Earnings Call Transcript - HLX Q2 2022

Operator, Operator

Greetings, and welcome to the Second Quarter Helix Energy Solutions, 2022 Earnings Call. As a reminder, today's call is being recorded Tuesday, July 26, 2022. I would now like to turn the conference over to Brent Arriaga, Chief Accounting Officer. Please go ahead, sir.

Brent Arriaga, Chief Accounting Officer

Good morning, everyone, and thank you for joining us today on our conference call for our second quarter 2022 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO; Scotty Sparks, our COO; Erik Staffeldt, our CFO; Ken Neikirk, our General Counsel; and myself. Hopefully, you have had an opportunity to review our press release and the related slide presentation we 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?

Kenneth Neikirk, General Counsel

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations and assumptions as of today. Such forward-looking statements may include projections and estimates of future events, business or industry trends, or business or financial results. All statements in this conference call or in the associated presentation other than the statements of historical fact are forward-looking statements 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 risks, uncertainties, assumptions and factors, including those set forth in Slide 2 in our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q, and in our other filings with the SEC. You should not place undue reliance on forward-looking statements, and we do not undertake any duty to update any forward-looking statement. We disclaim any written or oral statements made by any third party regarding the subject matter of this conference call. 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 are reconciliations, along with this presentation, the earnings press release, our annual report, and a replay of this broadcast are available under the For The Investors section of our website at www.helixesg.com. Information on this conference call speaks only as of today, July 26, 2022, and therefore you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. Owen?

Owen Kratz, CEO

Good morning. We hope everyone out there and their families are doing well and staying safe and healthy. This morning, we'll review our Q2 and year-to-date results, performance, and operations. We will provide our outlook for the balance of 2022 and provide color on the rapidly improving market and its potential impact on '23 and beyond. But before we get into Q2 results, I want to start by commenting on our recent acquisition news. During the quarter, we announced we were acquiring the Alliance group of companies, and on July 1, the first day of the third quarter, we closed on that transaction. Financially, we have been keeping our powder dry, so to speak, keeping cash on hand to be confident in being able to cash several of our long-term debts. On today's current call, you'll hear a lot about the market improvements we're seeing and the opportunities we feel are out there. We decided to deploy some of that capital by buying the Alliance at a time when we're anticipating real growth in the abandonment market. We wanted to position Helix as a full-field abandonment service provider, and this acquisition expands our offerings, diversifies our revenue stream, and further positions Helix to benefit from the improving environment. We'll get into more detail later in the call, but it's an understatement to say that we're very excited about the prospects the Alliance acquisition offers, and we welcome Alliance into the Helix family. Moving now to the presentation. Slides 05 through 07 provide a high-level summary of our results. During the second quarter, we benefitted from increased activity and improving rates across our fleet driven by a strengthening global offshore energy market. Highlights for the quarter include Robotics delivering strong results for the second quarter with added benefits provided by the addition of the Shelia Bordelon, the Horizon Enabler, and increased ROV utilizations. The Q5000 had strong operational performance with minimal downtime in the Gulf of Mexico. Seawell and the Enhancer have been deployed on projects since early May. We completed regulatory maintenance on the Q4000, Seawell, and the Q7000, and production facilities continue to be a steady performer and benefitted from the production of our Droshky field. Revenues for the quarter were $163 million, an increase of $13 million over our first quarter results. The increased revenues flowed to the bottom line with a net loss of $30 million, also a $12 million improvement over Q1. Adjusted EBITDA for the quarter was $17 million. The first half of 2022 was as challenging as we expected. We performed regulatory maintenance on six of our vessels in the North Sea Well Intervention market. The North Sea Well Intervention market was slow to start. We had a significant amount of uncertainty and limited visibility for the Q7000 and submarket rates for the SH1 and SH2. As we enter the third quarter, many of these uncertainties and challenges are behind us. The schedule maintenance periods on our vessels are predominantly complete. The North Sea Well Intervention sequence started in early May. The Q7000 is mobilizing for additional work in Nigeria, and our schedule is firming up. Above all, the offshore market is recovering. The improvements in utilization of rates that have been driving in the Gulf of Mexico early in the year are now visible in all regions. On Slide 08 from a balance sheet perspective, our cash balance at the end of the quarter was $261 million. During the quarter, our operating cash flow was negative $6 million, including $9 million of dry dock and recertification costs. We spent $2 million on CapEx, resulting in a negative free cash flow of $7 million. At quarter end, we were in a net debt position of $4 million. As mentioned earlier, during the quarter we announced our planned acquisition of the Alliance companies. On July 1, we finalized the acquisition using approximately $120 million of cash on hand. I'll now turn this call over to Scotty for an in-depth discussion of our operating results.

