Helix Energy Solutions Group, Inc.

Greetings and welcome to the Helix Energy Solutions Group fourth quarter 2020 earnings conference call. During the presentation, all participants will be in the listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded on Tuesday, February 23, 2021. I would now like to turn the conference over to the Executive Vice President and CFO, Mr. Eric Steffelt. Please go ahead.

Good morning, everyone, and thanks for joining us today on our conference call for our fourth quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Ken Nykark, 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 the 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 Nykerk 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 on 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.helixesg.com. Owen?

Good morning, everyone. We hope everyone out there and their families are doing well and staying safe. To our employees and customers in Texas and the Gulf Coast region, we hope you've weathered the storm and are on the path back to recovery. This morning, we'll review our Q4 performance Our operations in this challenging environment, our view of the current market dynamics, and provide our preliminary expectations for 2021. Moving to the presentation, slides five to seven provide a high-level summary of our results. The impact of the North Sea seasonal slowdown is evident in our financial performance in the fourth quarter. Our well intervention group and our robotics group both experienced a significant drop in activity in the North Sea as North Sea customers scaled back during the winter months. This is normal and expected during this time of year, but it's worth noting. On a positive note, we were able to secure additional spot work in the Gulf of Mexico in both well intervention and robotics, allowing us to exceed our expectations in that region. Revenues in Q4 were reported $160 million with a net income of $4 million and EBITDA of $35 million. Our gross profit decreased to $14 million from $35 million the previous quarter. For our year-to-date results, our revenues were $734 million with net income of $22 million compared to $752 million of revenues and net income of $58 million in 2019. We generated EBITDA of $155 million in 2020 compared to $180 million in 2019. In 2020, there were many headline factors that impacted our performance, but the COVID-19 pandemic was predominant. We entered the year with many positive indicators for 2020 and beyond. The pandemic that emerged in Q1 immediately reduced activity levels in 2020 and extended a potential market recovery further out. Our team adapted well to the changing environments and minimized operational disruptions throughout the year. The Q7000 had a successful initial project. Our robotics group expanded its renewables offering, working on a wind farm site clearance project much of the year. Our team performed well, an encouraging point as we continue to manage the impacts of COVID-19. On to slide eight. From a balance sheet perspective, our cash balance at the end of the quarter was $291 million compared to $259 million at the end of Q3. During the fourth quarter, we generated $40 million of operating cash flows and spent $1 million on CapEx. For the year, we generated free cash flow of $80 million, marking the third consecutive year of positive free cash flow. Our net debt at the end of the quarter was $58 million, and our net book to net debt to book capital was 3%. I'll now turn the call over to Scotty for an in-depth discussion of our operational results.

