Helix Energy Solutions Group, Inc.

Greetings and welcome to the Helix Energy Solutions first quarter 2021 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the 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 Tuesday, April 27, 2021. I would now like to turn the conference over to Eric Staffel, Chief Financial Officer, Helix Energy. Please go ahead.

Good morning, everyone, and thanks for joining us today on our conference call for our first quarter 2021 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, and 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 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 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.helixesg.com. Owen? Good morning, everyone.

We hope everyone out there and their families are doing well, healthy, and staying safe. This morning we'll review our Q1 performance, our operations, our view of the current market dynamics, and provide our outlook for the balance of 2021. Moving to the presentation, slides five through seven provide a high-level summary of our results. Our performance in Q1 was in line with expectations as our teams continued to execute at high levels of operability. The Q7000 successfully recommenced operations in West Africa. The well enhancer was reactivated mid-February from warm stack, and we mobilized for wind farm site clearance work in the North Sea at the end of the quarter. On the sales front, we entered into a new agreement with HWCG for response services, effective Q2, returning to our more traditional retainer-based agreement for our services. We also extended the CM Helix 1 for 120 days in Brazil, albeit at a slightly reduced rate. The vessel will now continue working until mid-August with additional options thereafter. Our results for the first quarter of 2021 were generally consistent with our results from fourth quarter 2020. Revenues were reported $163 million with a net loss of $3 million and EBITDA of $36 million. Our gross profit was $15 million, or 9%. On to slide 8, from a balance sheet perspective, our cash balance at the end of the quarter was $205 million, with an additional $66 million in temporarily restricted cash associated with a short-term LC for our work in Nigeria. During the first quarter, we generated $40 million of operating cash flows and spent $1 million on CapEx, with resulting free cash flow of $39 million. We repaid the remaining $54 million balance on our Q5,000 loan, reducing our long-term debt to $336 million. Our net debt at the end of the quarter was $66 million, and our net debt to book capital was 4%. I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Thanks, Owen, and good morning, everyone. Moving on to slide 10. We continue to operate in an extraordinary and challenging environment due to the COVID-19 pandemic, yet our teams and partners, both onshore and offshore, continue to respond well operationally to the challenges presented, doing a remarkable job. I would like to thank the entire HLEAP team. We have now started the process of reopening our offices in some locations and shortly expect to open our Houston headquarters in a staged return. Safety measures and protocols have been put in place that follow local regulatory guidance. and we have procured COVID-related safety equipment, all designed to allow safe access to return to work in our office locations. Our workforce onshore has done a great job working remotely, communicating on Teams calls and meetings, internally and with clients and vendors to keep our operations functional. I know they are all very excited to soon be returning to work in our offices. The COVID-19 pandemic still presents many logistical challenges, including travel restrictions, quarantines, testing and screening personnel nearly 14,000 times to date. We have continued to successfully transport personnel to our offshore worksites globally. Testing is now more easily available and the vaccine rollout is aiding the situation. In the first quarter, we continued to operate 10 vessels globally with minimal operational disruption, despite the logistical challenges. As the market is beginning to show signs of an upcycle and rebound in 2022, We anticipate contract awards will be driven by execution and performance. We continue to work at high standards with 98.6% uptime efficiency with a very strong safety culture and performance leading to extremely low recordable incident rates. We are determined to drive performance leveraging our capabilities, knowledge, technologies and personnel to continue as the market leader for the services we provide. Over to slide 11. Whilst operating through these pandemic conditions, and with usual lower utilization due to seasonal weather conditions, during the first quarter we produced revenues of $163 million, resulting in a gross profit margin of 9%, producing a gross profit of $15 million. Compared to $160 million revenue and $14 million gross profits in the fourth quarter, and $181 million revenue and $2 million gross profits in Q1 of 2020. In the first quarter we produced EBITDA for the quarter of $36 million, compared to 35 million in Q4 and 19 million in Q1 of 2020. Considering the effects of the first quarter seasonal winter weather conditions, we attained largely consistent levels of utilization. The low intervention fleets achieved utilization of 70% globally, achieving 100% utilization in Brazil, 88% utilization in the Gulf of Mexico, and 38% utilization in North Sea and West Africa in the first quarter, with one vessel being warm stacked for the entire quarter. The robotics chartered vessel fleet achieved utilization of 90% globally, totaling 165 days during the quarter. In the Gulf of Mexico, we had both the Q4000 and Q5000 working and operational for most of the quarter. The North Sea business continues to be the one most affected by the COVID pandemic. The well enhancer and seawall were warm stacks as we seasonally do for the Harsha winter months in Leith, Scotland, until mid-February when the well enhancer was reactivated and commenced operations working the remainder of the quarter. In the West Africa region, the Q7000 completed transit back to Nigeria for its contracted work that is currently ongoing and is contracted to remain in Nigeria until the third quarter. Performance in Brazil was at their usual high standard, as both vessels performed very well, achieving high utilization of 100% in Q1, mostly undertaking abandonment activity. The robotics chartered vessel