Scott Sparks, COO

Thanks, Owen, and good morning, everyone. Moving on to Slide 10, our teams, both onshore and offshore, are doing an excellent job of maintaining safe and functional operations. We have completed the planned regulatory maintenance and inspections that affected our utilization in the first half of the year, and as anticipated, our second quarter results improved compared to Q1. Market conditions are getting better, and we are optimistic about the second half of the year, with expectations of increased utilization across the fleet, higher rates, and more favorable terms. In the second quarter of 2022, we operated 13 vessels globally with minimal disruption, achieving 98.1% uptime efficiency for the quarter. Our revenues reached $163 million, leading to a gross profit margin of negative 1%, a loss of $30 million, and positive EBITDA of $17 million for the quarter. The Well Intervention fleet achieved 67% global utilization in the second quarter, mainly due to planned maintenance, with 80% utilization in the Gulf of Mexico, 88% in Brazil, and 44% in the North Sea and West Africa. Operations in West Africa concluded early in the quarter for planned regulatory maintenance. The Robotics chartered vessel fleet saw high utilization of 94%, operating five vessels across tasks including ROV support, trenching, and renewable works globally. Slide 11 details our Well Intervention business in the Gulf of Mexico, where the Q5000 achieved notable utilization, rising to 95% in the second quarter from 72% in Q1, conducting production enhancement work on six wells for three clients with the Helix-Schlumberger 15K intervention system in ultra-deepwater. The Q4000's utilization was low at 66%, as it continued a multi-well campaign for one client while starting regulatory maintenance. It then began a two-well abandonment project for another client, with both vessels now having high utilization thanks to new contracts and awarding work for the latter half of 2022, with rates 40% to 50% higher than last year. Our key vessels are integrating expanded specialty services, offering clients improved operational risk management and efficiency. Moving to Slide 12, our North Sea Well Intervention season has begun, with both vessels operational. The North Sea market is improving, and we are seeing better utilization and higher rates for contracts in the latter part of 2022, with sizable awards for 2023 work and good visibility for more projects as rates continue to rise. The Well Enhancer had 63% utilization in Q2, being warm-stacked in Leith, leading to reduced operating costs and crew levels. It performed a one-well production enhancement followed by an abandonment scope, marking its first work west of Shetland. The Seawell had 66% utilization after completing dry dock maintenance and inspection, performing production enhancement scopes on four wells for three customers and one P&A scope. The Q7000 finished its work in Nigeria in early April and is now back in Nigeria for additional work, with plans to conduct a paid transit for the APAC region for a dry dock scheduled for contracted work in New Zealand in early 2023, followed by work in Australia in the latter half of 2023. We have good visibility for the Q7000’s future work in Australia, West Africa, and Brazil in 2023 and beyond. Moving on to Slide 13, in Brazil, the Siem Helix 2 reached 99% utilization, completing production enhancement work on three wells and abandonment on one during the quarter. The vessel remains contracted to Petrobras until mid-December, with ongoing discussions for a potential expansion at a much higher rate starting in December 2022. The Siem Helix 1 had 77% utilization supporting short-term FPSO and accommodation projects in Ghana that wrapped up in May, after which it returned to Brazil for awarded ROV survey work before commencing a long-term decommissioning project in Q4. We expect 2023 to be a significantly better year for us in Brazil, with both vessels returning to Well Intervention rates amid improving demand and conditions. Looking forward, the Brazilian market appears more diversified with operators considering more work as Petrobras continues its divestment. Moving to Slide 14 for Robotics review, the segment had another solid quarter and is performing well this year, benefiting from an improving market across all services. Operating five vessels primarily for trenching, ROV support, decommissioning, and renewable projects, in the APAC region, the Grand Canyon II had 100% utilization, completing work in Thailand and commencing a renewables project in Taiwan. In the North Sea, the Grand Canyon III achieved 89% utilization on trenching operations for two clients, while the project-chartered vessel achieved 100% utilization on survey work completed in July. Also in the North Sea, the Horizon Enabler completed work on an ROV support project and has begun trenching work. In the U.S., the Shelia Bordelon was utilized 90% in Q2 for ROV support projects and has recently gained additional contracts on the U.S. East Coast. Overall, the renewables services market is expanding, benefiting our Robotics business, which has planned contracts between 2023 and 2028, positioning us well for upcoming opportunities. Global renewables contracting is growing, and Helix Robotics is seeing high demand for our services as the market tightens. Moving to Slide 15, this slide outlines the vessels, ROV, and trenching utilization for reference. We expect strong utilization for vessels and services in the second half of the year, leading to significant improvements in 2023. The market is enhancing across all business lines, with growing utilization, rising rates, and better contract conditions. We are securing longer-term agreements and anticipating more work with Well Intervention assets into 2025. I want to express my gratitude to our Helix global team and partners for a much-improved quarter compared to Q1, maintaining exceptional safety standards while securing a solid backlog for the latter half of the year and beyond. I look forward to an exciting future ahead. I'll now turn the call over to Brent.

