Q2 2022 Helix Energy Solutions Group Inc Earnings Call
Please continue to stand behind the call will begin momentarily. Once again. Please continue to standby we thank you for your patience.
[music].
Okay.
Okay.
Greetings and welcome to the second quarter Helix Energy solutions 2022 earnings call.
That started the presentation all lines will be in a listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
If it didn't turn during the conference you need to reach an operator. Please press star Zero as a reminder, today's call is being recorded Tuesday July 26022.
I would now like to turn conference over to Brent <unk>, Chief Accounting Officer. Please go ahead Sir.
Good morning, everyone and thank you for joining us today on our conference call for our second quarter 2022 earnings release participating on this call for helix today are Owen Kratz, our CEO Scotty Sparks, our CLO, Eric <unk>, our CFO , Ken <unk>, 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 Dot helix ESG Dot com. The press release can be accessed under the press releases tab and the slide presentation can be accessed by clicking on todays webcast icon.
Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward looking information.
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 his.
Oracle facts are forward looking statements and are made under the safe Harbor provisions of the private Securities litigation.
Thank you Scott.
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 two and our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q and in our other filings with the SEC you should not play.
Undue reliance on forward looking statements and we do not undertake any duty to update any forward looking statements. 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 slide of our presentation provides reconciliations of <unk>.
non-GAAP measures to comparable GAAP financial measures. These reconciliations along with this presentation. The earnings press release, our annual report and a replay of this broadcast are available under the investors section of website at www.
ESG Dot Com information on this conference call speaks only as of today July 26, 2022, and therefore, you're advised that any time sensitive information may no longer be accurate as of any replay of this call.
Good morning, we hope everyone out there and their families are doing well and staying safe and healthy.
This morning, we will review, our Q2 and year to date results performance and operations.
Yes.
Well.
Excuse me.
We'll provide our.
Sure.
While losing my voice I'm sorry.
We will provide our outlook for the balance of 2022, new and provide color on the rapidly improving market and its potential impact on 'twenty three and beyond.
Yes.
But before we get into Q2 results I wanted to start by commenting.
Our recent acquisition news.
During the quarter, we announced we were acquiring the alliance group of complementing <unk> on July one the first day.
Third quarter, we closed on that transaction.
Financially, we had been keeping our powder dry so to speak keeping cash on hand to be confident in being able to cash settle our long term debts on todays call.
You'll hear a lot about the market improvements, we're seeing and the opportunities we feel are out there.
Sorry to deploy some of that capital by buying alliance at a time when we're anticipating real growth in the abandonment market. We wanted to position helix has a full field abandonment service provider.
And this acquisition expands our offerings and market Diversifies, our revenue stream and further positions helix to benefit from the improving environment.
We will get into more detail later in the call, but it's an understatement to say that we're very excited about the prospects of the alliance acquisition offers and we welcome alliance into the helix family.
Moving now to present the presentation slides five through seven provide a high level summary of our results.
During the second quarter, we benefited from increased activity and improving rates across our fleet driven by a strengthening global offshore energy market.
For the quarter include.
Robotics has delivered strong results for the second quarter with added benefits provided by the addition of the XI Laborde, along the horizon enabler and increased <unk> utilization.
<unk> 5000, <unk> strong operational performance with minimal downtime in the Gulf of Mexico.
The seawell and the enhancer have been deployed on projects since early may.
We completed regulatory and maintenance on the Q4 thousand Seawell and the <unk> 7000.
And production facilities continues to be a steady performer and benefited from the production of our Droshky field.
Revenues for the quarter were $163 million, an increase of $13 million over our first quarter results. The increase revenues flowed to the bottom line with a net loss of $30 million also a $12 million improvement over Q1, adjusted EBITDA for the quarter was $17 million.
The first half of 2022 was challenging as we expected we performed regulatory maintenance on six of our vessels in the north sea well intervention market.
Yes.
I'm sorry.
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The north Seawell intervention market was slow to start we had a significant amount of uncertainty and limited visibility for the Q 7000, and sub market rates for stage, one and stage two.
As we enter the third quarter. Many of these uncertainties and challenges are behind us the scheduled maintenance periods on our Brussels predominantly complete the.
The north Seawell intervention season started in early May the <unk>.
7000 is mobilizing for additional work in Nigeria, and our schedule is firming up above all the offshore market is recovering.
The improvement in utilization rates that have been driving the Gulf of Mexico earlier in the year are now visible in all regions.
On to slide eight from a balance sheet perspective, our cash balance at the end of the quarter was $261 million.
During the quarter, our operating cash flow was negative $6 million, including $9 million of Drydock and recertification costs. We spent 2 million on capex, resulting in a negative free cash flow of $7 million at quarter end, we were in a net debt position of $4 million.
As mentioned earlier during the quarter, we announced our planned acquisition of the alliance companies on.
On July one we.
We finalized the acquisition using approximately $120 million of cash on hand.
I'll now turn the call over to Scotty for an in depth discussion.
Of our operating results.
And good morning, everyone moving on slide 10.
Onshore and offshore itunes within a fantastic job keeping our operations function of unsafe. We completed the remaining planned regulatory maintenance and inspection programs that impacted utilization in the first half at the year and as expected our second quarter results improved into Q1.
Market conditions are improving and we're looking forward to a much better second half of the year as expectations of high utilization across the fleet increase in rates and more favorable terms and conditions.