Thanks, Owen, and good morning, everyone. Moving on to slide 10. 2020 presented an extraordinary and challenging environment to us due to the COVID-19 pandemic. Yet our teams and partners, both onshore and offshore, continue to respond well to the challenges presented and are doing a fantastic job. The COVID-19 pandemic has presented many logistical challenges, including travel restrictions, quarantines, testing, and screening of our personnel. Despite these challenges, in the fourth quarter, we continue to operate 13 vessels globally. And throughout 2020 and through the pandemic, we have operated in 14 countries with minimal operational disruption, despite the logistical challenges. We have established very high standard of safety measures and protocols that thus far have worked well against the virus. including pre-testing over 11,000 to date personnel prior to allowing them to join the vessels. And whilst it's impossible to guarantee the virus will not reach a vessel, we believe we have very good measures in place should an infection occur offshore. Our program is designed to react quickly to any person shown symptoms, including steps to quarantine and remove offshore staff as soon as possible. We continue to mandate social distancing and tracking of any close contacts. Additionally, we also have cleaning crews in place that perform frequent lean cleaning of the vessels. Altogether, we feel these protocols have greatly limited the exposure should an infection occur. Most of our onshore offices remain closed, and our teams are doing a fantastic job working remotely, keeping our business functioning. We have responded to the revenue reductions caused by the pandemic, stacking two vessels during part of the year, the Sewell in the North Sea and the Q7000 in the Canary Islands. swiftly reducing our cost base as well as cutting capital expenditure and reduced SG&A spending. I'm extremely proud of our offshore staff, our onshore staff and partners for the way they have tackled these unforeseen challenges, and whilst having to operate in these testing circumstances, they have achieved in 2020 very good safety standards equaling solid results of 2019, coupled with one of our best years in relation to operational uptime. Our teams do make a difference. Over to slide 11. Even in this environment and our usual lower utilization due to seasonal conditions, during the fourth quarter we produced revenues of 160 million, resulting in a gross profit margin of 9%, producing a gross profit of 14 million, compared to 193 million revenue and 35 million gross profit in the third quarter. Our year ended with revenues of 734 million, resulting in a gross profit of 11%, producing a profit of 80 million. EBITDA was $155 million, exceeding the top levels of revised guidance that we issued earlier in the year in response to the pandemic. Considering the effects of the virus, the fourth quarter seasonal weather conditions affect on utilization and warm stacking of free vessels, we still attained reasonably good levels of utilization. The well intervention fleet achieved utilization of 56% globally in the fourth quarter, and the robotics chartered vessel fleet achieved utilization of 100% globally during the quarter. Even with the challenges presented to us by the pandemic, 2020 was one of our best performing periods in relation to safety management and operational uptime performance. Our fleet operated at 98.5% uptime efficiency and safety statistics in most categories were reduced compared to 2019, with many vessels now achieving multiple years being LTI-free. We're extremely pleased to know our teams continues our efforts at such a high standard of performance. In the Gulf of Mexico, we had both the Q4,000 and the Q5,000 working and operational during the quarter. Our North Sea business has been the one most affected by COVID pandemic. The one Hansa completed its yearly campaign in Q4 and was then warm stacked as we seasonally do for the harsher winter months in Leith, Scotland, along with the Sewell. In the West Africa region, the Q7,000 remained warm stacked in the Canary Islands and then commenced transit back to Nigeria for its contracted work that is currently ongoing. Performance in Brazil was at their usual high standards, as both vessels performed very well, achieving utilization of 98% in Q4. The robotics chartered vessel fleet was very active in the quarter, between ROV support, trenching, and renewable works globally, completing 336 days of utilization across seven vessels. Slide 12 provides a more detailed review of our operations of well intervention business in the Gulf of Mexico. The Q5000 had 89% utilization while continuing to work for BP until mid-February, undertaking ultra-deep water production enhancement operations and performing extremely well. The vessel remains working for BP into Q2. We've now signed a five-year global frame agreement with BP for work on a call-out basis. However, at this time, we expect BP has little planned for heavy weather intervention requirements in the Gulf of Mexico in 2021, and we therefore expect to be working the vessel in the spot market. The Q4000 performed well with 78% utilization due to a small gap in schedule alignment between projects, completing work in ultra-deep water for four clients. We also utilized the Helix Slum as a jointly-owned 15K system from one of the clients from the Q4000. Both vessels remained under contract for most of Q1 and have work visible in Q2, however, currently due, among other things, to the uncertainty of COVID restrictions and the uncertainty of government regulations regarding the permitting moratorium. we do expect less utilization for