Brent Arriaga, Chief Accounting Officer

Thanks, Scotty. Moving to Slide 17. It outlines our debt instruments and their maturity profile as of June 30. Our total funded debt was $275 million at the end of the second quarter with a final $35 million payment on our 2022 convertible senior notes during Q2. The maturity during the remainder of the year is a semi-annual MARAD payment. Moving on to Slide 18. This slide provides an update on key balance sheet metrics including long-term debt, liquidity, and net debt levels at quarter end. With cash and restricted cash of $263 million, our net debt position was $4 million. At quarter end, we had no amounts outstanding and $60 million of availability under our ABL with resulting liquidity of $321 million. On July 1, we used approximately $120 million of cash on hand for our acquisition of Alliance. To coincide with the Alliance acquisition, on July 1, we also amended our ABL increasing the size of the facility to $100 million, a $20 million increase. I will now turn the call over to Erik for a discussion on our outlook for 2022 and beyond. Erik?

Erik Staffeldt, CFO

Thanks, Brent. Our results for the second quarter and year-to-date reflect the challenges we've encountered in 2022. We believe that the first quarter marked the low point for Helix, with improvements expected moving forward. In the second quarter, we initiated maintenance on three of our Intervention vessels: Seawell, Q4000, and Q7000. In total, we carried out regulatory maintenance on six vessels during the first half of the year. With that completed and a rapidly improving market, we anticipate that the second half will be significantly stronger than the first. In Well Intervention, the North Sea market is quickly becoming robust, with operators securing vessel days for 2022 and planning future work for 2023 and beyond. The Gulf of Mexico market remains strong, showing high utilization and rising rates. Brazil's market is notably vibrant, with international operators ramping up activity. In West Africa, we are continuing work on Q7000 before it departs for the APAC region. In Robotics, we are seeing the benefits of a stronger renewables market, especially with its expansion into the U.S. East Coast. ROV utilization rates are on the rise. Despite ongoing headwinds from our operations in Brazil throughout 2022, much of the uncertainty regarding our outlook for this year has diminished. We are now positioned to share our full-year outlook for 2022. This outlook represents a sincere effort to provide investors with insights that balance the challenges we've faced in the first half of the year against an improving market for the latter portion of the year and beyond. Our guidance for 2022 is as follows: revenue between $725 million and $825 million; EBITDA between $85 million and $110 million; and free cash flow ranging from negative $20 million to positive $15 million. These ranges contain key assumptions and estimates, and any significant deviation from these could result in actual results falling outside the provided ranges. Regarding our Well Intervention segment, the Gulf of Mexico remains our strongest market with improving rates and expected high utilization for the Q4000 and Q5000. Contracted work extends into Q4, and we anticipate strong utilization in this region, except for a gap on the Q4000 due to equipment mobilization delays. In the U.K. North Sea, both vessels began their operations in early May, securing work into Q4 with expected strong utilization. The Well Enhancer experienced 14 days of downtime in July for vehicle replacement. In West Africa, the Q7000 completed its maintenance in Q2 and returned to Nigeria in July. We have a contract for one well program with options for additional wells, after which the vessels will move to the APAC region for the Tui field abandonment work in late 2022 or early 2023. In Brazil, the Siem Helix 2 is contracted with Petrobras until mid-December, while the Siem Helix 1 is conducting ROV survey work into the fourth quarter before beginning its two-year well abandonment contract for Trident in late Q4. Turning to our Robotics segment, Grand Canyon II in APAC is contracted through Q3 with expected good utilization for the remainder of 2022. Grand Canyon III is contracted to provide trenching services in the North Sea for several customers, with strong utilization anticipated for the rest of the year. In the North Sea, we’re also benefiting from ongoing renewable site clearance work expected to continue into Q3. The Horizon Enabler has started a trenching project offshore Egypt, promising high utilization through Q4. The Shelia Bordelon is engaged in contracted wind farm work on the U.S. East Coast, with strong utilization expected through Q3 and additional opportunities afterward. Regarding production facilities, the HP1 is under contract for the rest of 2022 with no anticipated changes. We expect some variability in production as the Droshky field continues to deplete, and we are actively seeking similar opportunities. On the topic of our acquisition of Alliance, we are excited to welcome them into the Helix family. This acquisition enhances our existing offerings and significantly strengthens our position as a full-field abandonment service provider. Alliance offers marine services through a diversified fleet of lift boats, offshore supply boats, and crew boats. Their energy services include plug and abandonment and intervention services in coastal and offshore areas, operating 24 P&A spreads, nine coiled tubing units, and one snubbing unit. The Diving & Heavy Lifting segment utilizes three diving support vessels and the EPIC Hedron derrick barge. We expect some seasonality in this business, particularly in Diving & Heavy Lift services, which typically slow down in the first and fourth quarters. For the second half of 2022, we anticipate strong utilization from the lift boats, while OSVs and crew boats may experience varying levels of utilization. In Energy Services, we expect strong utilization from eight to twelve spreads and one to three coiled tubing units, with good utilization in Diving & Heavy Lift during Q3 before their seasonal slowdown. Moving on to our CapEx forecast for 2022, which is significantly influenced by carryover from 2021, amounting to approximately $20 million. With a busy regulatory year and the Alliance acquisition, our CapEx range for 2022 is currently set at $50 million to $60 million. Most of our CapEx forecast pertains to maintenance and project-related activities, which primarily affect our operating cash flows. Reviewing our financial position, we anticipate a decrease in funded debt of $4 million for the remainder of 2022 due to scheduled principal repayments. I will skip the remaining slides and allow time for your reference. Now, I will turn the call back to Owen to discuss our outlook beyond 2022 and provide closing comments.

