Helix Energy Solutions Group Inc Q1 FY2021 Earnings Call

Greetings and welcome to the Helix Energy Solutions' First Quarter 2021 Earnings Conference Call. This conference is being recorded on Tuesday, April 27, 2021. I would now like to turn the conference over to Erik Staffeldt, Chief Financial Officer of 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 Neikirk, 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 Neikirk 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 of variety of factors, including those set forth in Slide 2, 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 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 5 through 7, provide a high-level summary of our results. Our performance in Q1 was in line with expectations as our teams continue to execute at high levels of operability. The Q7000 successfully re-commenced 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 Siem 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 at $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 Q5000 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. Yes, 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 Helix team. We have now started the process of reopening our offices in some locations and we 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 for our safe access to return to work in our office locations. Our workforce onshore has done a great job working remotely, communicating on team calls and meetings internally with clients and vendors to keep our operations functional. I know they are all very excited to see the return 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 work sites globally. Testing is now more easily available and the vaccine rollout is aiding the situation. In the first quarter, we continued to operate investments 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 being 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 an extremely low recordable incident rate. 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 are seeing largely consistent levels of utilization. Though our intervention fleets achieved utilization of 70% globally, achieving 100% utilization in Brazil, 88% utilization in the Gulf of Mexico, 38% utilization in the 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 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 Seawell were warm stacked, as we seasonally do, for the harsher winds and bumps and left Scotland into mid-February when the Well Enhancer was reactivated and commenced operations for the remainder of the quarter. In the West Africa region, the Q7000 completed transit back to Nigeria for its contracted work, which is currently ongoing and is contracted to remain in Nigeria into the third quarter. Performance in Brazil was at our usual high standards as both vessels performed very well achieving high utilization of 100% in Q1, predominantly 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. Q5000 achieved full utilization while collaborating with BP until mid-February, engaging in ultra-deepwater production enhancement on one well and attempting to abandon another, performing exceptionally well. The remainder will continue working for BP, with demobilization planned for Q2. The Q4000 also performed well, achieving 76% utilization due to a scheduling gap between projects, completing work in ultra-deepwater for two clients, including five wells for one client and flowline remediation for another. The first key vessels have integrated Helix personnel, working effectively as one team. Both vessels have secured work into Q2, though there are some gaps between projects. We are encouraged by the recent uptick in tender activity in the Gulf of Mexico and now have clarity on work for the vessels into the third and fourth quarters. Nonetheless, there remains some uncertainty about the volume of work to be contracted. In our North Sea Well Intervention business, reduced work opportunities linked to COVID have had the most significant impact, leading to the continued warm stacking of the Seawell. The Well Enhancer remained in warm stack during inclement weather and was reactivated in mid-February to begin operations. It recorded 46% utilization in Q1, working for two clients, including one production enhancement for one client and two scopes for others. The vessel is primarily booked into Q3 with visibility on multiple clients’ works. The Seawell stayed warm stacked in east Scotland, significantly lowering operating costs and minimizing crew levels. Recovery in the North Sea market has been slower than before, likely due to government restrictions in Scotland. However, we have recently received work awards that we expect will secure contracts, allowing us to reactivate vessels by the end of Q2 for work in Q3. The Q7000 returned to Nigeria in early Q1 and commenced contracted operations at the end of January, performing impressively with no commercial downtime while collaborating with a multinational Helix Jline team. The vessel worked on four wells this quarter, one production enhancement scope, and conducted integrity repairs on three wells. It has contracted work up to Q3 in Nigeria, with prospects for further opportunities in West Africa later this year. In Brazil, our Petrobras operations continue to excel, showcasing operational excellence once more with strong results in safety, uptime, and efficiency. Both vessels reported high utilization this quarter. The Siem Helix 1 achieved full utilization in Q1, completing abandonment work on four wells in a protected area off Brazil's northern coast, and has been awarded a 120-day contract extension starting mid-April. The Siem Helix 2 also reached full utilization, completing production enhancement on two wells and government work on four wells during the quarter. In our Robotics division, we had another successful quarter following a strong 2020, operating chartered vessels mainly on non-Oil and Gas renewables and salvage projects, resulting in 90% fleet utilization. In Q1, the Grand Canyon III was utilized 80% for renewables and oil and gas trenching, completing projects in Egypt. The Grand Canyon II saw 100% utilization while working on renewable energy projects in Japan and is set for ROV support work in APAC. We also mobilized an ROV for a project in Ghana expected to last approximately 50 days in early Q3. Our Robotics group aims to deepen its involvement in the renewable sector, with contracted trenching work from 2021 to 2023 and tender activity extending to 2025. Slide 16 outlines vessel utilization for ROV and trenching. Before concluding, I want to express my gratitude to our global team, offshore and onshore personnel, and our partners for their dedication during these challenging times. We are optimistic about the future as operators return to work and begin contracting vessels in the North Sea and the Gulf of Mexico. With improved visibility on contracts for this year and beyond and growing international tender activity across West Africa, Brazil, Australia, and Asia Pacific, we are well-positioned for strategic growth.

