Q3 2022 Helix Energy Solutions Group Inc Earnings Call
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Yes.
Greetings and welcome to the third quarter Helix Energy solutions 2022 earnings Conference call.
We started that 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 at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, today's call is being recorded Tuesday October 25 2022.
I would now like to turn the conference over to Brent Sorry, I Gotta, Chief Accounting Officer. Please go ahead.
Good morning, everyone and thanks for joining us today on our conference call for our third quarter 2022 earnings release.
Participating on this call for helix today are Owen Kratz, our CEO Scotty Sparks, our C O O Eric <unk>, our CFO Kim.
<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 did not have a copy of these materials both can be accessed through the for the investor page at our website at 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 cannot Kirk will make a statement regarding forward looking information Ken.
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.
Facts are forward looking statements and are made under the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Our actual future results may differ materially from our projections and forward looking statements due to a number and variety of 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 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 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 slides of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP for.
Natural measures. These reconciliations along with this presentation the earnings release, our annual report and a replay of this broadcast are available under the investors section of our website at helix ESG Dot com.
Please remember that information on this call speaks only as of today October 26, 2022, and therefore, you're advised that any time sensitive information may no longer be accurate as of any replay of this call.
Alright, good morning.
Hope everyone out there and their families are doing well good morning.
This morning, we will review, our Q3 and year to date results performance and operations.
We will provide our outlook for the balance of 2022 and provide color on the rapidly improving market and its potential impact on 2023 and beyond.
But before we get into Q3 results I wanted to start by discussing our recent acquisitions.
First our acquisition of alliance the acquisition.
Acquisition positions helix has a full field of betterment service provider expands our offerings in markets and Diversifies our revenue stream.
We've added shallow water marine services surface, well, PNA and intervention services diving and facility and pipeline removal capabilities to our existing services, we continue to execute our strategy to position helix as the pre eminent offshore energy transmission company.
Our existing operations Helix alliance is well positioned to benefit from the improving offshore environment. Our third quarter results include Helix Alliance for the first full quarter.
Second our acquisition of the Thunder horse field.
We've acquired 62, 5%.
I have three subsea wells unrelated subsea equipment for the assumption of the abandonment obligations.
The acquisition continues our strategy of securing utilization for our assets in non traditional ways, we expect to benefit in the near term for maximizing production and secure abandonment work for the long term.
Moving now to the presentation.
Slides six through nine provide a high level summary of our results and key highlights for the quarter.
During the third quarter activity levels across all segments were very strong with the increased activity from the strong global offshore energy market driving improved rates.
Highlights for the quarter include strong utilization in the Gulf of Mexico, and North Sea.
<unk> 7000, working again on West Africa seasonally strong robotics activity, primarily from the renewables market with increased trenching and development of our new Boulder grab.
<unk> start a strong start to helix alliance with their marine support and energy systems generating good utilization and days work.
Production facilities continues to be a steady performer and benefit from the production of our Droshky field and our newly acquired Thunder horse field.
On the sales front, we secured a two year extension with Petrobras for the Siem helix, two and negotiated contract reflective of the improving market.
Revenues for the quarter were $273 million.
An increase of 110 million over our second quarter results, our net loss was $19 million and $11 million.
<unk> over Q2.
Our net loss was negatively impacted by the strengthening U S dollar with $20 million.
Negative FX impact primarily through our UK based entities nearly all of which.
Nearly all of its unrealized noncash adjusted EBITDA for the quarter was $53 million.
We believe the third quarter signifies an inflection point for helix our employees continue to operate at high levels and this quarter, we're starting to see the benefits of an improved and recovering offshore market flows through our results.
We recognize there is room for improvement as we have set the foundation for improvements in Brazil in 2023, with our recent two year contract with Petrobras rigs.
We expect to see seasonal impacts on our Q4 results, but with the market outlook combined with our contracted work, we expect significant improvements in 2023.
On to slide nine from a balance sheet perspective, our cash balance at the end of the quarter was $162 million during the quarter, our operating cash flow was $25 million, including $11 million of Drydock and recertification costs.
We spent 3 million on capex, resulting in free cash flow of $22 million.
We used approximately $113 million of net cash on our acquisition of alliance at quarter end, we were in a net debt position of $99 million.
I'll now turn the call over to Scott for an in depth discussion of our operating results.
Thanks, Ed and good morning, everyone moving on to slide 11.
The team's offshore and onshore continue to set the next section of extended reliably keeping our global operations functional and safe.
We had anticipated early in the Q3 could be sending fortinet, yet and the Phoenix sales and produced a strong quarter better than our expectation.
Market conditions continued to increase when we are looking forward to conclude in 2022 with high utilization across the fleet stronger backlog and better visibility increasing rates and more favorable terms and conditions.
<unk>.
Our outlook for 2023 remains improved year over year with some long term contracts in place with numerous contracted days and high visibility of work for asphalt markets assets.
All of our businesses are well positioned for 2023 and beyond.
In the third quarter of 2020, we continue to operate globally with minimal operational disruption with operations in Europe , West Africa, Asia, and Brazil, the Gulf of Mexico and on the East Coast. We continue to operate at high standards, we've strung up some efficiency for the quarter.
