Helix Energy Solutions Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 9 speakers on the call.

Operator

Greetings, and welcome to the Second Quarter Helix Energy Solutions 2023 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded Thursday, July 27, 2023. I would now like to turn the conference over to Brent Arriaga, CAO of Helix Energy.

Operator

Please go ahead.

Speaker 1

Good Good morning, everyone, and thanks for joining us today on our conference call for our Q2 2023 earnings release. Participating on this call today for Helix are Owen Kratz, Our CEO Scotty Sparks, our COO Eric Staphowd, our CFO Ken Neikirk, our General Counsel and myself. Hopefully, you've had an opportunity to review our earnings press release and the related slide presentation released last night. If you don't have a copy of these materials, both can be accessed through the for the Investor 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.

Speaker 1

Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward looking information. Ken?

Speaker 2

During this conference call, we anticipate making certain projections and forward looking statements based on our expectations and assumptions as of today. Such forward looking statements may include projections and estimates of future events, Business or Industry Trends or Business or Financial Results. 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 number and variety of risks, uncertainties, assumptions and factors, including those set forth in Slide 2, in our most recently filed annual report on Form 10 ks, our quarterly reports on Form 10 Q and in our other filings with the SEC. You should not place undue reliance on forward looking statements, and we do not undertake any duty to update any forward looking statement.

Speaker 2

We disclaim any written or oral statements made by any third party regarding the subject matter of this conference call. Also during this call, certain non GAAP financial disclosures may be made. In accordance with SEC rules, the 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 Please remember that information on this conference call speaks only as of today, July 27, 2023, and therefore, you are advised that any time sensitive information may no longer be accurate as of

Speaker 3

Good morning. This morning, we'll review our Q2 Highlights and financial performance will provide insight into our operations and the key drivers to our results and outlook for the balance of 2023. Lastly, we'll provide insight into the continued development of the offshore energy market, our focus on the opportunities within our energy transition model and opportunities beyond 2023. Moving into the presentation, Slide 6 to 9 provide a high level summary of our results and key highlights Helix delivered strong results assisted in part by the improved weather in the North Sea and Gulf of Mexico Shelf. Despite current economic uncertainty and volatility of commodity markets, oil prices remain supportive to the current investment cycle.

Speaker 3

In addition, the continued geographic expansion of the offshore renewables markets into the U. S. And Asia Pacific markets has enhanced the current rate environment for our services. Highlights for the quarter include the Q7000 commenced operations in New Zealand, Strong well intervention utilization in the North Sea and Brazil. Robotics achieved strong utilization and operating results with high trenching and vessel Helix Alliance improved results with the activation of the Epikhedron and continued execution from Offshore Marine And Energy Services divisions.

Speaker 3

The Q4000 was in drydock for most of the quarter. Improved cash generation and positive free cash flow. And on the sales front, Helix Alliance was awarded a 39 well full field of Decommissioning contract in the Gulf of Mexico. Revenues for the quarter were $309,000,000 an increase of $59,000,000 from our Q1 results. We generated net income of $7,000,000 compared to a net loss of $5,000,000 in the previous quarter.

Speaker 3

Adjusted EBITDA for Q2 more than doubled quarter over quarter to $71,000,000 During the quarter, we generated strong operating cash flow of $32,000,000 including $24,000,000 of dry dock and recertification costs. We spent $1,000,000 on CapEx resulting in $30,000,000 in free cash flow during the quarter. Our results were significantly impacted by the regulatory Certification and maintenance of the Q4000. In addition, the Q7000 spent 55 days mobilizing to the Asia Pacific regions with revenues and costs deferred until project commencement in late May. Our year to date revenues were $559,000,000 An increase of $246,000,000 from this time in 2022.

Speaker 3

We generated net income of $2,000,000 compared to a net loss of $72,000,000 at this I'm in 2022. Adjusted EBITDA for the year has increased by $87,000,000 to 106,000,000 For the year, our operating cash flow is $26,000,000 compared to a negative $23,000,000 in 2022. These results represent significant improvement year over year. The high number of regulatory maintenance days in 2023 has tempered our results, that provided an opportunity for even further improvements in 2024. With strong year to date results and an outlook that We're increasing our guidance for 2023.

