Earnings Call Transcript - HLX Q3 2020

Operator, Operator

Greetings, and welcome to the Third Quarter 2020 Earnings Conference Call. And as a reminder, this conference is being recorded, Thursday October 22, 2020. And I'd now like to turn it over to Mr. Erik Staffeldt, CFO. Please go ahead, sir.

Erik Staffeldt, CFO

Good morning, everyone, and thanks for joining us today on our conference call regarding our third quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO; Scotty Sparks, our COO; Ken Neikirk, our General Counsel, and myself. Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through our Investors page on our website at helixesg.com. The press release can be accessed under the Press Releases tab, and the slide presentation can be accessed by clicking on today's webcast icon. Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken?

Ken Neikirk, General Counsel

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, other than statements of historical fact, are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a variety of factors, including those set forth in Slide 2 of our most recently filed annual report on Form 10-K and in our other filings with the SEC. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast are available under the For the Investor section of our website at helixesg.com. Owen?

Owen Kratz, CEO

Good morning, everyone. We hope everyone out there and their families are doing well and staying safe. This morning, we will review our Q3 performance, our operations in this challenging environment, our view of the current market dynamics, and provide our outlook for the fourth quarter. Moving to the presentation slides 5 through 7, they provide a high-level summary of our results. The third quarter typically represents the peak activity period for our operations with operators taking advantage of the summer weather to complete key projects, but this is not a normal year. Our operations continue to be impacted by the depressed OFS market, largely resulting from COVID-19. We are incurring incremental costs for the additional logistics and safety protocols and controls required to operate in this environment. This difficult market and the operational challenges will continue until the pandemic is behind us and perhaps longer during the recovery period thereafter, but our team continues to address these issues head-on. We've implemented strict cost controls. We warm-stacked the Seawell and the Q7000 in Q2, significantly reducing their costs. In Robotics, we have expanded our renewables offering and are benefiting from our first site clearance project. Revenues in Q3 were reported at $193 million with net income of $25 million and EBITDA of $53 million. Our gross profit increased to $35 million from $30 million the previous quarter. For our year-to-date results, our revenues were $574 million with net income of $18 million compared to $581 million of revenues and net income of $50 million through the same period in 2019. We generated EBITDA of $120 million through the first three quarters of 2020 compared to $147 million in the same period in 2019. On to Slide 8. From a balance sheet perspective, our cash balance at the end of the quarter was $259 million compared to $178 million in Q2. During the quarter, $42 million of restricted cash was released. We generated $53 million of operating cash flow and spent $2 million on CapEx. During the quarter, we issued $200 million of 6.75% convertible senior notes due 2026 to refinance $90 million of 2022 notes and $95 million of 2023 notes. This refinancing provides us a longer liquidity runway while allowing us to continue our goals of reducing our long-term debt. Our net debt at the end of the quarter was $98 million. I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Scotty Sparks, COO