Owen Kratz, CEO

Thanks, Erik. We are well aware of the certainties and variables that previously caused us to refrain from providing guidance for the full-year '22 have been resolved to a point where we can give guidance for the second half of '22 in the range of $51 million to $66 million. For our pre-Alliance business, $70 million to $85 million for the full-year. This second half run rate exceeds the full-year run rate of 2021. The Alliance acquisition that closed at the beginning of July is expected to add an additional $15 million to $25 million for the second half of '22. Not only are the uncertainties of 2022 becoming clear, but we also have perhaps the best visibility in recent years at this point for what may happen next year in 2023. We expected that 2022 would be a tough year, and the markets in demand would improve for '23. Ahead of this, we made 2022 what we have previously called the transition year. There are certain events in '22 that negatively impacted results that should not repeat, and positive events that we're fairly confident in, to the point we feel we should share them with you at this early stage. Let me be clear that we feel 2023 is expected to be a substantially better year than 2022. We've not engaged in our budgeting process, so this is not our formal guidance for '23 but merely directional indicators. It is appropriate that we share our estimates on these areas with the understanding that it's only our best estimate of what we might expect at this point in time. Event number one is the Q7000. Until late for all the vessels would be working non-stop in Nigeria for 15 months straight. Due to the logistical specifics of working in Nigeria, it was not possible to perform the regulatory required maintenance normally done while working. The vessel was operating quite well, but the regulatory bodies required us to remove the vessels from operations in order to conduct the regulatory required maintenance in overhaul typically done while operating. This non-revenue generating period began at the beginning of April, and the vessels are expected to return to generating revenue next week. This is roughly 115 days of lost opportunity that's not expected to repeat in 2023. The cost of this period has been taken against the '22 P&L. There remains work to be completed in West Africa, but after that, we're planning to relocate the vessels to Australia and New Zealand for a campaign of intervention work. This transit is expected to take approximately 95 days with the dry dock along the way in compliance with regulatory requirements for working in Australia. The vessels expected to be ready to work in that region around the beginning of the year, pending completion of the work in West Africa. We are required to defer the cost in revenue for this transit period and amortize it over the project in 2023. The Q7000 is not expected to add any contribution to 2022 EBITDA during this period. The Q7000 currently has a campaign of three contracts in 2023 with visibility for further contracts to be added. As a result of these one-time events in 2022 that are not expected to repeat and the visibility on 2023 contracts in hand plus visibility of further work, our current expectations for the EBITDA contribution from the Q7000 are to go from a range of $3 million to $7 million in '22 to a range of $20 million to $30 million for '23 or a year-over-year positive swing of at least $13 million. The second event I'll cover both the SH1 and the SH2. For both 2022, these vessels were beyond the initial full-year term of their contracts with Petrobras. Petrobras extended the SH2 contract by one year but at rates that guarantee the cash loss to Helix. Petrobras did not extend the contract on the SH1. Helix sought work in ROV support for the SH1 during '22 to keep the vessel active while pursuing meaningful options for '23. The EBITDA contribution for these two vessels for full-year 2022 is currently expected to be approximately a negative $35 million. The SH1 is now contracted for two years on the intervention work in Brazil at profitable rates. With that work scheduled to start either late '22 or early '23. Helix took to exploring several options for the SH2 including a multi-year expansion with Petrobras at profitable rates, as Scotty mentioned. Based on current expectations, Helix believes that these two vessels could provide $20 million to $30 million of EBITDA contribution in 2023 and potentially increase beyond '23 in the event of contracted rate improvements. That would represent a positive $55 million to $60 million of EBITDA improvement in 2023 over 2022. The third topic is intervention rates. Discussion on rates is not a simple one, but in general, they're increasing dramatically and rapidly. Rates vary greatly depending on region, client, competition, scope of work, and duration of the contract. In general, though, over the last six months, rates are up from as little as 15% in some cases to others that were up over 70%. On average, rates could be considered to be up 30% to 45% over the past six months and continue to increase. We are tendering at these higher rates and are being awarded work well into 2023, and in some cases, beyond. We're somewhat reluctant in offering rates beyond '24 as costs are also increasing but generally not at the same pace as rates. Our current assumptions, where the cost will increase by 5% a year on average. This increase in rates is progressing rapidly, and the second half of 2022 is expected to be a mix of old and new rates with a greater extent and impact likely occurring in 2023 and beyond. Our fourth topic is utilization. Utilization is the larger driver of our profitability in the rates. As such, our team is typically very good at achieving utilization; available days to market is impacted by regulatory drive outs and maintenance requirements. The year 2022 was unusual in that we decided to perform the dry docks and maintenance on seven of our own vessels. I've already mentioned the roughly 200-plus days of unavailability for the Q7000 during '22. Additionally, looking solely at the other six vessels, there should be over 200 days of additional unavailable days for these six vessels that would reduce available marketed days in 2022. That should not occur in '23. They're still a significant dry dock and regulatory inspection plan for the Q4000 and Q5000 in '23 respectively, which should require as much as 100 days of the unavailable marketed days. Altogether, though, this means that we should have over 300 days of additional vessel availability in 2023 compared to '22 for which vessels will be available to the market. This will coincide well with the demand visibility we anticipate for 2023. Topic five is Helix Alliance. Due to the uncertain nature of the market and hazy visibility, Helix has been retaining cash on the balance sheet to have a greater degree of confidence in being able to cash several of our convertible debts at maturity, and we finished redeeming one series of our notes in May. Given the improving visibility on the market and in response to what we believe is the significant opportunity, we felt comfortable at this time to put $120 million of our cash to work with the acquisition of Alliance. Due to regulatory and commercial pressure, there's a significant push underway to abandon and remove many of the Gulf of Mexico oil and gas fields that have built up over time. We believe this demand will be sustained over the years ahead. Our initial estimates for Alliance for the full-year were $30 million to $40 million of annual EBITDA. Based on the second half of 2022 expectations as a continuing run rate, we feel we can now raise the upper range of expected EBITDA. 2023 expectations could be in the $30 million to $50 million range for '23. Topic six is Robotics. Demand increased in all of our areas of our business model. Helix is a meaningful player in the provision of world-class ROVs and a global leader in Robotic Jet trenching. These are vital services for the offshore wind market. In addition, our Robotics division provides site clearance for the wind farms required prior to installation. We are seeing an increase in demand as well as rate increases that are outpacing cost escalation, as Scotty covered. This has resulted in our Robotics gross profit margin increasing from 3% for the year-to-date ending July 30th, 2021, to 17% for the year-to-date ending July 30th, 2022, and 23% in the last quarter. We're seeing an increase in demand for all of our Robotics offerings, especially trenching, which generates our greatest margin. The seventh topic is production facilities. The HP1 continues on contract with expectations for further extension. The reserves on Droshky are declining at some point or length; however, we do anticipate closing on additional similar transactions. The last topic I'll cover is M&A. The current landscape presents a fairly rich environment for opportunities to consolidate or add to Helix's business model as an energy transition story. We are mindful of maintaining a strong balance sheet and the alternative uses for cash, such as returning value to shareholders. Our intent is to explore and analyze in order to achieve the greatest value to shareholders as well as progress our commitments to being a meaningful contributor to the energy transition process. We've called 2022 a transition year for Helix. We fully intend to transition from a weak market in '22 to a high demand market in '23 and beyond. We will also transition from being defined as simply an oil field service company to being more clearly defined in what we do in support of energy transition and sustainability. Helix will focus on late-life oil and gas activities and in support of offshore wind. 1) We will work to maximize the remaining reserves. 2) We will be expanding our ability to be a player in the abandonment of oil and gas offshore fields. And 3) we'll provide chief specialty support services to the offshore wind market. Earlier this year, we faced many uncertainties. I hope this color makes up for the lack of information going into '22. The market in Helix are evolving rapidly, and there are surely variables that will become more clear over time, but this is the glimpse into what our current expectations may include. We'll endeavor to provide transparency on our best estimates as we approach and proceed with the budgeting process for '23 in this dynamic developing market. Again, to be clear, we expect 2023 to be substantially better than 2022. We've shared our views and recognize these are forward-looking statements and subjects that can change, but you deserve to know what our current expectations are and how we're feeling at this time about the Company, the market, and our prospects. Erik?