our Gulf of Mexico well intervention business in 2021 than in previous years. Moving to slide 13, our North Sea well intervention business has been the one most affected by the reduced work requirements related to the COVID, leading to a continued warm stacking of the sea well. The well enhancer worked into October, then had a gap between projects prior to commencing work in December. The oil enhancer achieved 26% utilisation in Q4, working for two clients in the quarter, including completing one temporary abandonment scope, followed by an environmental cleaning project, then undertaking a production enhancement scope. The vessel was then warm-stacked in Leith, Scotland. The sea well remained stacked in Leith, Scotland, with a significantly reduced operating cost and reduced crew levels to a minimum manning allowance. Both monohulls vessels remained in warm stacked condition throughout the winter seasonal period as in previous years and we're at this time optimistic that we will reactivate both vessels in 2021 with the well enhancer scheduled to go back to work this month and we're currently hopeful to have the seawall back to work later in Q2. The Q7000 entered the fourth quarter in warm stacked mode in Tenerife in the Canary Islands again at a significantly reduced daily operating cost of the vessel. The vessel then transited back to Nigeria at the end of Q4 and commence contracted works at the end of January 2021. Moving on to slide 14. In Brazil, our operations for Petrobras continue to go extremely well, again producing another quarter of operational excellence with a continued strong performance regarding safety, uptime, and efficiency. Both festivals achieved strong utilization in the fourth quarter, and we continue to be ranked as one of the top rig contractors by Petrobras. The Seam Helix 1 had 98% utilization in Q4 and completed abandonment work on six wells working in an environmentally protected area. The Seam Helix 2 had 99% utilization and completed production enhancement work on one well and abandonment work on four wells during the quarter. I'd also like to highlight that for the second consecutive year, our Brazil subsidiary has been awarded Supplier of the Year by Petrobras for operations of maritime rigs. Moving on to slide 15 for our robotics review, robotics had another good quarter and a solid year in 2020, operating seven vessels during the quarter, with four vessels working on non-oil and gas renewables projects, resulting in an increase in our renewable service lines and further geographical expansion. In the fourth quarter, the charter vessel fleet utilization was 100%, with both Grand Canyon vessels fully utilized. and an additional 152 days of utilisation from spot-charted vessels. In the fourth quarter in the North Sea, three vessels were utilised primarily on renewable energy projects, and the Grand Canyon Free was utilised 100% undertaking renewables and oil and gas trenching, and the Christensen and Willow Prairie Day were 100% utilised, working 74 days combined, continuing site clearance and survey works on a wind farm project. The Scandiassagy, a large construction vessel, The spot chartered to undertake a decommissioning scope for 22 days as part of a combined World Ups UK and robotics project. And the CM Dyer was also project spot chartered for 17 days on a further decommissioning scope. In the APEC region, the Grand Canyon II had 100% utilization in Q4, performing works on a renewable energy project in Taiwan, providing accommodation and installation support. The vessel has secured work in 2021 and 2022 to provide ROV support in the APEC region, and has recently just completed a further renewables project installing a tidal turbine in Japan. In the Gulf of Mexico, our Peugeot Go vessel, the Ross Candies, had 39 days of utilization in Q4, working for our reef support for five clients. As mentioned previously, the robotics group had a relatively good year, especially expanding services globally in the renewables sector. I would like to highlight some statistics and key points to provide further detail regarding how we have expanded and anticipate transitioning further into the greener renewables sector. In the renewables sector in 2020, we worked for nine clients on 16 projects. We worked in six countries, the UK, the US, Belgium, Norway, France, and Taiwan, and again recently in 2021, completed work in Japan. In 2020, we had five vessels working in renewables, completing over 1,100 vessel dates. Over the course of last year, we had three trenching assets work in renewables, undertaken infield turbine to turbine trenching, as well as export cable trenching, and 12 ROVs assigned to work in this sector. We expanded our services to include site survey, debris removal, boulder removal, UXO clearance and detonation, trenching, installation support, tidal installation support, accommodation support, and ROV support. This highlights our geographical and service line expansion in 2020, that we intend to stay in focus as we aim to continue to move forward in this sector. We've also recently increased our sales staff for these services. Over to slide 16. I'll leave this slide detailed on the vessels, RV entrenching utilization for your reference. Before I turn the call over to Eric, I would again like to thank our Helix Global team, our offshore personnel, our onshore personnel, and our partners for achieving what was, under the circumstances, an exceptional year. There is no doubt that we expect 2021 will be for Helix in some ways even more challenging than 2020. Thanks for your hard work and teamwork working at an extremely high standard in an extraordinary and challenging year.

