood field. We currently are in the process of hooking up the Danny II through the same [flow] line which Danny 1 flows.
We should have Danny II on production about the end of this week, and we expect Danny II to produce over 3,000 barrels of oil equivalent per day net to (inaudible). Also in the Bushwood field the Nancy well which was drilled in fourth quarter 2008 has been completed and is waiting to flow.
First production from Nancy is now estimated for Q1 or at the end of Q1 in 2013. This gas well will add over 2,000 barrels oil equivalent net to ERT.
The Phoenix field and the HP1, continue to produce very well in Q3, the HP1 left the Phoenix field for eight days for hurricane Isaac. The HP1 returned to the field, took up the [buoy] and returned Phoenix to production.
The drilling rate for the Wang well should around in the Phoenix field by the end of this week. The Wang well is an exploration well in the Phoenix field targeting a separate fall block in the same sand which is currently producing in the existing wells.
The success for the Wang well will also add over 3000 barrels of oil equivalent for day net the ERT, over to you Lloyd.
Lloyd Hajdik
Slide 16 updates our current commodity hedge positions for the fourth quarter of 2012 and the full year 2013. For the remainder of this year, we have approximately 1.2 million barrels of oil equivalent hedged, which covers approximately 86% our forecasted Q4 combined production.
In the full year 2012, we will have hedged approximately 78% of our estimated combine oil and gas production of 6.6 million barrels of oil equivalent. We did not put any additional natural gas or crude oil hedges in place in the third quarter.
At 2013, we have hedges in place totaling approximately 3.7 million barrels oil equivalent, and our 2013 floor price for our oil hedges is just under a $100 per barrel and for natural gas the floor price is slightly above $4 for Mcf. Regarding our oil hedges over 90% of our current hedges in place by volume for the fourth quarter of 2012 and for 2013 are based on the Brent benchmark, as it continues to be a significant spread between WTI and Brent.
The differential in the third quarter between WTI and what we actually see for our Gulf of Mexico crude oil sales was approximately $10 per barrel. Turning to slide 18, this slide profiles our current gross and net debt levels and liquidity position in September 30.
Gross debt of $1.17 billion was essentially unchanged from June 30, while our net debt increased $58 million to $589 million. Our cash balance has decreased from $650 million at June 30 to $584 million at September 30, as we deployed cash per current CapEx needs, namely the $85 million to purchased the Helix 534 from Transocean in August and for our ongoing newbuild semisubmersible, the Q5000, and our current net debt to book capitalization ratio stands at 27% at September 30.
Our liquidity position was a very robust $1.0 billion plus as of the end of the third quarter. Over to slide 19, this slide provides a current update on our overall debt maturity profile as of September 30.
There really have not been any significant changes in our debt positions since the end of June other than loan amortization totaling $10.3 million in the quarter. Tony?
Tony Tripodo
Thank you. Thank you Lloyd and I am going to move over to slide 21 and good morning to everybody.
First of all, we're maintaining our EBITDAX cash flow for all of 2012 that [created] $600 million despite the impact of Hurricane Isaac production disruption in Q3. Our contracting service business remains strong and we have very high yield vessel utilization levels for the remainder of 2012.
And so far the sales of pipelay assets go, there is really no 2012 impact forecasted for the spinning transaction this year from an EBITDA perspective as the closing will take place estimated in February for the Express in July for the Caesar. The key variables impacting Q4 in addition to the commodity price assumptions shown on the chart is the offset of production from Danny II on the schedule that Johnny outlined earlier which is sometime this week, where it lowered our production forecast for the entire year to 6.6 million barrels of oil equivalent, reflecting a part downtime impact from Hurricane Isaac in Q3.
Furthermore, we have adjusted our all in commodity price forecast reflect a down tick in oil prices which we have seen since the end of quarter one and quarter two. However, again, I want to emphasize our overall EBITDA guidance for 2012 remains intact.
Our well intervention vessels continue to expand backlog and the Q4000 is now looking backlog through 2014 while the Seawell and Well Enhancer are nearly fully booked for 2013. Our total backlog for the well intervention business is now at historic levels in excess of $500 million at the end of the quarter.
Robotics continues to run at high activity levels, both for the oilfield and renewable energy markets. The Grand Canyon has now joined the ROV support vessel fleet.
