Helix Energy Solutions Group Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2024

There are 8 speakers on the call.

Operator

Greetings, and welcome to the Helix Energy Solutions 4th Quarter and Year End 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 Tuesday, February 27, 2024. I would now like to turn the conference over to Brent Arriga, Chief Accounting Officer.

Operator

Please go ahead.

Speaker 1

Good morning, everyone, and thanks for joining us today on our conference call for our Q4 2023 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO Scotty Sparks, our COO Eric Staffeld, our CFO 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 don't have a copy of these materials, both can be accessed through the For the Investor page on our website at www.helixcsg.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 current 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 of our presentation 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 final slides of our presentation provide reconciliation of certain non GAAP measures to comparable GAAP financial measures. These reconciliations along with this presentation, the earnings press release, our annual report on Form 10 ks and a replay of this broadcast will be available under the for the Investors section of our website at www.helixesg.com. Please remember that in today's conference call speaks only as of today, February 27, 2024, and therefore, you are advised that any time sensitive information may no longer be accurate as of any replay of this call.

Speaker 2

Owen? Good morning.

Speaker 3

We hope everyone out there and their families are doing well. This morning, we'll review the Q4 and full year 2023 results, performance and operations. We'll provide our outlook for the market, both what we currently are experiencing as well as our expectations beyond that, and we'll provide our guidance for 2024. Moving to the presentation, Slide 6 through 9 provide a high level summary of our results and key highlights for the quarter. During the Q4, activity levels across all segments were very strong with the increased activity from the global solid global offshore energy market driving improved rates.

Speaker 3

Highlights for the quarter include strong activity and utilization in the Gulf of Mexico, a resilient North Sea market well intervention including seasonal projects in the Mediterranean, completion of our New Zealand well intervention campaign, robotics and Helix Alliance solid seasonal adjusted contribution, Production facilities continues to be a steady performer. And on the sales front, the Helix Producer 1 was extended an additional year to June 5. In addition, we were awarded a 12 month extension with Trident in Brazil for the SH1. We expect to benefit from the market rate contract in 2025. We also secured a minimum 6 month contract for the Q4000 in West Africa at favorable economics.

Speaker 3

And we just recently established a 5 year joint frame agreement with Thales for their offshore decommissioning requirements primarily on the Gulf of Mexico shelf. Revenues for the quarter were $335,000,000 a decrease of $61,000,000 from 3rd quarter results. Our net loss was $28,000,000 primarily driven by a $37,000,000 loss associated with the refinancing of our 20 26 convertible senior notes. Adjusted EBITDA for the quarter was $71,000,000 Our 4th quarter results were overall in line expectations, driven by our core well intervention markets in the North Sea and Gulf of Mexico with our robotics and shallow water abandonment segments providing good performance given the impact of the winter weather. For 2023, revenues improved by over $400,000,000 year over year to 1.29 improved by $150,000,000 to $200,000,000 We reported a net loss of $11,000,000 in 2023, which included a $42,000,000 loss on the earn out associated with our shallow water abandonment acquisition and another $37,000,000 loss associated with our refinancing efforts.

Speaker 3

Without these two losses, our net income would have been significantly positive in 2023. Nonetheless, net loss still decreased by $77,000,000 to $11,000,000 despite the aforementioned losses. Our EBITDA increased to $273,000,000 in 2023 from $121,000,000 in 22. Operating cash flow of the year was $152,000,000 resulting in free cash flow of $134,000,000 with both results representing significant improvements compared to 2022. The fundamental improvements in the offshore market, both domestically and internationally continue to support the foundation of a multiyear recovery for our business.

Speaker 3

With the market recovery taking shape, we expect to build on our 2023 performance with incremental improvements for 2024 and a potential step change in 2025. Our expansion into shallow water abandonment services has solidified our leadership position in this reemerging market. Helix continues to execute on its strategy of becoming the preeminent offshore energy transition company. I'd like to thank our employees for their efforts and high level of execution in 2023. Executing safe and efficient operations for our customers has established us as a leader in our industry.

Speaker 3

On to Slide 10, during the Q4, we executed on our expressed desire to restructure our balance sheet, moving away from convertible notes to a more traditional debt instrument. We issued 300,000,000 senior notes due in 2029 and following that we repurchased 160,000,000 of our convertible notes. In early January, we issued a redemption notice for the remaining balance of our convertible notes, a transaction we expect to close during the Q1. This restructuring effort extends our maturity, simplifies our debt structure, eliminates dilution risk from the convertible notes and mitigates the ultimate cost of replacing our convertible notes. We believe these efforts provide clarity and predictability to our balance sheet and position our investors to benefit from the improvement in the offshore market.

Speaker 3

On to Slide 11, from a balance sheet perspective, our cash balance at year end was 332,000,000 dollars with liquidity of $431,000,000 For the year, our operating cash flow was 152,000,000 dollars including $63,000,000 of dry dock and recertification costs. We spent $20,000,000 on CapEx resulting in $134,000,000 in free cash flow. At year end, we were in a net debt position of 30,000,000 dollars I'll now turn the call over to Scotty for a more in-depth discussion of our operations. Scotty?