Moving to slide 18, it outlines our debt instrument and the maturity profile at December 31st, 2020. Our total funded debt was $405 million. Moving to slide 19, it provides an update on key balance sheet metrics including long-term debt and net debt levels at year end. Our net debt approximated 58 million. Our cash position at the end of Q4 was 291 million. Our quarter in net debt to book capitalization was 3%. Moving to slide 21. In March of 2020, our sector was devastated by the impact of COVID-19 on the demand for oil. Nearly a year later, the environment continues to be weak with many remaining uncertainties. The pandemic has accelerated the interest in green energy investments, moving away from traditional oil and gas. In addition, in the U.S., we are facing regulatory uncertainties from a new administration. Our customers have responded to COVID by slashing spending in 2020 and thus far are being very cautious before committing to spending in 2021. Thus, at this time, we're not counting on a recovery in 2021. And in fact, as we have previously expressed, 2021 is shaping up to be more challenging for our business than 2020. Given the fact that many of our customers are still working through their 2021 budgets, establishing their own spending priorities and formulating which projects get sanctioned and which do not, we feel it's premature to provide quantitative guidance for 2021 at this point, other than to say, We expect 2021 financial results for Helix to be lower than 2020. We hope to be in a position in April to provide more quantitative guidance. That being said, we can say this much on how we see the year unfolding in the near term. We expect to be free cash flow positive in 21 as we have previously stated. We expect Q1 to be stronger year over year. We expect to have six well interventions vessels to be working in Q1. Beyond Q1, we anticipate working five intervention vessels in the spot market where currently visibility is limited. We expect visibility and utilization will be on a quarter-to-quarter basis. The Gulf of Mexico well intervention, both vessels will likely be in the spot market for the remainder of the year. With the added current regulatory uncertainty, we generally expect lower levels of activity in 21. In the North Sea well intervention business, we expect to have one vessel working most of the season. Whether a second vessel gets deployed will be dependent on the strength of the market. In Brazil, the CM Helix 2 is on contract into December. The CM Helix 1 is on contract into April, and we're currently in commercial discussions with Petrobras regarding the continuation of work thereafter. In West Africa, we expect to work into Q3 with possibilities thereafter. Robotics may have a weaker year with less site clearance work expected in 21. Production facilities should be consistent with the potential of a production enhancement opportunity. Once again, with many uncertainties we're currently seeing, we feel it is a bit premature to provide quantitative guidance for 21 at this point. We hope to be in a position in April to provide guidance. Providing more color by segment and region on slide 22 First, our well intervention. Gulf of Mexico, Q5000 is working for BP into Q2. The Q4000 has contracted work into March. In the UK North Sea, the well enhancer commenced operations in mid-February with contracted work into Q2. The sea well remains stacked with earliest opportunities around mid-year. Q7000 commenced operations in late January with contracted work expected to last into Q3. In Brazil, the CM Helix 2 is contracted into mid-December. The CM Helix 1 is contracted into mid-April. We are in commercial discussions with Petrobras for work thereafter. The vessel is scheduled to have an approximate 40-day dry dock, currently forecasted for mid-year. Moving over to our robotics segment, slide 23, robotics work in Q1 will be affected by the winter slowdown before likely rebounding in the spring and summer months. The Grand Canyon II and APAC is on contract in Q1 and is expected to have good utilization for the balance of 21 in that region. The Grand Canyon III is contracted to be performing trenching in the North Sea, Baltic Sea, and offshore Egypt for multiple customers with expected strong utilization. The vessel is scheduled to have an approximate two-week dry dock, and good utilization is expected into Q3. We were awarded follow on wind farm survey and site clearance work to commence in Q2. Moving to production facilities, HP1 is on contract for the balance of 21 with no expected change. We have a production enhancement opportunity on the Droschke field expected to take place in Q2. Moving to slide 24, our CAPEX forecast is in the 20 to $40 million range. The majority of our CAPEX forecast is maintenance and project related. It also includes the production enhancement opportunity at Droschke. Reviewing our balance sheet, our funded debt of $405 million is expected to decrease by $91 million as a result of scheduled principal payments. In January, we paid off the balance of the Q5000 loan. Our cash at year end was $291 million. We anticipate tax refunds in the amount of approximately $19 million in 2021, 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. Going into 2020, we were expecting the recovery that began in 2019 to continue. Instead, COVID-19 hit and expectations for 2020 were not possible to predict. We withdrew our guidance and focused on the challenges we were facing. By the end of Q2, we felt that we understood the challenges and were able to issue guidance with our Q2 results. Our people did a fantastic job meeting