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spk01: Greetings and welcome to the third 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 Thursday, October 21st, 2021. I would now like to turn the conference over to Eric Staffelt, CFO. Please go ahead.
spk06: Good morning, everyone, and thanks for joining us today on our conference call for our third quarter 2021 earnings release. Participating on this call for Helix today are Owen Pratt, 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 For the Investor 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?
spk04: 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 the replay of this broadcast, are available under the For the Investor section of our website at www.helixesg.com. Owen?
spk02: Good morning. I hope everyone out there and their families are doing well, healthy, and staying safe. This morning, we'll review our Q3 and year-to-date performance, our operations, our view of the current market dynamics, and provide our outlook for the balance of 21. We'll also discuss the underlying market environment and how we think it will influence 2022 and beyond. Moving to the presentation, slides five through seven provide a high level summary of our results. Our performance for the quarter and year to date continues to be in line with expectations as our teams continue to execute at high levels operationally. The Q7000 continued successful operations in West Africa. North Sea intervention activity increased with both vessels, the well enhancer and the sea well working parts of the third quarter. Gulf of Mexico intervention continues to improve. We've benefited from increased utilization and have visibility for work into Q1 of 22. In Brazil, the CM Helix 2 worked the entire quarter. The CM Helix 1 completed its contract with Petrobras in August. The vessel was in dry dock at the end of the quarter. Robotics benefited from the good weather season in the North Sea with increased activity in trenching and site clearance work. and production facilities continues to be a steady performer benefited from the production enhancement efforts completed on our Drosky Field during Q2 with increased production. Our results for the third quarter of 2021 were largely in line with our results from the second quarter of 2021. Revenues were reported 181 million with a net loss of 19 million and EBITDA of 27 million. Our gross profit was $3 million, or 2%. On to slide 8, from a balance sheet perspective, our cash balance at the end of the quarter was $238 million, with an additional $71 million in temporarily restricted cash associated with a short-term LC for our work in West Africa. During the third quarter, we generated $29 million of operating cash flows and spent $1 million on CapEx, with a resulting free cash flow of $28 million. Year-to-date, we've generated $121 million of operating cash flow and $114 million of free cash flow. During the quarter, we entered into a new $80 million asset-based revolving credit facility and paid off our term loan. We achieved a longstanding financial goal of ours by reaching net debt zero and ended the quarter with a negative net debt balance of $4 million. I'll now turn the call over to Scotty for an in-depth discussion of our operational results.
spk05: Thanks, Owen, and good morning, everyone. Moving on to slide 10. We continue to operate all of our business lines through a challenging year with the ongoing COVID-19 pandemic. Both onshore and offshore, our team is doing a phenomenal job keeping our operations functional and safe. Our office and facilities in Houston and in Aberdeen are open and fully operational, and shortly we will commence reopening our offices in Rio and Singapore. Safety measures and protocols remain in place, and the team's compliance to these allows safe access to work in these locations. The COVID-19 pandemic still presents many logistical challenges. However, we continue to successfully transport personnel to our work sites globally. We are keeping to our protocols, testing and screening our personnel, subcontractors and clients at each offshore work location. Most of our personnel where the vaccine is available have been vaccinated, and we are now seeing less COVID-19-related incidents at our workshops. In some parts of the world, travel restrictions are being eased, and most clients are returning to their offices. And finally, after all these months, some clients are now allowing in-person meetings. In the third quarter, we continue to operate 14 vessels globally with minimal operational disruption, continually operating at exceptional standards with 98.5% uptime efficiency. Our dedicated and committed personnel continued the third quarter with very satisfying, notable safety statistics, again, emphasizing our strong supportive safety culture and leadership globally. Over to slide 11. During the third quarter, we produced revenues of $181 million, resulting in a gross profit margin of 2%, producing a gross profit of $3 million, producing EBITDA for the third quarter of $27 million. compared to 162 million revenue, 3 million gross profits and EBITDA of 25 million in the second quarter. In the third quarter, the Well Intervention Fleet achieved utilization of 72% globally with 72% utilization in Brazil with the completion of the long-term CM Helix 1 contract for Petrobras. Utilization increased to 74% in the Gulf of Mexico with 67% utilization in the North Sea and utilization increased to 100% in West Africa. The robotics-chartered vessel fleets achieved utilization of 99% globally, increasing to 358 vessel days during the quarter, compared to 236 days in the second quarter. In the Gulf of Mexico, we had both the Q4000 and the Q5000 working with increased utilization over the second quarter, with some schedule gaps between projects working for numerous clients. In the North Sea, the well enhancer was operational prior to being warm-stacked for part of the and the seawall was again reactivated to undertake projects prior to returning to warm stack mode. In the West Africa region, the Q7000 had an impressive quarter, working in Nigeria for two clients undertaking production enhancement works. Operating performance in Brazil was at their usual high standard, with the Seam Helix 1 safely complete and worked with zero NPT, and then demobilizing from the Petrobras contract. The Seam Helix 2 was 100% utilized, producing a strong quarter. The robotics chartered vessel fleets achieved high utilization in the quarter, working between ROV support, trenching, and renewable works globally, completing 358 days. 176 days work was undertaken on four projects using spot chartered vessels, including one vessel conducting our first project offshore Guyana. Slide 12 provides a more detailed review of our operations for our well intervention business in the Gulf of Mexico. The Q5000 increased utilization to 77% compared to 72% in