Speaker 4

Thanks, Owen, and good morning. Moving on to Slide 13. The teams offshore and onshore outperformed again, producing another very well executed quarter, completing a very strong 2023. In the Q4 of 2023, we continued to operate globally with minimal operational disruption with operations in Europe, Asia Pacific, Brazil, the Gulf of Mexico and off the U. S.

Speaker 4

East Coast. We continue to operate at high standards, again with strong uptime efficiency for the quarter. During the Q4, we generated revenue of $335,000,000 and a gross profit of $49,000,000 a gross profit margin of 15% compared to gross profits of $31,000,000 in the Q4 of 2022 significantly improved year over year. For the year, we generated revenue of $1,290,000,000 and a gross profit of $200,000,000 and a gross profit margin of 16%, very much improved compared to a gross profit of $51,000,000 in 2022. 2023 has been a solid year for Helix, vastly improved over 2022, and we finished the year very strong, with the Q4 being our best Q4 since 2013.

Speaker 4

Visibility in 2024 and beyond is looking very positive. We have recently secured some good contracts at better market rates compared to our legacy contracts that also sets up 2025 potentially for further improvement. Tender activity remains strong and our client base is increasing. Slide 14 provides a more detailed review of our well intervention business in the Gulf of Mexico during the Q4. The Q5000 had excellent utilization of 96 percent.

Speaker 4

The vessel performed very well conducting production enhancements and abandonment campaign, utilizing our Helix SLB jointly owned 15 ks Subsea system. The vessel then completed work on a single production enhancement well for Shell and finished the year conducting abandonment work on one well. The vessel has numerous wells contracted for 2024, and we expect the vessel to achieve high utilization at stronger rates. The Q4000 had solid utilization of 98% in the Q4. The vessel continued a multi well production enhancement campaign for 1 customer, then undertook a production enhancement project for another client.

Speaker 4

The vessel then commenced production enhancement works on our Thunder Hawk field. The Q4000 also has numerous wells contracted in 2024. And again, we expect high utilization at better rates. In the second half of the year, the vessel is scheduled to commence a paid transit to Nigeria to undertake a minimum 6 month project, performing production enhancement works and have paid transit back to the Gulf of Mexico after. Both key vessels continue to operate under the integrated Helix SLB Subsea Services Alliance package, and we expect this to continue with the Q4000 whilst in Nigeria.

Speaker 4

Moving to Slide 15. Our North Sea Well Intervention business continues to respond well to the increased demand in the region, having a very strong Q4 considering the winter period that would usually lead to a seasonal slowdown or warm stacking periods for the vessels. For the quarter, we achieved 100% utilization for both vessels. The Well Enhancer performed very well working for 2 customers, performing production enhancement work on 3 wells, followed by decommissioning operations on 2 wells. The Seawell also had a good quarter, working for 2 customers performing decommissioning work on 2 wells, and the vessel then completed a paid 22 day transit to the Western Mediterranean to conduct a longer term decommissioning campaign expected to last into the summer of 2024.

Speaker 4

Demand for our services continues to improve. As mentioned, the Seawell is fully contracted well into the summer of 2024. And following its approximate 50 to 60 day drydock in Q1, the Well Enhancer has contracted and awarded work through Q3 of 2024, starting to fill out the year with further increased rates. The Q7000 was 68% utilized, conducting the decommissioning contract in New Zealand throughout most of the Q4. On completion of the work to New Zealand, the vessel has completed the paid transit to Australia to undertake several intervention scopes for 3 clients commencing in the Q4.

Speaker 4

The Q7000 is then contracted for 12 months plus options to undertake well abandoned work with Shell in Brazil, including the paid transit to Brazil. The work is estimated to commence towards the end of 2024, so the Q7000 is contracted for most of 2025 with options that could potentially have it working in Brazil into 2026. Moving to Slide 16. In Brazil, we had good utilization of 99% for the Q4. The Siem Helix 1 had a strong quarter and was 100% utilized in Q4, undertaking work for Trident Energy, performing decommissioning works on 6 wells and production enhancement work on 1 well.

Speaker 4

We have recently extended our contract with Trident to take a further year and much increased market rates commencing at the end of 2024 and for most of 2025. The Siem Helix 2 had 98% utilization in Q4, completing decommissioning activity on 3 wells and 1 production enhancement well with Petrobras. We again in 2023 won the Petrobras Rig of the Year award. So congratulations to our teams both onshore and offshore in Brazil. We keep enhancing our position in Brazil by further extending contracts at increased market rates.

Speaker 4

So as the legacy contracts roll off, this should lead to much better results in 2025. And we look forward to bringing the Q7000 to Brazil and commencing the shale decommissioning contracts again at improved market rates. Slide 17 provides detail of our well intentioned fleet utilization. Moving on to Slide 18 for our Robotics review. Robotics continued their good performance and had another strong quarter, closing out a very solid year being the best performing year in terms of revenue and EBITDA since 2015.

