Greetings and welcome to the Helix Energy Solutions Group fourth quarter 2020 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded on Tuesday, February 23, 2021. I would now like to turn the conference over to the Executive Vice President and CFO, Mr. Erik Staffeldt.

Good morning, everyone, and thanks for joining us today on our conference call for our fourth quarter 2020 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO, Scotty Sparks, our COO, Ken Neikirk, our General Counsel, and myself.

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.

Good morning everyone. We hope everyone out there and their families are doing well and staying safe. To our employees and customers in Texas and the Gulf Coast region, we hope you have weathered the storm and are on the path back to recovery. This morning, we will review our Q4 performance, our operations in this challenging environment, our view of the current market dynamics, and provide our preliminary expectations for 2021. Moving to the presentation, slides five through seven provide a high-level summary of our results. The impact of the North Sea seasonal slowdown is evident in our financial performance in the fourth quarter. Our well intervention group and our robotics group both experienced a significant drop in activity in the North Sea as North Sea customers scaled back during the winter months. This is normal and expected during this time of year, but it's worth noting. On a positive note, we were able to secure additional spot work in the Gulf of Mexico in both well intervention and robotics, allowing us to exceed our expectations in that region.

Thanks Owen and good morning everyone. Moving on to slide 10. 2020 presented an extraordinary and challenging environment to us due to the COVID-19 pandemic. Yet our teams and partners, both onshore and offshore, continued to respond well to the challenges presented and are doing a fantastic job. The COVID-19 pandemic has presented many logistical challenges including travel restrictions, quarantines, testing, and screening of our personnel. Despite these challenges, in the fourth quarter, we continued to operate 13 vessels globally. And throughout 2020 and through the pandemic, we operated in 14 countries with minimal operational disruptions despite the logistical challenges. We have established a very high standard of safety measures and protocols that thus far have worked well against the virus, including pre-testing over 11,000 personnel prior to allowing them to join the vessels. And whilst it's impossible to guarantee the virus will not reach a vessel, we believe we have very good measures in place should an infection occur offshore.

Moving to slide 18. It outlines our debt instrument and the maturity profile at December 31, 2020. Our total funded debt was $405 million. Moving to slide 19. It provides an update on key balance sheet metrics, including long term debt and net debt levels at year-end. Our net debt approximated $58 million. Our cash position at the end of Q4 was $291 million. Our quarter-end net debt to book capitalization was 3%. Moving to slide 21. In March 2020, our sector was devastated by the impact of COVID-19 on the demand for oil. Nearly a year later, the environment continues to be weak with many remaining uncertainties. The pandemic has accelerated the interest in green energy investments, moving away from traditional oil and gas. In addition, in the U.S., we are facing regulatory uncertainties from the new administration. Our customers have responded to COVID by slashing spending in 2020 and thus far are being very cautious before committing to spending in 2021. Thus, at this time we are not counting on a recovery in 2021 and in fact, as we have previously expressed, 2021 is shaping up to be more challenging for our business than 2020. Given the fact that many of our customers are still working through their 2021 budgets, establishing their own spending priorities and formulating which projects get sanctioned and which do not, we feel it's premature to provide quantitative guidance for 2021 at this point, other than to say we expect 2021 financial results for Helix to be lower than 2020. We hope to be in a position in April to provide more quantitative guidance. That being said, we can say this much on how we see the year unfolding in the near term. We expect to be free cash flow positive in 2021 as we have previously stated. We expect Q1 to be stronger year-over-year and expect to have six well intervention vessels to be working in Q1. Beyond Q1, we anticipate working five intervention vessels in the spot market where currently visibility is limited. We expect visibility in utilization will be on a quarter-to-quarter basis. In the Gulf of Mexico well intervention, both vessels will likely be in the spot market for the remainder of the year. With the added current regulatory uncertainty, we generally expect lower levels of activity in 2021.

In the North Sea well intervention business, we expect to have one vessel working most of the season. Whether a second vessel gets deployed will be dependent on the strength of the market. In Brazil, the Siem Helix 2 is on contract into December. The Siem Helix 1 is on contract into April. And we are currently in commercial discussions with Petrobras regarding the continuation of work thereafter. In West Africa, we expect work into Q3 with possibilities thereafter. Robotics may have a weaker year with less site clearance work expected in 2021. Production facilities should be consistent with the potential of a production enhancement opportunity. Once again, with many uncertainties we are currently seeing, we feel it is a bit premature to provide quantitative guidance for 2021 at this point. We hope to be in a position in April to provide guidance.

Our CapEx forecast is in the $20 million to $40 million range. The majority of our CapEx forecast is maintenance and project related. It also includes a production enhancement opportunity at Droshky. Reviewing our balance sheet, our funded debt of 405 million is expected to decrease by $91 million as a result of scheduled principal payments. In January, we paid off the balance of the Q5000 loan. Our cash at year-end was $291 million. We anticipate tax refunds in the amount of approximately $19 million in 2021 as a result of the tax changes from the CARES Act. I will skip slide 26 and leave it for your reference. At this time, I will turn the call back to Owen for closing comments.

