Helix Energy Solutions Group Inc Q3 FY2021 Earnings Call

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. As a reminder, this conference is being recorded, Thursday, October 21, 2021. I would now like to turn the conference over to Erik Staffeldt, CFO. Please go ahead.

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 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 ‘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 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 and variety of factors, including those set forth in slide two and our most recently filed annual report on Form 10-K and in our other filings with the SEC. Also, during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast are available under the ‘For the Investor’ section of our website at www.helixesg.com. Owen.

Good morning. We hope everyone out there and their family 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. Our North Sea intervention activity increased with both vessels, the Well Enhancer and the Seawell working parts of the third quarter. Gulf of Mexico intervention continues to improve. We benefited from increased utilization and have visibility for work into Q1 of ’22. In Brazil, the Siem Helix 2 worked the entire quarter. The Siem 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 continue to be steady performers benefiting from the production enhancement efforts completed on our Droshky 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 at $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 eight, 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 of CapEx, resulting in 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.

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 teams have done 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 with 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, sub-contractors, and clients at each offshore work location. Most of our personnel, where the vaccine is available, have been vaccinated, and we are now seeing fewer COVID-19 related incidents at our work sites. In some parts of the world, travel restrictions have been eased, and most clients are returning to their offices. Finally, after all these months, some clients are now allowing in-person meetings. In the third quarter, we continued to operate 14 vessels globally with minimal operational disruption, continually operating at exceptional standards with 98.5% uptime efficiency. Our dedicated and committed personnel continue to report very satisfying and notable safety statistics again, emphasizing our strong support for 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%, reducing the gross profit to $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 Siem 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. Robotics chartered vessel fleet achieved utilization of 99% globally, increasing to a 358 vessel base 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, which experienced some scheduled 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 quarter, and the Seawell 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 the usual high standard with the Siem Helix 1 completing safety work with zero MPT and then demobilizing from the Petrobras contract. The Siem Helix 2 was 100% utilized, producing a strong quarter. The Robotics chartered vessel fleet achieved high utilization in the quarter working between ROV support, trenching, and renewable works globally, completing 358 days. 176 days of work was undertaken on four projects using spot chartered vessels, including one vessel conducting our first project offshore in 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, following production enhancement operations in ultra-deep water for three clients with some small scheduled gaps between projects. The Q4000 increased utilization to 71% compared to 45% in Q2, completing production enhancement work with two clients in ultra-deep water, followed by two small construction projects with two clients. Additionally, we provided support to one of our clients with platform repair work caused by storm damage from hurricane Ida. Both key units have integrated Helix-Schlumberger alliance teams and equipment installed proactively working as one complete productive and safe team; most of our key intervention contracts are undertaken in the Gulf of Mexico, and our single point contact mechanism allows for easier contracting for our clients. In the third quarter, the Helix-Schlumberger alliance team was successfully awarded the BP Gulf of Mexico riser-based well intervention vessel and services package for a three-year contract plus options. While the contract does not provide us 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 to have utilization for one to three wells each year. Pleasingly, both vessels have high utilization contracted work in Q4 with contractors and awarded works into 2022, and much better visibility for potential further activity in 2022 compared to 2021. In recent weeks, we’ve been awarded approximately 250 days for the Gulf of Mexico units 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 Enhancer achieved 57% utilization in Q3, working for two clients in the quarter, including completing production enhancement scopes. The vessel, which can leave Scotland, significantly reduced 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 enhancement works for the following customer, followed by a four-well abandonment program for the third customer. The vessel was then warm stacked and left Scotland to significantly reduce costs and crew for the remainder of the quarter. The Q7000 had a strong performing quarter in Q3. The vessel performed extremely well working with multinational and integrated Helix-Schlumberger 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 substantial further work 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 Siem Helix 1 had 45% utilization in Q3, with no commercial downtime for the safe completion of the Petrobras contract and demobilization in mid-August. The well 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 international markets. We have identified and are in discussions regarding numerous opportunities that we hope will have the vessel contracted in the coming months. The Siem Helix 2 had 100% utilization and completed abandonment work on three wells and production enhancement work on two wells during the quarter. We are currently discussing a possible extension with Petrobras regarding the Siem 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 a 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 undertook an expected 210-day well head decommissioning project, removing 124 well heads from the sea floor as they are expected to continue into Q1 of 2022. In the North Sea, the Grand Canyon III was utilized 93%, undertaking 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 utilizing the vessel for most of the remainder of 2021 and a good portion of 2022. The chartered vessels continued site clearance and survey work for 53 days and a wind farm project that is now expected to last until late Q4. The project started south and commenced work on year’s clearance and detonation projects 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 as our pay-as-we-go vessel going forward this year. The project charter SIEM Dorado was contracted for a cable installation project on our first offshore work in Guyana for 77 days in the quarter. The Robotics group transitioned further into the green and renewable sector, continuing to add new clients and more services. We’ve recently been contracted to undertake further site clearance and survey projects and have seen tender activity increase for all the services we provide globally. We’ve also recently been awarded favorable renewable trenching work in 2022 and 2023 that may require a second trenching investment in 2022. Over to slide 16, I'll leave this slide detail and the vessels, ROV 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 footprint 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 other new 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 market, and we’re expecting increased trenching activities and favorable awards for the new services we have been offering. Before I turn the call over to Erik, 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, and turning operational excellence with minimal MPT while keeping very high standards in safety performance.