Speaker 3

I'd like to thank our employees for their efforts with a solid Start to 2023. Executing safe and efficient operations for our customers has always been our hallmark And our goal is to remain an established leader in the offshore industry. On to Slide 9, We continue to execute on our share repurchase program. During the Q2, we repurchased 750,000 shares of our stock for approximately $5,000,000 As we continue executing the program, we'll balance the need to manage and fund: 1, our operations 2, our capital spend, including the Alliance Derm now 3, maturing debt 4, strategic investment opportunities along with number 5, the share repurchase program. I'll now turn the call over to Scotty for an in-depth discussion of our operations.

Speaker 4

Thanks, Owen, and good morning. Please come to Slide 11. Firstly, I would like to again thank our teams offshore and onshore for another very well executed quarter, Been our best performing quarter for many years. There continues to be positive momentum in the global offshore markets that we operate in, and all of our businesses are well positioned for remainder of 2023 and beyond. In the Q2 of 2023, we continued to operate globally with minimal operational disruption We have operations in Europe, Asia, Brazil, the Gulf of Mexico and off the U.

Speaker 4

S. East Coast. We continue to operate with high standards with strong uptime efficiency. During the Q2, we generated a gross profit of $55,000,000 and a gross profit margin of 18%, up from a gross loss of $1,000,000 in the Q2 2022. For the 1st 6 months of 2023, we generated a gross profit of $71,000,000 and a gross profit margin of 13%, Quite an improvement from a gross loss of $20,000,000 for the 1st 6 months of 2022.

Speaker 4

We are expecting an even further improved second half of twenty twenty three compared The first half of the year, now that most of our larger planned regulatory maintenance periods are complete and as the market continues to tighten and demand for our services continues to grow. Slide 12 provides a more detailed review of our Well Intervention business in the Gulf of Mexico. The Q5000 had excellent utilization of 99%. Invester performed very well, conducting production enhancements and abandonment works in 5 wells in ultra deepwater working under a multiyear campaign for Shell. The Q4000 had utilization of 7% in the 2nd quarter, completing a 2 well abandonment campaign for 1 client in ultra deepwater and subsequently commenced the scheduled regulatory drydock for the remainder of the quarter with completion scheduled for the end of July.

Speaker 4

Unfortunately, that dry dock has taken longer than originally scheduled as we undertook additional recertification work. Positively, We expect both vessels to have high utilization for the remainder of 2023. We've contracted or awarded work well into Q4 And we already have awarded work in 2024 with good visibility of potential further activity and increased rates compared to the first half of twenty twenty three. Those key vessels continue to operate under the integrated Helix FLB Subsea Service Alliance package. Moving to Slide 13.

Speaker 4

Our North Sea Well Intervention business continues to respond well to the increased demand in the region, having a very strong second quarter, achieving 100% utilization for both vessels in the UK. The well enhancement performed very well on production enhancement works on 6 wells for 4 customers and then completed decommissioning operations on 1 well for another customer. The Seawell also had a very good quarter, working for 3 customers, performing decommissioning work on numerous wells and production enhancement work for 3 wells. Demand for our services continues to improve and our business is seeing much improved conditions in terms of rates, contracting terms and utilization. The Seawell is fully contracted for the remainder of the year and has recently contracted an expected 2 10 day decommissioning project in the Mediterranean, keeping the vessel contracted well into Q2 of 2024.

Speaker 4

The oil and gas also has contracted work for the remainder of 2023 and has been awarded work in 2024 at further increased rates. On completion of its drydocking in Malaysia, the Q7000 completed paid transit to New Zealand and then commence decommissioning contracts in the Q2. On completion of the works in New Zealand, the vessel is scheduled to carry out a paid transit to Australia to undertake several decommissioning scopes for numerous clients in the second half of twenty twenty three and into Q1 of 2024. The Q7000 is then contracted for 12 months plus options to undertake well abandonment work with Shell in Brazil, including the paid transit to Brazil. The work is expected to commence end of Q1, early Q2 of 2024, and the Q7000 is now contracted well into 2025, We have good visibility and work globally following on in 2025.

Speaker 4

Moving to Slide 14. In Brazil, we had good utilization of 97% in the Q2. The Siemhillix 1 was 94% utilized in Q2, Undertaking work on a 2 year decommissioning project for Trident Energy, performing work on 5 wells in the quarter. Racine Helix 2 had a Both SH vessels are contracted to the end of 2024 and there is increased demand in tender activity for the SH vessels post 2024 globally, including in Brazil. With the Chief 7,000 Shale contract, we are pleased to have 3 vessels contracted in the Brazil region in 2024.