Q2, performing production enhancement operations in ultra-deep water for three clients with some small schedule gaps between projects. The Q4000 increased utilization to 71% compared to 45% in Q2, completing production enhancement works for two clients in ultra-deep water, followed by two small construction projects for two clients. Additionally, we've provided aid to one of our clients with platform repair work caused by storm damage from Hurricane Ida. Both QUnits have integrated Helix Slum J Alliance teams and equipment installed, proactively working as one complete, productive, and safe team. Most of our QUnit intervention contracts undertaken in the Gulf of Mexico are now a single point contract mechanism, allowing for easier contracting for our clients. In the third quarter, the Helix Slum J Alliance team was successful in the award of the BP Gulf of Mexico riser-based well intervention vessel and services package for a three-year call of contracts plus options. Whilst the contract does not provide for guaranteed days, we are told we are the contractor of choice for any riser-based interventions for BP in the Gulf of Mexico, and we do expect annual utilisation for one to three wells each year. Pleasantly, both vessels have high utilisation contracted work in Q4, with contracted and awarded works into 2022, and much better visibility of potential further activity in 2022 compared to 2021. In recent weeks, we've been awarded approximately 250 days for the Gulf of Mexico QUnits from nine clients for work in the fourth quarter and the first quarter of 2022. Moving to slide 13, our North Sea well intervention business continues to be most affected by reduced work opportunities related to COVID-19. The well enhanced achieved 57% utilization in Q3, working for two clients in the quarter, including completing production enhancement scopes. The vessel was then warm-stacked in Leith, Scotland, significantly reducing vessel operating costs and crew levels. The seawell achieved 56% utilization working for three clients. The vessel completed a diving scope for one customer and completed production of handsome works for the following customer, followed by a four-well abandonment program for the third customer. The vessel was then warm-stacked in Leith, Scotland, with significantly reduced costs and reduced crews for the remainder of the quarter. The Q7000 had a strong performing quarter in Q3. the vessel performed extremely well working with the multinational and integrated Helix-Slamajai Alliance teams. The vessel worked on two wells in the quarter for two clients and now has contracted work in Nigeria well into Q4 with potential further works identified at the end of 2021 and in 2022. Moving to slide 14. In Brazil, both vessels achieved strong performance with zero commercial downtime in the third quarter. The SEMA Helix-1 had 45% utilization in Q3, with no commercial downtime through the safe completion of the Petrobras contract and demobilisation in mid-August. The vessel completed abandonment work on one well and production enhancement works on two additional wells. The vessel has completed its planned five-year regulatory maintenance docking period and our focus is now on pursuing other works for the vessel in Brazil and other markets internationally. We have identified and are in discussions regarding numerous opportunities that we hope will have the vessel contracted in the coming months. The Seam Helix 2 had 100% utilization and completed abandonment work on three wells and production enhancement work on two wells during the quarter. We're currently discussing the possible extension of Petrobras regarding the Seam Helix 2, but the outcome of those discussions remains to be seen, and we are identifying other opportunities globally. Moving to slide 15 for our robotics review. Robotics had another good quarter, continuing another good year in 2021, operating six vessels during the quarter, primarily working between trenching, ROV, decommissioning, non-oil and gas, and renewables-related projects. In the APAC region, the Grand Canyon II had 100% utilization in Q3. The vessels contracted in Thailand undertaken an expected 210-day wellhead decommissioning project, removing 125 wellheads from the seafloor that is expected to continue into Q1 of 2022. In the North Sea, the Grand Canyon III was utilized 98%, undertaken two oil and gas trenching projects, a renewable trenching project for another client and a telecom trenching project for a new client. The vessel has contracted oil and gas and renewable trenching scopes utilised in the vessel for most of the remainder of 2021 and a good portion of 2022. The chartered vessels, the SATA and the VOS suite, continued site clearance and survey works for 53 days on a wind farm project that is now expected to last into late Q4. The project chartered SAFAME commenced work on a UXO clearance and detonation project for 46 days and is also expected to continue into the latter part of Q4. In the Gulf of Mexico, ROV activity remains strong and we continue to market the ship at borderline as our pay-as-we-go vessel going forward this year. The project chartered Cinderado was contracted for a cable installation project on our first offshore work, Guiana, for 77 days in the quarter. The robotics group transition further into the green and renewable sector continues, adding new clients and more services. We've recently been contracted to undertake further site clearance and survey projects and are seeing tender activity increase for all the services we provide globally. We've also recently been awarded further renewable trenching works in 2022 and 2023 that may require a second trenching vessel in 2022. Over to slide 16. I will leave this slide detailed on the vessels, RV and trenching utilization for your reference. Before I close, I would like to mention some other key points. We have commenced programs to reduce our carbon footprints and greenhouse gas emissions across all of our business regions, and recently appointed a senior manager to take on the plan and work closely with our operations and sustainability teams. It is also very pleasing to see far better visibility across our business lines, especially within the Gulf of Mexico, Brazil, and our newer international markets, Tender activity has increased, and the number of available working days appears to be recovering. We've added to our sales force in many areas recently, and within the robotics group, we continue to increase activity in the green and renewables markets, and we expect an increased trenching activity and further awards for the newer services we have been offering. 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 continuing to innovate and evolve and doing a fantastic job under these challenging circumstances, maintaining operational excellence with minimal MP2 while keeping very high standards in safety performance.