fleet was active in the quarter, working between ROV support, salvage work, trenching, and renewable works globally, completing 165 days of vessel utilization, primarily between the two Grand Canyon vessels. Slide 12 provides a more detailed review of our operations for our well intervention business in the Gulf of Mexico. The Q5000 had 100% utilization while continuing work for BP until mid-February, undertaking ultra deep water production enhancement operations on one well. and a temporary abandonment on another well, performing extremely well. The vessel remained working for BP, demobilizing the BP equipment into Q2. The Q4000 performed well with 76% utilization due to a gap in schedule alignment between projects, completing work in ultra-deep water for two clients, including work on five wells for one client, and then undertaking a flowline remediation for another client. Both Q vessels have integrated Helix-DMJ alignments personnel working very well as one complete team, and both vessels have awarded work into Q2 with some gaps between projects. Pleasantly, we have recently seen an increase in tender activity in the Gulf of Mexico, and we now have visibility of work for the vessels into the third and fourth quarters. However, at this time, it's still a degree of uncertainty for the work to be contracted. Moving to slide 13. Our North Sea War intervention business continues to be the most affected by reduced work opportunities related to COVID. leading to the continued warm stacking of the seawheel. The well enhancer stayed in warm stack as usual through part of the harsher weather seasonal period, and then was reactivated in mid-February and commenced operations. The well enhancer achieved 46% utilization in Q1, working for two clients in the quarter, including completing one production enhancement scope for one client, followed by two production enhancement scopes for the other client. The vessel is mostly booked into Q3 and has visibility of works for multiple clients. The seawale remains warm-stacked in Leith, Scotland, with significantly reduced vessel operating costs and reduced crew levels to near minimum manning allowance. The market in the North Sea has been slower to return than in previous times, mostly, we suspect, due to the government-imposed lockdown in Scotland. However, we have recently been awarded work that we expect will become contracted that would enable us to reactivate the vessel towards the end of Q2 and work in end Q3. The Q7000 arrived back in Nigeria early Q1 and commenced contracted work at the end of January. The vessel performed extremely well with zero commercial downtime, working with a multinational and integrated Helix Lunger Alliance team. The vessel worked on four wells in the quarter, one production enhancement scope, and integrity repairs on three wells. The vessel has contracted work into Q3 in Nigeria, and we have visibility for further potential works in the West Africa region later this year. Moving to slide 14, In Brazil, our operations for Petrobras continued 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 quarter. The Seam Helix 1 had 100% utilization in Q1 and completed abandonment work on four wells in an environmentally protected area off the northern coast of Brazil. The vessel has been awarded a 120-day contract extension commenced in mid-April. The Seam Helix II had 100% utilization and completed production enhancement work on two wells and abandonment work on four wells during the quarter. Moving to slide 15 for our robotics review. Robotics had another good quarter after a solid year in 2020, operating three vessels during the quarter, primarily working on non-oil and gas renewables and salvage-related projects, resulting in a chartered vessel fleet utilization of 90%. During the first quarter in the North Sea, the Grand Canyon Free was utilised 80%, undertaking renewables and oil and gas trenching. The vessel completed a renewable trenching scope and then transited to Egypt, undertaking a pipeline trenching project for BP early in the quarter, then transited back to the North Sea to undertake an additional renewable trenching project after a short dry dock for a scheduled regulatory maintenance period. We also commenced mobilization of a vessel of the South Pool, mobilizing three days in the quarter for a North Sea site clearance and survey works on a wind farm project that is expected to last into Q3. In the APAC region, the Grand Canyon II had 100% utilization in Q1, performing works on a renewable energy project in Japan, installing a tidal turbine. The vessel then completed a salvage project off Guam, and the vessel has secured work in 2021 and 2022 to provide ROV support in the APAC region. In the Gulf of Mexico, we mobilized an ROV onto the Sheila Borderline, a vessel that we expect will act as our pay-as-we-go vessel going forward for this year. We've also recently contracted our first work offshore Guiana that will take a further spot vessel in early Q3 for approximately 50 days. As mentioned previously, our plan is for the robotics group to continue transitioning further into the green and renewable sector. We currently have renewable trenching works contracted each year from 2021 to 2023, and have tender activity after 2025. We also have increased tender activity from 2021 to 2025 for other renewable services to include site survey, debris removal, boulder removal, UXO clearance and detonation, trenching, installation support, accommodation support, and ROV support, some of which could be awarded for operations in 2021 that may require us to contract further spot vessels. Over to slide 16. I'll leave this slide detailed in 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 keeping up their great efforts under these challenging circumstances. We look forward to seeing our teams return to our offices soon in a safe and controlled manner. There's no doubt we expect 2021 for Helix will continue to be challenging. However, it is pleasing now that we are seeing operators returning to work and starting to contract vessels in the North Sea and the Gulf of Mexico. We are starting to get better visibility towards work that could be awarded this year and beyond. However, there is still some uncertainty of how much work will be contracted. We are also seeing an increase in international tenders for our services, especially in West Africa, Brazil, Australia and Asia Pacific that are strategic geographic goals for the company.