Thanks, Scotty. Moving to slide 18, it outlines our debt instruments and their maturity profile at September 31. Our total funded debt was $340 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 long-term debt and net debt levels at year-end at September 30. With $309 million of cash and restricted cash as of September 30, 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 to support some temporary project LC. During the quarter, we paid off our term loan and entered a new $80 million ABL 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 ABL. For a discussion on our outlook, we move to slide 22 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 that has been slow to develop in areas like the North Sea well intervention market. Positive developments globally, and with our sector are providing a positive foundation, both covering their markets, but primarily beyond 2021. We have made slide updates to our Q2 guidance. Our guidance is a good faith attempt to provide investor information that is appropriately caveated as best we can against the backdrop of the current environment. Our guidance for ‘21 is as follows: Revenues $600 million to $645 million, EBITDA $85 million to $100 million, and free cash flow, $80 million to $120 million. Our EBITDA outlook is based on the following: We expect visibility in the 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 in a 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 million to $25 million. We received an approximate $12 million CARES Act tax refund in Q3. Working capital levels are soon 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, the 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 Siem Helix 2 is on contract until December, the Siem Helix 1 completed its dry dock in mid-October and is available in the spot market. In West Africa, we expect to work the Q7000 into late Q4 with possibilities thereafter. Moving to our Robotics segment on slide 23, Robotics has continued to be steady early in the quarter. The 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. The 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. To follow on, the wind farm survey and site clearance in the North Sea is now continuing into Q4. Moving to slide 24, our CapEx forecast range is $15 million to $25 million. The majority of our CapEx forecast is maintenance and project related. It also includes the production enhancement opportunity at Droshky 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 million of temporary restricted cash that supports our project LC. We have received a $7 million tax refund in Q1 and $12 million of 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 for your reference.