Thanks, Owen, and good morning, everyone. Moving on to Slide 10. We continued to operate in a different and challenging environment presented to us by the COVID-19 pandemic, with our teams and partners, both offshore and onshore, continuing to respond well, doing a fantastic job. In the third quarter, we had 13 vessels working and on hire globally in four countries. We have enhanced our proactive control measures designed to keep our vessels operating. We have tested over 6,500 of our employees and third-party personnel prior to joining the vessels and have experienced very little exposure on our vessels since testing protocols were adopted. We continue taking appropriate steps to protect our employees, clients, and third-parties, including holding abundant surplus PPE supplies for the offshore teams and mandating that all personnel wear masks while on the vessels and in our offices and facilities. We've continued to enhance regular deep cleaning and social distancing measures. In the North Sea and West Africa, two vessels remained warm-stacked with considerably reduced operating costs of those vessels, and we've also reduced targeted SG&A spending. Over to Slide 11. Even in this COVID-19 environment, during the third quarter, we produced reasonably strong results with revenues of $193 million resulting in an increased profit margin of 18%, producing profits of $35 million compared to $199 million in revenue and $30 million in gross profits in the second quarter. Considering the effects of the virus and the continued warm-stacking of two vessels, we attained good levels of utilization. The Well Intervention fleet achieved utilization of 68% globally and the Robotics chartered vessel fleets achieved utilization of 95% globally. This year continues to be our best performing period in relation to safety statistics and operational uptime, and the third quarter was no exception. Our fleets operated with 99% uptime efficiency in the quarter and was again LTI free. It is extremely pleasing to know our team continues to perform at such a high standard producing solid operational performance. In the Gulf of Mexico, we achieved new records for the Q4000, completing the longest pipeline clean-up from an intervention vessel. The Q5000 continued throughout the quarter with BP with no commercial downtime. In the North Sea, the Seawell remained warm-stacked in Leith, Scotland, and the Well Enhancer had a good quarter working for four clients. In the West Africa region, the Q7000 remains warm-stacked in the Canary Islands and is planned to commence transit back to Nigeria in Q4, commencing contracted work early in Q1 next year. Usual high standards of performance in Brazil, both vessels performed very well achieving high utilization of 99%. The Robotics chartered vessel fleet was very active, working between ROV support, trenching, renewable works globally, completing 450 days of utilization across seven vessels, with five of the vessels working outside of the oil and gas markets on renewables projects. Slide 12 provides a more detailed review of the operations for our Well Intervention business in the Gulf of Mexico. The Q5000 had 100% utilization, continuing to work for BP, undertaking ultra-deepwater production enhancement operations, performing extremely well with zero commercial downtime and continued integration of our Helix Schlumberger Alliance teams. The vessel remains on contract for the remainder of the year. The Q4000 performed well with 85% utilization due to a small gap in schedule alignment between projects, completing work in ultra-deepwater for three clients. The Seawell production enhancement project was completed, achieving record-breaking deepest water depth set from an intervention vessel. The vessel then went on to set another record for the next client by completing the longest-ever pipeline clean-up set from an intervention vessel. After a short gap, the vessel completed a production enhancement project for another client and the vessel is currently contracted through most of November and has recently been contracted for a good portion of Q1 next year. Moving on to Slide 13. Our North Sea Well Intervention business has been most affected by the reduced work requirements due to COVID, leading to the continued warm-stacking of the Seawell. The Well Enhancer, however, has worked into October and has several other potential smaller work scopes identified for the fourth quarter. The Well Enhancer achieved 92% utilization, working for four clients in the quarter, including completing three production enhancement scopes for three clients and an abandonment scope for another customer. The vessel has recently completed work and has kind of been warm-stacked in Leith, Scotland. It remains operationally ready, should the potential visible fourth-quarter works become contracted. The Seawell remains warm-stacked in Leith, Scotland, which significantly reduced operating costs and reduced crew levels to a minimum. We will keep both monohull vessels in warm-stacked condition throughout the winter seasonal period as in previous years and are optimistic we will reactivate both vessels in 2021 due to visibility of higher activity levels. The Q7000 remains in warm-stack mode in Tenerife in the Canary Islands, again significantly reducing our daily operating costs of the vessel. The vessel is planned to transit back to Nigeria at the end of Q4 to commence contracted work in Q1 2021 now that the country logistics allow. Moving on to Slide 14. In Brazil, our operations for Petrobras continue to go extremely well, again producing another quarter of operational excellence with continued strong performance regarding safety, uptime, and efficiency. Both vessels achieved strong utilization in the third quarter and we continue to be ranked as one of the top rig contractors by Petrobras. The Siem Helix 1 completed abandonment work on three wells after conducting a client-paid diver whole fee to meet strict environmental requirements prior to working in a protected area. The Siem Helix 2 completed the production enhancement work on two wells and abandonment work on two wells in the quarter. Moving on to Slide 15 for our Robotics review. Robotics had a good quarter and continues to have a very good year, operating seven vessels during the quarter with five vessels working on non-oil and gas renewable projects. We continued to expand our renewable energy services by product line and geographically now to include trenching, site clearance and survey, accommodation, and installation support, securing renewable energy works in Europe, East Coast, USA and Taiwan. We have also recently been contracted to undertake further renewables projects in Q4 in Japan. In the third quarter, charter vessel fleet utilization was 95%, including 291 days from spot chartered vessels. In the North Sea, four vessels were utilized primarily on renewable energy projects. The Grand Canyon III was utilized 73%, undertaking renewables trenching and the Kristiansand and the World Peridot were 100% utilized, continuing site clearance and survey works on the wind farm project. Also in the North Sea, we spot chartered a large construction vessel to undertake decommissioning projects in conjunction with the Well Ops U.K. group. Well Ops worked on the subsea wells and Robotics contracted this vessel to remove the subsea infrastructure. In the APAC region, the Grand Canyon II had 100% utilization performing works on renewable energy projects in Taiwan, providing accommodation and installation support. We have secured work in 2021 and 2022 to provide ROV support in the APAC region, which will provide a foundation for our continued presence in the region. In the Gulf of Mexico, our pay-as-you-go vessel, the Ross Candies had 51 days of utilization, working on ROV support for six clients. The T1200 trenching unit was utilized 100% on the client-provided vessel on the U.S. East Coast, conducting wind farm trenching works. As mentioned previously, the Robotics group is having a good year, especially expanding services globally into the renewables sector. Over to Slide 16. I'll leave this slide detailing the vessels already in trenching utilization for your reference. Before I turn the call to Erik, I would again like to thank our Helix global team, our offshore personnel, our onshore personnel, and our partners for their exceptional work to produce another strong, safe, and efficient quarter whilst dealing with the new normal COVID conditions.