Our CapEx estimate for 2012 has now been lower to $545 million as some of our previously anticipated CapEx spending has been pushed out to 2013. We have spent $340 million in CapEx for the nine months and the remainder of the CapEx in 2012 is associated mainly with the Q5000 and the H534 conversion in the Wang exploratory well.
You now see overseas our Express vessels in Q4 will result in an after-tax impairment charge of $100 million in Q4 related to the Caesar. I’ll now skip slides 26 and 27, leave them for your reference and I’ll return the call back to Owen for closing remarks.
Owen Kratz
Thanks Tony. We have an awful lot of other things going on inside the company right now.
For some time now we’ve made it clear that our strategic intent was to restore the focus of the company to our contracting service business with a specific focus on leveraging our strong market positions in well intervention and robotics. The first step in this transition was to restore the financial strength in our balance sheet.
Step two is to begin the deployment of capital into growing well intervention and robotics. This can be seen with the addition of world class vehicles the T1200 trencher, the Grand Canyon robotics support vessel, the H534 intervention vessel, the IRS number two which is renal intervention system that we have.
The charter of this can be constructed going into the North Sea market and initiation of the construction of the Q5000. At the same time, we have continued to deploy capital to sustain our oil and gas production deal significant positive free cash flow.
Overtime, as we generate cash and realize the new growth in well intervention and robotics, we have said that our intent is to divest of non-core assets; this allows for effective reallocation of capital and simplifies the business model. Consistent with our stated strategy last week, we announced the sale of all three of our pipelay assets.
This was not a strong market niche for us and our decision was to focus on our strength and well intervention and robotics. The impairment realized in Q4 will not be small but the price received is that multiple of five times 2012 EBITDA levels and an even higher multiple when looking at longer term run rate that we would expect.
Similarly, we have downsized our operations in Australia due to the difficulty in achieving consistent good financial returns. This creates a bit of noise in our reporting but it should be taken as a positive indication of the execution of our long standing strategy.
The transformation of the company is well underway and going quite well. We have good visibility and strong demand for all of our current well intervention and robotic assets as well as those newly added or are on the way.
We see continuing to be asset constrained and we will continue the transition of the company by potentially adding assets and resources going forward. We are actually in the process about adding additional facilities both in Houston and Aberdeen to accommodate this future growth.
Our position of well intervention and robotics is strong and we are focused on the next steps. With that at this time, we will turn it back over for some questions.
Operator
(Operator Instructions) Your first question comes from the line of Jim Rollyson with Raymond James.
Jim Rollyson - Raymond James
Owen, it sounds pretty bullish on the green side especially on the intervention. A couple of questions maybe around that, maybe for one given the fact that, you have continued to add backlog onto especially the Q4000, now through ‘14 and as well a few well in Express, kind of curious about the pricing side of things.
If the market this strong, I presumed that pricing or margin opportunities have continued to get a little bit better. So maybe talk about how we should think about margins over the course of the next couple of years a backlog or they kind of slopping upward and maybe what opportunities you have to further expand margins given to your assets constraint comment?
Owen Kratz
I might let Cliff answer because he is involved with the market from day-to-day, but let me just start out by saying. I think rates will go up, but having said that, I don't think they were looking to be opportunistic.
I think we are in for the long haul and we want to serve our client based with a consistent level of performance that at a good price. The market is still very competitive.
I think our rates are going to be tied more to our corporate return hurdles based on return on capital, but these are expensive assets and costs are increasing. So rates will go up, but we're very mindful of the return on capital targets.
Cliff Chamblee
Yeah, I agree what you said there, our intention is to fill the market that we're not able to do with our assets. As you mentioned, with third quarter backlog and our clients are hungry for more assets to build out immediately and hence the 534 coming and we’re getting now, what we believe to be reasonable returns and set ourselves internally to drive those rates and so we don’t see a huge upturn in the rates.
We're just trying to build the market (inaudible) rates.
Jim Rollyson - Raymond James
And from being asset constrained standpoint, should we expect, you mentioned, looking at other opportunities, should we be looking more for additional charter opportunities or more 534 type opportunities or more Q5000 type opportunities or is it all of the above?
Owen Kratz
Yes, but to put it in a better framework, we have spend, we’ve had a number of years here to really plan our strategy and look hard at this market. We’ve looked at a lot of the floating assets out there.