During the third quarter, we produced improved revenues of 273 million, resulting in a gross profit margin of 14% generating the gross profits of 39 million producing positive EBIT for the quarter of $53 million a.
The significant improvement against the first quarter of 2021, and the vast improvement of the first quarters of 2022.
In the third quarter, we commenced the integration of the newly acquired Helix Alliance business. A company that focuses mainly on mostly on the shallow water decommissioning space and pleased to say that process is on course and the teams are working constructively together and helix alliances performing well in line with our expectation and we are essentially happy to welcome onboard.
Parts of the team.
For the quarter and it wasn't intervention fleet achieved utilization of 87% globally with 88% utilization in the Gulf of Mexico, 99% in Brazil, 89% utilization in the North Sea and 59% utilization in West Africa.
The robotics chartered vessel fleet achieved high utilization of 98% in the quarter operating five vessels working 376 vessel days between RV supports trenching renewable works globally, where can have multiple renewables projects in Europe Asia and on the ESG space.
The Phoenix Alliance data vessels achieved 80% utilization in the aligned systems achieved 59% utilization with 1077 operational days working for numerous clients in the Gulf of Mexico.
Slide 12 provides some more detailed review of our well intervention business in the Gulf of Mexico.
The key 5000 again had strong utilization of 94% in the third quarter performing production enhancement work on three wells for key customers.
Utilizing.
<unk> 15, K intervention system for one of the clients and ultra deepwater.
The vessel is currently working for shell as parts of the recently contracted multiyear agreements.
The Q4 had strong utilization of 81% in the first quarter compared to utilization of 66% in the second quarter. The vessel completed one well for one customer and the single well campaign for another customer it utilized in the <unk> 15, K intervention system.
The vessel commenced a multiyear campaign for one clients and ultra deepwater.
Pleasingly, we expect both vessels so that high utilization contracted work for the rest of 2020 and strong structures work into 2023 with good visibility of potential further activity with steadily increasing rates.
ISG vessels continue to operate under the helix <unk> Subsea service Alliance package.
Moving onto slide 13.
Our north Seawell intervention business had a much improved quarter with stronger utilization for both vessels in the UK and convinced another campaign for the <unk> 7000 in West Africa.
The well enhancer achieved 80% utilization in Q3 due to some breakdown periods. The vessel performed production enhancements and decommissioning operations on four wells with key customers working for one customer what's the shipments.
The Seawell had a good quarter with 99% utilization the vessel performed production enhancements and decommissioning works on eight wells for four customers also utilizing our diving services.
The North Sea market continues to increase and our business has seen much improved utilization and achieving higher rates with both vessels contracted for the remainder of 2022.
We now have over 350 days already awarded a contract in the North Sea in 2023, and good visibility further works and expecting February award shortly.
Typically we would seasonally expect the vessels in the winter months in the North Sea. However in that next time, we are not expecting the stack the vessels and are planning to continue working through the winter months with only a minimal plant maintenance period for each vessel.
The key 7000 tons of it back to Nigeria in July after completing its regulatory maintenance inspection program in Namibia the.
The vessel commenced operations in August performing production enhancement works on two wells from existing clients.
The schedule for the Q 7000 is now much clear and set for the remainder of 2022 and into Q4 of 2023.
On completion of the works in Nigeria later in Q4, the vessels scheduled to commence a pay transit to the APAC region to undertake a dry dock in preparation for our contracted work in New Zealand commencing in the first half of 2023.
On completion of the work in New Zealand. The vessel has been schedule for paid transit to Australia to undertake work in the second half of 2023, and the now fully executed contracts conducting a seven well abandonment campaign for Cooper energy.
The vessel has been contracted for Benjamin works in Australia on two wells for another clients covered life's 2023.
Once complete with its safe that campaign, we are confident in the opportunities for the <unk> 7000 for the end of 2000 22023 and 2024.
Moving to slide 14.
In Brazil, we had strong utilization of 99% in the first quarter. The Siem helix. Two you had a strong quarter with 100% utilization completed production enhancement work on one well and decommissioning activity unfolds.
Pleasingly, we recently announced the extension to the contract with Petrobras for the Siem helix two that are set to commence in December 2022 for two years. So divestments now under contract considering December 2024, with a substantial rates increase we can in mid December .
The Siem helix, one with 99% utilized undertaken RV survey works for <unk> as it prepares for a long term decommissioning projects in Q4 on the recently awarded two year charter contracts.
We expect 2023 is going to be a far better year for us in Brazil, compared to 2022 with type vessels being back to well intervention rates and we are pleased to have both investment was once again secured into long term contracts.
Slide 15 provides detail of our well intervention fleet utilization.
Moving on to slide 16 for our Robotics review.
Robotics continues that could fall we had another good quarter performing at high standards with strong utilization operating five vessels globally. During the quarter, primarily primarily work in between Trenching RV support site survey works and non oil and gas and renewables related projects.
The APAC region, the Grand Canyon, II had 100% utilization in Q3, the vessel continued work on our renewables RV support project in Taiwan.
The vessel is currently in Singapore for a planned maintenance period in mid Q4 of the vessels contracted to commence another long term decommissioning project in Thailand expected to last 190 days with further options to extend.