At this time, I'll turn the call back to Owen for closing comments. Thanks Erik. 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 are planning 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 subside. However, things are never simple. Additionally, we’re seeing COVID linger longer than many believe. 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 requisite digestion periods. 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; the COVID shutdown seems to have had a significant impact on planning, and the Green Party now shares more power. The result has been a slower pick-up in the North Sea work. In fact, this is a new mature basin, so we are seeing and expect to continue to see a pick-up in production enhancement work. There's also been a shift in the government position from wanting to preserve infrastructure to promote marginal production developments to a public-driven stance that wants more field abandonment and removal. Since the government will be on the hook to fund a portion of this, we see the direction from them as taking an overtime approach. We expect our 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 dropping commodity price in 2020. We are 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 are impacted by the alternative rig-rates. However, rig availability is tightening, and most forecasts are for a significant improvement on rig-rates, which is starting to happen. We expect improvement throughout 2022 and a strong 2023. We've also broadened our surface offering to include hydraulic simulation. 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 achieved four contracts for two monohull riser-based intervention vessels. We were the first in our industry history to successfully deploy a non-rig monohull developer riser-based intervention. These vessels remain the only non-rig monohulls available with that capability, along with the Well Enhancer. The first vessel, the Siem Helix 1, has now completed its four-year contract, and the Siem 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 SH1 out of Brazil for most of 2022. We're in negotiations with Petrobras for an extension of the contract for the Siem Helix 2. Our intent is to keep the SH2 in Brazil. We believe there is a long-term market there for at least one of our vehicles. 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 a prime market for primarily production enhancement. We expect strong demand for the service in the region. We initially believed 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. We are 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 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 in utilization and overtime significant improvement in 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-based 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're anticipating meaningful rate increases by 2023. Between the variety of global utilization opportunities and a chance for a meaningful rate improvement, we feel the market offers us a lot of upside. You can compare deployments 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, and vessels in trenching and UXO boulder clearance. Trenching and UXO boulder clearance is derived from the offshore wind market. It's a bit uneven as is the market, but the expected EBITDA contribution on a varying basis is anywhere from $8 million to $20 million a year. We had planned 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 cost. Of our work class ROV work, roughly half, plus or minus, is in support of our intervention assets. If and as 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, to 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 our 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 are launching an aggressive new marketing campaign highlighting our broadened decommissioning capabilities. Three, we have potential to reduce our operating costs and will pursue cost reductions. Four, we’ll explore and implement plans to expand our offerings to the offshore wind market in a prudent manner, steering 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 2020 to bridge as we build the demand that’s listed here, including the potential for servicing wind farm developments. We see work building. 2022 might 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.

Operator, at this time we’ll take any questions.

Our first question comes from the line of James Schumm with Cowen. Please proceed with your question.

Hey! Good morning, guys. Thanks for taking my question. So Owen, 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 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. Now 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.

Okay, well first off, the digestion periods that I was talking about applies more to the North Sea than Brazil, where you’ve had a large number of properties divested 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 non-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 low-hanging fruit method of achieving that. So I think Petrobras is serious about their intent to extend the contract. We just need to arrive at rates that are fair.

James, I’ll add to that. Good morning. That’s a couple of things.

Good morning.

Petrobras’s well count is significant in size and are currently after the divestiture, especially the well count, it’s in similar size to the entire North Sea or the UK section of the North Sea. And you mentioned that the local rig rates, the local rigs have all been taken out. Now they were contracted, and any rigs coming in contact with that would be international mobilization. So we do see a toughened market, and like Owen says, we are in quite significant tender activity in Brazil.

And then finally, most of the people that have divested properties to our international ILTs, therefore as far as – there’s a strict requirement 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 Brazilian – Helix still Brazil entity.

Most of our onshore employees in Brazil are local nationals, and a good portion, 70%, to 75% of our crew on the vessels are local nationals.

Great! Thank you for that. And so just to sort of follow up on that, so you know, maybe putting Petrobras aside and you know you talked about the overall well count, it is a huge market down there. Is there any reason, you know other than your negotiations with Brazil? I mean 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 Siem Helix 1 out of there; is that fair? Is it fair to think that it might get moved back in 2023?

That’s correct. In fact, that’s going to be maybe 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 moved 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. It’s probably a market for two vessels outside of Petrobras.

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 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?

Well, let me take the light well intervention vessels first. We were the first to develop light well intervention capability with these spoke 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. Ireland offshore had four vessels, three of them working in the North Sea, so that’s not new. But Ireland has 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 a downturn, you usually see that vessel owner seeking to increase 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 will revert back to the back office basically.

I'll just quickly add to that as well. Just one key point here is they are hugely developed in the decommissioning market; it 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 that Australasia – I'm sorry, the North Sea, for P&A activity that can’t be furnished by riserless intervention.