the challenges and we were able to revise guidance. Through continued hard work from our teams, we were able to lower our costs and improve our efficiencies. Our COVID-19 protocols proved largely successful, and in spite of identifying a number of positive cases over the course of the year, we incurred minimal operational down days attributable to COVID. The market was soft overall, but we were able to meet our original guidance issued at the beginning of the year in all business units, with the exception of a slight miss in the Gulf of Mexico on lower utilization and a big miss in Well Ops UK. We saw this in the last oil price collapse of 2016 as the North Sea declined the worst, but it was also the first region to recover. We're expecting a North Sea recovery in 2021, but how strong that'll be is yet uncertain. Looking forward to 2021, we will again be facing some challenges. The COVID impact on the market continues, but the vaccine rollout is underway. We expect demand for our services to ramp up through 2021, but we don't know at this time how quickly that will happen or to what degree. Production recovery in shales is uncertain at this time, and the effect on supply is unknown. The customer focus on green energy is certainly impacting the budgets of most majors and many other E&P companies. This leads us to believe the work volume will remain anemic. But oil and gas is not dead. There's a transition occurring. Where the majors may be pulling back from oil and gas in favor of capital deployment into renewables, smaller producers are stepping in and fields are changing hands. It may be a bit early to see the effects of this in 2021 as budgets are being set in an uncertain environment, but we do expect commodity prices and work volumes to increase in 2022. More specific for Helix will be what happens to our long-term contract renewals. As you are all aware, we have three long-term contracts at what can now be considered legacy rates. Outside of Norway, we believe these are the only long-term contracts ever issued for subsea well intervention. Prior to these contracts, essentially an entire subsea well intervention market was a spot market. We've signaled for some time now that our expectations are for the market to return to being a spot market until a meaningful recovery occurs. We recognize that at least in the near term, those producers that can support long-term contracts are also dealing with the same uncertainties that face our entire sector. It's simply difficult to commit to long-term spending. Our contract for the Q5000 in the Gulf of Mexico with BP for 270 days per year will not be extended. Instead, BP has signed a global frame agreement with Helix for a five-year term. This will be a call-off contract, And while we're told that BP will rely heavily on intervention over the next five years, we also believe their intervention needs are fairly up to date and there could be a hiatus from work for 2021. This will certainly put pressure on Gulf of Mexico utilization for our two vessels in the region. Given the transitional nature of 2021, this means we're currently not, we don't have clear visibility on Gulf of Mexico utilization for our two vessels there. Our other two long-term contracts are for the SH-1 and the SH-2 in Petrobras in Brazil. The SH-2 contract runs in December, as Eric noted, so we anticipate any variance on that vessel would be minimal. The SH-1 contract is due to end in April this year. We're in commercial discussions with Petrobras for work after April, but it's too soon to know the outcome of these discussions or the impact the SH1 will have on 2021 results. We also have a meaningful recompletion plan for one of our wells on the Drosky Field. This is scheduled to be done with the Q5000 following the release of the vessel by BP. We expect the recompletion work will likely proceed in early Q2. We're also in discussions for follow-on discussions acquisition similar to Droschke with the goal of securing well intervention backlog and adding incremental production revenue, but it's too soon to be able to estimate the impact they'll have on 2021. On the robotic side of the company, the work class ROV market remains soft. We do anticipate another strong year from trenching and will continue to seek further expansion into the offshore wind market, but that market has become highly competitive. Our contract for UXO and Boulder clearance that we were on for much of 2020 is scheduled to pick up again, as Scotty mentioned, following its seasonal shutdown. However, how much more site prep work and other renewable support work we can secure is yet another uncertainty. We don't want to be in the same position as last year and have to withdraw guidance. Several of these major issues should be clearer as we get past Q1. We expect Q1 to be a relatively strong quarter, but we're electing to withhold full-year quantitative guidance until visibility on key issues firms up. As we've previously said, 2021 will no doubt be a challenging year for us. However, our balance sheet is strong. We do expect to once again be free cash flow positive in 21, which is an accomplishment in and of itself in this environment. We'll continue to prudently manage our capex and have outlined the path to continue to lower our debt. We feel we're well positioned with great leverage to market recovery and we see opportunities in renewables, maturing fields, and oil and gas service space that we will be pursuing. Our team has proven to be very nimble as we face challenges and we fully expect to be in a good place as the market evolves through this transition period. Eric?