In the North Sea, the Grand Canyon previous utilize 100% undertaken renewables trenching operations with two clients performing extremely well and performed in oil and gas Trenching project for another client.
Project chartered vessels, the south <unk> <unk>.
16 days completion site clearance and survey works on our renewables project on completion of the project the vessels hand, it back to its owner.
The horizon enabler had 84 days of spot vessel utilization competes in an oil and gas Trenching project offshore Egypt, and then perform renewables trenching works for another customer in the North Sea.
Both the change in vessels in the North Sea have contracted work well into Q4 and updated and a strong backlog for the 2020 free trenching season.
In the USA the sheet aboard alone Jones Act compliant vessel was utilized 100% in Q3. The vessel performed site survey project for one customer <unk> projects utilizing our own in house built both a grab for another customer both projects supporting wind farm operations on the U S East coast.
The vessel has recently been contracted for February and the Gulf of Mexico to support the 100 day seismic node installation projects with several options to extend.
As I mentioned <unk> is performing well this year and we have good backlog and good visibility slightly inside new market space in the oil and gas in the global renewables markets setting a good foundation for 2023 and beyond.
Slide 17 details our robotics vessels are very entrenched and utilization.
Slide 18 provides a review of our newly acquired shallow water decommissioning and construction support service business Helix Alliance.
Those are shallow water abandonment segment.
As I mentioned earlier.
Integration of the company into helix is positively on course, and the business is fitting in well with us and performing as expected and we are happy to have the team on board.
Headaches aligned which is made up of three parts.
Offshore supply this folks Isps and one crew boats energy services, providing PNA spreads and co chief in spreads and dive in and heavy lift supplying free diving vessels under heavy lift barge.
These three parts of the company allow helix alliance to uniquely BD only company operating in the Gulf of Mexico shelf that has the tools and assets to undertake full field shallow water abandonment. This.
As physicians helix to be in a leading position to check with the increased demand of shallow water decommissioning.
Offshore had tenants operating in Q3 with combined utilization of 72% performing decommissioning services, such as well abandonments and pipeline event abandonment.
And construction support with five customers offshore also supplied six service fees and one crew boats with a combined utilization is 95%.
Energy services had 909 days of operations with 14, multiple P&A stretch deployed conducting decommissioning services.
And 168 days of operations with <unk>, <unk> co chief and systems in the third quarter.
Diving in heavy lift at 86% utilization across the free dive in vessels and 41% utilization for the heavy lift barge conducting platform removal works.
Slide 19 provides detail of the helix alliance vessel and systems current utilization.
Before I turn the call over to Brent I would again like to thank the helix global team and partners offshore and offshore onshore you produced the vast increase quarter compared to the first two quarters of 2020 to be one of our best quarters in recent times with strong operational efficiency minimal MTT and again set high standards and safety performance.
Our markets continued to increase for all of our businesses, leading to strong utilization for our vessels with some well won long term contracts improving rates and better terms and conditions. The third quarter assesses as we expected on the start of a recovery in the next few years that should be in much better shape. Thanks to you. The helix team I will now turn the call over to Brent.
Yes.
Scotty moving.
Moving to slide 21, it outlines our debt instruments and their maturity profile September 30.
Our total funded debt was $271 million at the end of the third quarter with 4 million payment of our Marriott that during Q3.
Our next maturity is a semiannual myriad payment in February of 2023.
Moving on to Slide 22. This slide provides an update on key balance sheet metrics, including long term debt liquidity and net debt levels at quarter end.
With cash and restricted cash of $165 million, our net debt position was $99 million.
On July one we amended our ABL, increasing the size to increasing the size of the facility to 100 million at $28 million increase.
At quarter end, we had no borrowings outstanding and $82 million of availability under our ABL with resulting liquidity of $244 million.
I will now turn the call over to Eric for a detailed discussion on our outlook for 2022 and beyond.
Thanks, Brent our results from the third quarter support the improvements in performance, we forecasted during the second or for the second half of 2022, although we will continue to deal with the headwinds from our operations in Brazil through much of 2002.
Our remaining operations, including helix clients are shallow water betterment segment.
Our operating at very high level levels.
First on our results to date are contracted work the improving offshore market and our expected outlook for the balance of 2022, we are adjusting our annual guidance as follows revenues between 785% and 860 million EBITDA between 100 $120 million and free cash flow between breakeven and <unk>.
$30 million.
These ranges include some key assumptions and estimates any significant variation from these key assumptions and estimates could cause our results to fall outside of the ranges provided.
Providing our key assumptions by segment and region starting on slide 25, first with our well intervention segment. The Gulf of Mexico continues to be our strongest market with improving rates and expected strong utilization on the Q4 thousand to 5000 contracted.
Contracted work extends into 2023, and we expect strong utilization in this region in the UK North Sea. Both vessels have contracted work into Q4 with strong utilization expected through Q4 and into 2023.
We expect strong utilization in the region are the rates were lower in the winter months, reflecting the increased weather risk.
In West Africa, we expect Q seven to work into November and the vessel is employed contrasted to the APAC region to commence the two we feel the betterment in the first half of 2023.