In the second quarter of 2020 to continue to operate certain vessels globally with minimal operational disruption continue to operate at high standards with 98, 1% uptime efficiency for the quarter.
During the second quarter, we produced revenues of $163 million, resulting in a gross profit margin of negative 1% generated net loss of 30 million producing positive EBITDA for the quarter of $17 million.
In the second quarter when intervention fleet achieved utilization of 67% slightly primarily due to the planned maintenance periods, if 80% utilization in the Gulf of Mexico.
88% in Brazil, 44% utilization in the North Sea and West Africa, the North sea commencing the season, all prices and West African fleet today in the quarter, allowing for the planned regulatory maintenance period.
Our robotics chartered vessel fleet achieved utilization of 94% in the quarter operating five vessels were from 370 vessel days between Rd supports trenching renewable works globally.
Slide 11 provides a more detailed review of our well intervention business in the Gulf of Mexico.
The key 5000, that's showing utilization increasing to 95% in the second quarter compared to 72% in Q1 performed in production enhancement work on six wells for free customers utilizing the jointly owned helix Schlumberger 15, K intervention system in ultra deepwater.
The key for <unk> has not had utilization of 66%. The vessel continued a multi well campaign for one client in ultra deepwater trying to commencing regulatory maintenance periods.
The vessels and commenced the seawell abandonment scope for another client.
Pleasingly <unk> vessels have high utilization with contracted and awarded work for the second half of 2022 and good visibility of potential further activity with steadily increasing rates now contract Senate rates, 40% to 50% higher than last year's rates.
Key vessels of integrated Helix Schlumberger Subsea service Airlines teams and equipment continues to be installed working under one contract offer now clients numerous benefits with increased operational safety efficiency.
Moving to slide 12.
I'll see what intervention season has commenced with both vessels activates it operational.
The North Sea market is finally, improving business has seen much improved utilization and achieving higher rates with both vessels contracted with a nice in the second half of 2022.
We have already taken sizeable awards for 2023 weeks and good visibility of further works with increasing rates and at this time, we are expecting much earlier start to the season in 2023.
The well enhancer achieved 63% utilization in Q T. The vessel had been warm stacked and leave Scotland significantly reducing the vessel operating costs and crew levels.
The vessel then perform the one well production enhancement Skype for one customer followed by an impediment Skype conducting its first ever wax west of Shetland.
The seawell had 66% utilization in the quarter after completing its regulatory joined up maintenance and inspection in late April .
The vessel then went back into warm stack mode until every night.
So then perform production enhancement scopes and four wells with key customers followed by P&I Skype Manuel for another customer.
Decreased 7000 completed work in Nigeria in April and then complete the transit to NAV.
It has now completed its regulatory maintenance and inspection program.
<unk> had an idle period, and we had significant degree of uncertainty regarding her scheduled but for now she has completed transit back to Nigeria to conduct work on one well we have options for further freewheel was for an existing client.
On completion of the Western Nigeria. The vessel is scheduled to commence the phase transit to the APAC region to undertake a drydock in preparation for our contracted work and New Zealand to be performed in the early parts of 2023.
Following the work in these days and divestments schedule them to transit to Australia to undertake work in the second half of 2020 free on the now fully executed contracts conducting a seven well abandonment campaign for Cooper energy.
The vessel is entrance conduct contracted abandonment works on two wells for another client.
There is now good visibility for work for the <unk> 7000.
<unk> tended in Australia, West Africa, Brazil, and 2023 and onwards.
Moving to slide 13.
In Brazil, the same mechanics to you had a strong quarter with 99% utilization.
Production enhancement work on three wells and abandon on one well during the quarter.
The vessels contracted to Petrobras in through mid December and we are in advance discussions on a possible extension with Petrobras at a substantial rate increase which likely would commence December of 2022.
The Siem helix, one was 77% utilized on a short term spss on accommodation support projects in Ghana that completed in May the vessel then translate back to Brazil to undertake awarded RV survey work.
Prior to commencing the long term decommissioning projects in Q4 on the recently awarded <unk> contract. The contract runs for initial two years, we have additional options to extend.
We expect 2023 is going to be far better year for us in Brazil, with both vessels being back to well intervention rates and it's pleasing to see good demand for the units at better rates and conditions.
Forward looking there is a more diversified markets in Brazil with more operators discussing potential works as I take further scaled ownership as part of Petrobras is ongoing divestment program.
Moving to slide 14 for our Robotics review.
Robotics had another good quarter and is having a good year and the business continues to see an improving market for services we provide.
Operating five vessels during the quarter, primarily lesson between trenching, RV support decommissioning and non oil and gas and renewables related cricket.
In the APAC region.
And you can see headwinds kind of utilization in Q2.
The vessel completed work in Thailand undertaken a wellhead decommissioning project and then commence the renewables RV support projects in Taiwan expected to last well into Q3 with further options to extend.
In the North Sea, the Grand Canyon, III, which utilized 89% undertaken renewables trenching operations FTSE clients performing extremely well on some changing contracts.
The vessel is contracted oil and gas and renewables trenching scopes, which are anticipated to keep the vessel busy for most of 2022.
The project shop, and best of the software at 100% utilization continuing site clearance and certainly works that were completed in July .
Also in the North Sea.
Unable to complete the 25 days on an RV support project and has been mobilized with the T. <unk> hundred trenching system and commenced work offshore Egypt on oil and gas Trenching project.
The vessel is contracted trenching works on oil and gas and renewables projects into Q4.