Erik Staffeldt, CFO

Thanks, Scotty. Moving to Slide 18, it outlines our debt instrument and the maturity profile as of September 30th. Our total funded debt was $415 million. During the third quarter, we issued a new $200 million convertible senior notes due 2026, with a 6.75% coupon. This was done to extinguish $90 million of our 2022 convertible notes and $95 million of our 2023 convertible notes. This transaction effectively refinanced $185 million of our convertible senior notes maturing in '22 and '23 into 2026. A lot of the strength in our liquidity position is providing greater flexibility to manage near-term maturities during these challenging times. Slide 19 provides an update on key balance sheet metrics, including long-term debt and net debt levels at September 30th. Our net debt approximated $98 million. Cash position at the end of Q3 was $259 million. Our quarter-end net debt to book capitalization was 5%. Moving over to Slide 21 for a discussion on our 2020 outlook. We are refining our guidance for 2020 as follows; revenue in the $710 million to $735 million range; EBITDA $135 million to $145 million; and free cash flow in the $50 million to $85 million. Our year-to-date results are in line with our previous guidance and represent an upward adjustment to nearly all metrics. The expected activity levels in our markets for the fourth quarter support our guidance. This range includes some key assumptions, expectations, and estimates as follows. We're assuming the full quarter to Siem Helix 1 and 2 in Brazil. We expect the Q4000 and Q5000 will have good utilization in the fourth quarter, although Q4 has gaps to fill in the second half of the quarter. The Well Enhancer has been warm-stacked; however, we are pursuing small projects later in the quarter. Robotics activity will decrease commensurate with increased weather risk and completion or pricing of the projects. As is typical for our business, overall, we expect a step down in the fourth quarter with the onset of the winter season in the North Sea. Any significant variation to these key assumptions could cause our EBITDA to fall outside of the range provided. Providing more color by segment and region on Slide 22. First, our Well Intervention segment. In the U.K. North Sea, the Well Enhancer completed its contracted work in mid-October. The vessel has been stacked while small projects late in the quarter are still a possibility. The Seawell remains stacked, unlikely to work until 2021. The Q7000 is warm-stacked with the expected mobilization to start in late Q4 for work in Q1. In the Gulf of Mexico, the Q5000 is working for BP and expected to remain on hire for the balance of 2020. The Q4000 has contracted work into November and is pursuing opportunities with expected schedule gaps for the balance of Q4. In Brazil, the Siem Helix 1 and 2 are on hire for the balance of 2020. Moving to our Robotics segment. Robotics continues to be more resilient in this market than Well Intervention. Work in the renewables wind farm sector has continued mostly because of current events, although activity will diminish in the fourth quarter as normal with the onset of the winter season in the North Sea. Grand Canyon II in APAC is on contract into Q4 and expected to have good utilization for the balance of 2020. Great Canyon III will be performing trenching in the North Sea for multiple customers with expected strong utilization. Ross Candies is expected to continue operating on a pay-as-you-go basis over the near term. Our wind farm survey and site clearance project continues into Q4, but the duration will be weather-dependent. We also completed a decommissioning project using the VOO in mid-October with an additional project scheduled later in Q4. Moving to Production Facilities. The HP1 is on contract for the balance of '20, with no expected change. As we have previously stated, we intend to continue to aggressively reduce our costs commensurate with the levels of activity by asset and overhead. Continuing on Slide 24, moving into our CapEx. The forecast remains at $38 million for the year, comprised primarily of the recertification cost of our vessels, the majority of which has already been spent in Q1. Reviewing our balance sheet, our funded debt of $450 million is scheduled to decrease by $10 million as a result of scheduled payments in the fourth quarter. Our restricted cash position of $42 million was released on July 17th, although it may be required again with the return to work in West Africa. Our cash balance at the end of the quarter was $259 million. We anticipate tax refunds in the amount of approximately $19 million in the near term as a result of the tax changes from the CARES Act. I'll skip Slide 26 and leave it for your reference. At this time, I'll turn the call back to Owen for closing comments.

