Helix Energy Solutions Group, Inc.

Greetings and welcome to the third quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At that time, if you have a question, you can press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, you can press star 0. And as a reminder, this conference has been recorded Thursday, October 22, 2020. And I'd now like to turn it over to Mr. Eric Steffel, CFO. Please go ahead, sir.

Good morning, everyone, and thanks for joining us today on our conference call for our third quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Ken Nykerk, our general counsel, and myself. Hopefully you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through our investors page, on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab, and the slide presentation can be accessed by clicking on today's webcast icon. Before we begin our prepared remarks, Ken Nygaard 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. All statements in this conference call or in the associated presentation other than statements of historical fact, are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors, including those set forth in slide two in our most recently filed annual report on Form 10-K and in our other filings with the SEC. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast, are available under the For the Investor section of our website at www.helixdsg.com. Owen?

Good morning, everyone. We hope everyone out there and their families are doing well and staying safe. This morning we'll review our Q3 performance, our operations in this challenging environment, our view of the current market dynamics, and provide our outlook for the fourth quarter. Moving to the presentation, slides five through seven provide a high-level summary of our results. The third quarter typically represents the peak activity period for our operations, with operators taking advantage of the summer weather to complete key projects. But this is not a normal year. Our operations continue to be impacted by the depressed OFS market largely resulting from COVID-19. We are incurring incremental costs for the additional logistics and safety protocols and controls required to operate in this environment. This difficult market and the operational challenges will continue until the pandemic is behind us and perhaps longer during a recovery period thereafter. But our team continues to address these issues head on. We've implemented strict cost controls. We warm stacked the seawall and the Q7000 in Q2, significantly reducing their costs. The robotics, we have expanded our renewables offering and are benefiting from our first site clearance project. Revenues in Q3 were reported $193 million with a net income of $25 million and EBITDA of $53 million. Our gross profit increased to $35 million from $30 million the previous quarter. For our year-to-date results, our revenues were $574 million with a net income of $18 million compared to $581 million of revenues and net income of $50 million through the same period in 2019. We generated EBITDA of $120 million through the first three quarters of 2020 compared to $147 million in the same period in 2019. On to slide eight, from a balance sheet perspective, our cash balance at the end of the quarter was $259 million compared to $178 million in Q2. During the quarter, $42 million of restricted cash was released. We generated $53 million of operating cash flow and spent $2 million on CapEx. During the quarter, we issued $200 million of six 0.75% convertible senior notes due 2026 to refinance $90 million of 2022 notes and $95 million of 2023 notes. This refinancing provides us a longer liquidity runway while allowing us to continue our goals of reducing our long-term debt. Our net debt at the end of the quarter was $98 million. I'll now turn the call over to Scotty for an in-depth discussion about operating results.