Speaker 4

Slide 15 provides detail of our Well Intervention fleet utilization. And moving on to Slide 16 for our Robotics review. The budgets continued their good performance and had another strong quarter, being the best performing quarter in terms of revenue and EBITDA since 2015. The business performed at high standards with strong utilization, operating 6 vessels globally during the quarter, primarily working between trenching, ROV support and site survey work on Oil and Gas and Renewables related projects. In the APAC region, the Grand Canyon 2 had 100% utilization in Q2.

Speaker 4

The vessel performed well on a long term decommissioning project in Thailand. The newly acquired T-fourteen oh one trenching system Completed mobilization to Taiwan on board the CN Plopas, a project chartered vessel, and commenced work undertaken 65 days of trenching utilization in the quarter, Performing well on the sizable estimated 200 day plus options renewable trenching projects. In the North Sea, The Grand Canyon 3 was utilized 89%, performing 2 renewable trenching projects for 1 customer. The Horizon and April had 48 days of spot vessel utilization, Competing renewables trenching works for 2 customers and an oil and gas trenching project for another client. Both the trenching vessels in the North Sea have Also in the North Sea, The Glen Mar Way completed 68 days of operations undertaking ordinance removal and site survey operations.

Speaker 4

In the USA, Moshe la Border on the Jones Act compliant vessel was utilized 91% in Q2. The vessel performed works in the Gulf of Mexico To support the seismic node installation project, that is expected to continue well into Q3 with options to extend. On the U. S. East Coast, The recently acquired Icloud trenching system completed 58 days of utilization, working on a client provided vessel undertaking site clearance preparation On renewables wind farm support project, again expanding our services that we offer to the renewable sector.

Speaker 4

Helix Robotics is performing very well We have a good backlog and visibility globally. We're expecting strong performance in 2023 and should have our best year since 2015. Our service and geographical expansion in the renewables sector continues, and the Robotics group completed work in 8 countries, operating from 4 vessels in the renewables sector this quarter. Slide 17 details our robotics vessels already entrenching utilization. Slide 18 provides an overview of our shallow water The decommissioning business, Helix Alliance.

Speaker 4

Helix Alliance had a very strong second quarter producing their best performing quarter to date. The Offshore division had 9 lift boats operating in Q2 with an increased combined utilization of 88% performing decommission services. Offshore also supplied 6 OSVs and 1 crew boat with an increased combined utilization of 76%. The Energy Services division Increased operations of 12 50 days or 92% utilization for the 15 P and A systems deployed conducting decommissioning services. The division had increased operations of 304 days or 56% utilization for the 6 core tubing systems.

Speaker 4

In Q2, the diving and heavy lift division season commenced with increased combined utilization of 53% across the 3 diving vessels with 1 of the vessels, the Patriot, Undertaking planned regulatory dry dock maintenance for most of the quarter. The heavy lift bars for Hedron had increased utilization of 79%, undertaking platform removal and other decommissioning activities. In the Q2, Helix Alliance was awarded their most sizable decommissioning contract The contract is to decommission 39 wells, remove and dispose of 15 pipelines and remove and dispose of 7 platform structures. The work recently commenced and is spread out over the next 12 months with an estimated value of $30,000,000 to $40,000,000 in each of 2023 2024. The contracts we utilize all services that Helix Alliance offers, including some of the lift boats, multiple OSVs, P and A spreads, One of the diamond vessels in the heavy lift large behedron.

Speaker 4

This contract again highlights that Helix Alliance is the only contracting company that can offer full field shallow water abandonment. Slide 19 provides detail for the Helix Alliance vessel and systems recent utilization. Before I hand over to Brent, I would like to thank our global Helix employees and partners for producing strong results and a very good quarter, Our best quarter in many years. So thank you. Stay safe and keep up the good work.

Speaker 4

As mentioned earlier, the second half of twenty twenty three is really shaping up well for Helix. We expect a stronger second half of the year than the first half of this year. For the next few years, we expect to be in a strong position with high demand for our services Across all sectors and regions we operate in, we've improving rates and generally better terms and conditions. I'll now turn the call over to Brent.