Owen Kratz, CEO

Thanks, Erik. Well, you've heard the Helix and other companies say the market outlook is challenging. This morning, I'd like to try and fill in a little color on what that means for Helix specifically. Most other companies may be referring to their balance sheets. Fortunately, we took action earlier this year to manage our balance sheet to minimize this as one of our challenges and extend the runway of debt maturities out to 2026. As we've said for a while now, we feel that we have sufficient cash on hand and forecasted cash flow to meet our debt obligations, with the ultimate goal of achieving a gross debt zero position with our balance sheet. Our intention will be to pay down another $101 million of our debt by the end of 2021 and continue to operate with low leverage going forward. We all know what happened to commodity prices in the early part of this year, and the pandemic is still obviously ongoing with no end date that anyone can reliably predict. During this time, it's become clear that the OFS market has fallen out of favor with the investing community, and banks and investors have begun to pivot to alternative energy and renewables. Expectations of supply and demand have evolved to a forecast of a longer than expected recovery. For the past few reporting cycles, we have predicted a slow and gradual recovery in demand with balanced supply and demand as early as sometime in 2022, where commodity prices do depend on the extent of recovery in the unconventional market as a successful conclusion to the COVID reaction and/or timing of successful vaccines and therapeutics, it also depends on opaque discipline. It's less clear what the effect of negative investor sentiment and banks will have on our industry's capacity to recover. On top of this, we are uncertain as to what the industry's pivot to renewables means for their oil and gas budgets going forward. They'll still need the cash flow to sustain investment in renewables. We believe that the oversupply of the OFS market will persist in spite of the service supply destruction taking place. The rig and vessel market is going through recapitalization across the board. If this leads to consolidation, then a rationalization of supply may occur. If companies emerge with cleaned-up balance sheets but continue to irrationally fight for market share in an oversupplied market, we believe it will hamper an OFS market recovery. Regardless of the adverse effects of all the uncertainties, of particular significance to Helix, the number of reservoirs reaching maturity, for example, having only PDP and ultimate abandonment will be a growing market, no matter what else happens. While this is a long-term positive for Helix, as this is part of the market growth and the OFS capacity declines, generating opportunities for Helix, it will take patience, adaptability, and discipline to get there. Helix operates the only riser-based non-rig intervention assets in the world and it's not likely that you'll see others build anytime soon that would alter that significantly. It's now generally accepted that these assets and methodologies are both more efficient and have a significantly reduced carbon footprint relative to drill rigs. However, we must operate within the realities of the environment we work in, and unfortunately, the present environment is exceedingly unstable and marked by uncertainty. In addition to some market stability and an increase in commodity prices would go a long way to help us realize revenues commensurate with our world-class assets. For the near term, and as the pandemic has continued on, this uncertain market is not conducive to long-term contracts as the producers have begun to signal that they are less inclined toward long-term, multi-year contracts to rigs. They got caught last time with these committed costs. Given the drop-off of oil and gas-related work, it's also our opinion that the OFS market and, specifically, the intervention market may return to being a spot market at least until the market stabilizes in commodity prices and/or the demand for work on mature wells increases. It may be too soon to predict what will happen, but we are inclined to believe the next year or two may see a return to spot market work award rather than multi-year contracts. We've had just three long-term contracts in our history, and up until around 2014, when access to intervention assets was perceived as an issue, intervention had always been a spot market. Very few producers have the well count to support multi-year contracts for intervention, and that has not changed. Our goal is always to show our customers the value proposition we can deliver, but we also recognize that at least in the near term, those producers that can support long-term contracts are also dealing with an uncertain market, where it's a challenge to commit to long-term spending. But our business was built on winning work in the spot market. The majority of our contracts are still won in the spot market, and we've proven to be very adept at competing in this type of market. We also have several ways to adapt and improve our offerings, creative contracting terms others can't offer, our capacity to take on management and life extension of reservoirs through abandonment, and we have an increasing geographic footprint. And for those producers who are serious about sustainability in their own ESG story, based on our asset base and efficiencies, we believe the lower overall carbon footprint versus drill rigs is achievable. We also generated almost 10% of our 2020 revenues from the renewables market. This was the foothold that we'll seek to increase. Before anyone jumps on this as being a game changer, let me just say that the increase of interest in renewables and the projected exponential growth of the market, almost every contractor, including startups, are all gravitating to renewables, and an overly aggressive strategy in renewables is not without risk. We'll be looking to grow our contribution from renewables, but we are in a good position, and we feel like we're in a good position. Still, we're going to be prudent in carrying out this growth strategy. When we see opportunities and to minimize risks, we'll be proactive in our participation in the renewables. I hope this provides some context to what we mean when we say that we see the market continuing to be challenging for the next couple of years. The ongoing pandemic and events earlier this year have drastically changed the landscape of the world, and the OFS market has been knocked back. The market continues to constantly evolve, the longer the uncertainty of our sector remains, but we positioned the company for long-term recovery, and that's not changed. We still believe we're well positioned to navigate the current environment and have tremendous leverage to an eventual market recovery. We believe the current challenges for the OFS market are also factors that will lead to a stronger market on the other side and will hasten that time to a more robust recovery. We also see opportunities that can offset some of the challenges ahead, and we are pursuing those. With that, I'll turn it back over to Erik now.