In Brazil, the Siem helix two has contracted into mid December 2024, with Petrobras with increased rates starting in late December the <unk>.
Cm 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 segment Slide 26, the Grand Canyon, two in APAC returned to Thailand.
For contracted decommissioning and <unk> support work with good utilization for the balance of 'twenty two in that region Grand Canyon three is contracted to perform trenching in the north sea for multiple customers with expected strong utilization for the remainder of the year.
The horizon enabler continues performing trenching projects into December .
<unk> is working off the U S East coast on contracted wind farm work completed Boulder site clearance with follow on our lease support project in the Gulf of Mexico scheduled to commence in mid November overall strong utilization expected for the balance of 'twenty two.
Moving onto production facilities. The HP one is on contract for the balance of 'twenty two with no expected change.
We have expected variability with production as the Droshky field continues to deplete and our production should benefit from the Thunder Hawk acquisition.
Continuing on slide 27 for our new shallow water abandonment segment.
Coming off a strong quarter, we expect the marine offshore business to maintain stable utilization of 7% to nine lift boats with some variable seasonality on the OSB and <unk>. The energy services should have strong utilization for 8% to 12, P&A spreads and 1% to three coiled tubing units.
There is some seasonality in diving and heavy lift business, where <unk> is currently idle with limited opportunities diving services are likely to start diminishing later in Q4.
Moving on to slide 28, our <unk>.
Capex forecast from <unk> to <unk>.
Once again heavily impacted by the amount from 'twenty, one that we pushed into 'twenty to approximately $20 million with a heavy regulatory year and inclusion of alliance our Capex range for 'twenty here too is currently $50 million to $60 million. The majority of our Capex forecast continues to be maintenance and project related which primarily falls in.
Our operating cash flows.
Viewing our balance sheet, our funded debt of $271 million is not expected to change for the remainder of the year.
I'll skip the remaining slides starting with slide 29 and leave them for your reference at this time I will turn the call back to OLED for a discussion on our outlook beyond 'twenty, two and for closing comments.
Thanks, Eric.
Last quarter, we provided a list of events that should contribute to a significant improvement.
<unk> three versus 22.
And I'm, saying now is that our confidence in significant year over year improvement is even stronger today than the last quarter.
The market demand continues to increase along with utilization and rates. In fact, it is beginning to appear that we may become asset constrained to cover all the demand that we're seeing rates.
<unk> improved rapidly during 2022, but we had already offered our customers rates that hedged students utilization before we realize the extent of the demand increase.
This means that while we expect to see returns as a result of rate increases improve in 2023.
Bill headroom for further rate improvement beyond 2023.
Of course, we're all aware of inflation in the state of the global recovery the rates of <unk>.
Demand rose in 2022 was dramatic but we all know that the market can collapse just as rapidly our strategic goal remains to manage the balance sheet, maintaining the capacity to cash settle our 2026 converts should the capital markets one.
For the foreseeable future, we anticipate helix will be meaningfully free cash flow positive.
Head of this ongoing demand increase it's our intent to add incrementally to the three legs of our energy transition model number one maximizing remaining reserves to decommissioning and three renewables specifically offshore wind.
We did acquire alliance with significantly start decommissioning capabilities and it's already exceeding our initial expectations. We also acquired a majority interest in the Thunder Hawk deepwater field furthering our maximization of remaining reserves, while building our decommissioning backlog for the future.
We previously said that we may add trucking capacity is our renewables work increases along with our global footprint.
We're also adding a second site clearance spread as our credibility in the renewable space increases and more east Coast Wind farm work becomes available our goal is to add incremental capacity within our current niches, while managing the balance sheet and building our cash position, we're not looking for growth for the sake of growth.
To add some sustainably and accretively to our free cash flow generation.
And the same time, maintaining a strong balance sheet.
If the market bears itself proud as expected has essentially reached.
<unk> reached the point of confidence that we can navigate the challenges and remain in the positive cash.
Positioned to cash settle our 2020 convertible debt.
We'll continue to balance the opportunities to achieve what we feel is the greatest value to our shareholders, whether by consolidating or adding accretively to our business model or by returning value to shareholders via share repurchase or dividend.
Some observations on market dynamics since our last call our number one the north sea pivoted from a no more oil and gas stance.
Promotion of production increases in sustainable energy a year ago, all the talk and planning centered around decommissioning.
U K government imposed an excess profit tax of 25% with an 85% of tax credit against development spending.
I should note.
Any spending on decommissioning is not deductible for the purpose for this region for this region.
Sorry for this reason this was that the effect of increasing work that we do for maximizing remaining reserves, while casting doubt on the pace of decommissioning work overall, though the demand for our services has increased and we're now looking at working well into the winter months when we've been idle during the recent downturn years.
The FX decline makes it unlikely that you'll see us.
<unk> spent significant capital to the north sea in the future other than deployment of some new technology that we're developing.
Oh.
Which should enhance the capabilities of our current assets.
The second item is Brazil demand has surged in the rig market is tightening further Petrobras has extended the contract for this age two for two years and <unk> is contracted yesterday to run for two years, we're finalizing additional work and clients beyond that with Brazil, almost certainly becoming a three vessel.