Thank you, Scotty. As of March 31, our total funded debt stood at $347 million, a decrease from $405 million on December 31. In the past quarter, we fully repaid the Q5000 loan upon its maturity. Slide 19 offers an update on key balance sheet metrics, highlighting our long-term debt and net debt levels as of March 31, with net debt estimated at $66 million at the end of the quarter. We repaid about $58 million of debt during this time. The reflections of our long-term debt and net debt balances at March 31 incorporate the early adoption of ASU 2020-06, which streamlined the accounting for our convertible notes. At the end of Q1, our cash position totaled $205 million, not counting $66 million in restricted cash meant for a temporary project letter of credit. Our net debt-to-book capitalization as of quarter-end was 4%. Looking ahead, we find ourselves in a very challenging market. We've previously mentioned that 2021 appears to be more difficult for our business compared to 2020. Our customers are remaining cautious about spending in 2021. While the current macro conditions have led to increased discussions and interest from customers, these conversations have yet to translate into firm orders. There are positive trends globally and within our sector that could support a recovery in our markets, although primarily beyond 2021. We believe we have enough visibility to provide guidance for 2021, albeit with appropriate caveats considering the current landscape. We are projecting revenue in the range of $625 million to $700 million, with EBITDA between $75 million and $100 million, and free cash flow generation expected between $45 million and $75 million. Beyond Q1, we foresee operating five Well Intervention vessels in the spot market, where clarity is currently limited. We anticipate that visibility and utilization will vary each quarter. In the Gulf of Mexico, both vessels are likely to remain in the spot market for the rest of the year, and we generally expect lower activity levels in 2021. In the North Sea Well Intervention business, we plan to operate one vessel for most of the season; whether a second vessel will be deployed will depend on market strength. In Brazil, the Siem Helix 2 is under contract until December, while the Siem Helix 1 is contracted until August at reduced rates, with the possibility of follow-on work. In West Africa, we expect to utilize the Q7000 into Q3, with potential work afterward. Our Robotics segment may experience a weaker year due to expected reductions in site clearance work in 2021. Production facilities should remain stable, and we successfully conducted a production recompletion at Droshky in April using idle asset time. While the operations were effective, early indications of potential upside appear limited. For our Well Intervention segment, the Q5000 in the Gulf of Mexico is under contract with BP into Q2 and is currently completing work at Droshky. The Q4000 has secured contracting work until May. Both vessels have additional opportunities with gaps in their schedules expected. The UK North Sea Well Enhancer has contracted work extending to Q3. The Seawell remains warm stacked, with the earliest opportunities estimated for mid-year. In West Africa, the Q7000 is operational and has contracted work expected to continue into Q3. In Brazil, the Siem Helix 2 is engaged until December, while the Siem Helix 1 has work until mid-August and is scheduled for a 30- to 40-day dry-dock in Q3 or Q4. Regarding our Robotics segment, Q1 work was impacted by winter slowdowns but is expected to rebound in spring and summer. The Grand Canyon II and APAC sold contract in Q2 is anticipated to have good utilization for the remainder of 2021 in that region. The Grand Canyon III is set to perform trenching in the North Sea with strong utilization projected into Q4. Follow-on wind farm survey and site clearance work commenced at the end of Q1. Concerning our production facilities, HP1 is contracted for the entire year with no expected changes, and we have entered into a new agreement with HWCG for response services effective Q2, returning to a more traditional retainer-based agreement. Our CapEx forecast remains unchanged at $20 million to $40 million, primarily for maintenance and project-related expenses, including production enhancements at Droshky performed in April. Our balance sheet shows funded debt reduced to $347 million following the Q5000 loan repayment, with another expected decrease of $33 million during the rest of 2021 due to scheduled principal payments. Our end-of-Q1 cash position was $205 million, excluding $66 million of restricted cash for a temporary project letter of credit. We received a $7 million tax refund in Q1 and expect an additional $12 million in 2021 due to tax changes from the CARES Act. I will skip Slide 27 and leave it for your reference. Now, I will turn the call back to Owen for closing comments. Owen?