In the USA as Sheila Board alone a Jones Act compliant vessel, which utilized 90% in Q T undertaken RV support work for four customers in the Gulf of Mexico.
The vessel has been contracted on a renewable support projects on the east coast expected to last into late Q3, and recently has been awarded federal works on the East Coast.
Overall the market for services, we provide are enabling is expanding at a decent pace and size and geography and duration.
Our project business has tended over 3000 trenching vessel days between 2023, and 2028 and we believe we are well positioned to secure a good portion of these works.
The renewables market globally is actually contracting a large portion of global marine contract and services and for helix robotics that has made into a tightening market for vessels are these changes in personnel leading to increasingly high demand for our services.
Slide 15, I'll leave this slide detailing the vessels <unk> and trenching utilization for your reference.
The first half of the year that we expected would you guys in Asia.
And the second half year, we see it is really shaping up nicely.
<unk> strong utilization for all vessels and services in the second half of the year, leading to a significantly improved in 2023.
Based on all of this the market is improving across all business lines stronger utilization increasing rates in certain areas of the business rates are improving and better and quicker than we expected along with better terms and conditions.
We are securing longer term contracts and looking to see how it works with some other lines invention assets into 2025.
He is ahead of us look far better than the most recent period, we have endured.
I would again like to thank our helix global team and partners offshore onshore you've provided a much improved quarter compared to Q1 with minimal MTT, while keeping a very high standards and safety performance.
And you have secured a good backlog for the second half of the year and beyond today looking forward to a more exciting times are ahead.
I'll now turn the call over to Brent.
Sure.
Thanks Scotty.
Moving to slide 17, it outlines our debt instruments and their maturity profile as of June 30.
Our total funded debt was $275 million at the end of the second quarter with the final $35 million payment on our 2022 convertible senior notes during Q2.
Maturity during the remainder of the year is a semiannual merit payment.
Moving on to Slide 18. This slide provides an update on key balance sheet metrics, including long term debt liquidity and net debt levels at quarter end.
Cash and restricted cash of 263 million, our net debt position was $4 million.
At quarter end, we had no amounts outstanding and $60 million of availability under our ABL with resulting liquidity of $321 million on.
On July one we used approximately $121 million $120 million of cash on hand for our acquisition of alliance.
To coincide with the alliance acquisition on July one we also amended our ABL increasing the size of the facility to 100 million at $20 million increase.
I will now I will now turn the call over to Erik for a discussion on our outlook for 2022 and beyond air.
Thanks, Brett our results for the second quarter and year to date bear witness to the challenges and headwinds we have faced in 2022, we believe the first quarter signifying the bulk of the market for helix with expected improvements thereafter.
Second quarter, we completed maintenance on three of our and our registered vessels. The Seawell Q4 thousand in Q seven.
In all regulatory maintenance was performed on six vessels during the first half of the year with that behind us and rapidly improving market. We expect the second half to be significantly stronger than the first half.
And well intervention the north sea market is quickly, becoming a healthy market with operators contracting vessel base for 'twenty, two and already planning work for 'twenty three and beyond.
The Gulf of Mexico market continues to benefit from strong utilization and increasing rates.
The market in Brazil is strong with international operators increasing activity.
In West Africa.
<unk> four <unk>.
7000 prior to the expected departure to the APAC region and robotics, we continue to benefit from stronger renewables markets with added benefit from expansion of the market into the U S East coast.
<unk> utilization rates are improving.
Although we will continue to deal with the headwinds from our operations in Brazil through 2020 to much of the uncertainty associated with our outlook for 2022 is behind US. We are now in a position to provide our outlook for the full year 2022, our outlook as a good faith attempt to provide investors information that balances the challenges space.
During the first six months against the backdrop of an improving market for the remainder of the year and beyond we have included an outlook for alliance the shallow water offshore energy services companies, we acquired on July one.
We are setting our annual guidance for 'twenty two as follows revenue in the $725 $825 million EBITDA of $85 million to $110 million free cash flow generation and the negative 20 to positive $15 million. These ranges include some key assumptions and estimates any significant.
Creation from these key assumptions and estimates could cause our results to fall outside of the ranges provided.
Providing our key assumptions by segment.
Slide 21.
Well intervention segment in the Gulf of Mexico. This continues to be our strongest market with improving rates and expected strong utilization on the Q4 thousand in Q 5000 contracted work extends into Q4, we expect strong utilization in this region, except for a 15 plus day schedule.
GAAP on the Q4 as it awaited equipment mobilization.
In the UK North sea both vessels commenced their season in early May.
Both vessels have contracted work into Q4 with strong utilization expected into Q4.
The well enhancer did have 14 days of downtime in July for our sale of the vehicle replacement.
In West Africa, the Q 7000 completed its maintenance in Q2 and transit back to Nigeria in July we have a contract for a one well program with options.
Up to four wells.
Vessels them trying to attract to the APAC region to commence the two refilled abandonment towards the end of 'twenty two or early 'twenty three.
In Brazil, the Siem helix two has contracted into mid December with Petrobras to Siem Helix. One is performing <unk> survey work in Brazil into the fourth quarter prior to its contracted two year well abandonment work for tried it in late Q4.
Moving to our robotics had been slide 22 Grand Canyon two in APAC is on contracted into Q3 and is expected to have good utilization for the balance of 'twenty two in that region.
<unk> three is contracted to perform trenching in the north sea for multiple customers with expected strong utilization for the balance of the year.