For helix with multiple clients, which we hope to announce soon this represents a vast improvement compared to the recent past.
The third item is that we've had a very successful campaign in West Africa foresee additional demand starting to develop beyond 2023 based on the success of a first demand.
Also the offshore wind market on the east coast of the U S continues to develop and we're taking steps to be in a strong position as the work builds on last item I'd like to notice that.
Pac offshore wind market is also increasing and we're considering our options that would enhance our current presence there.
The opportunities are plentiful and we will be focusing on sustainable margin improvement and accretive free cash flow rather than chasing growth for growth sake. We believe the markets are in.
We believe the markets. We're in are the correct one third a true energy transition story.
We're dedicated to continuing improvement in our ESG efforts as outlined in our presentation and we look forward to publishing our 2022 corporate sustainability report in the very near future.
<unk> for helix are really strong and we're excited to deliver on.
Sure.
Thanks, Owen operator at this time, we'll take any questions.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear a surgeon from technology request.
Your question has been answered or you would like to withdraw your registration. Please press one three.
Our first question comes from the line of team Cheng. Please go ahead.
Hey, good morning, everyone can you hear me.
Yes, Jim.
Good morning.
So in regard to alliances businesses, how many competitors do you have there on average.
What's your.
Rough market share in those businesses.
And any backlog to speak of in any of those businesses.
The competitor question.
As noted in the presentation of helix.
Helix alliances we are about the only contractor we're aware of that has all of the assets.
That are required to do a full decommissioning from cradle to grave there are a number of smaller contractors each of which provides a service or <unk>.
A limited number of the surfaces.
The clients in order to do a full field decommissioning is to combine the two.
Contracting with multiple contractors that gives us we believe a competitive advantage.
As far as market share is concerned.
It depends on which asset class you are looking at but in General Alliance owns between 25, and I would say 30% of the assets available in each of the classes of assets. So.
But if you look at.
Who has.
<unk>.
Integrated full field capability as the alliance ultimately.
Got it and then.
Oh in any of the any backlog in those like maybe is there any PNA backlog or anything in any of those businesses.
Yes, so Jim I think right now the the standard contracting methodology that they have as standard msas, which they get call out work. So from a backlog standpoint, I think there'll be very little if any on our report here at the end of Q3 I do think.
And based on bidding activities, if theres opportunities, where there will be backlog added in the future based on the type of projects that are being bid.
Okay, great. Thank you and then.
On the on the Q 7000.
What's the expected utilization rate for the Q 7000 next year, you've got it sounds like so you've got work I think you said 200 days next year, but <unk> got work in New Zealand in the first half of the year, but I believe you have a 30 day docking period, so that you won't be utilized and there.
You said youre going to Australia in the second half of the year. So if you could talk through maybe what the utilization looks like and then.
Whats beyond 'twenty three did you did you get some work in Brazil, or just any help there would be great.
Jim I'll go ahead and start and then pass it off to Scott I think youre right as far as time that the vessel is not working or getting paid the dry dock that you reference that we expect to happen early in the year, obviously the vessels not working.
The address that there is going to be I think some gaps of mobilization, where the vessel will be paid for mobilization, but from an accounting standpoint.
All of the mobilization, both costs and revenue gets deferred to when the vessel is working I think right now contracted work, we have 200 plus stages, our expectation of contracted work, but once again, we have two periods of mobilization in there.
For the vessel, yes in those periods.
Parents from activation of for the type of declines that have taken the vessels.
At any time that we're expecting next year will be the dry dock period.
And then we expect to have the wax into 2024.
Okay, and do we know if thats in Australia or Brazil.
So we do have.
At <unk> in Brazil, and we will be putting out some information on that very shortly.
Okay, great. Thanks, I'll turn it back.
Thank you.
Our next question comes from the line of Greg Lewis. Please go ahead.
Yeah, Hey, thanks, Thank you and good morning, everybody.
I wanted to see if Eric maybe talk through a little bit more the up the upward revision in EBITDA I E.
It was a nice move higher in any way to kind of roughly parcel out how much of that was from alliance how much of that was from improving overall market how much of that was from Thunder Hawk.
If I were thinking about those three baskets okay.
I'd tell you I think from the I wouldn't equate the upward revision to Thunder Hawk at all so I think it's really a combination of our existing business and of course.
As Ellen mentioned the alliance business is exceeding expectations.
As it works and so I think as we looked at the guidance.
Put out there the increase obviously was being able to de risk and contract out some of the projects that we had identified I think the well intervention market continues to improve and we're seeing improvement in rates and also utilization in the fourth quarter in the North Sea.
And then of course alliance performed very well in the third quarter.
With the continued activity here going into the fourth quarter, we do expect some seasonality and Thats why the range is probably a little bit wider than we have had in the past, but it's really the first time, we're including alliance. During this time. So I think it's really a combination of alliance and our existing business that really drove.
The upward revision.
Okay, that's great to hear and then realizing it's still early days.
We're just starting to I mean, I guess, we started to get some pricing earlier this year.
When you mentioned I think you said asset an asset shortage or whatever the word it was it sounded really good.
So you've seen customers.
<unk> to want to gap longer I E.
Not that we're going to see another BP type contract, but as they're starting to be longer term project or.