Speaker 4

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 Q4. The vessel completed a long term decommissioning project in Thailand and then finished the year on an ROV support project in Malaysia. The T-fourteen oh one trenching system onboard the Sea of Topaz, a project chartered vessel, continued work on a renewable trenching project in Taiwan, undertaking 92 days of trenching utilization in the quarter that is expected to continue into mid Q4 of 2024. In the North Sea, the Grand Canyon 3 was utilized 95%, performing an oil and gas trenching project for 1 customer prior to commencing a lump sum renewable trenching project for another customer.

Speaker 4

The Horizon Enabler had 100% vessel utilization, completing oil and gas trenching works for 2 customers, then performing works on a renewables trenching project for another customer. Also in the North Sea, the Glenmar Way completed 15 days of operations undertaking an ROV support project for renewables customer. In the USA, the Sheila Bordelon, the Jones Act compliant vessel was utilized 92% in Q4. The vessel performed works in the Gulf of Mexico with an ROV survey project for an oil and gas customer, followed by a seismic node installation project for another customer. The vessel then took a paid transit to the U.

Speaker 4

S. East Coast for an ROV support project on renewables works. Helix Robotics performed very well in 2023. We have a good backlog and visibility globally and we are expecting further strong performance in 2024. Slide 19 details our Robotics vessels ROV and trenching utilization.

Speaker 4

Slide 20 provides an overview of our shallow water decommissioning business, Helix Alliance, for the 4th quarter. Helix Alliance had a strong quarter considering the expected seasonal slowdown. Due to better weather conditions, many of the units worked further into the Q4 than what we had expected. The Offshore division had 9 lift boats operating in Q4 with the combined utilization of 80% performing decommissioning services. Offshore also supplied 6 OSVs and 1 crew boat with a combined utilization of 71%.

Speaker 4

The Energy Services division had operations of 1188 days of utilization for 20 pre and A systems deployed to conduct and decommissioning services. The division had operations of 198 days of utilization for 6 core tubing systems. In Q4, the Diving and Heavy Lift division had reduced combined utilization of 46% across the 3 diving vessels due to the sensitivity of diving operations in the winter season. The Hadrian heavy lift barge had utilization of 76% undertaken decommissioning activities. Last quarter, we reported that we had commenced work on our largest decommissioning contract to date to decommission 39 wells, abandon 15 pipelines and remove and dispense of 7 platform structures.

Speaker 4

We've been performing well on this contract thus far. However, as planned, the work has been suspended for the winter months, and we expect to recommence work on the project with some units later in Q1 and the heavy lift work to recommence in Q2. P and A system and cold tubing systems. We expect the Q1 of 20 P and A system and core tubing systems. We expect the Q1 of 2024 to be slow until weather conditions start to improve, leading to a slow ramp up of the fleet in Q1 and into Q2.

Speaker 4

Slide 21 provides detail of Helix Alliance vessels and systems utilization. Looking back at 2023, we had a very good year. And yes, the market has improved, but more importantly, our global employees, offshore and offshore, excels not only exceeding expectation in 2023, but also setting up a strong 2024. And with the recently awarded contracts, we expect an even stronger 2025. So I'd like to put out a big thank you to our employees and partners.

Speaker 4

Stay safe and keep up the good work. I'll now turn the call over to Brent. Thanks, Scotty.

Speaker 1

Moving to Slide 23. It outlines our debt instruments maturity profile as of December 31. During Q4, we initiated a refinancing of our convertible securities. We issued $300,000,000 senior notes due 2029 and repurchased approximately $160,000,000 principal amount of our 2026 convertible senior notes. Our fund debt at year end was $373,000,000 In January, we issued a redemption notice for the remainder of our 2026 convertible notes, which we expect to settle in March.

Speaker 1

Following that settlement, we will have no significant maturities until 2029. The refinancing brings us to a simplified capital structure and eliminates dilution overhang and potential higher costs to settle those convertible notes in the future. Moving on, Slide 24 provides an update on key balance sheet metrics, including cash, long term debt, liquidity and net debt levels. At year end, we had cash of $332,000,000 and availability under the ABL credit facility of $99,000,000 with resulting liquidity of $431,000,000 Our net debt position at year end was $30,000,000 As mentioned earlier, we are settling the remaining 40,000,000 dollars principal amount of our 20 26 convertible notes. We anticipate the final redemption costs will exceed the carrying amount of those notes and any premium paid will increase our net debt.

Speaker 1

Slide 25 presents a 5 year performance trend for certain financial metrics. 2023 not only marks our 6th straight year of positive free cash flow, but also represents our highest annual EBITDA since 2014 and our highest level of free cash flow since we began presenting this metric. Slide 26 presents our diversified revenue mix by segment, geography and by the three components of our energy transition strategy for your reference. I will now turn the call over to Eric for a discussion on our outlook for 2024 and beyond.

Speaker 5

Thanks, Brent. Based on the continued strength of the offshore energy market, our contracted work and the pipeline of bids and projects, we're providing guidance of certain key financial metrics from our forecast. Revenue in the range of $1,200,000,000 to $1,400,000,000 We do expect our revenues to be flat to slightly positive in 2024. EBITDA range of $270,000,000 to 330,000,000 Overall, we expect slight improvement from 2023 with improvements in the well intervention, partially offset by a softer shallow water market shallow water abandonment market. Free cash flow of $65,000,000 to $115,000,000 this number includes an expected $58,000,000 impact from the earn out payment scheduled in the Q2 of 2024 Capital spend in the $70,000,000 to $90,000,000 range based on our expectations of the mix of regulatory maintenance on our vessels and fleet renewal robotics ROV.