Thanks, Scotty. This slide outlines our debt instruments and the maturity profile at March 31st. Our total funded debt decreased to $347 million, down from $405 million at December 31st. During the quarter, we repaid in full the Q5000 loan at its maturity. Looking at slide 19, it provides an update on key balance sheet metrics, including long-term debt and net debt levels at year-end and March 31st. Our net debt approximated 66 million at quarter end. During the quarter, we repaid approximately 58 million of debt. Our long-term debt balance and net debt balance at 331 reflect the early adoption of ASU 2020-06, which simplified the accounting treatment of our outstanding convertible notes. Our cash position at the end of Q1 was 205 million. This balance does not include 66 million restricted cash that supports a temporary project lc our quarter end net debt to book capitalization was four percent moving to our outlook we continue to operate in a very challenging market as we have previously expressed 2021 to shaping up to be more challenging for our business than 2020. our customers continue to be very cautious and committed to spending in 2021 The current relatively stable macro backdrop has increased customer dialogue and interest, but has been slow to develop into firm orders. The positive developments globally and within our sector are providing a positive foundation for recovery in our market, but primarily beyond 2021. At this time, we feel we have sufficient visibility to issue 2021 guidance in a good faith attempt to provide investors information that is appropriately caveated as best we can against the backdrop of the current environment. We are setting our guidance for 2021 as follows. Revenues in the range of $625 million to $700 million, EBITDA of $75 million to $100 million, and free cash flow generation between $45 million and $75 million. Beyond Q1, we anticipate working five well intervention vessels in the spot market where visibility is currently limited. We expect visibility and utilization will be on a quarter to quarter basis. To go from Mexico well intervention business, both vessels will likely be in the spot market for the remainder of the year. We generally expect lower levels of activity in 2021. In the North Sea water venture business, we expect to have one vessel working most of the season. Whether the 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 now on contract into August at reduced rates. There is a potential for follow-on work with the vessels. In West Africa, we expect to work the Q7000 into Q3 with possibilities thereafter. Robotics may have a weaker year this year with less site clearance work expected in 2021. Production facilities should be consistent. We recently performed a production and completion at Drosky in April using our idle asset time. While the operations were successful, the early indications are potential upside appears to be smaller. Providing more color by segment and region, on slide 23, our well intervention segment, Gulf of Mexico Q5000 was under contract for BP into Q2 and is completing the work on Jaroshki now. Q4000 has contracted work into May. Both vessels have additional opportunities with gaps in the schedules expected. UK North Sea Well Enhancer has contracted work into Q3. The seawall remains warm stacked with earliest opportunities mid-year. Q7000 is operational in West Africa and is expected contracted work to last into Q3. Brazil, the CMHUX2 is under contract into December with the CMHUX1 contracted into mid-August and is scheduled to have an approximate 30 to 40-day dry dock in Q3 or Q4. Moving to our robotic sediment, Psi24, Robotics work in Q1 was affected by the winter slowdown before likely rebounding in the spring and summer months. Grand Canyon II and APAC is on contract in Q2 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 with expected strong utilization into Q4. The follow-on farm survey and site clearance work began at the end of Q1. Moving to production facilities, HP1 is on contract for the balance of 21 with no expected change. We entered into an agreement with HWCG for response services, effective Q2, returning to a more traditional retainer-based agreement. Continuing on slide 25, our CAPEX forecast range remains the same 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 Performance in April. Reviewing our balance sheet, our funded debt decreased to $347 million with the repayment of the Q5,000 loan with an additional $33 million decrease expected during the balance of 21 as a result of scheduled principal payments. Our cash position at the end of Q1 was $205 million. Once again, this does not include $66 million of restricted cash that supports a temporary Project LC. We received a $7 million tax refund in Q1 and anticipate an additional $12 million in 2021 as a result of the tax changes from the CARES Act. I'll skip slide 27, leave it for your reference. At this time, I will turn the call back to Owen for closing comments. Owen?