Great! Thank you very much. I'll turn it back.

Thank you.

Thank you. Our next question comes from the line of Igor Levi with BTIG. Please proceed with your question.

Thank you guys and good morning. When I look at the Gulf of Mexico, a few vessels working largely in the spot market, utilization has averaged in the 70% range for much of the year. So my first question is whether that's a reasonable assumption going into 2022 for those vessels? And then as we try to think about the theme, one now being in the spot market after leaving Brazil, what kind of a utilization can that vessel expect?

Hey! Good morning Igor. So the Gulf of Mexico, in the last quarter, we had about 70% odd utilization increased from Q2. We’re also seeing very firm utilization in 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 would have went over that work, and some work would get canceled. Going into 2022, we are seeing much higher visibility over the 1000 days mark, and we have pretty much diversifications booked for all of Q4 and now going forward and well into Q1 and numerous discussions with other clients. Regarding the Siem Helix 1, we are taking out – as Owen said, we would 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 reactivates going into 2023. So I think I alluded to that we might take less of works, but we're looking at wind farm work, vessel construction work, maybe even trenching, but we've got quite a few opportunities for that vessel. It may be that you know other countries that can rather open up and often we go straight back into one extension mode.

Great! Thank you. And 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 understand how 2022 compared to 2021 in that scope of work and are you staying disciplined to maintain margins in such a competitive market.

Well, ’21 is actually a down year from ‘20, and that’s the result. 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, is a bit lumpy, and 2021 was a softer year volume-wise for the work that we were able to secure new contracts, and that 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 were going to grow, it’s not only growing and chasing UXO and boulder clearance work and trenching. You know boulder clearance work is site clearance, site prep. I think there's an opportunity for us to expand on our services there through alliances and organically with minimal capital 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 more commoditized segments. On the construction support, which is where trenching is, we 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 being 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 strong growth in that segment. And then beyond that, I think in general we're seeing recent headlines this year about EPC contractors taking huge losses on these wind farm works. I think, with the pivot towards renewable, all of the contractors sort of were like 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 plans area with the future towards developing O&M with BOP capabilities, so that's where our strategy lies.

Great! Thank you. I'll turn it back.

Thank you. Our next question comes from the line of David Smith with Pickering Energy Partners. Please proceed with your question.

A very good morning and thank you for taking my question. So, first I wanted to say congratulations on getting to the net debt neutrality. I hope it's not too early to ask this, but just you know given the improvement outlooks for your warrant invention asset, especially into ‘23. I wanted to ask how you think about the merit of share repurchases versus regular dividend or maybe a special dividend.

I'm stuttering because that's actually a board decision, and I don't want to speak for the board. But my personal opinion is that I don't think that you'll see us establish a regular dividend. If a dividend gets paid, it’ll be a special dividend. My personal preference is I’d 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 approach.

Okay, I appreciate that. And the second, just regarding the updated guidance, kind of a wide range from the implied Q4 warrant invention revenue. If I think about that range, it kind of feels like the low end would have some scheduled slippage versus your expectation. If Quebec can 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 warrant invention assume you have some work in the North Seas?

No, I think you're directionally correct in how you're looking at this. You know 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.

I appreciate it. And if I could just sneak one last one in. 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 Siem Helix and all its vessels as relatively competitive there compared to the Q7000, or does the difference in hull shape kind of reduce the operating window of the Siem Helix vessels versus the Q7000?

There’s a difference between the capabilities of the two vessels. The two vessels in the North Sea are semi-immerseful vessels.

I was thinking about the Siem Helix vessels right, it’s potentially – you know the Siem Helix 1.

I think capability-wise, they are very similar, so they are – we can mix and match and shift the fleet around. In fact, as 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 the opportunity. So you know 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 you know 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.

Technically, the topsides on the vessels are exactly the same; it's the same tower, it’s the same skidding systems, it’s the same safety systems, same walk to work systems, so exactly the same equipment can be utilized.