Demand that way.
We could see.
Some good term work on specific well on any of the queue rigs.
Over the next I don't know 612 months.
The potential is there whether or not we want to commit to that I mean, we've already had offers.
Wanting to commit to our assets beyond the two years that we've agreed to.
Our position those that were coming out of a severe downturn, we have sustainable solid ahead of us here.
Have high inflation rates. So there is some uncertainty about what your costs are going to be in the outlying years.
We're also seeing a further tightening of the rig market with rates continuing to go up so it's actually been our choice to not contract for multiple years out I think a lot of producers would love to lock in on the cost certainty beyond two years, but we are unwilling to do so at this time until we know.
What the costs are going to be and what the market will support.
We have quite a gap right now we have China, taking the Sichuan for two years Petrobras has taken the SSG for two years, we've just signed up the Q seven as we said and then on a spot market areas for the key units in the Gulf of Mexico in NLC areas. We do have contracted work into 'twenty three and we're seeing very good visibility. So we don't want to tie.
Longer term agreements at lower rates at this time.
Yes, absolutely and then and then I did just have a real quick one around the robotics I E. The trenching and the position in the renewables.
Guess, what I'm wondering is realizing that there's always going to be a fair amount of seasonality related to the north sea as we start to do projects farther afield I E. Maybe in the United States and I guess, we did some work in Egypt. So we're doing stuff in Asia should that business become less seasonal.
While the North sea is definitely becoming less seasonal than what we went historically if you go back a dozen years.
Seasonal inventory went through high demand period, where we worked through the years that returned to being seasonal and now we're going into another period like this is going to be less seasonal.
In the Gulf of Mexico, It really isn't a seasonal we worked through the year here with the exception of the helix Alliance heavy lift assets.
Heavy lifts season in the Gulf of Mexico due to weather is usually limited to about 160 days a year.
So that will remain being seasonal and that's just that's not a commercial reason.
Technical reason, you just can't safely be out there that long.
And Brazil is less seasonal.
We go year round in Brazil, and Australia.
As a seasonal a seasonality thing.
And our other renewables markets, such as Taiwan, and Asia that seasonal.
Heavy winter months this hasn't happened in the winter months, and obviously up on the U S. East Coast, you get very bad weather for the winter months outside the U S East coast will become seasonal and we are going to affect us on the aspects of enabling some of the pieces. We provide that we're very good at such as Trenching Saturday work site clearance, but I think youll find a pop from the north sea that will be.
In our market.
Okay. Okay. Thanks, guys, Hey, Thank you very much for the time.
Thank you.
Next question from the line of Don <unk>. Please go ahead.
Good morning, gentlemen, how are you all today.
Good how are you.
Doing well doing well I wanted to start with the shallow water PMA market.
When you did the alliance transaction, you had talked about an implied backlog overall in the market of multiple billion dollars.
That changed any and can you really talk about.
The urgency of operators to get that work done sooner rather than later.
Yes.
Yes.
The market has not changed I believe there's been a number of analysts that have written on the size of the market being something like $7 billion over the next 10 years.
<unk>.
I don't know that we would disagree with that we are seeing a strong demand. In fact, we are having trouble meeting all of the capacity requirements and the demand in the market right now as far as the regulators go we are the U S Gulf of Mexico, the regulatory entities seem to be very intent.
Getting this out of the way.
The majors, who are the recipients of these properties of coming back to them are also highly motivated to get them get the work out of the way so I don't see any.
Slashing of the demand over the next two or three years now in the North Sea is a little bit different on the <unk> market. The government over there is basically on the hook for paying for 60% of the.
<unk> costs in the form of a PRT tax.
Credit that was agreed.
No.
You've been following the news the U K.
Not in the greatest state right now with a new administration coming in there is there has never been a hard push from.
The regulatory bodies in the UK.
Decommissioning done with the energy crisis in the EU and the U K from the Ukraine War.
The pivot has been back to let's not remove any infrastructure and let's see if we can get some more production on.
Thank the decommissioning market over there right now and sort of uncertain without.
Without a major regulatory push in the Asia Pacific market.
I believe the regulator are.
We're working essentially for the New Zealand government too.
Remove appeal.
<unk> returned to them through bankruptcy.
Australian side, you have the northern oil and gas of bankruptcy that return with lagerfeld to the government because of the bankruptcy.
But occurrences.
Of the regulatory bodies, there are very very intent on getting caught up on decommissioning.
Thank you will see that continuing for the foreseeable future.
I appreciate all that color.
Different areas.
Can I touch on.
Two kind of topical things number one labor how is labor kind of panned out over the last six months or so is it getting better or worse and number two just on inflation what efforts.
Are you taking right now to kind of mitigate what youre seeing on the inflation side.
So I'll talk to air Labor Labor is definitely become tight in all segments of the oil industry in the renewable space and I've got a lot of people going from the oil and gas industry to the revenue side of the business Labor has got tight.
We've increased our salaries to our offshore guys and managed to keep a stable position, but it's something that we monitor all the time, but I would say in all regions and those segments labor is tight.
And note that we are seeing cost increases well, but likewise, we are increasing our revenues and our prices to our clients to accommodate.