Speaker 5

Moving on to Slide 30. Our CapEx forecast for 2024 is also impacted by drydock maintenance periods on our vessels and systems. The Well Enhancer is currently in drydock undertaking an expected 50 to 60 day program. The HP-one is scheduled for drydock in Q2 and the Q7000 will have a maintenance period during its mobilization in Brazil. Our CapEx range for 2024 is currently $70,000,000 to $90,000,000 The majority of the CapEx forecast continues to be maintenance and project related, which primarily falls into our operating cash flows.

Speaker 5

Reviewing our balance sheet, our funded debt of $373,000,000 is expected to decrease by $49,000,000 in 2024 with the redemption of our 20 26 convertible notes and scheduled principal payments on our merit debt. We expect to continue our share repurchase program with target Any significant variations from these key assumptions and estimates could cause our results to fall outside of the ranges provided. Our quarterly results will continue to be impacted by seasonal weather in the North Sea and Gulf of Mexico Shelf, primarily the Q1 and Q4. In addition, the timing of our vessel maintenance periods and project mobilizations will cause variations between quarters. Our quarterly financial performance in 2024 is expected to follow a similar cadence as our results in 'twenty three, with the 2nd and third quarter being our most active quarters and 1st and 4th quarters impacted by winter weather.

Speaker 5

Overall, we expect the second half of twenty twenty four to be stronger than the first half. With seasonal quarter impacts, the timing of our free cash flow generation is likely skewed to the latter part of the year. Providing key assumptions by segment and region starting on Slide 31. First, our well intervention segment. The Gulf of Mexico continues to be a very strong market supported by improving rates and expected strong utilization on the Q4000 and Q5000.

Speaker 5

Q5000 has contracted work in every quarter with limited bite space to fill in its schedule. And Q4000 is contracted to work into Q2 in the Gulf of Mexico. The vessel is scheduled to then transit to West Africa for a minimum 6 month contract in Nigeria with a paid mobilization and demobilization. In the U. K.

Speaker 5

North Sea, we expect both vessels to the Well Enhancer and the Seawall have very good utilization for most of the year. Well Enhancer is currently completing an approximate 50 to 60 day regulatory docking followed by contracted work into Q3. The Seawell is currently working in the Mediterranean into Q2 before being scheduled to return to the North Sea for contracted work. Since mid-twenty 22, the activity levels in the North Sea well in the rental market have significantly increased with limited seasonal impact in 2022 and 2023. We are anticipating a return to a seasonally adjusted utilization in the winter months in the North Sea in 2024.

Speaker 5

Q7000 is currently working in Australia with projects scheduled for 3 different operators. Projects are expected to continue to mid year, followed by a scheduled transit to Brazil and mobilization for its contracted work in Brazil. In Brazil, Siem Helix 1 contracted into mid December 2024 with Petrobras, because Siem Helix 1 is contracted performing well abandonment for Trident with the recent contract extending work in Q4 of 20 25. We expect to benefit from the contract extension at market rates in 2025. Moving to our Robotics segment, 532.

Speaker 5

The Robotics segment continues to benefit from a tight market where both oil and gas market and renewables market are extremely active competing for assets. In the APAC region, the Grand Canyon 2 is under contract supporting renewables projects in Taiwan into the second half of twenty twenty three with expected good utilizations for the balance of the year. The Centimeters Topaz and T1401 Crencher are contracted and expected to remain in Taiwan through mid Q4 2024. In the North Sea, the Grand Canyon 3 is currently undergoing battery pack installation. The vessel is expected to begin trenching in April and have strong utilization into Q4.

Speaker 5

The Horizon Enabler has contracted trenching projects in Q3 and Q4. The Globemar wave is forecasted to have good seasonal utilization performing site clearance operations. In the U. S, the Sharia border line is working in the Gulf of Mexico and expected to transit to the U. S.

Speaker 5

East Coast to provide wind farm support. Molina production facilities, the HP-one is on contract for the balance of 24, recently extended to June of 2025, with no currently expected change. We have expected variability with the production as the Droshky field continues to deplete. Thunderhoft field is producing after completion of a well clean out in January. Continuing on Slide 33, we are expecting to have a more traditional season in our shallow water abandonment segment with greater seasonal impacts during Q1 and Q4.

Speaker 5

After a robust 18 to 24 month period of activity, we're seeing operators scale back to mitigate the impact of winter weather. We expect the second, third quarters to be very active with potential for competition for assets if and as schedules fill out. We expect the Optramarine business to maintain good utilization on 5 to 7 lift boats with some variability on the OSVs and crew boat. Boat. Energy services should have good utilization on 12 to 14 G and A spreads and 1 to 3 coiled tubing units.

Speaker 5

There in diving and heavy lift business where the epikudrin is currently idle with limited opportunities, but we do expect a very active season during Q2 and Q3. I'll skip the remaining slides starting with 35 and leave them for your reference. This time, I'll turn the call back to Owen for a discussion on our outlook beyond 2024 and closing comments.