spk06: Thanks, Scotty. Moving to slide 18, it outlines our debt instruments and their maturity profile at September 3rd. Our total fund debt is $314 million at the end of Q3. Our next scheduled principal payments are in 2022. Moving on to slide 19, this slide provides an update on key balance sheet metrics, including our long-term debt and net debt levels at year end and September 30th. With $309 million of cash and restricted cash as of September 30th, we are in a negative debt position of $4 million at quarter end. Our cash position at the end of Q3 was $238 million, with an additional $71 million of restricted cash that supports a temporary Project LC. During the quarter, we paid off our term loan, and entered a new 80 million ADL revolving credit facility with availability driven primarily by our U.S. and U.K.-based receivables. At quarter end, we had no amounts outstanding and 70 million of availability under the ADL. For discussion on our outlook, we moved to slides 20 through 23. We continue to operate in a challenging market. Our customers continue to be very cautious in committing to spending in 21. The currently relatively stable macro backdrop has increased customer interactions and increased activity in regions like the Gulf of Mexico, but has been slow to develop in areas like the North Sea law intervention market. Positive developments globally and within our sector are providing a positive foundation for covering their markets, but primarily beyond 2021. We have made slight updates to our Q2 guidance. Our guidance is a good faith attempt to provide investors information that is approximate appropriately caveated as best we can against the backdrop of the current environment. Our guidance for 21 is as follows. Revenues, $600 to $645 million. EBITDA, $85 to $100 million. And pre-cash flow, $80 to $120 million. Our EBITDA outlook is based on the following. We expect visibility and utilization will continue to be on a quarter to quarter basis. We have increased the bottom end of our EBITDA range based on work that has been contracted into Q4. We have also increased our cash flow forecast. Our free cash flow outlook is supported by the strong year-to-date cash generation and highlights both the challenges and the range of possibilities during the fourth quarter. The range provided acknowledges the expected range of Q4 EBITDA and the range of our annual capital spending of 15 to 25 million. We received an approximate $12 million CARES Act tax refund in Q3. Working capital levels are assumed to support the 2022 activity. Providing a bit more color to our key assumptions by segment and region on slide 22, first with our well intervention segment. In the Gulf of Mexico well intervention business, both vessels have contracted work in Q4 extending into Q1 2022 with expected high utilization. In the North Sea well intervention business, both vessels are stacked with limited opportunities in Q4. In Brazil, the CM Helix Sue is on contract into December. The CM1 completed its tri-dock in mid-October and is available in the spot market. In West Africa, we expect to work the Q7 into late Q4 with possibilities thereafter. Moving to our robotics segment at slide 23, robotics should continue to be a steady and early in the quarter. Project in the North Sea will likely begin to taper off with the coming winter months. The Grand Canyon II in APAC is on contract in Thailand into Q4 and possibly longer. Vessel is expected to have strong 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 in Q4. The follow-on wind farm survey and site clearance in the North Sea is now continuing into Q4. Moving to production facilities, HP1 is on contract with no expected change. Production facilities should benefit from the Droschke production and our agreement with HWCG. Continuing on slide 24, moving to slide 24, our CAPEX forecast range is 15 to 25 million. The majority of our CAPEX forecast is maintenance and project related. It also includes the production enhancement opportunity at Droschke completed in April. The downward revision for CapEx is based on timing shifting into 2022. Reviewing our balance sheet, our funded debt decreased to $314 million with our retirement of our term loan. Cash position at the end of Q3 was $238 million. This does not include the $71 of temporary restricted cash that supports our Project LC. We have received $7 million tax refund in Q1 and $12 million in Q3, a product of the tax changes from the CARE Act. As previously stated, we achieved net debt zero during Q3 and ended the quarter with a negative net debt of $4 million. 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. Owen?