The North Sea, we continue to incrementally benefit from renewable site clearance work expected to continue into Q3.
The horizon enabler commencement trenching project offshore Egypt.
High utilization into Q4.
Especially aboard line is working off after U S East coast on contracted wind farm work with expected good utilization through Q3 and good follow on opportunities thereafter.
Moving to production facilities. The HP one is on contract for the balance of 'twenty two with no expected changes.
We have expected variability with production as the Droshky field continues to deplete and will continue to pursue similar opportunities which could impact our results.
Continuing on slide 23, we're excited to include alliance into the helix family the acquisition complements our existing offerings and significantly enhances our position as a full field abandonment service provider <unk>.
Alliance provides marine services with a diversified fleet of lift boats.
Offshore supply boats and crew boats.
Energy services comprised of plug and abandonment and intervention services in coastal areas in offshore for surface infrastructure with 24, P&A spreads non cold tubing.
Diving in heavy lifting for three diving support vessels and from the epic key grid Derrick barge.
There is some seasonality to the business, particularly with the diving in heavy lift service, which we expect to slow down during the first and fourth quarters of the year.
The outlook for Lion for second half of 2022 includes the following assumptions, we expect to have strong utilization from the lift boats and expect the <unk> crew boats to have variability in utilization energy services, we expect strong utilization on 8% to 12 spreads and one to three <unk>.
Yes.
Diving in heavy lift should have good utilization in Q3 prior to their seasonal slowdown.
Moving on to slide 24.
Our capex forecast for 'twenty, two is heavily impacted by the amount from 'twenty, one pushed into 'twenty two of approximately $20 million.
With heavy regulatory year.
Clients, our Capex range for 'twenty. Two is currently 50% to $60 million. The majority of our Capex forecast continues to be maintenance and project related which primarily falls into our operating cash flows.
Our balance sheet funded debt of $275 million is expected to decrease by $4 million over the remainder of 'twenty two as a result of scheduled principal payments.
Skip the remaining slides.
And leave them for your reference at this time I will turn the call back to Owen for a discussion on our outlook beyond 'twenty, two and for closing comments.
Sure.
Yes.
Certainties and variables that previously caused us to refrain from providing jets, where our guidance for the full year 2002 have been resolved to a point, we can give guidance for the second half of 'twenty two in the range of 51 million to 66 million.
For our pre alliance business.
70 million to $85 million for the full year, the second half run rate exceeds the full year run rate of 2021.
The alliance acquisition that closed at the beginning of July is expected to add an additional $15 million to $25 million for the second half of 'twenty two.
Not only are the uncertainties of 2022, becoming clearer. We also have perhaps the best visibility in recent years at this point for what May happen next year in 2023.
We expected the 2022 would be a tough year in the market and demand would improve for 'twenty. Three ahead of this we made 2022, what we have previously called a transition year.
There are certain events in 'twenty two that negatively impacted results. This should not repeat and positive events that we're fairly confident.
To the point, we feel we should share them with you at this early stage ahead of next year, let me be clear that we feel.
2023 is expected to be substantially better year than 2022, we have not engaged in our budgeting process. So this is not our formal guidance for 'twenty, three but merrily directional indicators.
It is appropriate that we share our estimates on these areas with the understanding that it's only our best estimate of what we might expect at this point in time.
Number one is the <unk> 7000.
Until April the vessel has been working nonstop in Nigeria for 15 months straight.
Due to the logistical specifics of working in Nigeria. It was not possible to perform the regulatory required maintenance normally done while working.
The vessel was operating quite well.
But the regulatory bodies required us to remove the vocal from operations in order to conduct the regulatory required maintenance and overhaul typically done while operating.
This non revenue generating period began at the beginning of April and the vessel is expected to return to generating revenue next week.
This is roughly 115 days of lost opportunity, that's not expected to repeat in 2023.
The cost of this period has been taken against the 22 P&L. There remains work to be completed in West Africa, but after that we're planning to relocate the vehicle to Australia, and New Zealand for a campaign of intervention work.
This trend is expected to take approximately 95 days with a dry dock along the way in compliance with regulatory requirements for working in Australia.
The vessel is expected to be ready to work in that region around the beginning of the year pending completion of the work in West Africa.
We are required to defer the cost and revenue for those trends with Peru, and amortized over the project in 2023 and.
<unk> 7000 is not expected to add any contribution to 2022 EBITDA during this period.
The 207000 currently has a campaign of three contracts in 2023 with visibility for further contracts to be added.
As a result of these one time events in 2022 that are not expected to repeat in the visibility on 2023 contracts in hand, plus visibility further work our current expectation for the EBITDA contribution from the Q 7000, our to go from a range of $3 million to $7 million in 'twenty two.
<unk> to a range of $20 million to $30 million for 'twenty, three or a year over year, a positive swing of at least $13 million.
The second event I'll cover involve PSA Tuan EMEA stage two.
For both 2022.
Okay.
These vessels were beyond the initial four year term of their contracts with Petrobras.
Petrobras extended DSA to contract by one year, but at rates that guarantee the cash loss to helix.
Petrobras did not extend the contract on the ESA two <unk> helix walk to work in <unk> support work for DSA. Each one during 'twenty to keep the vessel active while pursuing meaningful options for 2003.
The EBITDA contribution for these two vessels for full year 2022.
It is currently expected to be approximately a negative $35 million.