Speaker 1

Thanks, Scotty. Moving to Slide 21. It outlines our debt instruments and maturity profile as of June 30. We had total funded debt of $267,000,000 at quarter end. Our remaining maturities in 2023 include $4,000,000 installment of MARAD debt in August We have long communicated our intention to cash settle those notes using cash on hand.

Speaker 1

Moving on to Slide 22 provides an update on key balance sheet metrics, including cash, Long term debt, liquidity and net debt levels. With cash of $183,000,000 our net debt position at quarter end was $78,000,000 During the Q2, we increased the size of our ABL facility from $100,000,000 to $120,000,000 At quarter end, we had $112,000,000 of gross Under ABL and no borrowings outstanding. After considering LCs, our net remaining availability under the ABL was $103,000,000 with resulting I'll now turn the call over to Eric for discussion on our outlook for 2023 and beyond.

Speaker 5

Thanks, Brent. As we've discussed, we've had a solid start to 2023 and the offshore market, Traditional Oil and Gas and Renewables continues to show its strength. We are increasing our guidance for 2023 as follows: Revenue, dollars 1,175,000,000 to $1,250,000,000 EBITDA, dollars 240,000,000 to 270,000,000 A $25,000,000 increase from midpoint free cash flow $130,000,000 to $170,000,000 a $20,000,000 increase from midpoint and our CapEx in the $65,000,000 to $80,000,000 range. These ranges include some key assumptions and estimates. Any significant variation from these key assumptions and estimates could cause our results to fall outside the ranges provided.

Speaker 5

Our quarterly results are likely to continue to be impacted by seasonal weather in the North Sea and Gulf of Mexico Shelf, primarily the 4th quarter and 1st quarter. In addition, the timing of our vessel maintenance periods and project mobilizations will cause variances between quarters. For instance, the impact of the Q4000 drydock Extension, which has resulted in fewer days available for work in Q3. We nevertheless expect the second half of twenty twenty three to be stronger than the first half with the Q3 likely being our strongest quarter. Providing key assumptions by segments and regions starting on Slide 25.

Speaker 5

First, our Well Intervention segment. The Gulf of Mexico is expected to continue to be a strong market in 'twenty three with improving rates and expected strong utilization on the Q4000 and Q5000. Q4000 is currently expected to complete its stocking and be on hire by the end of July. In the U. K.

Speaker 5

North Sea, both vessels have contracted work through Q4 with the Seawell having worked into Q2 of 2024. Activity levels for our well intervention vessels in this market continues to be robust. During the second half of this year, the Seawell is scheduled to undertake a 2 to 3 week transit for a project in the Mediterranean. The Q7000 is currently operating in New Zealand on the TUI project. The vessel has contracted work in the APAC region expected into Q1 of 2024.

Speaker 5

In Brazil, the CMP LIX 1 Contracted into mid December of 2024 with Petrobras and Centimeters Helix 1 is contracted performing well abandonment work for Trident into Q4 of 2024. Moving to our Robotics segment on Slide 26. The Robotics segment continues to benefit From a tight market where currently both oil and gas market and the renewables market are extremely active competing for our assets and services. In the APAC region, the Grand Canyon II is contracted to perform decommissioning and ROE support work in Thailand into Q3 with expected good utilization for the balance of In addition, one of the recently acquired T-fourteen hundred Trenchers is contracted and working into Q4. In the North Sea, the Grand Canyon III is contracted to perform trenching work with expected strong utilization for 2023.

Speaker 5

The Horizon Enabler with its flexible charter has trenching projects into Q4. The Globar wave is forecasted to have good utilization and site clearance and new XL removal during the remainder of the year. In the U. S, the Shalea borderline is working in the Gulf of Mexico performing ROV operations With opportunities in the Gulf of Mexico and the U. S.

Speaker 5

East Coast, the vessel is expected to have strong utilization for 2023. For production facilities, the HP-one is on contract in the balance of 'twenty three with no expected change. We do have expected variability with production as the Droshky field continues to deplete. Continuing on to Slide 27 for our shallow water abandonment segment, The shelf decommissioning market continues to be very active. For 2023, we expect the Marine Offshore division to maintain good utilization on 8 to 9 lift boats with some variable seasonality on the OSVs and crude boats.