Speaker 3

Thanks, Eric. As we begin a new year, I thought it would be appropriate if we just restate what Helix does. As you're aware, since 2012, the Helix business model has been focused on the late life aspects of the oil and gas market and providing specialty support to the development of offshore wind renewables energy. As a result, we offer services in 3 areas key to our energy transition focus. First is maximizing existing reserves that remain avoiding new drilling.

Speaker 3

This incorporates subsea access for production enhancement, well intervention, marginal field production processing with our FPU, blowout containment contingency services and end of life operating and reservoir management with the potential for owning and operating end of life fields. 2nd is our offshore abandonment. This includes shallow water, full field abandonment of wells, pipelines and facilities and deepwater subsea decommissioning including well P and A. The 3rd leg is specialty support services for development of renewable energy projects namely offshore wind farms. This includes jet and cutter trenching of the cables, boulder site clearance and recently USO clearance.

Speaker 3

Combined, our focus is on the energy transition and sustainable energy from end of life reserves through abandonment to development of offshore wind farms. Our strategy is to remain focused on these areas where we have expertise and efficiencies with a significant market position with ample growth opportunities within each of these niches. For deepwater production enhancement and well abandonment, Helix is an efficient purpose built alternative to the use of drill rigs for non drilling activities. For field abandonment, Helix offers an integrated service including all required engineering, planning, management and assets. For both of these, we have support of our robotics and diving depending on water depths.

Speaker 3

Our robotics has evolved over time allowing Helix to become a global leader in jet and cutter trenching of the wind farm cables. We've also evolved our robotics perform site clearance for wind farms and recently added in house UXO removal capabilities. So let's look at the market outlook for each of these segments. 1st, deepwater well intervention. In 2023, about 60% of our revenues were generated from our assets that compete for work historically done and largely still done by drill rigs in non drilling mode.

Speaker 3

There's a sizable market share still done by drilling rigs. Helix pricing is understandably sensitive to drill rig rates, which are driven by market supply and demand. Drill rig rates and utilization have been rising and are expected to continue rising as many analysts have indicated. To summarize the recent rig report, the long duration upcycle remains healthy and solid growth is anticipated in most regions globally. Significant ultra deepwater demand is expected in the Gulf of Mexico, Brazil, Africa and Mediterranean.

Speaker 3

Slower than expected reactivation of cold stack rigs and a lack of new builds is expected to further drive opportunities for offshore drilling and leading edge day rates for ultra deepwater floaters are expected to exceed 500,000 per day in 2025. To put this into perspective, current ultra deepwater rates are over 400,000 a day now with harsh environment rigs that discounted this in the 350,000 a day range, which is the rate that Helix currently prices to. In our forecast, there are legacy rates that are still working that we're still working through, but our average day rate is currently around 300,000 a day. All to say there are still meaningful increases in our rates that we expect to come over time With blended with ongoing longer term legacy rates, in 2025 there can be as much as a 20% to 25% increase in rates over our current average rate. Next, let me say a few things about abandonment.

Speaker 3

I've covered deepwater abandonment as it's part of what we compete for against rigs. I would add that the volume of work and the pressure both from the public as well as the regulatory bodies is increasing. Primary basins for Helix are the UK, Brazil, Australia and the U. S. Gulf, all of which have substantial work for years to come.

Speaker 3

In July of 2022, we acquired Alliance as a reentry into the Gulf of Mexico shallow water abandonment to complement our deepwater abandonment. The year prior to the acquisition Alliance generated low $20,000,000 EBITDA. Our expectations were for the shallow water abandonment market to significantly become active in the wake of the Fieldwood bankruptcy and accelerate further following the bankruptcy of Cox. Both of these have occurred. After generating roughly $50,000,000 of EBITDA for the full year of 2022, We initially forecasted 2023 to be $60,000,000 with an earnings potential for that business at $70,000,000 EBITDA.

Speaker 3

Actual results for 2023 came in at more than $85,000,000 of EBITDA due to a greater volume of work than expected from multiple major recipients to properties from the Fieldwood bankruptcy. We can't guide to this level of activity for 2024 as clients may slow their work for 2024 and we cannot be certain that we'll recapture another large turnkey project this year, although the potential remains there. The Cox bankruptcy did occur in 2023, but it's taking time to run through the courts. We had expected this work to come to market in 2024, but that may be a bit delayed. We're forecasting the shallow water market to generate similar EBITDA levels that we guided to for 2023, which is a meaningful reduction in EBITDA contribution year over year.

Speaker 3

However, we do expect a meaningful increase from there in 2025 and believe there'll be a strong shallow water market in the Gulf of Mexico for years to come. Finally, let's take a quick look at the offshore wind market. With increased cost of capital and higher costs along the entire supply chain, we're seeing some projects delayed or canceled. This market is sustainable and will grow, but we've always tempered expectations that the growth may be less than the exponential forecast some previously thought. We're also seeing that it's a challenge to achieve margins among the contractors that rushed into the market.