Erik Staffeldt, CFO

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

Operator, Operator

Thank you. First question comes from the line of James Schumm with Cowen. Please go ahead.

James Schumm, Analyst

Hey, good morning, guys.

Owen Kratz, CEO

Good morning.

James Schumm, Analyst

What gives you confidence in the outlook for Brazil? I know you touched on it, but clearly have an anchor contract with Trident next year. But the SH-2 contract with Petrobras expires in December. You mentioned advanced discussions with Petrobras, but they tend to be really tough on services companies as I think you guys know well. So what gives you confidence there?

Scott Sparks, COO

Well, I'll take that. Like you say, we have the anchor contract with Trident, that's a two-year anchor contract with options to extend. And then we are in very advanced, healthy negotiations with Petrobras. We've agreed, pretty much agreed on rates, and they've been far more substantial compared to the 2021 rates and 2023 rates we've heard. We're expecting approximately a 40% increase on the rates, and the duration of that contract to be about two years. Like I said, with advanced discussions, the discussions are very healthy. And I'd like to think that we'll be shortly having that contract in place.

James Schumm, Analyst

Okay, thanks.

Scott Sparks, COO

Other operators have shown significant interest in the vessel in Brazil, which indicates a healthy environment for discussions.

James Schumm, Analyst

Sure. Can you provide an update on the UK North Sea well intervention market? It seems like we've transitioned from weak to strong very quickly. While there is some seasonality involved, how sustainable is this shift? Any additional insights would be appreciated.