Speaker 5

The Energy Services division should have strong utilization for 12 to 15 P and A spreads and 1 to 3 core tubing units during 'twenty 3. There is seasonality in the diving and heavy lift division, where the Epiketron is mobilized over the world expected into late Q3. Moving on to Slide 28. Our CapEx forecast for 2023 is heavily impacted by the dry docks and maintenance periods on our Q vessels. The Q7000, Q5000 completed their maintenance periods and the Q4000 is scheduled to complete its drydock in late July.

Speaker 5

We did undertake additional recertification work on the Q4000, which resulted in additional days in the yard and increased capital spend. With a heavy regulatory year and the inclusion of Helix Alliance, our CapEx range for 2023 is now $65,000,000 to 80,000,000 Our cash spend in Q2 was approximately $25,000,000 The majority of our CapEx continues to be maintenance and project related, which primarily falls into our operating cash flows. Reviewing our balance sheet, our funded debt of 267,000,000 At June 30th is expected to decrease by $34,000,000 during the balance of $23,000,000 with scheduled principal payments, primarily the maturity of the $30,000,000 remaining on the 2023 converts. I'll skip the remaining slides and leave them for your reference. At this time, I'll turn the call back to Owen for further discussion on our outlook and for closing comments.

Speaker 3

Thanks, Eric. Last quarter, we indicated that we thought we were trending towards the upper end of our initial guidance and things have continued to improve. In fact, we're exceeding our forecast despite a few anomalies. In Q2, we more than doubled our Q1 EBITDA and our forecast The rest of 'twenty three remains strong. We've raised the lower end of our EBITDA guidance by $30,000,000 and raised the upper end by $20,000,000 as Gerrick mentioned.

Speaker 3

This is a testament not only to a robust offshore service market, but the diversification we've built into our business and operational execution by our people. 2023 has started well and as strong as our current performance is, there are identifiable The Q4, Q7000, Q5000 Well Enhancer and Seawell, all have planned maintenance or dockings this year. As you've already heard, the most significant unexpected issue in Q2 occurred with the regulatory required drydock of the Q4000, which resulted in an unanticipated recertification work and significant additional maintenance CapEx expense. Also earlier this year, we experienced a number of delays on the Q7000 as a result of weather and shipyard performance Negatively impacting the Q7000 potential returns. None of these events should recur in 2024.

Speaker 3

We should have approximately 200 incremental vessel days to sell in 2024 in our Well Intervention segment. Just based on fewer scheduled maintenance days. Using our 2023 rates and costs, the potential benefit in 2024 could be up to 20 The rates are continuing to improve in many regions, But are particular they're partially offset by higher labor costs. There are contractual rate Increases already on the Q7000 SH2 and SH1 for 2024 with further contract extensions with rate improvements under discussions on these vessels. We continue to work through legacy rates on work Contracted at a weaker point in the market prior to 2023, creating further future upside for the current higher rate environment.

Speaker 3

Of the 3 trenchers and 2 intervention systems recently acquired, 1 of each are currently working on long term commitments.

Speaker 5

So far

Speaker 3

the forecasted returns are better than originally expected, meaning the other two systems could bring additional upside. Shallow water abandonment has just begun to see the potential for the demand increases. Rates have only started to improve in this space and are expected to Going forward, somewhat offset by higher labor costs. But the outlook for decommissioning demand appears to be strong for years to come. We're well positioned in the transitional segments in the oil and gas markets.

Speaker 3

Our businesses are poised for long sustained demand As the energy market transitions, while many contractors have struggled to maintain suitable returns in the offshore wind markets, The Helix approach of providing specialty services is generating satisfactory returns with an outlook for not only sustainability, but growth as well. The 3 buckets of our business model, maximizing existing reserves, decommissioning and renewables support, remains our foundation and each one shows promise for sustainable growth. We always explore opportunities that prioritize shareholder return with our current focus being on growth within our existing capabilities. We believe we're being patient and selective with these Kennedys and our markets continue to be dynamic. We expect to generate double digit free cash flow yield going forward.

Speaker 3

We will be paying attention to our capital structure and debt as well as capital allocation to building cash, share repurchase and growth in a balanced manner to yield what we believe will represent the greatest return to the shareholders. And with that, I'll turn it back to you,

Speaker 5

Okay, so operator, at this time, we'll take any questions.