Thanks, Erik. The market for 2021 continues to be challenging. We are seeing green shoots and signs that the market is 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 is 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, Helix finds itself in a uniquely challenging position. The market is slowly 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 market. 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 are to expand our geographic footprint to increase volume demand for our services continues to progress. We've added contracted work from West Africa, which we believe could see the Q7000 working in West Africa to near year-end. The credibility gains 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 SH1 contract with Petrobras, we scheduled in April, but it's been extended at lower rates to allow the vessel to remain in Brazil avoiding repatriation costs, while Petrobras say they are 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 Droshky. Several offers are pending, while the best time to achieve these deals is when cost of expectations for abandonment are high, the turning market indicates abandonment cost of 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 the potential to expand our offering beyond the current trenching and site clearance. We are actively tendering the clearance opportunities that see the market is more competitive than just two years ago. Trenching appears that it will be our bread and butter in Robotics. We've seen significant growth in wind farm projects but continue to see tremendous amounts of capital chasing the work. There is uncertainty in our mind about the potential to achieve sustainable returns. We are 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 Erik.

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

Thank you. Our first question comes from the line of Ian MacPherson. Please proceed with your question.

Thanks. Good morning everyone.

Hi, Ian.

Hey, Owen. Owen or Erik, I wanted to ask about the guidance walk from 2022 actuals to 2021. At the midpoint, you've got severe EBITDA decrementals on the revenue decline. And when you think about the resiliency of the production facilities fees, it looks like circa 100% EBITDA decrementals on the EBIT – on the revenue drop this year across intervention and robotics. And so, we know there is legacy contract rolls there that are a big component. And we know there's suboptimal utilization and 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 is a ton in that question but really what I'm asking is, how you think about the non-recurring or maybe the abating headwinds your cost structure when we get into a recovering market next year?

The answer is yes. Sorry, that is a mouthful. Erik, why don't you take this?

Yes, I think from a big – I'll try to address the different components of your question. I think that we're starting to see, or I guess more is get the feel for the headwinds that you're talking about the pressure on the pricing or you can say our cost structure. I don't think we've seen it yet. We haven't seen it 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 could see some of the impact that has seen us. I think also the – as you mentioned, the impact on utilization of our fleet 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 are incurring on a quarterly basis for additional COVID cost. I think it was $1 million to $2 million per quarter. We still have not seen those starting to abate; I think our expectation is that we'll 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.