Our moves with the 534, with the Skandi Constructor, we're sort of picking the best of the best. I think it's our preference long-term to have newbuild purpose build dedicated especially assets suited to the Well Intervention and Robotics market, so I think going forward our bias would be on newbuild versus picking up additional older vessels.
Jim Rollyson - Raymond James
Makes sense; and last one from me, it’s kind of switching gears, maybe not quite as exciting, but on the production side of things, obviously you guys had issues in the quarter with the hurricane as did everybody. But when I look back to, say the second quarter and you produced well over almost 19,000 barrels a day and that’s obviously fallen down in the third quarter, because of the Hurricanes, but starting off first part of October with 14,000 a day run rate, kind of works out to about 25% decline rate in six months or so.
Curious just, how should we think about decline rates notwithstanding the new projects you’ve kind of outlaid what the production rates will be for those, but how do you guys think about decline rates or what we should model for your underlying decline rates? Is it just normal decline or is this some other mechanical or geological issues that have caused that to fall off so quickly?
Johnny Edwards
Yeah, this is Johnny Edwards. The Gulf of Mexico typical decline rate for oil without adding new projects, 25% is actually a good decline; typically it can 30% or more.
But 25% kind of reflects oil projects which were 70% plus oil, so I think that’s not a bad decline to model in, short of the new projects that’ll be coming on stream.
Jim Rollyson - Raymond James
But is that the sum we should model in on an annual basis right; not over a six month period?
Johnny Edwards
Right, that’s an annual 25%, 25% to 30%.
Owen Kratz
Jim I think, if you go back to the end of last year in our guidance going forward, we sort of talked about the decline here lowering production for a period of time until we had our new projects coming on-stream, at which time we would expect to exceed our historic production levels for a while. And I think that’s still the case, I think it’s shifting around a little bit, just because of the timing of the projects and availability of rigs.
But I think that model is sort of what you’re seeing play-out.
Operator
Your next question comes from the line of Joe Gibney with Capital One.
Joe Gibney - Capital One
Owen the questions are on how we should think about longer term margins in marine or move some of the lumpiness of pipeline out, certainly robotics and well intervention are running in elevated levels and historic is kind of a low to mid 20% gross margin mindset inclusive of construction. Should we sort of more firmly view this as a high 20% is better run rate going forward now given what you are seeing in the market?
Owen Kratz
Yeah, certainly Joe I think you really almost answered your question. We certainly see much higher margins in well intervention and robotics than we do and Subsea Construction.
So absence of Subsea Construction we just see our margins trend upward it’s purely in robotics and well intervention.
Joe Gibney - Capital One
Along those lines I was curious, what could you breakout possibly the pipeline vessel contribution in terms of revenue and EBITDA in this most recent completed quarter?
Owen Kratz
I will just say that directionally the Subsea Construction revenues were down in Q3 and that’s really a factor of Q2 being so good for a Subsea Construction because express work in [Israel] and in North Sea. I think quarter four will trend little bit downward as well.
For Subsea Construction we don’t have as high utilization for (inaudible). On the other hand, we expect well intervention to pick up in Q4 as the Well Enhancer comes back and we’ll have all three vessels working, and we expect kind of a similar quarter if not a little down for robotics as we don’t have as much visibility for spot market in Q4 and some of that is seasonal.
So overall I think we are going to see kind of roughly a similar quarter in quarter four of the contracting services compared to Q3. In terms of the contribution of revenues, Subsea Construction contributed about 15% of our revenues in contract and services in Q3.
Joe Gibney - Capital One
And Owen, I just one for you to strategically just (inaudible) on kind of retaining this pool based given the sales some of the pipelay assets and how that (inaudible) is providing third parties moving services as if they want to be in longer time and such as it is highly accretive to margin mix, I just want to get your thoughts on that if it’s still a part of the piece of which you want to deal on the green side going forward?
Owen Kratz
I don't know, that place that strong of a role going the strategic framework of the company but have been said that the, there is a shortage of quality deep water for facilities in the Gulf of Mexico, ours is really one of the best. We do believe that there is a decent third party service to provide to the industry and providing spooling for other contractors.
I sort of never understood why every contractor had their spooling base. And then on top of that I think there is other thing, we have a lot of additional land down there, so there is other uses we can put it to.