Erik Staffeldt, CFO

Thanks, Owen. Operator, at this time, we'll take questions.

Operator, Operator

The first question is from Ian Macpherson. Please go ahead.

Ian Macpherson, Analyst

Thanks. Good morning, everyone. Owen, I was interested to hear that you, even though we're moving into more of a spot-dominated contracting environment, you seem optimistic about redeploying the Seawell next year in addition to mobilizing the Q7000 in early Q1. Is the Q7000 already contract secured for that work, or do you just have a good lead on it at this point? And then, as we look into next year, how do you think about total fleet utilization shaping up, given the drop-off in term secured work for the Q5000 and some roll-overs commencing in Brazil as well?

Scotty Sparks, COO

Good morning, Ian. I'll take that one to start and then pass it over to Owen. We do see visibility in the North Sea right now that will reactivate both monohulls into 2021. It's still early days, there are a lot of budget discussions, but the visibility is there; we need the operators to get their budgets approved. If they do so, there's been a lot of work that's been put off from this year into next year. If those budgets are approved, we feel that we're well placed. Regarding the Q7000, we have two contracts already in place and we're close to having a third one, very close to having that one executed. So we plan to start stepping up the vessel in Q4. We will transit late Q4 to Nigeria and then plan to be operational sometime early Q1. And also, logistics have improved in Nigeria. We can get guys in and out of the country, whereas over the last few months, it was totally closed down to us. Overall, globally, we are seeing high visibility because of work that was put off for this year, but I need to caveat that with the fact that budgets aren't approved yet, and it's still early days in this process.

Owen Kratz, CEO

I'll provide a general overview. We recognize the work that needs to be done, and as I mentioned earlier, the number of maturing fields is increasing the workload. The accumulation of abandonment work is significant, but we're uncertain about the timing. Our uncertainty lies not in the visibility of the workload, but rather in how producers will approach their budgeting for the upcoming year. We've already observed that long-term contracts are not being directed to rigs, indicating producers might be hesitant to commit to multi-year work in an oversupplied market. I believe the work will be available, likely shifting towards more spot market activity. Additionally, I'm uncertain about the corporate budgets in light of some major companies pivoting towards renewable energy. This raises questions about potential budget reductions in the oil and gas sector, even as those companies will need cash flow from oil and gas to support their renewable initiatives. It remains unclear, and we probably won’t have a better understanding until we see finalized budgets from the producers.

Ian Macpherson, Analyst

That's helpful. Thank you both. Owen, also on the Robotics side, I have been positively surprised by the resilience of Robotics. I believe about half of that revenue stream is currently coming from the wind sector. As you look ahead to next year, do you anticipate that half of the revenues for Robotics will still have strong year-on-year growth potential, regardless of the situation in the oil and gas sector?

Scotty Sparks, COO

I'll begin with that. Owen can add more later. We've had a strong year in Robotics as we mentioned. Globally, we've broadened our service offerings in the renewable sector. We successfully secured our first trenching project on the East Coast of the USA and anticipate more wind farms to be licensed in that region. Our performance in Taiwan has been impressive, where we've been providing installation and accommodation support for a large wind farm, and we expect this trend to continue this quarter. We also initiated our first site clearance project, which has taken longer than anticipated. Therefore, it's difficult to predict whether this experience will be repeatable next year, though we are pursuing two to three projects of a similar scope for later next year. Additionally, we are seeing increased activity in Taiwan and have recently been awarded our first project in Japan. The potential for growth is apparent, but whether it will lead to increased growth or stabilize at this year's levels remains to be seen. Nonetheless, it's a service area we are actively pursuing and executing effectively.