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

Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. Once again, to register a question, please press the 1-4 on your telephone. One moment, please, for the first question. Our first question comes from Ian McPherson with Simmons. Please proceed.

Thanks. Good morning. Nice results on Q4, and I'd certainly rather have no guidance than shaky guidance, so I respect that decision as well. But I wanted to ask first just a detail. I thought the Q5,000 was expiring today. earlier, year-end 20. So is it going to be on legacy BP day rate throughout Q1, ending early Q2, or will it be working in BP but not necessarily the legacy day rate this current quarter?

Yeah, Ian, so obviously, as Owen mentioned, the contract is not being extended, and obviously we're towards the end of the contract now. Everything that is happening now is outlined in the contract, and so I think the assumptions that you're making on the existing contractual rates to continue is appropriate.

Okay. And then as you're contemplating the lack of, not necessarily a complete lack of work, but just a lack of visibility of the year's work for the Gulf of Mexico, Does your scenario analysis right now contemplate the decision to, you know, ultimately only work one vessel as opposed to two after the Droschke recompletion in early Q2?

You know, I think, Ian, I'll start off and then I'll pass it off to Owens. Obviously, I think everything is currently on the table. I think we expect it to be a soft market in general, softer than last year. I think in general, our thought process is we would steer work to one vessel, try to get that vessel filled up before we pass it on to the second vessel. So I think that's definitely a potential that's on the table. I think we see opportunities into Q2. We think it's probably going to be quarter to quarter for that market, and we definitely expect it to be a challenge in 21. Owen, I don't know if you want to add additional color.

I think that pretty much sums it up, and we can be specific. We're going to be putting most of our work onto the Q5 once we get released from the commitments. But we do right now, we are anticipating that the Q4 will work. It's just what utilization it will achieve is in question.

Okay. Understood. Thanks. And then lastly for me on Droschke, so we're getting some guidance for the CAPEX on the recompletion, and then we would assume there will be some Production uplift as yet unquantified, but that would presumably also be a revenue and profit bump relative to the normal stable contribution from production facilities that we see in a typical period, correct?

That's correct. And as I said in my color comments, it is a meaningful recompletion, but it just, you know, recompletions are a light switch. They either work or they don't. So we're going to be cautious until we know. Okay. Thank you.

Our next question comes from Mike Sabala with Bank of America. Please proceed.

Hey, good morning, everyone. I was wondering if we could just kind of talk. I know it's a little too early to give a firm idea of what we should expect out of Brazil for these renegotiations. But could you just kind of talk us through what the market looks like down there? I mean, I know we hear a lot of positive anecdotes. coming out of what Petrobras is doing down there for offshore, you know, rates on, you know, rates on, you know, floating rates have appeared to have gone up. I know it's not a direct, you know, a direct correlation to what you all do down there, but, you know, just generally it seems like, you know, the market is improving down there. Can you just talk to us a little bit about what you're seeing down there as you, you know, as you work with Petrobras to decide what happens with these two vessels?

I'll take that and you guys can add to it if you want. We do think that Petrobras is going to be increasing their drilling program and adding rigs. We've seen that already. I think what's going on down there is a combination of the short-term disruption caused by COVID and demand in 2020 balanced by their long-term needs. And it's further complicated by a change in the tendering laws in Brazil. which limits their ability to extend contracts or consider multi-year extensions. That's made it a little difficult, but as Scotty mentioned, this is the second year that we've won their Supplier of the Year for RIGS award. The relationship is good. The efficiency is great. We think they have a need for the vessels. It's a matter of trying to weave the legal path and fit in with their near-term intervention requirements and we're into commercial discussions with them now on it.

Yeah, I think, you know, Petrobras has one of the largest subsea well counts. They definitely have the work. They're very, very happy with the vessels. They're very happy with our safety culture, which is a big thing for Petrobras. And like Owen says, we're in commercial discussions and Petrobras do not have commercial discussions unless they have a need for work.

I think it's pretty apparent also that with the new tendering laws, they're going to be required to come out for a tender at the end of next year. I think the intent that Petrobras has expressed to us verbally all along was that they expect a long-term relationship with these vessels in Brazil long-term. I don't see anything right now that would change that expectation.

Understood. Thank you. And then if you were to kind of, I know you've mentioned, you know, ROVs down year over year. If we were to kind of, I guess, split this into, you know, more legacy oil and gas type work and, you know, kind of the more renewable type work, you know, what was the split in 2020? And is the expectation that both of those pieces, you know, kind of fall in tandem or are they moving in different directions?