Operator

Thank Our first question is coming from the line of Greg Lewis. Please go ahead.

Speaker 6

Yes. Thank you and good morning everybody and thanks for taking my questions. I wanted to start off talking about Well Intervention. Clearly, it seems like the pendulum has definitely started to swing towards you guys in terms of your ability to kind of push pricing. I'm kind of curious, have customers realizing that visibility is pretty good In the next 6 plus months, what if customers started to look to kind of contract these vessels even farther out, I.

Speaker 6

E, in the rig market, we're seeing customers Starting to look for equipment starting in 2025. How are you what are those customer conversations Like around your kind of core assets?

Speaker 4

Good morning. Scotty here. I'll take that. Yes, we are seeing Future outlook, down in Brazil, we're seeing clients booking out the vessels to 2025. We're in discussions with Petrobras and others to extend the 2 SH vessels down there.

Speaker 4

Shell has taken the Q7000 into 2025 and they have options that could take all the way up to 2026. In the North Sea, we've got a better outlook than we've had in many, many years, probably going all the way back from 2014. We have more booked years Right. More booked days right now going into 2024 than we've had in an awful long time. So we're definitely seeing that the clients take a forward look on this.

Speaker 4

We've got long term agreements that have been set up in the Gulf of Mexico recently with the likes of Oxy, Shell and Hess. So these clients are looking out towards the future And providing us with a better backlog than we've had in a while.

Speaker 3

I'll just add a little bit to that. I think if you go back to 2022, There was starting to be a demand for clients looking out multiple years. There was a reluctance on our part because of We were still in the downturn and therefore we were providing what we consider now legacy rates, which are well below current market rates. So we were reluctant to get pricing out. A dynamic in the market right now though is that I think the clients have come around To realizing that for multi year contracts, there has to be escalators.

Speaker 3

So we're being more successful in building escalators into our contracts. That gives us a little more confidence in going ahead and starting discussions about booking additional multiyear out into the future. So that's I think the clients are sort of pivoting towards Concern more about availability than achieving the lowest rate possible.

Speaker 6

Yes. No, absolutely. And then I want to I guess in hindsight, congratulations on Alliance. I mean, just as we think about What is happening in that abandonment business? It's been impressive.

Speaker 6

I guess, I think what a lot of people are wondering, was this kind of just some pent up demand? Or as we think about it, and I'm not asking for multiyear guidance, but As you see certain things in this market over the next couple of years, is there any reason why we can't at least hold What we've been able to do more recently in that space, I mean, it's just been like I said, I mean, give us a little color What's happening there? And I guess I have to assume that the acquisition of Alliance really has exceeded your guys' expectations at least to this point.

Speaker 3

Yes, I believe we've reached a historic inflection point in the marketplace. I mean for years of decommissioning of the shallow water Structure was the hockey stick that just never occurred. And there's always the industry business model was to Sell them on to smaller producers and then to shove the decommissioning work out into the future. The end result of that, though, is that a lot of you've seen 2 major bankruptcies in the last few years. The end result is that the cash from the production has been stripped out of the companies and bankruptcies declared Forcing these properties back onto the market.

Speaker 3

What's different now though is that most of these properties have a net negative asset value And therefore, there are no I think the industry is learning their lesson about selling them on to smaller producers The abandonment is going to come back and it's come back in a vengeance here. We saw this potential For happening, which is why we bought Helix Alliance. And we're just as I said in my color comments, we're Just now starting to see a I mean, there's been a ramp up in the decommissioning demand. But with the recent Cox Bankruptcy, I think you're just going to see a tsunami of decommissioning demand on those shallower waters. And this time, there's not going to be the optionality of selling them on.

Speaker 3

So the work is actually going to get done now. And you're starting to see that reflected in our results With Alliance.

Speaker 4

Okay. Also, you can add Alliance, we are the only company that can do full shallow water, full field abandonment and decommissioning. And the recent award that we've just had of the 39 wells, 15 pipelines and 7 structures to remove shows that we have all the capabilities to package big decommissioning

Speaker 1

Packages together.

Speaker 6

Yes. Now it's been pretty exciting to watch. Anyway, hey, thanks for taking my questions. Have a great day.

Speaker 4

Thank you.