Ian Macpherson, Analyst

Well done. Thanks, Scotty. I'll pass it over.

Scotty Sparks, COO

Thank you, Ian.

Operator, Operator

The next question is from the line of Michael Sabella. Please go ahead.

Mike Sabella, Analyst

I was wondering if you could kind of go back to the, I guess, the re-contracting and appreciate the commentary around just kind of shorter-term work. And I know, it's sensitive as we kind of think of rate for where these things get re-contracted. I mean, you guys are talking to clients right now, but when we look out and see kind of where floater rates are today, can you just kind of help us think about where you think the proper rate for your vessels are relative to what we see in the market?

Owen Kratz, CEO

That's a challenging question. I'll start, and Scotty can add in. The rates are definitely not close to what they were before 2015. They are probably around or slightly better than where they were in 2016 at this moment. We are not observing the rigs being as aggressive as they were back in 2016, which is beneficial for us. However, our competition isn't primarily with the rigs right now, but rather with the commercial viability of the projects we are involved in. We need to provide a value proposition to the producers that encourages them to pursue the additional production that is achievable. How successful we are in this will depend on the budgets and the amount they are willing to spend on it. Over the next few years, I expect to see an increased reliance on intervention in general, which is positive, but the surplus of rigs may continue to impact the pricing potential. As long as commodity prices are perceived to remain stagnant around the $40 mark, it will be difficult to see a significant price increase. Therefore, we need to progress into 2022 with a focus on balancing supply and demand before we can expect to see an increase in commodity pricing and our ability to raise our prices. Right now, our main issue is not utilization; it is pricing.

Scotty Sparks, COO

I think I'll add to that as well. You have to remember that it's regionally based as well, so the Seawell and Well Enhancer are not compared to rig rates in the North Sea, because of the unique offerings they have. Our world-class assets are not drill rigs; they burn about 50% less fuel than drill rigs. So we have efficiencies that we can add into the piece that are there to help us win work and win utilization, not necessarily increase the rates, but there's efficiencies that our assets offer against rigs, mobilizing time, demobilizing time, fuel burn. The way we run our work is far more efficient than using a drill rig, but the procurement thing is for sure, they used the drilling rates against us.

Mike Sabella, Analyst

Yeah. Appreciate that. And then as we think about kind of the potential for renewables growth to continue next year. From your perspective, is there any meaningful capital that you need to invest to realize that growth? And if we think about where kind of chartering some of these vessels are today, just talk about that market and the ability for you all to get to charter rigs, perhaps chartered vessels as you need them.

Owen Kratz, CEO

Yeah, we've been looking at the renewables market for quite some time as to how we could leverage our current foothold into a larger presence. The issue with the renewables market right now is every time you think you found a niche, where there is an opening that needs a solution, if you identify that on Monday by Thursday, it's oversupplied. I mean, everybody is taking them. Giving you an example, we recently signed up to participate in a tender for providing service vessels to a wind farm. There turned out to be almost — there were 35 tendering companies for that, all offering new builds. So from my perspective, and that's what I was alluding to in the color comments, that a lot of companies are just for the sake of being able to announce an ESG component are making big capital commitments. Personally, I think it's going to be challenging for them to see a sustainable return. We are more focused on trying to manage and protect our balance sheet. So the way we plan to play the renewables would be to look at the incremental services that we could provide either through alliances, contracting, but contracting them on a more integrated basis with what we already have, expanding our geographic footprint, and taking a more modest approach as the renewables market grows and evolves and matures a little bit. And we'll follow the market where the competitors go and we'll watch that, but we're not going — you won't see us stepping out and investing large sums of capital on a flyer in renewables.

Mike Sabella, Analyst

Yeah, that's great. Thank you.

Owen Kratz, CEO

I'll just add one thing though to what Scotty said: we did benefit this year from a pretty large site clearance project that may or may not repeat at that level. But I think the expansion that we are already showing in Taiwan and now, Japan. The incremental additional areas that we are adding in renewables would probably offset any failure to replicate the site clearance work, although it is possible that the site clearance work does replicate.

Mike Sabella, Analyst

Thanks all.

Operator, Operator

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

George O'Leary, Analyst

An extension of a few questions asked already, just curious with the assets you have in hand today, and given the prior comment about you not necessarily wanting to jump headlong or get overly aggressive on the renewables front, but given the assets you have and the work you've done already in the wind space, are there any kind of natural extensions of the trenching and the site clearance work that you can do today that you just haven't pursued as of yet? We know where you don't have to go out and invest a bunch of capital to get into that market and what types of opportunities are there to the extent those exist?