Thanks Erik. Going into 2020, we were expecting the recovery that began in 2019 to continue. Instead COVID-19 hit and expectations for 2020 were not possible to predict. We withdrew our guidance and focused on the challenges we were facing. By the end of Q2, we felt that we understood the challenges and were able to issue guidance with our Q2 results. Our people did a fantastic job meeting the challenges and we were able to provide guidance. Through continued hard work from our teams, we were able to lower our costs and improve our efficiencies. Our COVID-19 protocols proved largely successful and in spite of identifying a number of positive cases over the course of the year, we incurred minimal operational down days attributable to COVID. The market was soft overall, but we were able to meet our original guidance issued at the beginning of the year in all business units with the exception of a slight miss in the Gulf of Mexico on lower utilization and a big miss in Well Ops UK. We saw this in the last oil price collapse of 2016 as the North Sea declined the worst, but it was also the first region to recover. We are expecting a North Sea recovery in 2021 but how strong that will be is yet uncertain. Looking forward to 2021, we will again be facing some challenges. The COVID impact on the market continues but the vaccine rollout is underway. We expect demand for our services to ramp up through 2021, but we don't know at this time how quickly that will happen or to what degree. Production recovery in shale is uncertain at this time and the effect on supply is unknown. The customer focus on green energy is certainly impacting the budgets of most majors and many other E&P companies. This leads us to believe the work volume will remain anemic but oil and gas is not dead. There is a transition occurring where the majors may be pulling back from oil and gas in favor of capital deployment in renewables smaller producers are stepping in and fields are changing hands. It may be a bit early to see the effects of this in 2021 as budgets are being set in an uncertain environment, but we do expect commodity prices and work volumes to increase in 2022. More specific for Helix will be what happens to our long-term contract renewals. As you are all aware, we have three long-term contracts at what can now be considered legacy rates. Outside of Norway, we believe these are the only long-term contracts ever issued for subsea well intervention. Part of these contracts essentially an entire subsea well intervention market was a spot market. We have signaled for some time now that our expectations are for the market to return to being a spot market until a meaningful recovery occurs. We recognized that at least in the near term, those producers that can support long-term contracts are also dealing with the same uncertainties that face our entire sector. It's simply difficult to commit to long-term spending. Our contract for the Q5000 in the Gulf of Mexico with BP for 270 days per year will not be extended. Instead, BP has signed a global frame agreement with Helix for a five-year term. This would be a callout contract. And while we are told that BP will rely heavily on intervention over the next five years, we also believe their intervention needs are fairly uncertain and there could be a hiatus from work for 2021. This will certainly put pressure on Gulf of Mexico utilization for our two vessels in the region. Given the transitional nature of 2021, this means we currently do not have clear visibility on Gulf of Mexico utilization for our two vessels there. Our other two long-term contracts are for the SH1 and SH2 in Petrobras in Brazil. The SH2 contract runs in December, as Erik noted. So we anticipate any variance on that vessel would be minimal. The SH1 contract is due to end in April this year. We are in commercial discussions with Petrobras for work after April. But it's too soon to know the outcome of these discussions or the impact the SH1 will have on 2021 results. We also have a meaningful recompletion plan for one of our wells on the Droshky Field. This is scheduled to be done with the Q5000 following the release of the vessel by BP. We expect the recompletion work will likely proceed in early Q2. We are also in discussions for follow-on acquisitions similar to Droshky with the goal of securing well intervention backlog and adding incremental production revenue, but it's too soon to be able to estimate the impact that will have on 2021. On the robotic side of the company, the work class ROV market remains soft. We do anticipate another strong year from trenching and we will continue to seek further expansion into the offshore wind market, but that market has become highly competitive. Our contract for UXO in boulder clearance that we were on for much of 2020 is scheduled to pick up again, as Scotty mentioned, following its seasonal shutdown. However, how much more site prep work and other renewable support work we can secure is yet another uncertainty. We don't want to be in the same position as last year and have to withdraw guidance. Several of these major issues should be clearer as we get past Q1. We expect Q1 to be a relatively strong quarter but we are electing to withhold full year quantitative guidance until visibility on key issues firms up. As we previously said, 2021 will no doubt be a challenging year for us. However, our balance sheet is strong, we do expect to once again be free cash flow positive in 2021, which is an accomplishment in and of itself in this environment. We will continue to prudently manage our CapEx and have outlined the path to continue to lower our debt. We feel we are well positioned with great leverage to a market recovery. And we see opportunities in renewables, maturing fields, and oil and gas service space that we will be pursuing. Our team has proven to be very nimble as we face challenges and we fully expect to be in a good place as the market evolves through this transition period.