Yes, I think John just to add from our from our balance sheet perspective, our debt is essentially fixed rates I think we are.
Well protected there.
The rising rates as far as like you said inflation overall I think here for the last 18 months with the constraints in supply chain, we've been fairly aggressive to make sure that we have the the parts that we need to service our equipment and vessels and so I think that will continue and then as Scott mentioned, we are seeing.
<unk> on an.
In the labor market, and I think being able to increase our rates during this time.
It's how we are attempting to protect their.
I appreciate all the answers I'll turn it back thank you.
Our next question from the line of David Smith. Please go ahead.
Hey, good morning, and congratulations on the strong quarter and the improved full year outlook.
Thank you. Thank you.
I wanted to circle back to the shallow water abandonment segment.
I was struck by the increased revenue guidance.
Close to 30% at the midpoint, so I wanted to ask if the pre.
Your guidance was sort of informed by.
The pre acquisition cadence of activity and weather.
You are seeing any indications of higher customer interest now.
Now that those assets are in your hands.
I'd say I think the original guidance, we gave was heavily influenced by our pre acquisition.
<unk> outlook.
So we actually all driven operated that we were probably a bit conservative with second thing I would note, though that the.
Demand increase in the shallow water of animal market is a relatively recent occurrence.
The ramp up of <unk>.
Rand.
Has sort of.
It hasn't surprised us but.
Actually.
And over the last 12 to 18 months that you actually see the ramp up in demand and the demand continues to ramp up.
We're definitely seeing that from best in the Gulf of Mexico in the shallow water and in the deepwater then not letting the practice of decommissioning that forcing Lindsay.
Market and kind of take out in these assets.
Led to an uptick in demand as well.
I appreciate that color is it fair to think that what youre seeing from that segment in the second half of this year.
Bias your 'twenty three outlook toward the higher end of that 30% to $50 million EBITDA range.
I think Thats fair.
Fair assessment based on what we're seeing.
You also you also asked about whether or not any of it was due to helix.
Being the owner of the alliance now I would like to think so.
But I don't want to detract at all from the effort that the alliance team is doing.
<unk> doing.
<unk>.
Fantastic job of trying to ramp up and meet that demand.
Being as being thrust on them.
Fantastic job with that.
The one of the rationales for the acquisition, though was that a lot of these properties are reverting back into the hands of the majors and the majors have a higher requirement.
Four processes in place safety programs et cetera.
The shelf contractors are not typically set up tour.
I think we've been very pleasantly surprised with how quickly alliance has.
Adopting.
This requirement and I think it's helped along by the fact that helix is able to impose.
Not imposed.
We have the processes and everything already so.
So the other contractors on the shelf to meet those same qualifications it would take them a lot longer and struggle a bit more so I think there is value in.
<unk> ownership of the lines.
Yes.
Back in the day it was tough.
Tough for a small.
Small contractor to get an MSA with a major without a hurricane.
Can you help me.
One last question if I may just circling back to your comment about having trouble meeting demand for U S itself.
G&A work can you speak to your appetite to pick up additional assets and how you see asset acquisition opportunities relative to your purchase price for alliance.
I don't know that the bottleneck to Memphis.
So certainly our assets. So I think it's more of a people constrained.
We have more than enough wireline units for instance, we just need more wireline personnel and they literally do not exist and there is no training program that we're aware of.
Cleveland partnership program.
We've reached out to our alliance partner, they're short of people everybody.
Everybody has the same personnel constraints and so on.
Yes, there are assets acquisition opportunities, but I think.
Place to focus is on the people bottleneck.
Great. Thank you so much for the color.
Our next question from the line of Samantha Hoh. Please go ahead.
Hey, guys just wanted to Echo my congrats on a really great. Okay.
And.
We can Jamie a couple of quarters ago, you suggested that the industry could be short vessels.
It looks like there.
Thank you Jonathan.
Essentially.
Right now I'm, just kind of wondering how you're looking at the world. These days in terms of.
What the outlook could be.
In terms of just overall demand strength.
That's helpful.
Thanks Nancy.
Well.
We've alluded to the fact that we will probably have three vessels in Brazil two in.
Gulf of Mexico, and we will have two in the North Sea.
That still leaves Asia Pacific.
West Africa and.
Additional demand in the North sea that we don't have an asset for us.
I think that's just our position.
So I think what Youll see us do it.
To expand on what we already do which is I believe we are the industry leader in offering intervention well control systems.
Youll see us branch out there I don't I can tell you what youre not going to see is we're not going to be building another vessel.
So we're going to be looking for incremental ways to add on to the services. We already provide just to give you a comment on the broader market both.
A year ago.
Fallen over if somebody had told me that you couldnt find a vessel of opportunities around both the vessel market in general on a global basis is extremely tight.
To lay your hands on a Jones Act.
Vessel for the U S is not impossible. So Scott as you may have some additional but the amount of demand increase on vessels has just been staggering vessel demand has increased hugely because of the expansion of the renewables market.
But thats, what Thats why we chartered the shipboard along longer time, and especially why we entered into a five year contracts. The Grand Canyon vessels. So that we have access to vessels.