And having said that it’s an appreciating asset and the quality assets that we don't monitoring onto.
Joe Gibney - Capital One
I didn't see on the slide that, no its become an increasingly minor piece of the business, but what was the equity income breakdown between (inaudible) and Marco Polo this quarter. And I was also just curious to get your thoughts on your ongoing G&A run rate, Johnny.
Johnny Edwards
It’s really a last same as last quarter. In terms of the contribution and in terms of SG&A, I would expect it to not vary that much two to three levels on average.
Operator
Your next question comes from the line of Martin Malloy with Johnson Rice
Martin Malloy - Johnson Rice
With all the moving parts on the marine side, with adding the 534 and the Skandi Constructor and removing the pipelay vessels. Once these vessels that are being added the two vessels come in to the fleet, can you give us an idea of maybe what mid-cycle EBITDA and maybe high-end, low cycle EBITDA might be for the fleet or for the marines?
Cliff Chamblee
I think I am going to defer on that. I am sorry but we're right in the middle of our budgeting process, and I think we will have a lot better answer for you once we complete the budgeting and look at what next year is going to actually look like.
Owen Kratz
In addition, they don’t really get here till the middle of next year. If you look at the fall cycle, which is what you’re looking at?
Martin Malloy - Johnson Rice
I think in the past, you’ve talked about kind of a low high and mid-cycle EBITDA for the marine side, and just with all the moving parts, I was wondering if you might update that. But maybe it sounds like you all prefer to wait.
Owen Kratz
Yeah, I think we prefer to wait. I would say that we expect the Q5000 to produce EBITDA, equal to or better than the Q4000.
We think the H534 will be priced at a level that’s not that much different than the Q4000, and therefore should have pretty good EBITDA contribution. So all-in-all, I think these assets will be nice contributors to EBITDA once they get off in the water and contribute.
I’ll just say that so you can do a little bit of extrapolation from there.
Cliff Chamblee
They’ve touched on the backend with Skandi Constructor (inaudible) charter.
Owen Kratz
Right. Just short term asset.
Martin Malloy - Johnson Rice
And there have been several transactions in last two months for E&P assets in the Gulf of Mexico. Are you seeing any renewed interest in your assets?
Owen Kratz
Marty, I would say that certainly the deal flow has picked up and I think it’s promising, but we don’t have anything specifically to say about E&P business from a divestitures standpoint at this time.
Martin Malloy - Johnson Rice
Okay. And then, just one last question, the FTI Edison Chouest announcement yesterday, is that a different market from what you’re really targeting with your well intervention assets?
Owen Kratz
You know, its kind off the press Marty, it’s difficult for us to comment on it, because we’re not sure what Edison Chouest vessel capability is, to do well intervention. We are not sure Edison Chouest has any vessels that can really do heavy well intervention, but they did sign --.
Cliff Chamblee
They don’t turn out the (inaudible). So, if I had to guess I think they see a pretty strong market in worldwide in some of the things we’re doing and I think there is a good chance for them to team up and start to look at this market.
There has been a much of small end players in the Gulf that have [tempted], some done okay, some done not very well at all. So, I think it’s a market everybody is kind of trying in to prying to a little bit now, but we are leaps and bounds ahead of (inaudible) assets and vessels.
Operator
Your next question comes from the line of Trey Stolz with Iberia Capital Partners.
Trey Stolz - IBERIA Capital Partners
Hi guys, I think Joe covered most of my questions on the -- I want to try and decipher the pipe lay divestiture going forward. But I guess, any thought on reporting of the discontinued operations going forward?
Lloyd Hajdik
Hi, it’s Lloyd. We are just going through the accounting on that right now and it hasn’t been decided whether or not on the technical literature if it falls as discontinued ops.
Yeah because we obviously have the impairment charge that we have taken up in the fourth quarter and then again on the Express went it closes in Q1, so we are still going through the accounting ramifications on that.
Trey Stolz - IBERIA Capital Partners
Okay, great. And may be a future stat will might be on holding definitely but are there any other well intervention projects either for NOCs or large independents that you have focused on in the near future?
Owen Kratz
Well everything that we do from the aspect of deciding to add assets is based on a lot of dialogue with our client base as to what they need and what their aspirations are. Having said that, a vast majority of the market out there in the deepwater is made up of operators with well headcounts that are insufficient to support bankable contracts.