Thanks Owen. Operator, at this time, we will take questions.

Our first question comes from Ian McPherson with Simmons. Please proceed.

Thanks. Good morning. Nice results in Q4 and I would certainly rather have no guidance than shaky guidance. So I respect that decision as well. But I wanted to ask first just a detail. I thought the Q5000 was expiring earlier, year-end 2020. So is it going to be on legacy BP day rate throughout Q1 ending, early Q2? Or will it be working at BP, but not necessarily at legacy day rate this current quarter?

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

Okay. And then as you are contemplating the lack of, not necessarily a complete lack of work, but just a lack of visibility of the year's works for the Gulf of Mexico, does your scenario analysis right now contemplate the decision ultimately only work with one vessel you posted to after the Droshky recompletion in early Q2?

Ian, I think I will start off and then I will pass it off to Owen. Obviously, I think everything is currently on the table. I think we expect it to be a soft market in general, softer than last year. I think in general, our thought process is, we would steer work to one vessel, try to get that vessel filled up before we pass it on to the second vessel. So I think that's definitely a potential that's on the table. I think we see opportunities into Q2. We think it's probably going to be quarter-to-quarter for that market and we definitely expect it to be a challenge in 2021. Owen, I don't know if you want to add additional color?

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

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

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

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

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

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

Yes. I think Petrobras has one of the largest subsea wells camps. They definitely have the work. They are very, very happy with the vessels. They are very happy about the safety culture which is a big thing for Petrobras. And like Owen says, we are in commercial discussions and Petrobras do not have commercial discussions unless they have a need for work.

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

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

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

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

Got it. Thanks. If I could ask one more question. I know you mentioned that the expectation for free cash flow in 2021 is to remain positive. Can you clarify that expectation, which likely will be lower than in 2020 based on the guidance? Do you think you can achieve this neutral number by the end of the year? Also, could you discuss what the next steps might be?

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

Our next question comes from James Schumm with Cowen. Please proceed.

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

Yes. So I will take that. There will be a step down in vessel days. Obviously, at one point we had three vessels working on the site clearance projects. So they added a huge amount of vessel days into 2020. So we do expect a step down. And because of that, the revenues will come down also. But we do expect the robotics division to be on the positive side of EBITDA.

Sorry, Scotty. But do you think it will be EBIT positive this year?

Are you asking specifically just the robotics?

Just robotics.

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

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

I don't think it would be prudent for us to discuss that right now, because some of these issues are major swing factors. For instance, the Droshky recompletion, as I said, is a light switch. It's either going to work or it's not. And that has a major impact. Also love the disposition of the SH1. I really wouldn't want to telegraph putting the cart before the horse about success with Petrobras in Brazil, just because of the nature of the market right now. But both of those are meaningful swing factors which you get into some ludicrous ranges.

All right. Okay. All right. Thanks guys.

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

Hi everyone. I appreciate the opportunity to ask my question. I understand there are many uncertainties at play. However, I was curious if the current condition of the commodity markets reminds you of a past situation where rising commodity prices caught customers off guard, potentially leading to an increased need for intervention work, particularly in the Gulf of Mexico. I find it interesting that there seems to be no noticeable increase in demand, especially from mid-size or smaller private operators, given that Brent oil prices are at these levels. Could you share your thoughts on whether this situation feels reminiscent of previous times when customers were surprised by rising commodity prices?

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

I think we are in this. Go ahead. Sorry.

Just to add to that we are seeing increased tender activity out of the U.K. and also geographically we are seeing more tender activity internationally. We saw more tenders than before out of Africa and the APAC region as well.

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

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

So I will take that. And as we said, we have put a lot of protocols in place for testing all of our personnel before they go offshore. We are having to quarantine people in certain countries before they can go offshore. And roughly the cost of quarantine and testing, having to do medevacs when we have to is coming around in 2020 of about $8 million.

And that's for the full year?

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

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

Thanks for giving me the follow-up. Erik. Before the see the K, I wanted to ask you what the dry dock expense was for 2020 that ran through operations, not CapEx? And then if you could frame that for me vis-à-vis your 2021 CapEx guidance and what the dry dock slate looks like across the fleet for this year?

Okay. So just to recap. In 2020, we had I think at least five vessels heavily weighted to the first part of the year that were in dry dock. And Ian, I want to say that the number is approximately in the $20 million range. But I would like to get back to you on that. That's I think the amount that roughly flows through operations. As we look at our CapEx spending in 2021, the range is $20 million to $40 million. Majority of it is maintenance CapEx. As far as pure dry dock, we know that we have the SH1 scheduled for this year and that one is a definite. And so I would tell you, it's probably in the same potential, probably on the low-end maybe $5 million, on the high-end maybe $20 million that would flow through operations in 2021.

Okay. So midpoint probably a light downtick dry dock going through operations this year?

Yes.

There are no further questions at this time.

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

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