So each one is now contracted for two years on the intervention work in Brazil at profitable rates would that work scheduled to start either late 'twenty two early 'twenty three.
Exploring several options for the Osage to including a multiyear extension with Petrobras at profitable rates as Scotty mentioned.
Based on current expectations helix believes that these two vessels could provide $20 million to $30 million of EBITDA contribution in 2023, and potentially increasing beyond 'twenty three in the event of contracted rate improvement.
That would represent a positive $55 million to $60 million of EBITDA improvement in 2023 over 2022.
A third topic is intervention rates.
A discussion on rates so it's not a simple one but in general they are increasing dramatically and rapidly.
Very greatly depending on region and client competition scope of work and duration of the contract in general though over the last six months rates are up from as little as 15% in some cases, two others that were up over 70% on average rates can be considered to be up 30 to 40.
5% over just the past six months and continue to increase.
We are tendering at these higher rates.
They are being awarded work well into 2023 and in some cases beyond with somewhat reluctant in offering rates beyond 'twenty four.
Costs are also increasing but generally not at the same pace as rates. Our current assumptions of the costs will increase by 5% a year on average this increase in rates is progressing rapidly and the second half of 2022 is expected to be a mix of old and new rates with the greater extent of impact lives.
Lee occurring in 2023 and beyond.
Fourth topic is utilization.
Utilization was the larger driver of our profitability even rates as such our team is typically very good at achieving utilization available days to market is impacted by regulatory dry dock and maintenance requirements. The year 2022 was unusual in that we decided to perform.
The dry dock and maintenance on seven of our vessels have already mentioned the roughly 200 plus days upon availability for the Q 7000 during 'twenty two additionally.
Additionally, looking solely at the other six vessels there should be over 200 days of additional available days.
For these six vessels that would reduce available marketed days in 2022.
That should not occur in 2003.
There is still a significant dry dock in regulatory inspection planned for the Q4 thousand in Q 5023, respectively, which could require as much as 100 days of an available market of days altogether, though this means that we should have over 300 days of additional vessel availability.
In 2023 compared to 22 four.
For which vessels will be available to market. This would coincides well with the demand visibility we anticipated for 2023.
Topic, five as helix alliance due to the uncertain nature of the market and hazy visibility helix has been retaining cash on the balance sheet to have a greater degree of confidence in being able to cash settle our convertible debt maturity and we finished redeeming one series of our notes in May.
Given the improving visibility on market and in response to what we believe is a significant opportunity. We felt comfortable at this time to put $120 million of our cash to work with the acquisition of alliance.
Due to regulatory and commercial pressures business significant push underway to abandon the room remove many of the Gulf of Mexico oil and gas fields that have built up over time.
We believe this demand will be sustained over the years ahead of our initial estimates for alliance for full year was 30 million to $40 million of annual EBITDA based on the second half of 2022 expectations as the continuing run rate. We feel we can now raise the upper range of that.
Expected EBITDA 2023 expectations could be in the 30 million to $50 million range for 2013.
Topics <unk> robotics.
Demand increased in all of our areas of our business model helix was a meaningful player in the provision and the world class Rovs and a global leader in robotic jet Trenching. These are vital services to the offshore wind market. In addition to our Robotics Division provides site clearance for the wind farms required prior to installation.
<unk>.
We are seeing an increase in demand as well as rate increases out past outpacing cost escalation as Scotty covered.
This has resulted in our robotics gross profit margin increasing from 3% for the year to date, ending July 30% to 21% to 17% for the year to date, ending July 32002, and 23% in the last quarter, we're seeing an increase in demand for all of our robotics offering.
And especially trenching, which generates a great greatest margins.
The southern socket topic as production facilities.
PHP one continues on contract with Telos with current expectations for further extensions the reserves on Drosky are declining and at some point a lens. However, we do anticipate closing on additional similar transactions.
The last topic I'll cover is M&A.
The current landscape presents a fairly rich environment for opportunities to consolidate or add to the helix business model as an energy transition story, we are mindful of maintaining a strong balance sheet and the alternative uses for cash cash such as returning value to shareholders, our intent to explore and analyze.
In order to achieve the greatest value to shareholders as well as progress our commitment to being a meaningful contributor to the energy transition process.
We've called 2022, a transition year for helix, we fully intend to transition from a weak market in 'twenty two to high demand market in 'twenty three and beyond.
We will also transition from being defined as simply an oilfield service company to being more clearly define and what we do in support of energy transition and sustainability.
We'll focus on late life oil and gas activities and support of offshore wind.
Number one we will work to maximize the remaining reserves.
Two we will be.
Expanding our ability to be a player in the abandonment of oil and gas offshore fields and three will provide key specialty support services to the offshore wind market.
Earlier this year, we faced many uncertainties I would hope its color makes up for the lack of information going into 'twenty two.
The market in helix are evolving rapidly and theyre surely variables that will become more clear over time, but this is a glimpse into what our current expectations may include.
We will endeavor to provide transparency on our best estimates as we approach and proceed with the budgeting process for 2003.
And that mix developing market again to be clear, we expect 2023 to be substantially better than 2022, we've shared our views and recognize these are forward looking statements are subject to change.
You deserve to know what our current expectations are and how we're feeling at this time about the company in the market and our prospects.
Sure.
Thanks, Owen operator at this time, we'll take any questions.
Thank you you would like to register a question. Please press the one followed by this call on your telephone.
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First question comes from the line of James Schumm with Cowen. Please go ahead.