Owen Kratz, CEO

I'll take a shot and then let Scott follow up with probably more detail, but in general, a year ago, the only market the North Sea was really talking about was the abandonment and decommissioning market. That was in the early stages of planning. The first phases would have been dry three PNA, followed by subsea and facilities at a later date. So we were really thinking the North Sea would ramp up in middle to ’23 and beyond. Then Ukraine happened, and all of a sudden, their sustainable energy source became important and finding more reserves; our work almost overnight shifted from planning of abandonment to production enhancement. I think I'll just leave it at that.

Scott Sparks, COO

We've got very good contracts in 2022, for the second half of the year, with very high utilization for both vessels in the North Sea. We're already taking awards for 2023. And usually, we don't get awards until the third or fourth quarter for the following year. And I'd say for at least the last three or four years, we have the best visibility and ongoing discussions with our clients for the work they have for 2023 and beyond.

James Schumm, Analyst

And I mean, do you guys feel like this was a wake-up call, and it's longer-term in nature? Or is this just a Ukraine issue and perhaps this gets resolved over the next year? And then there is a huge focus on renewables and the demand for your services just kind of wanes again like how structural is this improvement?

Owen Kratz, CEO

I think that's certainly possible. I think the UK North Sea market is very politically influenced. So that could happen. But we did have a pretty big backlog of P&A work that was building up. That isn't stopping, but it could be a little delayed. So by ’24, I think you're even if the production enhancement were to reverse itself yet again, and switch back to focus on renewables and decommissioning, then there's a backlog of work that's built up that will sustain our utilization levels.

James Schumm, Analyst

Okay, thank you guys very much.

Operator, Operator

Our next question comes from the line of Donald Crist with Johnson Rice. Please go ahead.

Donald Crist, Analyst

Good morning, gentlemen, how are you all today?

Owen Kratz, CEO

Good. How are you?

Donald Crist, Analyst

Pretty good. I wanted to touch on the shallow water Gulf of Mexico Alliance. Now that you've closed the deal, can you give us a little bit more insight into the customer base? Is it widespread? Or is it kind of focused on a couple of individual customers there? And number two, what does demand look like? Obviously, you're going to have some seasonal slowdown in late Q4, which is normal for the Gulf of Mexico. But what does demand look like going into ’23 and beyond there? I know it's a large market.

Owen Kratz, CEO

Yes, I'll take that in reverse order. Some analysts have predicted that the Gulf of Mexico shelf market is as much as $7 billion over the next 10 years. So that would equate to a $700 million a year market. The activity, I've always been very skeptical of P&A. The hockey stick just never seems to happen. But I think what's going on in the Gulf of Mexico was precipitated by the Fieldwood bankruptcy. Fieldwood and costs are the two major players along with Arena. In the shelf, when Fieldwood went bankrupt under the proceedings, most of their shelf properties reverted back to the legacy owners. So as opposed to being a concentration of properties with one client, it's now been disbursed back to the legacy owners, which includes Shell, BHP, Chevron, and Exxon. All of the majors that divested shelf properties now have been back. The big impetus from both the government and the legacy owners is to get this abandonment done as quickly and expeditiously as possible. I think the only impediment to that is that over the past years, the Gulf of Mexico shelf contracting community has sort of been decimated. There is really not a lot of capacity left on the Gulf of Mexico shelf. And there we saw the opportunity. I think Steve Williams, the owner of Alliance had the foresight to start accumulating assets ahead of this. If you look, they're the one contractor that has a full suite of assets and services to do full field abandonment, one stop shop. If you look at their individual asset classes, they own anywhere from in some cases, up to 33% of all of that class of assets available in the Gulf of Mexico. So they're almost assured in my mind through their integrated process offering and the sheer volume of their assets to capture a large share of that market and rolling layer in over the top of this, the fact that the work is now going to revert back to majors who expect a little bit different operating process and systems than what Gulf of Mexico contractors have evolved to or de-evolved to over the last 5 to 10 years. And therefore represents a really good opportunity for Helix to bring the systems in with the Alliance capabilities and provide a best-in-class service on a fully integrated basis. And I think that gives us, it's a market that we were in historically, it's one we understand, and I think we're well-positioned to be the best in class alternative in that market going forward.

Donald Crist, Analyst

Yes, I appreciate all that color. And if I could ask this one more macro question, kind of following on the previous guy who was asking questions. Fleet status reports from some of the drillers have shown an uplift of 20% to 40% in rates. I know your rates are impacted by the offshore driller rates. Are you seeing similar uplift in rates across the industry, not necessarily just in the Gulf of Mexico or Brazil, but just across the industry in general? And how correlated are your rates generally to the offshore drilling?

Scott Sparks, COO

I'll take that. We have seen an increase across the board for all services from robotics into Well Intervention; the rates have really jumped up from the bottom when they were nearly 100% higher than where we were in the depth of the market in the Gulf of Mexico. Compared to last year's rates, we're up 40% and 50% in the Gulf of Mexico, and we're increasing and seeing high visibility in contracting at those rates. In Brazil, we've already discussed Brazil. We're seeing about a 40% increase on the Petrobras contracts, and rates are steadily creeping up in the North Sea. You have to understand some slightly different marketing in the North Sea. We're not a rig. We're too smaller diver-based Well Intervention assets. So our cost base is far less than what we have in the Gulf of Mexico and Brazil, and what drilling has happened. Since we have a much lower cost base, we are seeing an increase in rates.