Speaker 3

We prudently decided to stay within our core competencies and leverage our robotics expertise to participate as a specialty niche provider for cable, burial and site clearance. We believe there is significant growth ahead for offshore wind as a whole to generate growth for Helix in the 2 niches as we explore other peripheral niches. We're continuing to grow and our renewables work as a percentage of revenue is technically decreasing, but only because of the greater rate of growth from our other business lines. I'd like to take a few minutes and touch on points that illustrate why Helix is differentiated and has such a positive multiyear outlook. First, again, is deepwater intervention.

Speaker 3

While there's competition

Speaker 2

well intervention that comes and

Speaker 3

goes, Helix created the light intervention market and has been added for over 25 years. Many competitors have tried, but few have succeeded. It's just not that simple and Helix is the leader. In rig alternative riser based intervention, Helix is the undisputed leader and operator of 5 of the 7 assets globally that are capable of non rig riser base intervention. This market is growing as the mature deepwater fields become more plentiful.

Speaker 3

Competitive encroachments not likely, 1st because it's not that simple to do. And second, Helix has decades of experience in refining the technology enhancing efficiencies. 3rd, a majority of the work is still done by drill rigs, which are more expensive, have a larger carbon footprint and are about 30% less efficient at work that Helix does. And of course, the drilling rigs are being used to meet drilling needs. These are expensive assets.

Speaker 3

The high cost of capital, high shipyard pricing and the time required to deliver, we continue to be well placed in the market. Turning to shallow water abandonment. We believe the Gulf of Mexico should be a strong demand driven market for at least the next 7 years. To perform the full abandonment of fields requires a mix of a number of differing assets, resources and capabilities. Over the downturn years, the shallow watermark contracting community collapsed to a great extent.

Speaker 3

It's populated by shallow water contractors rarely having the requisite ownership of assets that can perform fully integrated field abandonment. As the properties come out of bankruptcy and flow back to the successor ownership, largely the majors, They also no longer have the the majors no longer have the requisite teams in house to manage the work and do this and

Speaker 4

excuse me

Speaker 3

to manage their work in our but some will reconstitute shelf deco teams and tender work through their supply chains, while others will contract project management consultants to tender and manage the work on an outsourced basis. Either way, these clients don't have all the assets. We believe the market will be strong enough that most, if not all, Gulf of Mexico assets will be utilized as they were in 2023 and the market will be even tighter going forward. Helix Alliance is well positioned with a meaningful market share of all classes of assets. We're capable of working under any of these above contracting methods.

Speaker 3

Helix is the only contractor capable of providing the guarantee of availability to offer a truly integrated service, Managing all aspects of a full field abandonment is much simpler under a single contract with a single contractor that can guarantee the availability of the assets. We believe in the integrated value proposition we offer clients backed by Helix's decades of delivering efficient results. This capability and expertise is also scalable globally as we see strong markets developing, especially in Brazil and Australia. The last segment I'd like to comment on is robotics, specifically as we're positioned to provide offshore wind farm support. The forecasted rate for growth for the offshore wind farm work appears to be at a slower rate than most we're forecasting, but it is still growing.

Speaker 3

We see this growth as being sustainable for multiple years. Helix is the global leader for jet and cutter trenching of cables and we see continuing demand in this niche. We have 1 tranche system that's yet to be deployed. We also have actively we're also actively renewing our work class ROV fleet to maintain quality operational credibility continued strong performance. In 2019, we began to enter the Boulder removal market for site clearance.

Speaker 3

We're adding our 2nd robotic Boulder grab and recently added an in house capability for USO removal. We've established our credibility and see further growth building off this credibility. Our strength our strategy is to be patient and proven with progressive growth in this market. To close, let me highlight a few things impacting 2024 as compared to our longer term outlook. First, since the summer of 2022, the North Sea has been active throughout the full year.

Speaker 3

We can't be certain that the market won't return to a seasonal market, which could impact 2024. 2nd, we don't expect the we do expect the Q7000 SH1 and SH2 to work in Brazil for multiple years to come. The Q7000 and SH1 have now been successfully contracted through 20 25. All three vessels should show significant improvements in rates for 2025. As a result, we've extended the charters on the SH-1 and SH2.

Speaker 3

The accounting treatment to blend and extend the charter rates have a negative impact on 2024 of somewhere around $6,000,000 EBITDA, which has been included in our guidance for 2024. But the positive impact for Brazil in 2025 is estimated to be close to $25,000,000 to $30,000,000 EBITDA for just the SH1 alone. 3rd point is the Q7000 expected to complete its work in APAC over the course of 2024. The past year, the vessel has been working under legacy rates resulting in actually a loss for 2023. The contracts in hand for 2024 are all in APAC and a mixture of legacy rates and new rates.

Speaker 3

We expect strong improvement of the EBITDA contribution in the range of $40,000,000 with another meaningful rate increase for 2025 as the vessel transfers to Brazil for its contract there. 4th, the Gulf of Mexico was a strong market for our riser based well intervention in 2023. The next year should be even better for our well off U. S. Division.

Speaker 3

Over the past few years, we focused on expanding our geographic footprint and we're successful in establishing our credibility in West Africa. Demand for our services remains strong there and this market we'd like to maintain. With the Q7000 contracted elsewhere, we made a decision to take a contract in Nigeria, primarily because of multi much improved rates and terms and performed its work with the Q4000. The results of this will be an even better year for WellOps U. S.