Operator

Our next question is coming from the line of Jim Shum. Please go ahead.

Speaker 7

Hey, good morning, guys. Congrats on a great quarter.

Speaker 3

Thank you.

Speaker 7

So you have some long term contracts on some well intervention vessels in at least The Gulf of Mexico and Brazil, how much, if at all, do rates typically move up in this scenario? I'm just trying to get a sense of what 2024 might look like for these longer term contracts.

Speaker 4

So we do have some legacy left over in 2024, especially down in Brazil with the SH1 and SH2. We're discussing with Those clients for extensions past 2024 and I think it's fair to say that we will be increasing the rates on those contracts. Some of the legacy contracts we've just put in place in sorry, the new longer term contracts we've just put in place in the Gulf of Mexico are far better rates than The legacy rates we've had in the past. So we've recently contracted up 2 longer term 3 year outlook Contracts with majors in the Gulf and they're far better rates than some of the legacy teams we've had in the past. And I think I would point to that what the increases in the space can be for next year, Just on utilization days as well.

Speaker 3

Just to expand on that, on the Q7000, we do have a multiyear contract through 2025 on that vessel. It does have escalators already built into the contract. So We do have built in visibility on improvement there, same with the SH1 going forward. And then as we mentioned in our presentation, We're also in discussions about extending both of those vessels along with the SH-two with Petrobras For multi years beyond what we already have currently contracted and all of that would also have escalators built into it. The 2 vessels in the North Sea are very high in demand right now, And we are booking partial utilization contracts on a multiyear basis.

Speaker 3

And for instance, we already have 300 days of Work already contracted in the North Sea with some pretty meaningful rate increases over 2023. So there's we already have at this time last year, we gave you about 4 or 5 things that we knew we were going to happen. Maybe a little early for us to quantify all of this. We have to work through it, but there are a number of Positive things that are already contracted, we have visibility on that have built in improvement 'twenty four over 'twenty 3.

Speaker 7

Okay. Thanks for that. And then just sort of wanted to ask what's driving the strength in robotics? I mean, is this anything in particular? Were there any one time unusual items here, closeouts, High margin mix, and if you could just comment on where rates are versus last year?

Speaker 4

Okay. I'll take that. Robotics obviously has had very good performance this year and big improvements. A lot of this has been driven by the renewables sector and And I'll build out into the trenching markets. We've had a couple of onetime items this year where a couple of lump sum trenching jobs went in our favor and performed very well.

Speaker 4

Obviously, you've seen the expansion into Taiwan where we bought some new trenches and we put them to work in Taiwan and the Taiwan market is expanding. So we're seeing The expansion in renewables work not just trenching, but other services on a global basis. We've gone from trenching that was Primarily a UK based business is now in Taiwan. There's talk of Korea that we've been trenching on the U. S.

Speaker 4

East Coast. So I see that continuing and expanding and our rates are up, I'd say 10% to 15% year over year.

Speaker 7

Okay, great. And then if I could just squeeze one more in. The Epihedron, like how do we think about that? Is that similar to a well intervention vessel in terms of day rates and OpEx or similar to a rig or any color there would be great?

Speaker 3

No, the Hedren is a shelf heavy lift asset. So it bears no resemblance to rigs or the other vessels. I think the margins that it can achieve, you have to sort of understand the heavy lift market. The heavy lift market is a seasonal market. It can only safely operate during the more benign summer months.

Speaker 3

So there's seasonality. There's probably discounts or exposure to be taken if you wanted to work in the wintertime, but typically It's going to be lower utilization. And also then you have to realize that as this abandonment work comes to fruition and we're talking about Well over 1,000 structures that need to be removed and there's only 8 remaining heavy lift assets in the Gulf of Mexico. So they're all going to be very busy, but the time is coming. In decommissioning the field, you focus first on making the platform safe, Flushing it and then doing all of your well P and A and your pipelines.

Speaker 3

The very last thing is the platform removal. So while you're seeing a lot of activity on wells and platform make safe work right now, The heavy lifting portion is still yet to come. We've just seen the first real increase in utilization for the Hedren As it went to work this year, and I think you'll see the rates and the utilization for that asset improve going forward.

Speaker 7

But Owen, I just want to make sure I got that correctly. I'm just asking about the economics. Is that similar to well intervention? Or is that below or above? And I know there's some seasonality which is going to change that, but in general?