I think we've said for a long time and everybody knows that the ROV spot market is very quiet. That being said, last year we had 12 ROVs working in the renewables sector. We do see a lot more tender activity for the renewables sector. We have some work already committed for renewables. We have one of the vessels locked up in APAC for the next two years. And we have a strong trenching season ahead of us. So the trenching side and the renewables side of the business will be there Please remember, last year we had a very glorious project on the site clearance. That project was only supposed to last 60 days, and it went all year. We expect to pick that project up again in the spring of this year. I think renewables will be slightly softer because we had such a good year last year. Trenching will be good, and the ROV spot market will be down a little, but we're going to continue to try and add ROVs into the renewables sector as well. We've expanded our renewables service lines and globally expanded on the renewables side.

I think I'll just add to that a little bit, Scotty. As you said, we have expanded our renewables offering and have captured work in Asia Pacific and more recently on the title work in Japan, which is an interesting development. The renewables market is a developing market. The contracting styles are changing. Everybody is pivoted towards renewables, so the competitive pressures in different niches are significant. So it's a matter of finding where you can play the best. Trenching-wise, we're still the global leader, and I expect that to remain the same. Where else we can capture renewables opportunities, we're exploring those, and we'll see what happens here. But I'm excited about the international developments. And also, I think the U.S. is forecasted over the next few years to be the fastest-growing not the largest market, but the fastest growing market. And we're well positioned in the U.S. considering the Jones Act implications of that work.

Got it. Thanks. If I could just squeeze one more. I know you mentioned the free cash flow in 2021, expectations, I would say, positive. Can you help us sort of, and I know the set expectations, I mean, it's clearly probably down from 2020 as well. given the guidance, do you think you can kind of get to this net debt neutral number by the end of the year and then kind of talk to us what happens next?

Yeah, so part of the reason, obviously, we haven't given an overall guidance, Mike, is because there's a very wide range of possibilities out there. And I think that, obviously, on the upper end of the range, that puts us very close to the target that you're talking about. So that is a possibility. But as we said, right now, There are so many uncertainties that we haven't provided specific guidance.

Okay. Thanks, everyone.

As a reminder, to register a question, please press the 1-4 on your telephone. Our next question comes from James Shum with Cohen. Please proceed.

Hey, guys. Good morning. Nice quarter. If we could just go back to the robotics guidance, you know, based on the qualitative outlook, is it reasonable to assume that vessel days could be down 20% year over year and maybe revenues down 15% or so just given, you know, the absence of or maybe the step down in the site clearance? And then do you think that you can be profitable on an EBIT basis this year?

Yes, I'll take that there. There will be a step down in vessel days. Obviously, at one point, we had three vessels working on the site clearance project, so that added a huge amount of vessel days into 2020. So we do expect to a step down, and because of that, the revenues will come down also. But we do expect the robotics division to be on the positive side of EBIT, though.

Sorry, Scotty, but do you think it'll be EBIT positive this year?

Are you asking specifically just the robotics? Just robotics.

Just robotics.

I think that's definitely within the range of possibilities at this point, Mike.

Okay. And then, you know, I appreciate the uncertainty in the market that prevents you from giving 2021 guidance. But, you know, you said EBITDA will be below the 155 this year. And so that, you know, appears to represent the upper boundary. Can you just help us think about a lower boundary, assuming no improvement or no worsening of the outlook from here? Sure. So, for example, like maybe you're reasonably confident that EBITDA could stay above 90 or 100 million this year. Can you help us think about that at all? Like, you know, how wide this range could be as you see it right now? Okay.

I don't think it would be prudent for us to discuss that right now because some of these issues are major swing factors. For instance, the Drosky recompletion, as I said, is a light switch. It's either going to work or it's not, and that has a major impact. Also, the disposition of the SH-1. I really wouldn't want to telegraph putting the cart before the horse about success with Petrobras in Brazil just because of the nature of the market right now. But both of those are meaningful swing factors, which you get into some ludicrous ranges.

All right. OK. All right. Thanks, guys.

Our next question comes from Samantha Ho with Evercore ISI. Please proceed.

Hey, guys. Thanks for taking my question. I realize there's a you know a lot of uncertainty, but I was wondering if the current state of the commodity markets is kind of reminding you of another time in the You know, perhaps not too far past where this sort of strength and commodity prices are taking customers by surprise and and you may potentially see a heightened urgency for intervention work, even in the Gulf of Mexico. I'm just kind of curious if, you know, maybe, I think, I mean, obviously you guys are being overly cautious, but I'm just surprised that there wouldn't be any sort of pickup in demand, especially from midsize or, you know, smaller private operators as, you know, as Brent or oil is just at these levels. Teresa, if you could just maybe, you know, talk about whether or not it feels like another time in history where customers were surprised by the sort of strength in commodity prices.