Speaker 3

Division as the Nigeria work will report through the WellOps U. S. The Q4000 is scheduled to begin transit to Nigeria in August and then anticipated to return to the Gulf of Mexico in 2025. So while the Gulf of Mexico has been a strong market for us recently, it's good to have opportunity to go where the rates and terms take us. 5th point is robotics.

Speaker 3

They had a great year in 2023 and we expect this should continue again in 2024 2025. We do have one printer that could be deployed that was idle in 2023. We also have our startup UXO offering for the market. 6th point is that I have covered the Gulf of Mexico shallow abandonment market and the reasons for not expecting the over performance of 2023 to repeat in 2024. Our expectations for 2024 consistent with the initial guidance we gave for 2023, but with the possibility of repeating the stellar 2023 again in 2025.

Speaker 3

And as I mentioned earlier, we just recently established a 5 year joint frame agreement with Talos for their offshore decommissioning requirements, primarily on the shelf in the U. S. Gulf of Mexico, which we believe establishes the foundation for work for years to come. In summary, we're expecting a 1 year pullback in shallow water abandonment more than offset by the strength of our other business groups. We're anticipating further meaningful growth for 2025, all of this based on just our existing assets and operating leverage.

Speaker 3

As I mentioned earlier, we recognized losses in 2023 related to the earn out payment for shallow water abandonment acquisition and related to our refinancing efforts, without which we would have been significantly higher earnings. In 2024, we'll be making the final earn out payment of $85,000,000 for the Alliance acquisition. We'll have some noise in the accounting and P and L as result of completing the resumption of the remaining convertible notes that are still outstanding. Following this, we have positioned ourselves to have a strong balance sheet and be meaningfully free cash flow positive. Helix should be enjoying growth from the existing operating leverage from existing assets with many market opportunities.

Speaker 3

So that's it, Eric. Okay. Thanks, Ellen.

Speaker 5

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

Operator

Thank And our first question comes from James Schrum. Please proceed.

Speaker 6

Hey, good morning, guys.

Speaker 2

Good morning.

Speaker 6

Thanks for all the detail. I think you partially answered this. I wanted to I wanted you guys to quantify the increase in expenses on the blend and extend for the Centimeters Helix 1 and 2. You said $6,000,000 of EBITDA. Is that per vessel or is that total?

Speaker 6

That is Yes, there will be different numbers for 20 25.

Speaker 5

Yes, there will be different numbers for 2025.

Speaker 6

But like in 2024, are we just capturing, is it the delta on one of the vessels or is it like the full impact? So maybe I'll ask that, but I'll also ask, is it fair to think about a cash OpEx of those vessels of close to 200,000 per day, including the new charter costs?

Speaker 5

So I'll say this, but obviously, the extension of those charters given the strength of the market is something that we pursued. The impact that we're seeing in 2024 is primarily related obviously to the return in value associated with the vessel itself. There will be some incremental increases in the services that are provided associated with that charter going forward. So there will be additional impacts in 2025.

Speaker 6

Okay. Is and maybe this is for Scotty, but like does that sound right Scotty? Are we pushing close to $200,000 per day of OpEx

Speaker 4

on these vessels? I think your numbers are a bit higher. Okay.

Speaker 6

And then maybe just shifting over to I think you partially or maybe fully answered this question, but I can't remember the last time the Q4000 was out of the Gulf of Mexico. So I mean is this driven by a really strong contract and a really good day rate in Nigeria? Or is it some softness in the Gulf of Mexico? I know that for the offshore drilling market, the we might have seen a little bit of an air pocket here. Day rates have been sort of healthy, very good, but sort of flat lined here for at least a year.

Speaker 6

So just didn't know if you're seeing any softness this year in the Gulf of Mexico.

Speaker 3

No. We're seeing a strong market in the Gulf of Mexico. As usual, going into the year, there's a bit of light space in the schedule, but nothing that we didn't expect to fill up. The move to Nigeria with the Q4000 was strictly driven by the rates and the terms that we were able to get there as well as wanting to maintain our footprint in West Africa, which we believe is going to be a strong market for years to come. And after establishing our credibility, we'd like to sort of maintain that presence.

Speaker 4

I'll just add to that. Esso came to us for this contract and single sourced it to us. It wasn't a competitive tender. We're getting paid a very healthy moddemod fee and decent day rate for the works over there. But if you look back 3 or 4 years ago, Exxon did no intervention work other than based on rigs.

Speaker 4

So this is quite a big relationship builder to keep supporting Exxon in riser based intervention, non rig based intervention.

Speaker 6

Okay, great. And thanks for that. And just a quick clarification on the Alliance. I just want to be clear, the EBITDA that you're guiding to for this year is what is it exactly? Is it 60 or 70?

Speaker 6

What's the expectation there?