Scotty Sparks, COO

I'll take that, George. We feel like we have the best-in-class assets for trenching, and we've been an independent market leader for some time. We've been trenching in the wind farm space for over 10 years, and we have contracted wind farm trenching works out until 2024. We've, like we said, just completed our first U.S. wind farm trenching project and we believe that the wind farms that will be licensed in the U.S. will require trenching, so there is an expansion there. We also note that next year we are tendering a couple of projects in Taiwan. So we're seeing an expansion into the APAC region for wind farms or renewables trenching. And we're seeing an expansion in Europe. The other side of that is the trenching assets are a leased asset; they're quite expensive to build and timely to build to get into. So we feel we're in a good place. On the trenching side, we have a very good track record and we are seeing that expand globally. So I think that's a good market for us.

George O'Leary, Analyst

Great. The rest of my questions have been asked and answered. Thank you, guys.

Operator, Operator

The next question is from the line of James Schumm. Please go ahead.

James Schumm, Analyst

I would like to clarify the $7 million increase in EBIT for Well Intervention despite a $5 million decrease in revenues from the second quarter. Is it possible that the improved utilization of the Q5000 provided a $5 million benefit, with the remainder coming from cost reductions? Does that seem accurate, or were there any other one-time benefits in this quarter?

Erik Staffeldt, CFO

Yeah, James, I think there were a few items that benefited us. I think we have aggressively moved towards stacking the Q7 and the Seawell in Q2 and reducing the additional operation support cost associated with that. And there was probably some additional cost that was incurred in Q2 associated with the stacking of those vessels. And so Q3 reflects a really stable daily cost of stacking those vessels. Also in Q2, the Q5000 did have some downtime and some testing time, where it was incurring additional cost, and so I think that was a one-time also in the second quarter. And so those are some of the moving parts that have really driven the improvement.

James Schumm, Analyst

Okay. Thanks, Erik. And then just after the refinancing of the convertible, what do you think your cash interest payments are going to be next year, and then what do you think the cash taxes will be next year?

Erik Staffeldt, CFO

From a cash tax standpoint, the cash taxes that we'll be paying will really be associated with our withholding taxes on our foreign work. I don't foresee us being a pure cash tax payer in this environment. So it'll be for work in Brazil and West Africa, the withholding taxes. As far as our interest, I think you're probably looking in the less than $20 million range for cash taxes and going down as we continue to pay off our debt.

James Schumm, Analyst

Okay, and then just lastly on CapEx. So you have $33 million sort of maintenance CapEx this year, and I think I recall you guys saying that you had heavier vessel maintenance costs this year, but I could be wrong. So I'm just wondering, if next year's CapEx is more like a $25 million number?

Erik Staffeldt, CFO

Still early in the process, Jim. This year, it was a heavy year for us for vessels. We did have five in the first quarter, and so from that standpoint, still early in the process. I think at this point, I would probably caveat in the $20 million to $40 million range for next year, but I think there is a possibility to drive that down.

Owen Kratz, CEO

Yeah, I'll just add. This was a big maintenance year, but we're still under $40 million. Looking at next year, the maintenance cost is down, but going back to the discussions on renewables, for instance, we said that we're not going to invest large amounts of capital to increase our footprint in renewables, but that doesn't mean no CapEx. So until we have those plans purely, truly identified, we can't really say what it is, but I would expect next year's CapEx to be consistent with this year's.

James Schumm, Analyst

Okay, great. Thank you guys.

Operator, Operator

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

David Smith, Analyst

Hey, good morning, and congratulations on a great quarter.

Owen Kratz, CEO

Thanks.

David Smith, Analyst

Owen, in your opening remarks regarding your ability to compete in a Well Intervention spot market, you mentioned the ability to adapt and improve offerings. I was hoping you might give some more color on that.

Owen Kratz, CEO

Last year, we made a strategic move by acquiring the Droshky Field from Marathon, which has significantly strengthened our abandonment backlog. We are in a unique position as the major companies shift their focus to renewables and divest from certain reservoirs, transferring them to smaller producers who are more aggressive. This allows us to partner with them, take payments in kind, and offer lump sum contracting, a capability that I believe is rare among our competitors. With our established track record and history, we are well-equipped to provide this. We have a variety of contracting models at our disposal, and our next step is to effectively market these while maintaining our competitive edge. We'll be identifying which producers might be interested in these offerings, and I'll keep you updated, but I prefer not to delve into the specifics right now.