Hey, good morning, guys.
Good morning.
What the what.
What gives you confidence in the outlook for Brazil, I know you touched on it but.
Clearly you have an anchor contract with Trident next year, but the S. H two contract with Petrobras expires in December .
You mentioned advanced discussions with Petrobras, but they tend to be really tough on services companies is as I think you guys know well so what gives you confidence there.
I'll take that like you say, we have the anchor contract with China.
Anchor contracts with options to extend and then we are in very advanced housing negotiations with Petrobras.
Great.
A great on rights and they have had far more substantial compared to the two.
2021 rates in 2020 see rates, we've had we're expecting approximately a 40% increase on the rates and the duration of that contract to be about two years like a segment FX discussions the discussions are very healthy.
I think that will be shortly having that contract in place.
Okay. Thanks.
Proper options of overall prices showing significant interest in the vessels in Brazil.
That's helpful update on discussions with Petrobras.
All right makes sense.
And then.
Can you maybe just provide an update on the U K north Seawell intervention market I mean, it. It appears that we went from week to strong almost overnight. Obviously there is the seasonality at play but.
How sustainable is this and just any other color there would be great.
I'll take a shot and then look Scott follow up probably more detail, but in general the a.
A year ago, the only market the north sea.
It was really talking about.
Abandonment decommissioning market.
That was in the early stages of planning.
The first phases would've been dry three PMA, followed by subsea in facilities at a later date. So we were really thinking that the north sea would ramp up.
Middle to 'twenty three and beyond.
Ukraine happen.
And all of a sudden.
They're sustainable energy source became important.
Finding more reserves our work almost overnight shifted from planning of abandonment to production enhancement.
I think Joe.
I'll just leave it at that.
Yes, we've got very.
Good contracts in 2022 for the second half of the year has a very high utilization for five vessels in the North Sea.
We're already taken awards for 2023, and usually we don't get awards until the third or fourth quarter.
The following year.
I'd say for at least the last three or four years, we have the best visibility in ongoing discussions with our clients.
For 2023 and beyond.
And do you guys I mean do you guys. So that makes a lot of sense, but do you guys feel like.
This was a wake up call and it's longer term in nature or is this just.
Ukraine issue.
Perhaps this gets resolved over the next year and then.
There is a huge.
Huge focus on renewables and.
No.
The demand for your services.
Wayne's again.
And our cost structure allowed this improvement.
I think thats certainly possible I think that the.
The U K North sea market is very politically influenced.
So that could happen.
We did have a pretty big backlog of P&A work that was building up that isn't that isn't stopping.
It could be a little delayed so by 'twenty four I think you are.
Even if the production enhancement were to reverse itself yet again.
Switched back to focus on renewables and decommissioning when does the backlog of work that has built up that would sustain.
Utilization levels.
Okay. Thank you guys very much.
Our next question comes from the line of Don Crist with Johnson Rice. Please go ahead.
Good morning, gentlemen, how are you all today.
Good how are you.
Pretty good.
I wanted to touch on the shallow water Gulf of Mexico Alliance.
Yes.
Now that you've closed the deal can you give us a little bit more insight into the customer base is it widespread or is it kind of focused.
On a couple.
Individual.
Customers, there and number two what does the demand look like obviously youre going to have some seasonal slowdown in late Q4, which is normal for the Gulf of Mexico, but what does demand look like going into 'twenty, three and beyond there I know, it's a large market.
Yes.
I'll take that in reverse order some some analysts have predicted.
Gulf of Mexico shelf market as much as $7 billion over the next 10 years, so that would equate to a $700 million a year market.
It will be.
Activity has always been very skeptical of DNA.
The hockey stick just never seems to happen, but I think what's going on in the Gulf of Mexico was precipitated by the field with bankruptcy.
Heald would end costs are the two major players along with arena.
And the shelf.
When field wood went bankrupt under.
Under the proceedings most of their shelf properties reverted back to the legacy owners, so as opposed to being a concentration of properties with one client.
It's now been disbursed back to the legacy owners, which includes shell BHP and Chevron Exxon.
All of the majors, but the bulk divested shelf properties now have been back.
<unk>.
Big impetus from both the government and the legacy owners is to get this abandonment done as quickly and expeditiously as possible.
I think the only.
The only impediment to that as over the past years, the Gulf of Mexico shelf.
Blackstone community is sort of the industrial business. It was really not a lot of capacity left on the Gulf of Mexico shelf.
And there and we saw the opportunity I think Steve Williams owner of alliance or before.
Can start accumulating assets ahead of.
And if you look there one contractor that has a full suite of assets and services to do full field abandonment one stop shop.
You'd look at individual asset classes.
They own anywhere from in some cases up to 33% of all of that class of assets available in the Gulf of Mexico. So theyre almost assured in my mind through their integrated cross offering and the sheer volume of their assets to capture a large share of.
The market annually later and over the top of the fact that the work is now going to revert back to majors.
Who expect a little bit.
Different operating.
Process and systems than what Gulf of Mexico contractors.
<unk> two O devolves too over the last.
Five to 10 years, and therefore represents a really good opportunity for helix to bring the systems in with the alliance capabilities and provide a best in class service on a full integrated basis.
Gives us it's a market that we were in historically, it's one that we understand.
I think we're well positioned to be the best in class alternative in that market going forward.
I appreciate all that color and if I could ask just one more macro question.
Kind of following on the previous guidance.