Speaker 5

I think it's in that $50,000,000 to $60,000,000 range. I think as Owen mentioned, similar to what that's what we had expected at the start of 'twenty three. And obviously, it came in much stronger. But I think we're expecting something in that range for 'twenty four with the potential upside in 'twenty five. I can give a little more

Speaker 4

color

Speaker 3

on that. There was one major recipient of properties from Fieldwood that did an extraordinary amount of work in 2023. That tightened the market up quite a bit and drove utilization. In addition to that, we had a very large lump sum contract that we performed very well on. I think we mentioned that during the notes and we'll be finishing that up early this year.

Speaker 3

That major that had all of the work last year is pulling back for 20 4 and sort of regrouping with the intentions of beginning work again in 2025. And then we also had the Cox bankruptcy got held up in the courts for a little while and that work will be flowing back to the successor owners by everyone's guess a little later than what everyone expected and that's causing a pullback in our expectations on the shallow water abandonment for 2024, but then returning to an all out demand driven market for 2025.

Speaker 6

Okay, great. Thanks for all the color guys. Appreciate it.

Operator

Our next question is from David Smith. Please proceed with your question.

Speaker 7

Hey, good morning and thank you for taking my question.

Speaker 4

Good morning.

Speaker 7

I don't want to beat this one to death, but just revisiting the shallow water abandonment guidance, I mean, 23% was a great year with revenue coming in 30% ahead of the guidance midpoint provided a year ago. So just wanted to make sure I understand, if you could kind of compare the visibility you have for that segment today compared to a year ago And maybe how much of that outlook is dialing in more seasonality or really just less demand visibility?

Speaker 5

So I'll give some high levels and pass it on to Owen. But overall, once again, it is a call off business. I think what we've seen so far this year is the Q1 with the winter weather we've seen pullback in activity. I think we started to see that right at the end of December. So I think on a year over year basis, we definitely expect the Q1 to be slower.

Speaker 5

I think with that, I think we also expect activities to ramp up significantly in the second or third quarter. As we view it, obviously, is really the 4th quarter is one. Are they going to continue at the pace that they're doing? Or is there going to be seasonality there? So there's some variability there.

Speaker 5

But I would say, at least here at the start of Q1, we're definitely seeing more of a seasonal impact than we did last year.

Speaker 3

I'll just add a little bit to that. Besides the major producer that had a lot of work last year pulling back on their expectations for this year. There's the uncertainty of the Cox bankruptcy proceeding. I think this week there's a hearing for the courts to finally approve Chapter 7. That's a little later that's much later than what everyone was expecting the pace of it to move.

Speaker 3

We're just uncertain as to how fast that work comes to the market. It could be later on in 2024, but we don't want to guide to something that you can't bank on. So we're sort of taking the same view as we did going into 2023 and we'll see what happens with the cockswort.

Speaker 7

Understood and appreciated. And follow-up was, I was hoping to revisit the commentary about potential well intervention pricing in 'twenty five. I think I heard the comment that we could see a 20 to 25% increase in rates versus the current average. I wanted to make sure if that 20% to 25% was referring to average day rate and not a percentage increase.

Speaker 5

Compared to our average day rate, which we've talked about, we have, I think, 3 sort of legacy contracts that are holding our rates back.

Speaker 7

That $20,000,000 to $25,000,000 was that $1,000 per day or was that a percentage?

Speaker 4

A percentage. And those legacy contracts rolled off in 2024 and have already been replaced with much better market rates for 2025.

Speaker 7

Perfect. I appreciate that. If I could ask one clarifying question. Did I hear correctly, you all say that the Siem Helix 1 repricing should add $25,000,000 to $30,000,000 of EBITDA in $25,000,000 versus $24,000,000

Speaker 4

Yes, that's correct. 2 and certainly for the Q7000.

Speaker 7

Great. That's all I had. Thank you.

Operator

And there are no further questions on the phones at this time. I'll turn the call back to you for closing remarks.

Speaker 5

Okay. Thank you very much for joining us today. We very much appreciate your interest and participation and look forward to having you on our Q1 2024 call in April. Thank you very much.

Operator

That does conclude 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 reported Q4 2023 revenues of $335 million and Adjusted EBITDA of $71 million, with a net loss of $28 million driven primarily by a $37 million refinancing charge on its convertible notes.
  • Full‐year 2023 results included revenues of $1.29 billion (up over $400 million year-over-year), EBITDA of $273 million (vs. $121 million in 2022), free cash flow of $134 million, and a net loss of $11 million after one-off acquisition and refinancing losses.
  • The company issued $300 million of senior notes due 2029, repurchased $160 million of its 2026 convertibles and filed a redemption notice for the remainder, ending 2023 with $332 million of cash, $431 million of liquidity and a net debt position of $30 million.
  • Key contract wins and extensions include the Helix Producer 1 extension to June 2025, a 12-month extension for SH1 in Brazil, a six-month Q4000 contract in West Africa, and a five-year joint framework agreement with Thales for Gulf of Mexico shelf decommissioning.
  • 2024 guidance calls for revenue of $1.2–1.4 billion, EBITDA of $270–330 million, free cash flow of $65–115 million and CapEx of $70–90 million, with strength in well intervention partially offset by a softer shallow water abandonment market and seasonal weather impacts.
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Earnings Conference Call
Helix Energy Solutions Group Q4 2023
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