Thanks, Eric. The market for 2021 continues to be challenging. We're seeing green shoots and signs that the market's beginning to turn, but oversupply in the service sector remains a strong headwind. We are seeing tendering volumes increase. We understand that deferrals on abandonment work are more difficult for producers to get. There's an increase in discussion about work for 2022 and beyond. Commodity price expectations are positive. These all seem like positive indicators for our business on a macro level for the long term. However, he finds itself in a uniquely challenging position. The market is slow in recovering. At the same time, we are seeing our three long-term contracts wind down with their legacy rates as the market reverts back to historically traditional spot markets. We took steps relatively early in the pandemic to strengthen our balance sheet by refinancing our convertible debt to provide a longer runway so the balance sheet is in good shape. Our current efforts are focused on, one, maintaining our market share and position in our three historic markets, the UK, North Sea, Gulf of Mexico, and Brazil, actually four markets. We still feel we're in a good position with significant leverage to the market recovery. We've expanded our service offerings to include hydraulic stimulation and riserless capabilities in the Gulf of Mexico. Number two, our efforts to expand our geographic footprint to increase volume demand for our services continues to progress. We've added contracted work in West Africa, which we believe could see the Q7000 working in West Africa to near year end. The credibility gain should translate into hopefully a sustainable future in West Africa. We've signed what we expect to be an anchor contract in Australia and have been pursuing significant tendering that we believe could lead to a sustainable presence in that region. We're also receiving interest from other operators in Brazil, which could reduce our client concentration there. The SH-1 contract with Petrobras was scheduled to end in April, but it's been extended at low rates to allow the vessel to remain in Brazil, avoiding repatriation costs, while Petrobras say they're preparing to retender later this year as required by Brazilian law. We're not relying solely on Petrobras retendering, but are pursuing other potentials for the assets, both in Brazil and internationally. Third, we're continuing to seek mature property opportunities, similar to Drosky. Several offers are pending. While the best time to achieve these deals is when cost expectations for abandonment are high, the turning market indicates abandonment cost expectations are becoming more of a concern for producers, prompting greater interest in our offering. Our aspirations in this business model are grounded in our confidence to analyze, bid for, and execute the underlying decommissioning work. Four, we've mentioned our involvement in the offshore wind market and potential to expand our offering beyond the current trenching and site clearance. We're actively tendering the clearance opportunities, but see the market as more competitive than just two years ago. Trenching appears that it'll continue to be our bread and butter in robotics. We see significant growth in wind farm projects, but continue to see tremendous amounts of capital chasing the work. There's uncertainty in our mind about the potential to achieve sustainable returns. We're still progressing our plans for offshore wind, but we'll be cautious as the market continues to evolve. This will not be an exercise for us to simply improve our ESG profile, but will be a longer and hopefully more sustainable growth area, albeit at a slower rate. Helix is healthy, well-positioned, and progressing on our initiatives, but some patience may be required. With that, I'll turn it back over to Eric.

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

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

Thanks. Good morning, everyone. Hey, Ian. Hey, Owen. Owen or Eric, I wanted to ask about the guidance walk from 2022 actuals to 2021. At the midpoints, you've got Tad Piper- Severe EBITDA decrementals on on the revenue decline, and when you think about the resiliency of the production facilities piece, it looks like you know circa 100% EBITDA decrementals on the EBIT on the revenue drop this year across. Tad Piper- intervention and robotics, and so we know they're. you know, there's legacy contract roles there that are a big component, and we know there's, you know, suboptimal utilization and the operating leverage of this business that hurts as well. Are you also witnessing now some of these inflationary headwinds that we're seeing globally and within the energy supply chain as well? Is that a factor to the decrementals? And when we think about your leverage into a recovering market in 2022, You should also be getting some relief, I would think and hope, from the COVID disruptions that have impacted your cost structure this year as well. So there's a ton in that question, but really what I'm asking is how you think about the non-recurring or maybe the abating headwinds to your cost structure when we get into a recovering market next year.

The answer is yes. Okay. Sorry, that is a mouthful. Eric, why don't you take it?