Who was asking questions.
Fleet status reports from some some of the drillers have have shown uplift.
20% to 40% in rates I know your rates are impacted by the offshore drilling rates are you seeing similar uplift in rates across the industry not necessarily just in the Gulf of Mexico, or Brazil, but just across the industry in general and how coral.
Weighted or your rates generally to the offshore drillers.
I'll take that we are seeing an increase across the board for all services from robotics and into well intervention.
So it really jumped up from the from the bottom normally 100% hard and when we go in there.
The market in the Gulf of Mexico.
Compared to last year as rates were up 40%, 50% in the Gulf of Mexico, and increasing and seeing high visibility on contracts and at nice rates.
In Brazil, we've already discussed Brazil, we're seeing about a 40% increase on the Petrobras contracts and rates are steadily creeping up in the north sea.
I understand it's a slightly different market in the north sea with not a rig went to smaller dive at baseline intervention assets. So our cost base is far less than what we have in the Gulf of Mexico, and Brazil, and Australia has happened since we have a much lower cost base.
We're seeing an increase in rates.
Right, Okay, and do you see anything that could be an impediment to increase utilization overseeing the next 12 to 18 months.
The only thing we have coming up in just the accounting side, we do have a drydock planned for the Q4 2000, and a regulatory maintenance periods for the Q five I think.
It's going to be very healthy over the next 12 to 18 months rates will be high and utilization will be higher.
Exactly what I was looking for I appreciate the color guys.
Best of luck to you.
Got it back.
Thank you have a good day.
Next question from the line of David Smith, Pickering Energy Partners. Please go ahead.
Hey, good morning, and.
Congratulations on the on the improved outlook.
I was hoping to revisit the beyond 'twenty two section the outlook seems pretty straightforward I just want to make sure I'm understanding correctly.
For the three items you quantified the Brazil vessels Q seven the alliance acquisition in aggregate at the midpoint.
Generate around $100 million better EBITDA in 'twenty three versus 22.
Before the impact of better expected utilization rates for the other well intervention vessels and for robotics.
This is before any potential additional gasket ideals.
At the midpoint, if I'm reading this right it looks like Youre pointing to 'twenty three EBITDA that is around.
Around 200 million or better.
So I just wanted to make sure that that was the intent and whether I'm missing anything that might be an offset.
I think that's certainly a.
Possibility.
We'll stop short of giving full guidance for 2023, because as you mentioned there is a lot of.
Unknowns still be considered there.
<unk>.
I don't I don't I don't know that I'm ready to put a hard number on it there are a lot of things to consider in our budgeting process. We're letting we're giving you insight into part portions of the budgeting process.
We have.
Visibility on and have a degree of confidence in sharing but like you said, we don't know where rates are.
Eventually wind up so that could be a big upside or it could be a small upside.
I mentioned 300 days of utilization of additional utilization, how much of that will actually be able to market. It.
Uncertainty and of course, when he does not marketed becomes a drag on EBITDA. So we have to sort of figure out what the balances there.
<unk>.
Other things to consider are we in a recession or are we going into a recession and what what's going to be the impact on demand at that point, what's the reaction to the clients.
Ukraine in China, what is that impact on supply and demand going to be and are we going to see any.
Any.
Potential for.
Unforeseen reactions by the clients such as shutting off spending and canceling contracts.
So are they getting into outlet in the world always.
Always expecting the worst in planning for these are the things.
And like we mentioned in the North Sea is there going to be a balance between the environmentalist pushing decommissioning.
Versus a sustainable energy levels, where is that balance going to fallout. We've got the HP one renewal coming up next year, we do expect it to be renewed but it is producing on a decline in field. So what what are the terms and rates of that renewal is going to be.
You mentioned the production deals.
Production deals are most favorable for us in the high commodity price environment.
But hasnt outlook are declining.
Bind with high expected.
Abandonment costs right now we have high commodity prices and we have rising abandonment cost expectations. So we're we're certainly heading towards the horizon.
An interesting market in that respect so there's there's a lot left for us to mull through and quantify in our minds before we're ready to give 2023 full guidance, but this.
I believe we said in the presentation. This is directional and its significant lead to the upside.
Yeah, David I think we wanted to present to the Investor base and specifically address the headwinds.
We entered 'twenty, two with and I think.
Big picture, we have three areas of uncertainty in the North Sea.
<unk> 7000.
The impact of sort of the Brazil operations and so as the year has progressed, obviously the north sea market has.
As a solidified very very quickly.
Even.
Improving as Scotty mentioned with works awarded four for 'twenty three so so that that one has addressed and I think with the tried into award early in the year and where negotiations are going with Brazil.
We feel that that position is solidified as well and then with the Q seven.
As a remainder of 'twenty, two and as we head into 'twenty three with the contracted awards in 'twenty three.
We wanted to specifically address the headwinds that we faced in 'twenty, two and how we expect that to reverse in 'twenty three.
I do think in general, though you are thinking about it. These are positives and then on top of but we've got full rates utilization and production deals to consider.
I appreciate all the color.
Yes.
Yeah.
Kaufman.
Your comments.
<unk> potential potential things that could go right.
Hold on I'll save my my question about returning cash to shareholders for another day.
So I do want to ask just real quick in your outlook beyond 'twenty two.
You mentioned an outlook for additional Droshky type deals.
I wanted to ask it.
Acquisition of alliance means that those deals can be can be shallow water going forward and if youre seeing more interest in.