spk02: Thanks, Eric. Like many businesses globally, parts of the Helix strategy were necessarily deferred due to COVID and the resulting downturn. but essentially it's not changed. We'll endeavor to deliver free cash flow. Once we're confident about market outlook and our ability to meet all obligations, we plan to start to return value to shareholders through dividends or share repurchase. We've been focused on positioning our balance sheet to assure being able to weather the storm of what we believed would be a prolonged downturn. This belief was based on the oversupply in the OFS market that might hinder our recovery cycle once COVID impacts subsided. However, things are never simple. In addition, we've seen COVID linger longer than many believed. We're seeing a significant pivot to renewables impacting traditional recovery-type capital allocations, and we're seeing a meaningful divestment of producing fields to newer producers with a requisite digestive period. Having said all that, the pendulum often swings too far and some are beginning to notice. Our balance sheet is strong and we're starting to see signs of recovery. It may not be a hockey stick, but over the next few years we believe the recovery will be robust. We're seeing this across all of our markets with each region having some variations. The North Sea is usually the first to fall off and the first to recover. This time seems a bit different. Many properties have changed hands. COVID shutdown seemed to have had a significant impact on planning, and the Green Party now shares more power. The result has been a slower pickup in the North Sea work. But this is a new, mature basin, so we are seeing and expect to continue to see a pickup in production enhancement work. There's also been a shift in the government position from wanting to preserve infrastructure to promote marginal production development to a public-driven stance to want more field abandonment and removal. Since the government will be on the hook to fund a portion of this, we're seeing the direction from them is to take an overtime approach. We expect field commissioning to grow and remain a strong market over time. HELIX is well positioned and we plan to take steps to expand our presence in this niche. not only with our current riserless capability in the North Sea, but with the introduction of the first non-rig riser-based asset to the North Sea. The Gulf of Mexico was severely impacted by COVID and the drop in the commodity price in 2020. We were fortunate to have had a legacy contract with BP that was originally signed back in 2013. That contract came to an end this year, and the market is reverting back to a more traditional spot market. This negatively impacted the results from our two Gulf of Mexico assets this year. Fortunately, the visibility on demand is increasing and the potential exists that both assets will be highly utilized in 2022. Our rates are still relatively low as we're impacted by the alternative rig rates. However, rig availability is tightened and most forecasts are for a significant improvement on rig rates, which is starting to happen. We expect improvement through 2022 and a strong 2023. We've also broadened our surface offering to include hydraulic stimulation. We did this initially to bolster utilization, but it may actually grow to be a new market for us as the volume of work increases. In 2014, following the downturn of 2015, we began a strategy to increase demand for our services by expanding geographically. Brazil was the first region that we targeted to establish a presence in. We were able to achieve four-year contracts for two monohull riser-based intervention vessels. We were the first in our industry's history to successfully deploy a non-rig monohull developed for riser-based intervention. These vessels remain the only non-rig monohulls available with that capability, along with the well enhancer. The first vessel, CM Helix 1 has now completed its four-year contract and the CM Helix 2 contract expires at the end of the year. There's been a significant amount of field divestment by Petrobras. The result is that there's a growing client base for our services other than Petrobras. Our intentions are to redeploy the SH-1 out of Brazil for most of 2022. We're in negotiations with Petrobras for an extension of the contract for the CM Helix 2. Our intent is to keep the SH2 in Brazil. We believe there's a long-term market there for at least one of our vessels. In late 2019, we deployed our first major asset in West Africa, the Q7000 to Nigeria. After a COVID delay, we continued work in earnest at the start of 2021. The West Africa market is the prime market for primarily production enhancement. We expect strong demand for this service in the region. We initially believed that there was potential for a 150-day campaign every other year. The Q7000 has worked continuously, however, throughout the year with very little non-productive time. We have visible work in Nigeria, potentially through the first half of 2022, and that's just Nigeria. And we're now starting to market and gain interest from the Angola market, which is potentially even larger. We believe the West African market has the potential to fully utilize one of our riser-based assets on a permanent basis. The latest region that we've been working towards establishing a presence in is the Asia Pacific market. This market has transitioned over time from a development market to be one that in the future we anticipate will be dominated by field abandonment work. The Australian government is increasingly demanding to see decommissioning occur following a significant bankruptcy which left the decommissioning liability with the government. We expect this to be a strong market which could potentially utilize one of our assets on a permanent basis. We already have our first contract in place in Australia, although the start of the work has been delayed, now expected in the second half of 2023. We expect this will provide the opportunity to secure additional work likely ahead of that time or after. As you can see, we have multiple sources of potential utilization. We have seven intervention assets, two vessels in the North Sea and two vessels in the Gulf, which will continue to support these regions with expected improvement on utilization and, over time, significant improvement on rates. For the remaining three assets, although we're not there yet, we see demand eventually to exceed our supply. To recap, we see one vessel in the North Sea supporting riser base decommissioning, one vessel supporting production enhancement in Nigeria and Angola, one vessel supporting decommissioning work in Asia Pacific, and one or two vessels in Brazil. Beyond that, a potential market is developing in Guyana, and we're seeing further activity potentially in the Mediterranean and Canada. Rates are below where they need to be, but we're generating free cash