Yes, no, you did. It was my fault for asking a mouthful question. But really, I just want to kind of see if you agree with my hypothesis that your last negative pricing role 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 depend on swings back from those severe decrementals that we saw this year. That was really a – I just wanted to kind of confirm those opportunities for improvement. So…

If I could just add a little something, Ian. I know lots has been said about the impact of COVID. But I think also, it's 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 and that's always a big problem. If the budgets – 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. So that's impacting 2021. But what that's done is, you're right, there is an awful lot of dialogue now about 2022. So, a snapshot, I would expect 2022 to be much stronger. We have room in our fleet for increase in utilization, but what's really hurting us right now are rates. So, hopefully in 2022 we'll see some increase in rates. We're not seeing the cost escalations you mentioned, but coming out of every downturn, the industry always does as people become scarce so the cost increases on personnel. We're seeing some of that in non-oilfield 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 the 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. Quick follow-up. We saw the contract news for the Q7000 in Australia, it sounds like you have – 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 puts well. The other – 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 color. I'll pass it over. Thanks, Owen.

Our next question is from Mike Sabella from Bank of America. Please go ahead.

Hey, good morning everyone.

Good morning.

Good morning.

Maybe we could just talk for a bit about the revenue guide in Robotics. We've got this guide out there, 115 to 135 for the year. Last year renewables, 41% of the segment. Can you kind of talk us through how you think – you see that split moving this year? And then just 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 take you to either of those places?

So, I'll take that one. You have to remember that last year we had bumper projects in the site clearance market. That project was supposed to last three months. It went on for nearly, what, 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 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, I would say the 41% guidance from last year would be lower because of the bumper site clearance project. We are also seeing an uptick in requirements for ROVs in the renewable sector. Currently, we have contracted eight ROVs that will be in renewables. And then we have four ROVs on our vessels to take part in renewables work or trenching work. So, I think it will be slightly lower on the renewable side. And I think the guidance right now is set but in a good place. But then these other things have come up. We just won our first ROV project, vessel project in Guyana that we didn't have any visibility on that. That's going to be a 50-day project in Q3. But we'll take a vessel and go lay a cable for Exxon. And then – so there are other stuff that comes off on the ROV side all the time.

Got it, thanks. And then could you just quickly circle back to the Q7 headed to Australia? Can you just clarify what – 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 are opportunities there. I think it 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…

It's 90 days.

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 contract – anchor contract there subject to FID. And so, I think it's – 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, knowing – the bottom paint on the vessel, knowing that this was the 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 is no impact from that contract in Australia, either from a cost perspective in the guide this year?

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

Okay, perfect. And then, can I just ask one more quick point of clarification? I think Erik, you said there is – from the CARES Act, there's twelve million incremental coming in this year or it's twelve million total, seven million of which was collected in 1Q?

No, twelve million additional.

Additional?

Yes, I think it was nineteen million or twenty million total, we received seven million in Q1.

Perfect. All right. Thanks, everyone.

Our next question is from James Schumm. Please go ahead.

Hey, good morning guys. I was wondering if you could comment on the rate reduction on the Siem 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's working in Brazil for Petrobras this year was merely to keep it in the region and avoid the large repatriation costs ahead of the retendering process. So, I wouldn't expect too much of 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, yes, 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, but we would not.

Okay. And then my next question, 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 Q4000 or the Q5000 this year?

So, I think we've returned to, like we said a more traditional retainer base. I think we've been operating, I think two years essentially at extreme discount, so we've gone to the more traditional. I don't think we're quite – we are at the levels that we were previously. It will be a positive impact to our production facilities result to the extent that we said – to the extent that we do gain utilization for our assets in the well intervention that will reduce the retainer fee there. The HWCG has, I believe, sixteen 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 indiscernible. Please go ahead.

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's 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 the – some traditional oil and gas work in that segment for 2021? Is that type of activity is 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 observing increased activity, but it will likely be similar to last year in the oil and gas sector. There are more tenders occurring, but it depends on whether those projects come to fruition. We're noticing a greater demand for our services and for spot boats. However, compared to last year, we are missing the large site clearance projects we had. There will definitely be an increase in ROV work related to oil and gas, particularly in trenching. In 2021 and 2022, there has been more discussion about tie-backs in the North Sea, which should lead to traditional pipeline and umbilical trenching, but the market remains quite slow. Operators are currently cautious about spending on maintenance. Eventually, they will need to invest, but it's not happening yet. So, I would say it will be consistent 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 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 compare 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 2021 through to 2023 for renewables trenching. We had works in tender with good partners of ours, usual customers out to 2025. And one thing we are seeing, these wind farms are becoming much larger. So, the trenching scopes are becoming larger. And with that, the site clearance and some of the other services that we're offering, 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 2022 onwards we have 16 site clearance projects. And again, all of these wind farms are getting larger so the volumes should increase. We should win some of the work. But like Owen rightly says, there is a huge amount of people looking in at this space. There's more competition coming to it. And as with any commodity, when there's competition, that'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 from Igor Levi. Please go ahead.