Yeah, I think from a big picture, I'll try to address the different components of your question. I think that we're starting to see, or I guess Morris, get the feel for the headwinds that you're talking about, the pressure on the pricing or you could say our cost structure. I don't think we've seen it yet. We haven't seen it in our – in our results, but I think it's definitely a headwind that we recognize is potentially out there. I think that what you see going from 2020 into 2021 is really the roll-off of the legacy contracts, as Owen mentioned. So I think that's really, you can see some of the impact that is hitting us. I think also, you know, as you mentioned, the impact on utilization of our fleet is is significant. I think when we get to lower levels of utilization, obviously that will have a dramatic impact on our results. And I think we see that the impact of COVID on our utilization in the North Sea is still being felt. I think we get indications that that may be coming to an end, but until it does, we'll still be impacted there. I think previously Scotty had mentioned the amounts that we're incurring on a quarterly basis for additional COVID costs. I think it was in $1 million to $2 million per quarter. We still have not seen those starting to abate. I think our expectation is that will probably continue at least for the balance of this year. I know that's a mouthful. I tried to cover most of your points. I'm not sure if I did.

Yeah, no, you did. It was my fault for asking a mouthful question. But really, you know, I just want to kind of see if you agree with my hypothesis that your last negative pricing rule will be the SH2. And beyond that, if the market is recovering and utilization is recovering next year, that we could find several buckets for pretty healthy incrementals as the pendulum swings back from those severe decrementals that we saw this year. That was really it. Just wanted to kind of confirm those those opportunities for improvement.

If I could just add a little something, Ian. I know a lot's been said about the impact of COVID, but I think also something that I mentioned on past calls is the stabilization of the commodity price didn't occur this year until after the budgets were set. That's always a big problem. If the spending in the work was not budgeted for, it's very difficult in this current environment for the operators to go back and ask for additional spending. That's impacting 2021. What that's done is, you're right, there's an awful lot of dialogue now about 2022. A snapshot, I would expect 2022 to be much stronger. We have room in our fleet for increasing utilization, but what's really hurting us right now are rates. So hopefully in 2022, we'll see some increasing rates. We're not seeing the cost escalations you mentioned, but coming out of every downturn, the industry always does as people become scarce, the cost increases on personnel. We're seeing some of that in non-oil field related skill sets where we compete with the broader market. On the oil and gas side, we're not seeing it yet, but we certainly expect to, which leads me to say that the return of the intervention market to a spot market is sort of a blessing in disguise because you'll have producers looking to lock in on low rates for multi-year here with uncertainty about where the costs are going. So I think we're trying to be very cautious about what rates we're giving and starting to put out for 2022. Okay.

Good to hear. A quick follow-up. We saw the contract news for the Q7000 in Australia. It sounds like you have options now in two different parts of the world. Do West Africa and Southern Australia work well as a calendar strategy, or do you need to choose one or the other or get mobilization compensation that maybe we're underappreciating in today's market?

They work well together from a seasonal basis. The transit is very, very long. So we will always be looking to get some mobilization, demobilization pricing from the clients. The way things are turning out right now, I'm not sure if West Africa is going to be an annual campaign, a year-long campaign, or whether or not it's going to be like every other year, which sort of fits well. But I think both regions are shaping up to look like they have utilization for a vessel. So I'm not sure that going forward I'm guessing in the ideal scenario we would have a vessel in each region, in which case we would be one vessel short unless we took one of the vessels from Brazil and repositioned it. And then the other market that you're sort of leaving out there, there are no heavy intervention vessels in the North Sea, and we are tendering work in the North Sea for the Q7000 following its campaign in Australia. So we're becoming very successful in international markets where we haven't previously been, which may require us to rethink our fleet allocation.

Okay, good. That's helpful, Keller. I'll pass it over. Thanks, Owen.

Our next question is coming from the line of Mike Sabella. Please go ahead.