flow. We're seeing gradual improvement in rates offset by the loss of the legacy rates on our three long-term contracts. We are anticipating meaningful rate increases by 2023. Between a variety of global utilization opportunities and the chance for meaningful rate improvement, we feel the market offers us a lot of upside. It's incumbent upon us to prioritize those decision points and deliver results. To try and give some color on our robotics group, let me begin by saying that this is where we report our involvement in the offshore wind market. There are four components of our robotics contribution, ROVs, vessels with ROVs, ROVs in support of our intervention vessels, and trenching and UXO boulder clearance. Trenching and UXO boulder clearance is derived from the offshore wind market. It's a bit lumpy, as is the market, but the expected EBITDA contribution on a lumpy basis is anywhere from $8 million to $20 million a year. We have plans to increase our volume of work in these niches as well as expand our offering and capabilities for site assessment and prep beyond UXO Boulder clearance with relatively low capital costs. Of our work class ROV work, roughly half, plus or minus, is in support of our intervention assets. And as that utilization improves, so will this segment. The remaining work for our work class ROVs is from providing ROVs and vessels of opportunity to our ROVs on third party vessels in support of construction support, primarily with the potential to add work from the offshore wind market. Expanding our involvement in the offshore wind market is the goal for us, but we plan to be prudent and avoid EPC works or provision of new vessels other than those we already operate. As I stated at the beginning, our strategy is to increase free cash flow and then return value to shareholders. The tactics we intend to focus on to achieve an increase in free cash flow are, one, increase demand for our assets through geographic expansion. Increased demand results in greater utilization, which results in pricing leverage, which would be in addition to demand leverage from simply a market recovery. Two, we'll expand our offerings in field decommissioning. First, we're developing technologies that provide a step change in capability with our existing assets for decommissioning. And second, we'll launch an aggressive new marketing campaign highlighting our broadened decommissioning capabilities. Three, we have potential to reduce our operating costs and will pursue the cost reductions. Four, we'll explore and implement plans to expand our offerings to the offshore wind market in a prudent manner, stirring clear of the risky and low-margin vessel and EPC niche. And five, we'll maintain capital spending discipline with a focus on return on capital for any potential expenditures. The next year will be a transition year for us as we further establish these markets and redeploy our three non-North Sea or Gulf of Mexico assets. We may accept some lower than cost contracts during 2022 to bridge as we build the demand that's listed here and including the potential for servicing wind farm developments. We see work building. 2022 may be a transitional year. but we have initiatives that are in place and a bright future beyond. With that, I'll turn it back for questions.
spk06: Operator, at this time, we'll take any questions.
spk01: Thank you. If you would like to register 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 would like to withdraw your registration, please press the 1 followed by the 3. One moment please for the first question. Our first question comes from the line of James Shum with Cowan. Please proceed with your question.
spk03: Hey, good morning, guys. Thanks for taking my question. Oh, and you touched on this, but my first question was to ask about some additional color on the market in Brazil. Petrobras has been selling some non-core assets. And so that potentially reduces their well intervention needs. But, you know, presumably now you have a new opportunity from new clients. So can you just talk a little bit about that? You mentioned a digestion period. So could you explain that? And then just wondering if these new operators might prefer local Brazilian competitors. I know there's a lot of old rigs down there that have accepted some very low day rates, so just curious to get your thoughts on all that.
spk02: Okay. Well, first, the digestive period that I was talking about applies more to the North Sea than Brazil, where you've had a large number of properties diverted into the hands of smaller companies, and there's been some consolidation, which will take some time for the integration and everything to occur. With respect to Brazil, I think the divestments occurred a couple of years ago that are really leading us to assume that there's visible work. In fact, we're tendering on anywhere from two to four years' worth of work that's not Petrobras-related. So that's a real potential. I don't know that all of the properties that Petrobras has divested has lessened their demand for intervention though. They still have a high requirement to increase their production and well intervention is the lowest hanging fruit method of achieving that. So I think Petrobras is serious about their intent to extend the current contract. We just need to arrive at rates that are fair.
spk05: James, I'll add to that. Good morning. A couple of things. Petrobras' whale count is significant in size. Currently, after the divestitures, they still have a whale count that's in similar size to the entire North Sea or the UK section of the North Sea. And you mentioned the local rig rates. The local rigs have all been taken up now. They're all contracted, and any rigs coming in currently now will be international mobilizations. So we do see a tightening market, and like Owen says, we are in quite significant tender activity in Brazil.
spk02: And then finally, most of the people that they've divested properties to are international IOCs. Therefore, as far... There's strict requirements for local content, and I think as long as you comply with the local content requirements, which we do, then there's no real preference between Brazilian and us. And remember, we've been down there for a number of years right now, and we do have an established Helix to Brazil entity.
spk05: Most of our onshore employees in Brazil are local nationals, and a good portion, 70%, 75% on the vessels are local nationals.
spk03: Great. Thank you for that. And so just to sort of follow up on that. So, you know, maybe putting Petrobras aside and You talked about the overall well count. It is a huge market down there. Is there any reason, other than your negotiations with Brazil, presumably that should be a two-vessel market for you guys at some point in the future. But for now, you're going to move the CM Helix 1 out of there. Is that fair? Is it fair to think that it might get moved back in 2023?