The short answer is yes and no. The North Sea, as we stated in our comments, we've seen this before, where it was the most impacted but the first to come back. That would be our expectations there. I think you have a number of smaller producers that will be a lot more aggressive than the majors. So we are anticipating a pickup in the North Sea this year. We just don't know how robust that would be. but even more so for 2022 as we expect the market supply and demand to tighten and commodity prices to continue to increase and the transition from majors to smaller producers will continue. That's setting up a fairly strong 2022. In the Gulf of Mexico, you have the same thing, but it's compounded a little bit by the new administration's moratorium on drilling. There seems to be a lot of uncertainty among producers, both large and small, as to what that actually means. Talking to the regulators, they're not exactly sure what that means either. So as a result, it sort of put a freeze on it, and it came right during the budgeting process this year, which didn't help. So whether or not we get beyond that in 2021 and the producers start anticipating the higher commodity prices of 2022, I think that's That's an occurrence that hasn't happened before, the regulatory uncertainty. And then on top of that, I'd say it's a bit early to tell whether or not the shale production is going to come back as strong as it did out of the last down cycles. My anticipation would be that it would not come back as strong, and that sets up for an even stronger 2022. So that's That's looking at the last cycle, but anticipating that the shell recovery won't be as strong as it was the last time.

Okay, thanks. I think we're in the... Oh, go ahead. Sorry.

Just to add to that, we are seeing increased tender activity out of the UK, and also geographically we're seeing more tender activity internationally. We've got more tenders than before out of Africa and the APEC region as well.

I'd also just like to add... Right now, we're seeing capital spending being reallocated towards renewables and away from oil and gas. But keep in mind, well intervention in our market is actually under the OPEX budget of the producers. So as the demand ramps up and supply can't meet it, and as the new smaller operators take over these fields, they're going to be very aggressive on the intervention side because it'll take some time for the CapEx to ramp up production again. But intervention is a very, very low hanging fruit and very quickly. So I do think we're well positioned for it.

Okay. My other question had to do with COVID and, you know, there's a lot of, it sounds like there's a lot of incremental costs being carried to sort of contingency planning and whatnot. I was wondering if you could quantify for us in maybe 2020, you know, like how, what do you think the impact of COVID is just on the cost side? You know, all the different measures that you've implemented. And I'm just kind of curious if you have that number handy.

I'll take that. And as we said, you know, we've We've put a lot of protocols in place. We're testing all of our personnel before they go offshore. We're having to quarantine people in certain countries before they can go offshore. Roughly, the cost of quarantining, testing, having to do Medivacs when we have to has come in around in 2020 of about $8 million.

And that's for the full year in that?

Yeah, that's for the full year since the pandemic started. Obviously, that doesn't include the fact that we You know, we lost some revenues and we had to stack a couple of boats, but we brought the operating costs down on those boats significantly. But the actual cost for testing, quarantine, and moving guys around is about $8 million.

Okay, thank you.

Our next question comes from Ian McPherson with Cements. Please proceed.

Thanks for giving me the follow-up. Eric, I wanted to, before we see the K, I wanted to ask you what the dry dock expense was for 2020 that ran through operations, not CapEx, and then if you could frame that for me vis-a-vis your 21 CapEx guidance and what the dry dock slate looks like across the fleet for this year.

Okay, so just to recap, in 2020, we had, I think, at least five vessels, I think, heavily weighted to the first part of the year that were in dry dock. And Ian, I want to say that the number is approximately in the $20 million range. But I'd like to get back to you on that. That's, I think, the amount that roughly flowed through operations. As we look at our CAPEX spending in 2021, You know, the range is 20 to 40 million. Majority of it is maintenance capex. As far as pure dry dock, we know that we have the DSH-1 scheduled for this year, and that one is a definite, and so I would tell you it's probably in the same potential, probably on the low end, maybe 5 million on the high end, maybe 20 million that would flow through operations. in 21.

Okay. So midpoint, probably a slight downtick in dry dock going through operations this year. Yes. All right. That's it. Appreciate it.

There are no further questions at this time.

Okay, operators, thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our first quarter 2021 call in April. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.