Donald Crist, Analyst

Right. Okay. And do you see anything that could be an impediment to increased utilization over the next 12 to 18 months?

Scott Sparks, COO

The only thing we have coming up is, like I said, we do have a dry dock plan for the Q4000 and a regulatory maintenance premium for the Q5000. But with that, I think it's going to be very healthy over the next 12 to 18 months. Rates will be high, and utilization will be high.

Donald Crist, Analyst

Exactly what I was looking for. I appreciate the color, guys. Best of luck to you. I'll send it back.

Scott Sparks, COO

Thank you. Have a good day.

Operator, Operator

Next question from the line of David Smith, Pickering Energy Partners. Please go ahead.

David Smith, Analyst

Good morning, and congratulations on the improved outlook. I was hoping to revisit the beyond '22 section of the outlook; it seems pretty straightforward. I just want to make sure I'm understanding correctly. For the three items, you quantified the personal vessels Q7, the Alliance acquisition, and aggregate at the midpoint should generate around $100 million, better EBITDA in '23 versus '22. That's before the impact of better expected utilization and rates for the other one Well Intervention vessels and for robotics, and this would be for any potential additional deals. So at the midpoint, that's what I'm reading is right, it looks like you're pointing to '23 EBITDA that is around $200 million or better. So I just wanted to make sure that that was the intent and whether I'm missing anything that might be an offset?

Owen Kratz, CEO

I think that's certainly a possibility. We'll stop short of giving the full guidance for 2023. Because as you mentioned, there's a lot of unknowns still to be considered there. I don't know that I'm ready to put a hard number on it. There are a lot of things to consider in our budgeting process. We're letting, we're giving you insight into portions of the budgeting process that we have firm visibility on and have a degree of confidence in sharing. But like you said, we don't know where rates will eventually end up. So that could be a big upside, or it could be a small upside. I mentioned 300 days of utilization, additional utilization. How much of that will actually be able to market is an uncertainty, and of course, any days not marketed becomes a drag on EBITDA. So we have to sort of figure out what the balance is there. You have other things to consider; are we in a recession? Are we going into a recession? And what's going to be the impact on demand at that point? What's the reaction from the clients, Ukraine and China? What is that impact on supply and demand going to be? And are we going to see any potential for unforeseen reactions by the clients like shutting off spending and canceling contracts? I mean, I'm sorry to getting into. I live in the world of always expecting the worst and planning for it. But these are the things, like you mentioned in the North Sea; is there going to be a balance between the environmentalists pushing decommissioning versus sustainable energy levels? Where's that balance going to fall out? We've got the HB-1 renewal coming up next year. We do expect it to be renewed, but it is producing on a declining field. So what are the terms and rates of that renewal going to be? You mentioned the production deals. Production deals are most favorable for us in a high commodity price environment. That has an outlook of declining combined with high expected abandonment costs. Right now we have high commodity prices and we have rising abandonment costs expectations. So we're certainly heading towards the horizon of an interesting market in that respect. So there is a lot left for us to mold through and quantify in our minds before we're ready to give 2023 full guidance. But this, as I believe we said in the presentation, this is directional, and it's significantly to the upside.

Erik Staffeldt, CFO

Yes, David, I think we wanted to present it to the investor base. And I specifically addressed the headwinds that we entered '22 with. And I think, a big picture, we had three areas of uncertainty; the North Sea, the Q7000, and the impact of sort of the Brazil operations. So as the year has progressed, obviously, the North Sea market has solidified very, very quickly. And it's even improving, as Scott mentioned, with works awarded for '23. So that one has been addressed, and I think, with the Trident award early in the year, and we're in negotiations are going on with Brazil, we feel that position was solidified as well. And then with the Q7, as the remainder of '22, and as we head into '23, with the contract and awards in '23, we wanted to specifically address the headwinds that we faced in '22 and how we expect that to reverse in '23.

Owen Kratz, CEO

I do think in general, though, you are thinking right about it. These are positives. And then on top of that, we've got the rates, utilization, and production deals to consider.

David Smith, Analyst

I appreciate all the color, and given your caution, your comments around the potential things that could go awry. I'm going to hold up. I'll save my question about returning cash to shareholders for another day. So I do want to ask this real quick and your outlook for beyond '22. You mentioned in the outlook for additional type deals. So I wanted to ask if the acquisition of Alliance means that those deals could be shallow water going forward. And if you're seeing more interest from operators in this approach for shallow versus deep water?

Owen Kratz, CEO

It certainly could include the shallow water fields. We have looked at a few. We don't have anything in the hopper that we would consider a reasonable deal that we would jump on top of. Right now our main focus is to build towards the deep water.

David Smith, Analyst

Perfect, appreciate the color. Thank you.

Operator, Operator

Next question comes from the line of Samantha Hoh with Evercore ISI. Please go ahead.