spk02: That's correct. In fact, I think it may be a little earlier. I think you might see us move it back there, depending on the contract negotiations that are going on right now. It could be that we move the vessel back towards the end of 2022. But I do see at least a two vessel market potential in Brazil. And quite honestly, Petrobras should have two vessels and there's probably enough work considering the overlap of the schedules of the work that we have visibility on. There's probably a market for two vessels outside of Petrobras.
spk03: Okay, great. Thanks. My last question is just, you know, I guess I think a lot of people have been surprised that oil prices are very high now. You know, a lot of these operators, you know, you know, pay you guys out of their OPEX budgets, not CAPEX. So I guess a lot of people are sort of thinking you would have a more robust demand environment right now. Just curious, are you seeing increased competition for your services from like riserless light well intervention vessels, or are you seeing increased competition from drilling rigs or anything related to that?
spk02: Well, let me take the light well intervention vessels first. We were the first to develop the light well intervention capability with bespoke vessels. Those two vessels still dominate the work in the North Sea. We do see potential competition in the North Sea, but we've been facing competition for a number of years. Island Offshore has had four vessels, three of them working in the North Sea, so that's not new. but island is sort of diminished and you're seeing others stepping up. And you'll always have people stepping up. Riserless intervention is fairly simple to deploy on a vessel of opportunity, and therefore in downturns you usually see vessel owners seeking to increase their utilization by offering riserless intervention off the vessel. Typically what happens is the producers will try it, It doesn't go that well, and then they revert back to us, basically. In the rest of the world, we are seeing, there's been several attempts in the Gulf of Mexico to provide riserless intervention. BP, more recently, has sort of taken up the banner, and they intend to use riserless intervention, which is what led partially to the restructuring of the contract that we have with BP. We are not going to be doing the riserless intervention for them. We will be doing the riser-based intervention for them. And then in Asia Pacific, we are seeing one competitor. They don't have an asset finished yet, but they are marketing that they'll be available for riserless. I believe they have a five-year call-off agreement with Chevron. So we will see riserless in Asia Pacific. But there's a vast difference between demand for riserless and demand for riser-based. The capabilities of riser-based are so much greater than riserless. And if you look at it, the efficiency of running the systems is not that different, and actually the commerciality of riser versus riserless. But we can offer both. We've just been doing it for decades now, and we're a firm believer that riser-based provides the producer with the greatest service.
spk05: I'll just quickly add to that as well. One key point here is the hugely developing decommissioning market cannot be furnished by riserless intervention. You have to have riser-based operations to undertake full P&A activity and decommissioning activities. We're seeing an increase in P&A activity in Australia, in Brazil, and in Australia, sorry, North Sea. So huge demand coming for P&A activity that can't be furnished by risolus intervention.
spk03: Great. Thank you very much. I'll turn it back.
spk05: Thank you.
spk01: Thank you. Our next question comes from the line of Igor Levi with BTIG. Please proceed with your question.
spk07: Thank you, guys, and good morning. When I look at the Gulf of Mexico Q vessels working largely in the spot market, utilization is averaged in the 70% range for much of the year. So my first question is whether this is a reasonable assumption going into 2022 for those vessels. And then as we try to think about the seam one now being in the spot market after leaving Brazil, what kind of a utilization can that vessel expect?
spk05: Good morning, Igor. So the Gulf of Mexico in the last quarter, we had about 70-odd percent utilization increased from Q2. We are seeing very firm utilization into Q4 and Q1 of next year. Usually as we go into a new year, we would see about 700-odd days of visibility for the key units in the Gulf of Mexico. Obviously, we wouldn't win all of that work and some work would get canceled. Going into 2022, we're seeing much higher visibility over the 1,000 days mark, and we have pretty much the vessels booked for all of Q4 now going forward and well into Q1, and numerous discussions with other clients. Regarding the SIEM Helix 1, as Owen said, we will take it out of Brazil, and we're planning to mobilize that vessel on a number of different types of work. We're looking at all sorts of opportunities before we see the P&A market reactivate coming into 2023. I think I alluded to that we might take lesser works, but we're looking at wind farm work, vessel construction work, maybe even trenching work, but we've got quite a few opportunities for that vessel. It may be that other countries like Angola open up and we go straight back into one's pension mode.
spk07: Great. Thank you. I know you talked about the wind opportunity, but I was hoping you could provide more color going into 2022, because I remember you previously mentioned that while it's a growing market, the competition is quite fierce there. So I was hoping to, you know, understand how 2022 would compare to 2021 in, uh, in that scope of work. And, uh, are you, you know, how are you staying disciplined to maintain margins in such a competitive market?