Hey, good morning, everyone. Good morning. Good morning. Maybe we can just talk for a bit about the revenue guide in robotics. You know, we've got this guide out there, 115 to 135 for the year. um you know last year renewables 41 of the segment can you kind of talk us through how how you think you see that split moving this year um and then just you know as we kind of think of the high end of that guide low end of that guide what are some of the things that could that could take you to either of those places i'll check that one

You have to remember that last year we had a bumper project in the site clearance market. That project was supposed to last three months and went on for the whole year and ended up being two vessels. This year on the site clearance market we have at least one quarter of work for one vessel and that possibly will extend and we have some tenders out for other site clearance works that we're quite hopeful on. Most of the trenching work that we'll undertake this year will be renewables. So we are still seeing a good set of renewables trenching. I would say the 41% guidance from last year would be lower because of the bumper site clearance project. We're also seeing an uptick in requirements for ROVs in the renewables sector. Currently we have contracted eight ROVs that will be in renewables and then we have four ROVs on our vessels that take part in renewables work or trenching work. I think it will be slightly lower on the renewables side. I think the guidance right now is set in a good place. But then there's other things that come up. We just won our first ROV project, vessel project in Guyana. We didn't have any visibility on that. That's going to be a 50-day project in Q3. We'll take a vessel, go layer cable for Exxon. So there's other stuff that comes up on the ROV side all the time.

Got it. Thanks. And then if we could just quickly circle back to the Q7 headed to Australia. Can you just clarify, can you give us an idea of what the mobilization cost is to move it from West Africa down to Australia? And is that number included in the cost this year? Or how should we think about the cost flowing through?

I think first from the timing standpoint, Mike, I think whether we start transiting this year or early next year really is dependent on some of the continued work that we're chasing in West Africa. I think there's opportunities there, as I think was mentioned in our call, to possibly have the vessel working all year in West Africa. So the timing of it will be dependent on some of that add-on work. I think when the vessel does mobilize, I think the transit will roughly be, I believe, about 90 days to transit there. The transit cost and the revenue will be deferred when that happens and then amortized over the existing contracts that are in place. Right now we do have a potential anchor contract there subject to FID and so I think we're in a good place there.

Just to complicate it further, during that transit though there is a stop for a dry dock period which is required for entry into Australia. In the original delivery of the vessel, we did not finish the bottom, the bottom paint on the vessel, knowing that this was a requirement for Australia. So there will be a stop for a dry dock, at which time that portion of the cost would revert back to the capital budget.

Got it. Got it. So basically there's no impact from that contract in Australia, either from a cost perspective, in the guide this year?

I think that's correct. Right now, in our guidance, we would expect either the Q7000 to be working the entire year in West Africa or begin its transit towards the end of the year, which would be deferred.

Okay, perfect. Can I just ask one more quick point of clarification? Eric, you said there's, from the CARES Act, there's 12 million incremental coming in this year, or it's 12 million total, seven of which was collected in one queue?

No, 12 million additional. Additional. Yeah, I think it was 19 or 20 million total. We received 7 million in queue one. Perfect.

All right, thanks, everyone.

Our next question is coming from the line of James Shum. Please go ahead.

Hey, good morning, guys. I was wondering if you could comment on the rate reduction on the CM Helix 1, just in percentage terms?

We've never given out the rates in Brazil at the request of Petrobras, so I think we'll stick with that. But from a percentage basis, it's significant. The goal of the extension of the vessel working in Brazil for Petrobras this year was merely to keep it in the region and avoid the large repatriation costs ahead of the re-tendering process. So I wouldn't expect too much positive EBITDA from that.

Okay. And then what's the expectation after the contract completes in mid-August? You have a 30 to 40 day dry dock you talked about. And then, so if we think about like maybe the midpoint of your guidance, are you assuming that you go back to work for Petrobras in the fourth quarter or not, or some level of utilization there?

So, yeah, I think it's correct to assume, Jim, that in the range of the guidance, we assume at the high end, obviously, that we would have some additional work for the vessel. On the low end, we would not.

Okay. Um, and then my next question, um, just if you guys could quantify the HWCG benefit and potential customer discounts. So, and then as part of that, is one of your customers currently expected to utilize the Q4,000 or the Q5,000 this year?

So I think we've returned to, like we said, a more traditional retainer-based. I think we've been operating, I think, two years essentially at an extreme discount. So we've gone to the more traditional. I don't think we are at the levels that we were previously. It will be a positive impact to our production facilities results. To the extent, as you said, to the extent that we do gain utilization for our assets in the well intervention, that will reduce the retainer fee there. You know, the HWCG has, I believe, 16 members, and so I think we would expect to do some work for those members on a go-forward basis.

Okay. Thank you very much. I'll get back in the queue.

Our next question is coming from the line of Taylor Zurcher. Please go ahead.

Taylor Zurcher Hey, good morning and thank you. If I could circle back to the robotics guidance, if you take the midpoint of the revenue guidance for 2021, it looks like revenue is down 30% year-over-year and a big piece of that is the roll-off or less impact of the site clearance work you had in 2020. Could you talk a little bit about some traditional oil and gas work in that segment for 2021? Is that type of activity going to be lower year over year, or do you see that traditional oil and gas type activity actually trending higher year over year embedded into that guidance you provided?