And I forgot in the well intervention programs, yes show of an asset technically but we're also discussing with those clients, where we can leave programs around and try and get to them in 2025.
Okay.
Right.
And then maybe just a real quick housekeeping, but in terms of the rate progression for well intervention.
And it seems like it's seasonality does concurrently generous track and you have them.
And I just wanted like Steve Byrne.
First quarter then.
Used to seeing.
Yes.
That will come from the North Sea like we said, we would seasonally stack two vessels in the North Sea. We are expecting to have a complete program apart from a minimal maintenance period on both vessels in the North Sea, we're expecting that it's not really seasonal in the Gulf of Mexico.
So it will be exiting Q1.
We do have joined ups coming up in Q2.
<unk> vessels.
Like we say in Brazil. It is 365 working for both of the assets down there.
Okay.
And then maybe just.
Shifting to the renewable side and staying with it now.
It seems like Brazil.
On the offshore wind side in.
Turning to projects announced over the last.
Okay.
Just wondering if you guys have started to have conversations about potentially expanding your offerings.
Having a ball side.
Yes, yes, we have.
Not just Brazil Middle East Africa is talking about it now even the Gulf of Mexico.
<unk> expansion going on in that space, but we haven't started having some discussions down in Brazil.
OLED projects have been announced you have to realize that the supply chain of these projects projects are more like four or five years asking visits.
Okay.
But what about the old aircraft.
I don't even know what to call. It can you maybe just talk a little bit about about this addition to the robotics fleet.
It's basically what it says it's under 10, it's above it back down.
Underwater robots it goes down and picks up mode is it maybe something that was in the site.
So the way the pumps again in place.
The <unk> relating to that.
Power cables that go out to the wind farm the <unk> relating to the foundations of the wind turbines himself and the the bulks needs to be removed.
So.
Instead of a robot that does that seems on the vessel.
It's an RV effectively that sits off one of our vessels and has a huge grabbing on to remake the boats.
Rather than in the past we've relied on access and third party grabs and we've been the prime contractor on jobs last year, we stepped up and we built our own grab which has been very successful.
Now because of the rising demand in multiple markets, it's too difficult.
Shifts to grab to where you needed. So we are looking at adding a new graph of primarily two.
Cover the east coast of the U S as well as having another one.
EU sector.
It's not a major capital item, it's less than $1 billion.
But it's.
To.
Put another spread to work.
Okay. Thanks.
Thanks, so much and congrats again.
Thank you. Thank you.
Next question is from the line of Dan <unk>. Please go ahead.
Hey, guys. How are you doing and congrats on the good quarter and a positive outlook.
I have a couple of questions.
Couple of questions first.
Guys lay out.
Positive outlook for 2023 talked about alliance being at that.
Top end of $30 million to $50 million are there any.
Negative offsets to think about for 2023 years right now just a good time to be in the business in Europe .
I'd say, it's a good time to be in the business right. Now of course, you have inflation of geopolitical events.
We've seen in the past.
I mentioned in my color comments, we're always mindful about how rapidly things can decline.
So we'll watch our position to make sure that we're never exposed.
To the extent that we have to worry about that but from what I'm seeing right now with the clients clamoring for multiple year commitments and the lack of supply in the marketplace.
I really think that we have and we have another two to five years here.
But good.
Perfect and then using that outlook I know you want to generate the free.
Free cash flow youre going to save the cash to pay off the <unk>.
Converts due in 2006, just talk longer term capital allocation priorities in particular shareholder return of I think about dividends versus buybacks versus the <unk>.
<unk> growth opportunities.
Alright, I think you have to be led by what creates the greatest value for the shareholders.
So in your capital allocation you have do you have.
Capital deployment to growth you have to.
To share repurchases the dividend basically or you have a cash build.
So you have four options.
So the question is which one has the greatest which one and build shareholder value.
I sort of personally looked at the trading multiples as a guide as to what kind of return we have to have if we're going to be deploying capital for growth. It has to have a return that.
This is better than the multiple that we're trading at and to create value.
And then I also Merck for sustainable cash flow, where can we add for growth in a sustainable manner, that's accretive to longer term leverage free cash flow accretive for us and then that ultimately makes more cash available for the shareholders.
In the market right now and we're just we're just.
Tail end of the cost of a really strong demand market.
The opportunity to deploy capital is probably going to become harder and harder going forward pricing expectations rise so right now im sort of leaning towards.
Breaking some of capital deployments for incremental growth nothing big but accretive to levered free cash flow per share.
With a very rapid cash repayment.
Those are the multiple and also that Replenishes the cash ahead of the.
Converts longer term I think depending on where the outlet.
Outlook on the market is for sustainability.
You can start to think about do we need to eliminate the debt or is there a certain amount of permanent debt to carry.
If you get to that conclusion.
When you look at the amount of cash that you have and you start to turn.
Meaning how much goes for share repurchase and dividend and of course that decision would be a board decision.
Okay perfect alright, Thanks, a lot guys congrats again.
And we have no further questions on the phone line.
Okay. Thanks for joining us today, we very much appreciate your interest and participation and look forward to having you on our fourth quarter 2022 call in February . Thank you.
That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
Okay.
Okay.
Thanks.
Okay.
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