Operators in this approach furniture shallow versus deepwater.
It certainly could include zoro shallow water fields.
We have looked at a few new we don't have anything.
Hopper.
That we would consider.
Reasonable deal that we would jump on top of right now our main focus is still towards the deepwater.
Perfect I appreciate the color. Thank you.
Next question is from the line of Samantha.
Evercore ISI. Please go ahead.
Hey, guys, maybe just to extend on that last question.
Can you talk more broadly about the types of synergies that you expect to see from this alliance.
Thank you.
Just kind of curious what sort of.
Combinations that you can have with your legacy deepwater services beyond just sort of targeting that major customer base.
As far as cost synergies, we don't really see cost synergies, but it's a separate business from what we do in the Gulf of Mexico.
Is additive to our of our story of energy transition to expanding our abandonment capability.
To that extent there is revenue synergies I believe.
Becoming a meaningful dominant player in the Gulf of Mexico, and what that translates into other high decommissioning areas as far as credibility and.
Capacity.
Some of those areas include we've mentioned the North Sea is a high.
Potential for decommissioning, Brazil.
Brazil, each one of these divestments from Petrobras.
<unk>.
The other players new players carries a requirement for decommissioning within a certain period of time, so Brazil is going to become not only a bigger decommissioning market.
Along with the production enhancement, but youre also going to probably see wind.
To make a meaningful impact on Brazil, and then finally in.
The last decommissioning market is.
Asia Pacific region, its a mature basin.
<unk>.
Australia, They had a bankruptcy similar to what happened in the Gulf of Mexico, which has put a lot of emphasis from the government on to the producers to accelerate their abandonment plans. So in.
Indirectly I think theres revenue synergy from having the alliance acquisition and being gaining the credibility as a full field decommissioning company.
Is there going to be any growth capex that you're anticipating for next year.
The guidance that you gave.
Stated, mostly for maintenance and it looks like you raised the upper end, there, but could we see gross capex right.
The level that you are running at this year.
The only the only capex that I can foresee over the future years would be perhaps the addition of additional trencher, because we're seeing such demand growth in that market.
That we don't have any significant growth capital.
<unk> aspirations actually.
Having said that.
My closing comments I mentioned.
M&A, we're going to balance that.
Opportunity against ultimately returning value to shareholders. So to the extent that there are opportunities like the alliance.
That resulted in accretion to free cash flow per share, which ultimately helps with the return of value to shareholders.
As long as they fit our strategic story of energy transition.
Accretive to free cash flow per share, we would take a look at them.
And if I could just sneak in one more.
Your robotics revenue guidance seems kind of light.
Given that you're coming up on typically strong quarter.
Are you just expecting a bit more of a seasonal drop off in Q could you kind of explain.
Like what's driving your guidance there.
There will always be a in a seasonal drop off on the trenching because the trenching works in windows in shallow water in the North sea regions.
Russia conditions.
And the winter season.
We've seen an improved market and retrenching from next year next year, we expect to have two vessels entrenching completing more trenching days and this year and increasing as we go forward like I said, we have.
3000 die rewarded attended trenching days out there between 23 and 28.
We're expecting a much healthier year in 'twenty three.
Our wholesale increase in rates.
Area as well.
Yes, I would add to that that we did experience a very strong first half of the year in robotics.
Had a very strong first quarter for them, which is unusual just because of the seasonality and added on that with that with the second quarter with a couple of very successful renewables trenching programs had a very strong first half of the year and at this point in time that we would expect to see a seasonal drop off in.
In the in the fourth quarter, depending on how the market goes that can fill in but from our standpoint, I think that's probably a little bit the drop off is is the product of.
Very strong first half of the year that we had.
Okay that does it for me congrats on a really productive first half.
Thank you.
Next question from the line of sync over tens of Berry Lane. Please go ahead.
Hi, Thanks for taking the question.
I believe Owen touched on this and has a response to the last question, but I was wondering if you could.
Provide a little more color on.
High level, how the board is thinking about.
Linsang M&A with returning capital to shareholders went up.
There are certain internal targets for.
Oh hunting.
And that particular M&A target needs to meet or whether it's a certain amount of free cash flow. That's expected to go to M&A on a yearly basis is there any color you can share about structurally how youre thinking about that.
Well I'm sure. The board will appreciate me speaking for them So I will.
I think we're in a dynamic market.
We've always thought that ultimately.
Especially in the recent years, there's been the greatest emphasis on.
Generating free cash flow and returning value to shareholders as opposed to growth.
Don't know.
There may be a little swing back on that but bottom line I know the board I think I can confidently.
Confidently say that the board is also interested.
And the fact that though.
It's too small right now.
We need some scale.
To the extent.
We've made some.
Moves here, but I think.
<unk> increases.
The cash.
Cash flow per share in the company.
For next year as well as the share as well as scale.
Both of those I think are positives are positives for shareholder value.
Our number one priority for us will always be managing our balance sheet.
So to the extent that we do have the towers of converts coming up we're not going to do anything that jeopardizes, our ability to cash settle those.
We're just at a point now where we see enough positive visibility on cash generation.
There's a certain amount that we're willing to use in order to achieve better scale.
Accretion to free cash flow per share.
Thank you.
We have no further questions on the phone line.
Thank you thanks for joining us today, we very much appreciate your interest and participation and look forward to having you on our third quarter 'twenty to call in October . Thank you.
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
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Yes.
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