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

Thanks, Scotty. Moving to slide 18, it outlines our debt instrument and the maturity profile September 30th. Our total funded debt was $415 million. During the third quarter, we issued a new $200 million convertible senior notes due in 2026 with a 6.75% coupon. This was done to extinguish $90 million of our 2022 convertible notes and $95 million of our 2023 convertible notes. This transaction effectively refinanced 185 million of our convertible senior notes maturing in 22 and 23 into 2026. A lot of strength in our liquidity position, providing greater flexibility to manage near-term maturities during these challenging times. Slide 19, this provides an update on key balance sheet metrics, including long-term debt and net debt levels at September 30th. Our net debt approximated 98 million. Cash position at the end of Q3 was $259 million. Our quarter end net debt to book capitalization was 5%. Moving over to slide 21 for discussion on our 2020 outlook. We're refining our guidance for 2020 as follows. Revenue in the $710 to $735 million range, EBITDA $135 to $145, and pre-cash flow in the $50 to $85 million range. Our year-to-date results are in line with our previous guidance and represent an upward adjustment to nearly all metrics. The expected activity levels in our markets for the fourth quarter support our guidance. This range includes some key assumptions, expectations, and estimates as follows. We're assuming a full quarter to CM Helix 1 and 2 in Brazil. We expect the Q4,000 and Q5,000 will have good utilization in the fourth quarter, although the Q4 has gaps to fill in the second half of the fourth quarter. Well enhancement has been warm stacked, although we are pursuing small projects later in the quarter. Robotics activity will decrease commensurate with increased weather risk and completion or pausing of projects. As is typical for our business, overall we expect a step down in the fourth quarter with the onset of the winter season in the North Sea. Any significant variation from these key assumptions could cause our EBITDA to fall outside of the range provided. Providing more color by segment and region on slide 22. Of course, our well invention segment. The UK's North Sea to Long Hampshire completed its contracted work in mid-October. The vessel has been stacked, while small projects later in the quarter are still a possibility. Sea well remains stacked, unlikely to work until 2021. The Q7000 is warm stacked with expected mobilizations to start in late Q4 for work in Q1. To go from Mexico, the Q5,000 is working for BP and expected to remain on higher for the balance of 2020. Q4,000 has contracted work into November, is pursuing opportunities with expected schedule gaps for the balance of Q4. In Brazil, the CM here it's one and two are on higher for the balance of 2020. Moving to our robotics segment, robotics continues to be more resilient in this market than oil intervention. Work in the renewables wind farm sector has continued, mostly undeterred by current events, although activity will diminish in the fourth quarter as normal with the onset of the winter season in the North Sea. Grand Canyon II and APAC is on contract into Q4 and it's expected to have good utilization for the balance of 2020. Great Canyon III will be performing trenching in the North Sea for multiple customers with expected strong utilization. Ross Candies is expected to continue to operate here on a pay-as-you-go basis over the near term. Our wind farm survey and site clearance project continues into Q4, but the duration will be weather dependent. We also completed a decommissioning project using a VOO in mid-October with an additional project scheduled later in Q4. Moving to production facilities, the HP-1 is on contract for the balance of 20 with no expected change. As we have previously stated, we intend to continue to aggressively reduce our cost commensurate with the levels of activity by asset and overhead. Continuing on slide 24, moving to our CAPEX, forecast remains at $38 million for the year, comprised primarily of the recertification cost of our vessels, the majority of which has already been spent in Q1. Reviewing our balance sheet, our funded debt of $450 million is scheduled to decrease by $10 million as a result of scheduled payments in the fourth quarter. Our restricted cash position of $42 million was released on July 17th, although it may be required again with return to work in West Africa. Our cash balance at the end of the quarter was $259 million. We anticipate tax refunds in the amount of approximately $19 million in the near term as a result of the tax changes from the CARES Act. I'll skip slide 26 and leave it for your reference. At this time, I'll turn the call back to Owen for closing comments.

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

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

If you'd like to register for a question, you can press the one followed by the four on your telephone, and you'll hear a three-tone prompt to acknowledge your request. The first question is from the line of Ian McPherson. Please go ahead.

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

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

Yeah, I'll just add a general overview comment. The work out there, we see the work that needs to be done. And as I said in my color comments, the number of fields maturing, which increases the amount of work that needs to be done, is occurring. The amount of abandonment work building up is real. But when that happens, we don't know. The uncertainty for us is not visibility of the work. It's just what is the corporate stance of the producers going to be going into this next budgeting year. I think we've already seen that long-term contracts are not being let to rigs. So I think producers are a little concerned adverse to taking on multi-year committed days in a market that's obviously oversupplied. I think the work will be there. I think it may return to more of a spot market work. And then on top of that, I'm not sure what the corporate budgets are going to be relevant relative to the announced pivoting of some of the majors towards the renewable markets. Does that mean that they're going to cut back on their budgets in the oil and gas sector? But then again, they're going to need the cash flow from the oil and gas sector to fund the renewables. So it's a little bit uncertain, and I don't know that we'll have a clearer picture until we see some of the budgets that get finalized by the producers.

That's helpful. Thank you both. Oh, and also on – or Scotty, on the robotics side, I think I – from a modeling perspective, have been positively surprised by the resilience of robotics. I think about half of that revenue stream now is coming from the wind space, right? So as you look out into next year, is that half of the revenues for robotics still something with good year-on-year growth visibility out to next year, regardless of what happens on the oil and gas side?

I'll start that one and then Owen can jump in. We've had a very good year with robotics as we've said. Globally we've expanded the service lines on the renewables sector. We won our first trenching project in the East Coast USA. We expect more wind farms to be coming out and licensed on the East Coast. We've had a very good year in Taiwan providing insulation and accommodation support on a large wind farm. We expect that to continue through this quarter. We did commence our first site clearance project, and that has gone far longer than we expected. So it's hard to say that that could be repeated next year. But we are chasing two or three projects next year of similar size and scale, but they're in the later part of next year. And we're also seeing more increased activity in Taiwan, and just recently been awarded our first project in Japan. So the visibility is there, whether it leads to you know, increased growth or whether it normalizes towards this year is yet to be seen. But it's certainly a service line we're chasing and we're executing very well.

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

Okay. Thank you.