Scotty Sparks, COO

I will take that. We're also in a unique position that we have our alliance with Schlumberger, and they are in a position where they can help with the reservoir management and the well optimization that can lead to them helping us work out where to contract and who to contract with. And with that alliance, we're in a good position where we can take different contracting mechanisms, so that gives us an added benefit that others don't have.

David Smith, Analyst

Appreciate that. And compared to six months ago, wanted to ask if there is any change in discussions or your outlook regarding the potential to take on P&A obligations similar to the Droshky deal.

Owen Kratz, CEO

Following Droshky that made a little splash with the producers, we had a number of producers that were engaged in dialogue with us who had an interest in pursuing similar models. When the commodity price sort of blew up at the beginning of this year, that left uncertainty in how to value those deals, so therefore, all of the discussions ended. Just recently, I think there is enough stability that's returned to the market that the interest is being expressed again, and there are a number of dialogues that are starting back up. So it's a matter of being patient and waiting for the right deal.

Operator, Operator

The next question is from the line of Samantha Hoh. Please go ahead.

Samantha Hoh, Analyst

Hey guys. Thanks for taking my question. So we've covered a lot of ground today, but I was wondering if we could spend some time talking about the pricing on the Robotics side specifically. Are there really much variations in terms of your profitability between like the renewables work and this traditional oil and gas?

Scotty Sparks, COO

Well, I'll take that. Typical oil and gas ROV operations is in vast decline as I'm sure everybody knows, but a niche place such as trenching, we've managed to hold the rates for the last few years, and the work that we've been awarded recently holds those good rates, and they're better than traditional oil and gas rates. So on the renewables side and even on the oil and gas trenching side, because we have that niche, we may not be able to hold rates at a good level and have work contracted out for 2024, like I said previously. The other renewable services that we're looking at, there's plenty of spot vessels available. So I feel that we won't have to commit to long-term charters ourselves as we go forward, and we'll be able to be opportunistic and pick up spot charters to take on project work that should lead to us having less cost and therefore keep our margins in line.

Samantha Hoh, Analyst

And just in terms of the renewable work that you're picking up globally here, are there variations in just sort of rules with local standards, having them being employed by people in country, for example, where you need to establish an office in the region? I'm just kind of wondering if there is any increase in capital that is required for just that's going to flow into the OpEx side as you expand globally for renewables?

Scotty Sparks, COO

I don't think so. I mean, we've established working in Taiwan right now. We obviously can work in the U.S., and the large expansion is in Europe, and we've been covering that for the last 10 years, so I think we're well placed with that.

Operator, Operator

There is a follow-up from the line of James Schumm. Please go ahead.

James Schumm, Analyst

Hey guys, thanks for putting me back in. Sorry, if you already covered this, but on the Q7000, you mentioned two contracts in place and potentially close to the third one. Did you say what kind of contract duration we are talking about for these? I'm just trying to get a sense of maybe what utilization might look like early next year.

Owen Kratz, CEO

Right now, I would estimate that we are looking at a minimum of 120 days. This is not contracted yet. It's a bit challenging due to the lead-in times and the final details that need to be sorted out in the contracts. However, generally speaking, we expect to start with about 100 to 120 days of base work, with the possibility of extending that to over 200 days.

Scotty Sparks, COO

All of the contracts we currently have feature a fixed base period followed by options, and we are in discussions regarding those options, which informs our guidance. Additionally, we are exploring other projects beyond these three contracts. We have also received a work award in Australia, but the final decision will be made in March of next year. We are experiencing increased visibility for Q7000, as we have secured firm work along with options on that work. We would have imagined...

James Schumm, Analyst

Okay, thanks and just...

Scotty Sparks, COO

Sorry, we would have imagined...

James Schumm, Analyst

Sorry, just to be...

Scotty Sparks, COO

Okay, after you.

James Schumm, Analyst

Sorry, just to be clear, it's a 100, 120 days per contract, not for both of the two contracts, right?

Scotty Sparks, COO

Right, that's our base across the two, and then like we said, we hope to add to that and in discussions with others.

James Schumm, Analyst

Okay. Thank you very much.

Scotty Sparks, COO

Thank you.

Operator, Operator

There are no other questions.

Erik Staffeldt, CFO

Okay. Thanks for joining us today. We very much appreciate your interest and participation, and look forward to having you on our fourth quarter 2020 call in February of 2021. Thank you.

Operator, Operator

That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.