Samantha Hoh, Analyst

Hey, guys, maybe just to expand on that last question. Can you talk more broadly about the type of synergies that you expect to see from this Alliance acquisition? I'm just kind of curious, like what sort of combinations that you could have with your legacy deepwater services beyond just sort of targeting that majors customer base?

Owen Kratz, CEO

As far as cost synergies, we don't really see cost synergies. That's a separate business from what we do in the Gulf of Mexico. It is additive to our story of energy transition, expanding our abandonment capability. To that extent, there is revenue synergies, I believe, from becoming a meaningful dominant player in the Gulf of Mexico and what that translates into other high decommissioning areas, as far as credibility and capacity. Some of those areas, including we've mentioned, the North Sea, is a high potential for decommissioning Brazil. Each one of these divestments from Petrobras to the other players, the new players carries a requirement for decommissioning within a certain period of time. So Brazil is going to become not only a bigger decommissioning market along with the production enhancement, but you're also going to probably see wind start to make a meaningful impact in Brazil. And then finally, in the last decommissioning market is the Asia-Pacific region. It's a mature basin. In Australia, they had a bankruptcy similar to what happened in the Gulf of Mexico, which has put a lot of emphasis from the government on to the producers to accelerate their abandonment plans. So indirectly, I think there are revenue synergies from having the Alliance acquisition and gaining the credibility as a full-field decommissioning company.

Samantha Hoh, Analyst

Is there going to be any growth CapEx that you're anticipating for next year? I know the guidance that you gave stated mostly is for maintenance. It looks like you raised the upper end there. But can we see growth CapEx rise from just this very low level that you're running at this year?

Owen Kratz, CEO

The only CapEx that I can foresee over the future years would be perhaps the addition of additional trenchers because we're seeing such demand growth in that market. Beyond that, we don't have any significant growth capital requirements or aspirations, actually. Having said that, in my closing comments, I've mentioned M&A we're going to balance that opportunity against ultimately returning value to shareholders. So to the extent that there are opportunities like Alliance, that result in accretion to free cash flow per share, which ultimately helps the return of value to shareholders, then as long as they fit our strategic story of energy transition and accretive to free cash flow per share, we would take a look at them.

Samantha Hoh, Analyst

And if I could just sneak in one more question. Your robotics revenue guidance seems kind of light given that you're coming up on typically strong third quarter. Are you just expecting a bit more of a seasonal drop off in 4Q? Or could you kind of explain what's driving your guidance there?

Scott Sparks, COO

There will always be a bit of a seasonal drop off in the trenching because the trenching works in Windows in shallow water and in the North Sea region, where the harsher conditions come along in the winter season. But we are seeing an improved market and trends from next year. Next year, we expect to have two vessels and trenching completing more trenching days than this year, and increasing as we go forward. Like I said, we have over 3000 awarded or attended trenching days out there between ’23 and ’28. I expect a much healthier year in ’23. And we are also increasing rates in that area as well. Yes, I would add to that, that we did experience a very strong first half of the year in robotics. We had a very strong first quarter for them, which is unusual just because the seasonality and added on that too with the second quarter with a couple of very successful renewals. So we had a very strong first half of the year. And at this point in time that we would expect to see a seasonal drop off in the fourth quarter; depending on how the market goes, that can fill in. But from our standpoint, I think that's probably a little bit the drop off is that product of a very strong first half of the year that we had.

Samantha Hoh, Analyst

Okay, that does it for me. Congrats on a really productive first half.

Owen Kratz, CEO

Thank you.

Operator, Operator

Next question from the line of an unidentified analyst. Please go ahead.

Unidentified Analyst, Analyst

Hi, thanks for taking the question. I believe I want to touch on this in response to the last question. But I was wondering if you could provide a little more color on how the board is thinking about balancing M&A with returning capital to shareholders, whether there are certain internal targets for particular M&A targets that need to meet, or whether it's a certain amount of free cash flow that's expected to go to M&A on a yearly basis. Is there any sort of color you can share about structurally how you're thinking about that?

Owen Kratz, CEO

Well, I'm sure the board will appreciate me speaking for them. So I will. I think we're in a dynamic market. We've always thought that ultimately, especially in recent years, there's been the greatest sense of just generating free cash flow and returning value to shareholders as opposed to growth. I don't know. There may be a little swing back on that. But bottom line, I know the board, I think I can fairly confidently say that the board is also interested in the fact that we're just too small right now. We need some scale. So to the extent we've made some moves here that I think significantly increases the cash flow per share and the company for next year, as well as the share, as well as the scale. Both of those, I think are positives for shareholder value, but the number one priority for us will always be managing our balance sheet. So to the extent that we do have the towers of converts coming up, we're not going to do anything that jeopardizes our ability to cash settle those. We're just at a point now where we hear enough positive visibility on cash generation that there's a certain amount that we're willing to use in order to achieve better scale and accretion to free cash flow per share.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

We have no further questions on the phone line.

Erik Staffeldt, CFO

Thank you. Thanks for joining us today. We very much appreciate your interest and participation, and look forward to having you on our third quarter '22 call in October. Thank you.

Operator, Operator

That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.