So what we are really focused on is providing the industry with a fleet of kickable assets and then rolling up the utilization as we see it based on dialogue that we are having ongoing.
Trey Stolz - IBERIA Capital Partners
I got you as opposed to long-term contracts with an individual operator going forward?
Owen Kratz
Yeah, I think there are few and far between and we have sort of got that t-shirt hanging in our closet with our experience all in the disappointing experience with Statoil and the Cat B. So I think we are much better served our shareholders, we better served with maximizing our returns in the open market.
Operator
Your next question comes from the line of Michael Marino with Stephens Inc.
Michael Marino - Stephens Inc.
Question on, I guess for robotics crew. You guys mentioned working, an average of seven chartered vessels during the quarter, which if memory serves me correctly that’s kind on the high end which you normally do.
I was curious, if you could kind of going forward, I guess you took the Grand Canyon into the fleet now, is the charter vessel number likely to stay around that seven number creep up, or what are you seeing in kind of the marketplace and how do you plan on kind of approaching that market from a charter vessel standpoint over the next 18 months?
Cliff Chamblee
Well, typically we had four vessels on long-term charter and they are staggered and when we pick them up and we can actually release from the long-term charter and then we (inaudible) the spot market with spot vessels. And right now, I think we have four long-term and four short-term vessels in the spot markets, so eight vessels today in that market.
And majority of that were historically in the last couple of years has been in the North Sea and maybe West Africa and the mid area, but condo with the coming back in the US market as well. So when we want to bring a couple of vessels into the gulf here, in fact one is on the way now.
So from a long-term perspective, I think we probably remain at the four or five long-term chartered vessels, but we’ll probably be more aggressive on the spot vessels as we are now and gone up to seven or eight as you mentioned.
Michael Marino - Stephens Inc.
Do you see that market getting better, I guess in the Gulf of Mexico and even the North Sea maybe with the win from the start?
Cliff Chamblee
Yeah, I think and hopefully its improving overtime in the Gulf of Mexico and I think we are still midways from what I call when you are having real up cycle. You can see the majors are doubling the fleet of drilling rigs which usually means a year or so later, a few months later (inaudible) work which is our vessels use to do all the hook up and jewelry work and associated with the (inaudible).
So yeah, we see that market picking up in the Gulf not today but slowly over time, over the next year picking up.
Michael Marino - Stephens Inc.
And just a clarification on some comments made about the backlog for the Q4000 extending well in the 2014. It sounds like, does that include, I guess with the D534 coming into the fleet, will that take some of the Q backlog or is that Q backlog just for Q and you’ve got other work for the D534?
Cliff Chamblee
No. It's not taken work from the Q workflow.
We looked up there for our ways out in the future and on through to 2014 on the Q and even some going into ‘15 but we fully expect to hit the ground running with the 534 when you get through the middle of next year and that’s booked up for quite a while as well.
Operator
Your next question comes from the line of Anthony Gugel with Upstream.
Anthony Gugel - Upstream
I just had a question about the Australian wells intervention market. You mentioned the margin constraints.
I was just curious, is it lower than anticipated levels of demand or is it competition or what led the peer decision there as far as Australia?
Cliff Chamblee
Yeah, it's the inconsistency in the demand. It's not the competition issue.
It's just that there is not enough consistent work to support the overhead that we had down there. You know, we're getting two or three jobs a year but they are not long enough to support the infrastructure we have down there.
So we decided to scale that operation way back. Just not consistent work is the answer.
Anthony Gugel - Upstream
And is that something that can change that down the road I suppose?
Cliff Chamblee
Well, of course it can change. I think it will change anytime soon.
I think in probably time.
Owen Kratz
I would just say though, I think the market down there, the brighter market for us is on the larger developments and the intervention opportunities associated with that plus the cost work and I think that is on a campaign basis those larger projects are equally well served by our, either our North Sea or Gulf of Mexico bases.
Operator
(Operator Instructions) And there are no further audio questions at this time.
Terrence Jamerson
Okay. Everyone, thanks for joining us today.
We very much appreciate your interest and participation and look forward to having you participate on our fourth quarter 2012 call in February of next year. Thank you.
Operator
Thank you. This concludes today’s conference call.
You may now disconnect.