Thanks for that guys, but I was just wondering if the ship shape of all of the Siem Helix vessels, you know versus the Q7000 made a difference in how long in the year each vessel could participate in the North Sea.

The primary difference is in the terms of speed. Our semi-immerseful has perhaps better motions when stable, but transits at a slower speed, although the Q7000 was designed with ship shape hulls, so the one that gets up on its fine tunes, it’s able to achieve a higher transit speed than most semi-immerseful vessels. But the monohull PM vessels are much faster in transit. So as far as tying into 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.

Thank you.

Thank you. And we do have a follow-up question from the line of James Schumm from Cowen. Please proceed with your question.

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 Siem Helix 1 to be breakeven. 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?

It’s going to depend on the type of work we take on James. So you have well intervention rates, and we should get to breakeven, but right now to get through this winter, that’s obviously, you know, these less type works that will be in construction supports or wind farm supports or even survey support. So in our first part of the year, we're definitely going to have, I would say, strong utilization, but the rates won’t support a breakeven position. Then it will depend on how quickly we can get the vessel back into the well intervention market and like we said, we’re chasing work, so that in the North Sea and Angola. So it’s really dependent on the modes of work we take on.

Okay, and then just I guess lastly for me, what does the vessel maintenance and drydock 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.

Yeah, so I think in general Jim, you know we have talked about in the past high level that our CapEx is $30 million to $40 million per year in that range. I think this year we’re probably going to be at the low end, and because as we mentioned, some of our CapEx spending has been pushed. I think that next year we’ll probably be a little bit heavier dry dock here. We have the Q4000 as a scheduled 1, the Siem Helix 2, the H1 and I think the Well Enhancer as well as the Seawell. So it is going to be a heavier year, so I think it will probably be on the higher end of the range than we provided or maybe even exceeded it a little bit, just because of the CapEx that’s been pushed into ‘22.

Great! Thank you very much, guys.

James, if it’s okay, I’ll just get back to your first question. I just wanted to point out and I should have done so early. Our cost base in the various different modes is widely 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 the cost basis will be different as well.

Okay, great. Thanks Scotty.

Okay, thank you.

I think it's worth – just to follow on that I think it’s worth noting that our – that’s why I called ‘22 a transition year because I think we'll need to do that with the Siem Helix 1 vessel for ‘22, and then by ‘23, I would expect the vessels to all be back into full intervention mode.

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.

Yeah, thanks for letting me back in. Owen, I just want to circle back to your comment about your strategy to increase free cash flow. I think the third pillar you mentioned was to reduce the cost structure. I wonder if you could help us with any color on maybe the items that have been identified, maybe the magnitude of what you’re targeting.

It's a bit early to mention everything, but one thing I'll mention is a continuation of our program in conjunction with our Schlumberger alliance to cross-train personnel, so that we can reduce personnel onboard. That's only possible because of the alliance and the single point contracting nature of what we offered the clients. But that would have the ability to lower our offshore operating costs.

All right appreciate it, and look forward to when you can tell us more of the cost out plans. Thank you.

Thank you. And we do have another follow-up question from the line of James Schumm from Cowen. Please proceed with your question.

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 your visibility going into ’22 versus what it was last year, or just anything to help us gauge how this business looks next year would be great.

Hi James! So I would say we are seeing an improving year for next year. Certainly one of the vessels will be in the APAC region and have fill contracts for the year, so that’s stabilize as it is this year, and we've also got that large decommissioning project in Thailand that will carry on into Q1 and potentially further. For the UK, you have West Africa renewables area, we are 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 is a lot more tender activity on the boarder clearance side and sites, so they are in prep, so we expect to pick up some of those works. We’ve been doing a very good job in 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 ROVs that were destined for gas work and low utilization are now forming over into the wind farm markets as well. So we should see an improvement, not sure yet how much improvement; it's not going to be a vast improvement, but it will be an improvement.

Okay, thanks so much. I appreciate it.

Thank you.

Thank you. And there are no further questions at this time.

Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter 2021 call in February of '22. Thank you.

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