spk02: Well, 21 is actually a down year from 20, and that's a result that we achieved our first UXO boulder clearance contract in 2020. Quite honestly, the survey grossly underestimated the number of UXOs and boulders, and that contract ran most of that year and into the next year. So that was sort of a banner beginning. This year, we've been working hard to take the credibility from that first job and qualify to tender on additional jobs. The volume of work this year available, as I mentioned in my comments, it's a bit lumpy. And 2021 was a softer year volume-wise for the work, but we were able to secure new contracts And that's bolstered our credibility, and we're now on the tender list for most of the work going forward in that area. When I said we're going to grow, it's not only growing in chasing the USO and Boulder clearance work and trenching. Boulder clearance work is site preparation or site clearance, site prep. I think there's an opportunity for us to expand on our services there through alliances and organically with minimal capex to be able to provide a broader site assessment service to the project owners. That's working for the project owners. And while the competition is fierce, it is a specialty niche and I think demands a better margin than the more commoditized segments. On the construction support, which is where trenching is, again, this was a bit of an off year, but we're seeing strong demand increase in trenching. In fact, I think Scotty mentioned we're actually contemplating adding trenching capability going forward, so that niche will grow. Because of the expertise required there, I think we've been successful in maintaining our margins And while the number of vertically integrated trenching that's been added to cable layers has sort of diminished the number of clients we work for, the broader market is growing at a much faster pace than the market share that we're losing. So therefore, our outlook is for a strong growth in that segment. And then beyond that, just in general, We've seen recent headlines this year about EPC contractors taking huge losses on these wind farm works. I think with the pivot towards renewables, all of the contractors sort of were lemmings going over the cliff chasing the same contracts and the margins were just squeezed to death. I think where we're going to focus going forward is on the less capital intensive but specialty niches providing support both in the construction support and then upstream in the site clearance area with a future eye towards developing O&M WebVOP capabilities. So that's where our strategy lies. Great.
spk07: Thank you. I'll turn it back.
spk01: Thank you. As a reminder, to register for a question, please press the one followed by the four on your telephones. Our next question comes from the line of David Smith with Pickering Energy Partners. Please proceed with your question.
spk08: Hey, good morning. Thank you for taking my question. So, first, I wanted to say congratulations on getting to net debt neutrality. I hope it's not too early to ask this, but given the improvement outlook for your well intervention assets, especially into 23. I wanted to ask how you think about the merits of share repurchases versus a regular dividend or maybe a special dividend.
spk02: I'm stuttering because that's actually a board decision and I don't want to speak for the board. But my personal opinion opinion is that I don't think that you'll see us establish a regular dividend. If a dividend gets paid, it'd be a special dividend. My personal preference is I like to see share repurchase, but I think most shareholders would prefer to see a dividend. So I think going forward, you'd see some kind of a hybrid blend.
spk08: Okay. Appreciate that. And second, just regarding the updated guidance, kind of a wide range in the implied Q4 well intervention revenue. If I think about that range, it kind of feels like the low end would have some schedule slippage versus your expectation. It seems like you could get to the high end with near full utilization in Gulf of Mexico and West Africa. Does that sound right? Or does your high end revenue and well intervention assume some work in the North Sea?
spk06: I think you're directly correct in how you're looking at this. The Gulf of Mexico market in the fourth quarter has really solidified for us, and so I think we expect strong utilization there. In the West Africa region, I think we definitely have a path towards strong utilization. I think there's still some exposure there, so I think that's why you see the wide range.
spk08: I appreciate it. And if I could just make one last one, and it's just thinking into 23 and the opportunity for riser-based P&A and decommissioning in the North Sea, is it fair to think about the CM Helix vessels as relatively competitive there compared to the Q7? Or does the difference in hull shape kind of reduce the operating window of the CM Helix vessels versus the Q7?
spk02: There's a difference between the capabilities of the two vessels. The two vessels in the North Sea are riserless vessels. No, no, I'm sorry.
spk08: I was thinking about the Sea of Helix vessels, right, as potentially, you know, the Sea of Helix one. Oh.
spk02: As a potential candidate. I think capability-wise, they're very similar. So they are, we can mix and match and shift the fleet around. In fact, you know, we've got potential for, a vessel in the UK, a vessel in West Africa, multiple vessels in Brazil, a vessel in Asia Pacific, and Canada and the MED have opportunities. So we have a large geographic area to try and cover with three vessels, and I think they are fungible to a certain extent. We are starting to take steps to qualify the vessels in all the regions because the North Sea, you have to have a special safety case in order to operate there. Australia is the same. So we are starting to get all of the certifications in place for all three vessels to be able to work in all regions. I'll just quickly add to that.
spk05: Technically, the top sides on the vessels are exactly the same. It's the same towers, it's the same skidding systems, the same safety systems, same walk-to-work systems. exactly the same equipment that can be utilized.
spk08: I appreciate that Scott. I was just wondering if the ship shape hull of the Sea & Helix vessels versus the semi hull of the Q7000 made a difference in how long in the year each vessel could participate in the North Sea.
spk02: The primary difference is in the transit speed. Semi-submersible has perhaps better motions when stable, but transits at a slower speed, although the Q7000 was designed with ship-shaped hulls so that when it gets up on its pontoons, it's able to achieve a higher transit speed than most semi-submersibles. But the monohull Theum vessels are much faster in transit. So as far as applying them to the different regions of the world, it's probably more accurate to think of the Q7000 covering a strong demand single region or two regions and then the SH vessels transiting quickly to cover the rest. Thank you all for your time.