I think we're seeing more activity, but I think it will be on par with last year on the oil and gas side. There's more tenders going on as to whether or not those works come to fruition. We are seeing more requirements for our rental ROF services. We're seeing more requirements for spot boats. But again, the big difference from last year is the bumper two to three vessel site clearance project that we had. There's definitely going to be an upturn in ROV work or oil and gas related ROV works coming from the trenching side. There's more talk in 2021 and 2022 of tiebacks in the North Sea that will lead to some more traditional pipeline and umbilical oil and gas trenching. But it's still a very slow market, and the operators still aren't spending money on maintenance at this time. I think eventually they will have to, but we're not seeing it. So I would say we'll be on par with last year.

Okay, thanks for that. And you talked about the pipeline of tendering opportunities for some of these renewable markets continuing to trend higher into 2022. At the same time, you said that the the possibility to achieve sustainable returns in that business seems to be getting lower or declining versus improving into 2022 as more competition enters the picture. Just from a volume perspective, could you help us think about how much tendering activity you're thinking for 2022? If we compared that to the type of renewable activity that you already booked and did in 2020, is it sort of on par with that level of activity? Is it less? Just help us think about what sort of tendering activity you're seeing right now for 2022 in the renewable side of the equation.

So for 2022 and beyond, we've got a huge amount of tender activity in renewables for trenching. We've secured work in 21 through to 23 for renewables trenching. We have works in tender with good partners of ours, you know, usual customers. out to 2025. One thing we are seeing is these wind farms are becoming much larger, so the trenching scopes are becoming larger. With that, the site clearance and some of the other services that we're offering are for larger wind farms. If you look back, last year we had one tender in site clearance. We won that tender and it was a great job for us. This year in site clearance from 22 onwards, we have 16 site clearance projects. Again, all of these wind farms are getting larger, so the volume should increase. We should win some of the work But like Owen rightly says, there is a huge amount of people looking in this space. There's more competition coming to it. And as with any commodity, when there's competition, it's going to drive prices down. So more volume, less profit, I guess.

Understood. Thanks for that. I'll turn it back.

Our next question is coming from the line of Igor Levy. Please go ahead.

Hi. Good morning. Morning. So following up on Ian's question on your 21 guide of 75 to 100 million EBITDA, this implies that the quarterly EBITDA will be cut in half from Q1 levels. And you mentioned it's largely attributed to the contract roll-offs. Could you provide some more color? How much of this would proportionally be attributed to the Q5,000 versus the vessel in Brazil?

So I think when you look at our guide, once again, we're giving an annual guide and we recognize the roll-offs here in Q2 of the Q5000 and the CM Helix 1 from their legacy contracts. I think when you look at the entire year moving into a more spot-based environment, visibility is going to be on a quarterly basis, like we said. And so I believe that we're seeing the variability in the range that we provided really being towards the far end of our guide. So really in the fourth quarter, we see the variability related to just seasonality and the visibility that we have. Obviously the legacy contracts, like you mentioned, are rolling off and those will have an impact as well as the utilization that we're able to achieve on those vessels.

But are the two vessels rolling off having a similar impact on the EBITDA or is one proportionally much bigger part of that drop?

I believe the Q5 is going to have a disproportionately larger impact due to the comparison of the historic rates that they were both on.

Perfect. Very helpful. And then on 2022, you said that the snapshot could look better. Our biggest concern is that you have a full year of low rates on the Brazil vessel, the first one, and then the second one that we expect to roll over at the end of this year or the beginning of next. So that's a pretty big headwind. And I was hoping you could talk about what factors will be strong enough to more than offset this headwind.

You are correct. Potentially it's a huge headwind, and it's one that we've been trying to position for and plan for. The first step is to create competition. We believe that Petrobras is going to want the vessels, so in order to get some rate leverage, we need to have alternatives for the vessels, which is why we've been pushing so hard on the international work And as I mentioned, there's additional clients in Brazil that are now asking about the availability of the vessel. And as I previously mentioned, it could be that West Africa, Australia, and the UK actually develop into strong enough markets to warrant more than just the Q7 ability to cover them. So depending on how strong 2022 is and our ability to generate alternative opportunities for the vessels, that'll have a big impact on the re-tendered rates with Petrobras.

I'll just add that we have about 10 large international tenders out there and they're all very large tenders. They're all 10 plus wells. So there is work out there if we need to look elsewhere.