Hi, good morning.

Good morning.

So, following up on Ian's question on your 2021 guide of $75 million to $100 million EBITDA, and this implies that the quarterly EBITDA will be cut in half from Q1 levels, and you mentioned this is largely attributed to the contract roll-offs. Could you provide some more color – how much of this would proportionately be attributed to the Q5000 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 Siem Helix one from their legacy contracts. I think when you look at the entire year, we're leaning into a more spot-based environment. Visibility is going to be on a quarter and 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 – at 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 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 proportionately much bigger part of that drop?

I believe the Q5000 is going to have a disproportionately larger impact due to the comparison to the historic rates that they were both on.

Perfect. Very helpful. And then on 2022, you said the snapshot could look better. Our biggest concern is that you have a full year of lower 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 know – 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 is 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 Q7000 ability to cover them. So, depending on how strong 2022 is and our ability to generate alternative opportunities for the vessels, that will have a big impact on the retendered rates with Petrobras.

Got it.

I'll just add to that. We have about 10 large international tenders out there and they're all very large tenders. They're all ten 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 last question in the queue is a follow-up from Samantha Hoh. Please go ahead.

Hey guys, thanks for taking my call. So maybe just to stay on Brazil. Curious if the options for the DHS 1 have any step up on the freight. And then also in terms of discussions with other customers potentially for longer-term contracts, are there cost escalators built into like these contracts if they go for multi-terms? Just wanted kind of an opinion on what you guys said about customers potentially taking advantage of just the low spot – or contract pricing given that there might be a visibility to higher costs over time?

Owen mentioned that. There – each project has – it 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 further 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 two different scenarios that would come out to on the EBITDA side, I guess, being positive versus negative for the segment or for the year?

Yes, on the robotic side, we fully expect the segment to be EBITDA positive. I think what we saw here in the first quarter…

I'm sorry, I meant EBIT positive.

Okay. So, yes, I think last year we were – 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, wanted to actually hear a little bit more in terms of the increase dialog that you're having in the Gulf of Mexico. I think you said in your prepared remarks that you have seen some increased tendering possibly for the fourth quarter. And I was wondering if you could speak to maybe the type of work that entails and the customer mix? Anything to share on the Gulf would be great.

We are definitely observing an increase in tender activity. We've noticed more visibility with new customers moving into the third and fourth quarter. The work involves a combination of production enhancements and MG&A opportunities. Recently, several clients have approached us for pricing on P&A activity or temporary abandonment work. We believe this is due to the need to commence these projects now that oil prices have rebounded. Overall, there are more inquiries coming in, and we are getting very close to contracting some of these jobs.

Great. Thanks guys.

Thank you.

And our last question in queue is a follow-up question coming from the line of James Schumm. 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 Droshky recompletion? It 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 net-backs or just how should we think about this?

I can give you a lot of detail on that as my legal counsel cringes. But anyway, the – 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 in the – near the end of May. We did the work and we have perforated and 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 till we see the flow rates. But it will be – it will be positive but we're just not sure how much. Now, having said that, just to 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 recompletion, it does not include the cost savings that we would have incurred with the asset at the dock idle.

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

Got you. Understood. So, Owen, what do you think the payback time would be on this if you – whether you use the vessel utilization or not, like, could you answer that? I mean is it three years or what do you think –?

Oh, no, no. It will be – no, it will be much faster than that. The 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.

And of course – yeah, that's an estimate based on what we know right now.

Great. 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 on 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.