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

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

Oh, that's a tough one. I'll start, Scott, and you can... The rates certainly are not anywhere near what they were pre-2015. They're probably at or just a little better than where they were in 2016 right now. We're not seeing the rigs being as aggressive as they were in 2016, which is a good thing for us. But then again, we're not necessarily competing against the rigs at this point so much as we are competing against the commerciality of the projects that we're working on. We need to be able to offer a value proposition to the producers that makes it that incentivizes them to go after the incremental additional production that's possible. How successful and what that means going forward, again, it gets back to the budgets and how much spending they allocate towards this. I think over the next few years, you're going to see a greater reliance on intervention across the board, which is a good thing. But I think the rig overhang is going to continue to weigh on the pricing And as long as the commodity prices are perceived to stagnate in the $40 range, I think it's going to be hard to see a meaningful price increase. I think we have to get into 2022 with the balancing of supply and demand before you start seeing an upward movement in commodity pricing, before you see a significant ability on our part to increase our pricing. Utilization is really not our major issue right now. It is the pricing.

I'll add to that as well. You have to remember that it's regionally based as well. The sea well and well enhancer are not compared to rig rates in the North Sea because of the offerings they have. Our world-class assets are not drill rigs. They burn about 50% less fuel than drill rigs, so we have efficiencies that we can add into the piece that are there to help us win work and win utilization, not necessarily increase the rates vastly more, but there's efficiencies that our assets offer against rigs. Mobilizing time, demobilizing time, fuel burn, the way we run our work is far more efficient than using the drill rig. But the procurement seems for sure to use the drill rig rates against us.

I appreciate that. And as we think about kind of the potential, you know, for renewables growth to continue next year, you know, from your perspective, is there any meaningful, you know, capital that you'd need to invest to realize that growth? And, you know, if we think about where kind of chartering some of these vessels are today, just talk about, you know, that market and the ability for you all to get, you know, to charter rigs or to charter vessels as you need them.

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

Hello? Yeah, that's great. Thank you.

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

Thanks, all.

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

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

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

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

Thank you.

And as a reminder, if there's other questions, please press 1-4. And the next question is from the line of James Shum. Please go ahead.

Hey, thanks, and good morning.

Good morning.

I just wanted to try to understand the $7 million increase in EBIT in well intervention off of a $5 million decline in revenues from the second quarter. Is it reasonable to think that, you know, obviously you pointed out the Q5,000 better utilization rate, I was thinking maybe that gave you a $5 million benefit and then the balance maybe came from cost cuts. Does that make sense? Or is there some other one-time benefit in the quarter?

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

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

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

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

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

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

Okay, great. Thank you, guys.

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

Hey, good morning, and congratulations on a great quarter. Thanks. Oh, and in your opening remarks regarding your ability to compete in a well intervention spot market, you mentioned the ability to adapt and improve offerings. I was hoping you might give some more color on that.

Yeah. One, you saw us last year step out and acquire the Droste field from Marathon. That essentially builds backlog for our abandonment. I think we're uniquely placed. When you see the majors pivoting towards renewables, then there's a divestment that's going on on reservoirs. They're going into the hands of smaller producers. They're more aggressive, so we can partner with them. We can take payment in kind. We can offer lump sum contracting, which I don't believe any other company can or would be willing to do. But based on our track record and our history, it's something we can offer. We have a whole page of different contracting models that we can employ. It's a matter of now getting out and trying to market all of those in a manner that retains our competitive advantage. And so we'll probably be identifying producer by producer who is likely to like that or not. So we'll keep you posted on that. But I don't want to get into too much detail about the specifics of what we can do.

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

I appreciate that. And compared to six months ago, I wanted to ask if there's any change in discussions or your outlook regarding the potential to take on P&A obligations similar to the Droschke deal.

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

Great. I appreciate it.

Thank you.

And once more, if there's any other questions, please press 1-4. The next question is from the line of Samantha Ho. Please go ahead.

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

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

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

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

Great. Thanks.

Thank you.

There's a follow-up from the line of James Shum.

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

Right now, I would say this is we probably are looking at 120 days minimum. This is not contracted. It's sort of hard because there's a lot of lead-in times and there's final details worked out on the contracts. But in general, our expectations are that we're looking at something like 100 and 120 days of base work to begin with, with a follow-on potential of that expanding to 200-plus days.

All of the contracts that we have currently have a fixed pay period and then options, and so we're obviously in discussions regarding those options, and that is what gives the guidance there. On top of that, we're also in discussions for other works, so it's not just these three contracts we're chasing. And we've also been awarded some work in Australia, but that has a final go decision in March of next year. So we're seeing a lot more visibility for Q7000. We've got some firm work, and then there's options on that firm work. Okay, thanks.

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

No, that's our base across the two. And then, like we said, we hope to add to that and in discussions with others.

Okay. Thank you very much.

Thank you.

There are no other questions.

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

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