Great, thank you. Very helpful. I'll turn that back.

Our next question is coming from the line of Samantha Ho. Please go ahead.

Hey, guys. Thanks for taking my call. So maybe just to stay on Brazil. I'm curious if the options for the HS1 has any step up on the rate. And then also in terms of discussions with other customers potentially for longer-term contracts, Are there cost escalators built into these contracts if they go for multi-terms? Just wanted to kind of ping in on what you guys said about customers potentially taking advantage of just the low contract pricing given that there might be a visibility to higher costs over time.

I'll mention that each project warrants its own analysis. It depends on how far in the future and how competitive the tender is. Nearer term work without any signs of active competitors, we probably would not be as aggressive on the cost escalators. Work for farther in the future, we would definitely look to add cost escalators into the contracts, which is pretty acceptable in the industry.

Okay, great. And then maybe going back to robotics, you guys previously said that the segment could be EBITDA positive for the year. And I was wondering if that is still, is that still part of your guidance? And what are sort of the, you know, the two different scenarios that would come out to on the EBITDA side, I guess, being positive versus negative for the segment for the year?

Yes, on the robotic side, we fully expect the segment to be EBITDA positive.

You know, I think what we saw here in the first quarter... Sorry, I meant EBIT positive. Okay.

So yeah, I think last year we were definitely EBIT positive. This year, I think our expectations are right now that it would be EBIT positive. I think it's fairly nominal, but it's still positive on our expectations. So I think it's within the range of plus or minus. I think we'll see the seasonal upticks here that we expect here in the second and third quarter as far as activity goes, but that would be our expectation to be in the positive range.

Okay, great. And then if I could just sneak one more in. I wanted to actually hear a little bit more in terms of the increased dialogue that you're having in the Gulf of Mexico. I think you said in your prepared remark that you have seen anything some increased tendering, possibly for fourth quarter. And I was wondering if you could speak to maybe the type of work that entails in the customer mix. Anything you can share on the Gulf would be great.

Yeah, I mean, we're definitely seeing tender activity increase. We see visibility of works with big customers of ours out into the third and fourth quarter. The work is a mixture of production enhancement and P&A opportunities. We've definitely seen recently a number of clients come in and ask for pricing for P&A activity or temporary abandonment activity. We believe that's because they're being forced now to get on and do some of the work now the price of oil has returned. So it's a mixture of production enhancements and P&A activity, but there's definitely more inquiries coming in, and we're getting very close to contracting some of those up.

Great. Thanks, guys.

Thank you.

And our last question in queue is a follow-up question coming from the line of James Shum. Please go ahead.

Hey, thanks for letting me back in. Would you guys be willing to just give a little bit more color on the Droschke recompletion? Sounded like you said it was successful, but maybe not as successful as you'd hoped. Can you give any sort of indication of like maybe what the flow rate might be of the well or some comment on pricing or netbacks or, you know, just how should we think about this?

I can give you a lot of detail on it, as my legal counsel cringes. But anyway, we don't know what the flow rate is going to be. The platform is shut in, so we will not be able to put the well on production until the beginning of June or near the end of May. We did the work, and we have perforated. We've run a log, and we've done pressure evaluation where we thought the reservoir was an isolated sand. It looks like it was partially drained by the number two well. So we had a higher water content. It's not watered out, which you would expect given the production coming out of the number two. So there is some isolated oil there. It's a sufficient quantity of oil. to more than recoup the cost of our recompletion, but how much more profitable that's going to be, I think we're going to have to wait until June until we see the flow rates. But it'll be positive, but we're just not sure how much. Now, having said that, just actually doing the work on the recompletion and getting our money back out of it served the purpose of doing the recompletion, which was to offset idle asset time. so the economics from the re-completion does not include the cost savings that we would have incurred with the asset at the dock idle.

Sorry, I'd just like to point out that the platform's shut in because the host operator has annual maintenance going on. It's nothing to do with Phoenix. We finished the re-completion last night.

Gotcha. Understood. So, Owen, what do you think the payback time would be on this, whether you use the vessel utilization or not? Could you answer that? I mean, is it three years? Oh, no, no.

It'll be much faster than that. Payout will be within 12 to 18 months. The precise amount of time will depend on the flow rates that we achieve when we actually start flowing it.

Okay. All right.

Great.

Thank you so much, guys.

Yeah, that's an estimate, you know, based on what we know right now.

Right. Understood. Thanks, guys.

And we have no further questions at this time.

Okay. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you in our second quarter 2021 call in July. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.