Speaker 4

So it is below well intervention rates. It's more in line with the high end construction vessel. So one of our high end trenching vessels is similar sort of rates that we would opt in for that vessel.

Speaker 1

Okay. Thanks guys. I appreciate

Operator

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

Speaker 8

Hey, good morning and congratulations on a solid quarter.

Speaker 3

Thank you.

Speaker 8

I was hoping to circle back to that big decommissioning contract you announced. And if I heard your comments correctly, Revenue from that contract expected to be $30,000,000 to $40,000,000 in each of 2023 to 20 24. So at the midpoint, About $70,000,000 over 12 months, which that's almost 30% of your $1,000,000,000,000 4th quarter revenue in that segment. I'm used to thinking about

Speaker 4

it. Sorry. You have to remember it's spread out over some months. There'll be certain parts that we can't do for the winter months like the heavy lift. So that might be Towards the end of Q1 of next year.

Speaker 4

So it is spread out, but $30,000,000 to $40,000,000 of each year is a good Guidance on that.

Speaker 8

Perfect. So I'm used to thinking about the plug in abandonment market being relatively short term in nature. I would love any color that you can share about the project, if this is an operator taking a more holistic approach than they previously did. And I'm curious if you're seeing operators getting nervous at all about the availability to execute their P and A plans. So maybe they're contracting for a larger program as far as playing the spot market?

Speaker 3

Yes. The focus right now is on the wells On all these structures, but you've got to understand there's an excess of 5,000 wells out there to do. There's Far more work than our entire industry right now could get done in the next 5 to 7 years. So it's And what that means is that the producers, since the awareness of wanting to get Work done now is just occurring all at the same time. There's a real concern by the producers on availability.

Speaker 3

So I think the fact that we own anywhere from 25% to 50% depending on which asset class you're talking about Of all the assets available and we're the only ones that actually have all of the asset classes required to do the work, I think it's garnering a lot of attention from the producers that are a little concerned about getting in the queue and having availability to get their work done. So it's all very positive for us.

Speaker 4

Yes. I think this producer that gave us the that we're talking about realized that we could provide all of the assets And they only had to come to 1 shop to get everything done. So they didn't have to manage in a typical environment 5 or 7 different contract Making sure those schedules come together and it all works. They just have to come to us and we project manage the whole thing for them with all the different assets that we have.

Speaker 8

I appreciate all that color. And if I could sneak in a quick follow-up question on the on that alliance. I'm curious If you see other opportunities out there to maybe add to your shallow water abandonment fleet?

Speaker 3

There are opportunities to buy more equipment. The bottleneck in the industry is going to be people. I think our approach to that is that we would like to remain. I think on the shelf, you have a degradation Helix brings to it is the quality of our processes, SOPs and standards. So we're going to be a little reluctant to Just go out and buy more equipment and then just look for bodies.

Speaker 3

We're going to be a little more cautious in adding quality people And we'll add assets as we time the people.

Speaker 8

Great. I appreciate your time today. Thank you.

Operator

We have no further questions.

Speaker 5

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our Q3 2023 call in October. Thank you.

Operator

That concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Key Takeaways

  • Helix delivered Q2 revenues of $309 million (up $59 million QoQ), net income of $7 million (versus a $5 million loss in Q1), and adjusted EBITDA more than doubled to $71 million, driving $30 million of free cash flow.
  • Fleet utilization was strong across regions: the Q5000 hit 99% utilization in the Gulf of Mexico, North Sea vessels ran at 100%, robotics achieved its best quarter since 2015, and the Q7000 commenced decommissioning in New Zealand.
  • Helix Alliance secured a full‐field shallow‐water decommissioning contract to remove 39 wells, 15 pipelines and seven platforms, generating an estimated $30–$40 million per year over the next 12 months.
  • Management raised 2023 guidance to $1.175–1.25 billion in revenues, $240–270 million in EBITDA and $130–170 million in free cash flow, expecting Q3 to be the company’s strongest quarter yet.
  • The balance sheet remains robust with $183 million cash, net debt of $78 million, and a $120 million ABL facility (with $103 million available), supporting ongoing debt maturities and share repurchases.
AI Generated. May Contain Errors.
Earnings Conference Call
Helix Energy Solutions Group Q2 2023
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