spk05: Thank you.
spk01: Thank you. We do have a follow-up question from the line of James Shum from Cowan. Please proceed with your question.
spk03: Hey, thanks for letting me back in. So I was wondering if you could help me think about what utilization is needed for, let's say, the CM Helix 1 to be break-even. So it's going to be dependent on day rate. So maybe pick a day rate. Don't tell me what it is. But is there any way you can help me think about what the minimum level of utilization you need is to get that vessel to be breakeven for you?
spk05: It's going to depend on the type of work we take on, James. So, you know, if we're in well intervention mode, then we should get to break even. But right now, to get through this winter, we're targeting, you know, these less tight works that will be in construction support or wind farm support or even solar type support. So, you know, the first part of the year, we're definitely going to have, I'd say, strong utilization, but the rates won't support a break even position. Then it will depend how quick we can get the vessel back into the well intervention market. And like we've said, we're We're chasing work for that in the North Sea and Angola. So it's really dependent on the modes of work we take on.
spk03: Okay. And then just, I guess, lastly for me, what does the vessel maintenance and dry dock schedule look like next year relative to this year? I think you just mentioned you pushed some CapEx into 2022. So any early thoughts on what CapEx might look like next year would be much appreciated.
spk06: Yeah, so I think in general, Jim, you know, we have talked about in the past high level that our capex is 20 to 40 million per year in that range. I think this year we're probably going to be at the lower end because, as we mentioned, some of our capex spending has been pushed. I think that next year will probably be a little bit heavier dry dock year. We have the Q4000 has a scheduled one. the CM Helix 2, the HP1, and I think the well enhancer as well as the seawall. So it is going to be a heavier year. So I think we'll probably be on the higher end of the range that we provided and maybe even exceeded a little bit just because of the capex that's been pushed into 22.
spk03: Great. Thank you very much, guys.
spk05: James, if it's okay, I'll just go back to your first question. I just wanted to point out, and I should have pointed out earlier, that our cost base in the various different modes is wildly different. When we're in well intervention mode, we have 140 people on the vessel. When we're in construction support, wind farm support, trenching, we're going to have less than 40 people on the vessel. So it will lose less, but the cost basis will be different as well.
spk03: Okay, great. Thanks, Scotty.
spk05: Okay, thank you.
spk02: Just to follow on that, I think it's worth noting that that's why I call 22 a transition year because I think we'll need to do that with the CM Helix 1 vessel for 22, and then by 23, I would expect the vessels to all be back into full intervention mode.
spk01: Thank you. And we do have another follow-up question from the line of David Smith from Pickering Energy Partners. Please proceed with your question.
spk08: Hey, thanks for letting me back in. I just wanted to circle back to your comment about the strategy to increase free cash flow. I think the third pillar you mentioned was to reduce the cost structure. Wondering if you could help us with any color on maybe what items have been identified, maybe the magnitude of what you're targeting.
spk02: It's a bit early to mention everything, but one thing I'll mention is a continuation of our program in conjunction with our Swamiji Alliance to cross-train personnel so that we can reduce personnel on board. That's only possible because of the alliance and the single-point contracting nature of what we offer the clients, but that would have the ability to lower our offshore operating costs.
spk08: I appreciate it and look forward to when you can tell us more of the cost of that plan. Thank you.
spk01: Thank you. And we do have another follow-up question from the line of James Shum from Cowan. Please proceed with your question.
spk03: If you guys don't close the call, I'm just going to keep going here. I'm just kidding. So I guess lastly, and I promise this is my last one, is there any commentary on robotics as a whole? I mean, you guys have talked about it. Just directionally for next year, I mean, it seems like a lot of renewables work is picking up. Is there anything you can offer in terms of like your visibility going into 22 versus what it was last year or just anything to help us gauge how this business looks next year? It would be great.
spk05: Hi, James. So I would say we'll see an improving year for next year. Certainly the One of the vessels will be in APAC region and on a full contract for the year. So that's stable as it is this year. And we've also got that large decommissioning project in Thailand that will carry on into its Q1 and potentially further. For the UK, Europe, West Africa renewables area, we're definitely seeing an increase in trenching. We have awards that will most likely see us take on a second trenching vessel, so we should see an improved area there. There's a lot more tender activity on the boulder clearance side. and site survey and prep. So we expect to pick up some of those works. We've been doing a very good job on those projects that we've undertaken and starting to build quite a good reputation. So we see an increase in ROV activity as well. A lot of our ROVs that were destined for oil and gas work and lower utilization are now forming over into the wind farm markets as well. So we should see an improvement. Not sure yet how much of an improvement. It's not going to be a vast improvement, but it will be an improvement.
spk03: Okay. Thanks so much. Appreciate it.
spk05: Thank you.
spk01: Thank you. And there are no further questions at this time.
spk06: Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter 2021 calls in February of 22. Thank you.
spk01: Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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