Helix Energy Solutions Group Inc

NYSE:HLX

Earnings Call Transcript 2022-Q2

[Operator]

Greetings, and welcome to the Second Quarter Helix Energy Solutions, 2022 Earnings Call. [Operator Instructions] 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, CAO & Corporate Controller]

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 or 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 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 from 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 health, 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 and 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 about 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 end-market 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. Slide 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 strengthening global offshore energy market. Highlights for the quarter includes Robotics delivered 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. And 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 benefited 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 flow 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 the Gulf of Mexico early in the year are now visible in all regions. On the 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 a $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. Both onshore and offshore, our teams are doing a fantastic job of keeping our operations functional and safe. We complete with the remaining planned regulatory maintenance and inspection programs that impacted the utilization in the first half of the year. As expected, our second quarter results improved over Q1. Market conditions are improving and we're looking forward to a much better second half of the year with expectations of our utilization across the fleet, increase in rates and more favorable terms and conditions.

In the second quarter of 2022, we continue to operate 13 vessels globally with minimal operational disruption, continuing to operate at high standards with 98.1% uptime efficiency for the quarter. During the second quarter, we produced revenues of $163 million, resulting in a gross profit margin of negative 1%, generating a loss of $30 million, producing positive EBITDA for the quarter of $17 million.

In the second quarter, the Well Intervention fleet achieved utilization of 67% globally primarily due to the planned maintenance periods with 80% utilization in the Gulf of Mexico, 88% in Brazil, 44% utilization in the North Sea and West Africa with the North Sea commencing the season. Operations in West Africa completed early in the quarter, around for the plan regulatory maintenance period.

The Robotics chartered vessel fleet achieved high utilization of 94% in the quarter, operating five vessels, working 370 vessels those between ROV support trenching and renewable works globally. Slide 11 provides a more detailed review of our Well Intervention business in the Gulf of Mexico. The Q5000 had strong utilization increased into 95% in the second quarter compared to 72% in Q1; performing production enhancement work on six wells for three customers utilizing the jointly owned Helix-Schlumberger 15K intervention system in ultra-deepwater.

The Q4000, had low utilization of 66%, the vessel continued a multi-well campaign for one client in ultra-deepwater trying to commence in the regulatory maintenance period. The vessels then commenced a two-well abandonment scope for another client, recently both vessels had high utilization with contracts and awarded work for the second half of 2022 and good visibility of potential further activity which is at an increasing rate now contract and it rates 40% to 50% higher than last year's rates. The key vessels have integrated Helix expanded a specialty service, Alliance teams and equipment continuously installed, working on the one-on-one track offering our clients new risk balance sheets of increased operation and safety efficiency.

Moving to Slide 12. Our North Sea Well Intervention season has commenced with both vessels activated and operational. The North Sea markets is finally improving and our business has seen much improved utilization and achieving higher rates at both vessels contract with the most of the second part of 2022. We are already taken sizeable awards of 2023 work and good visibility of further works with increasing rates and at this time we're expecting much earlier start for the season in 2023.

The Well Enhancer achieved 63% utilization in Q2; the vessel had been warm-stacked in Leith, Scotland, significantly reducing the vessel operating costs and crew levels. The vessel then performed a one-well production enhancement scope for one customer followed by an abandonment scope conducting its first ever work West of Shetland.

The Seawell had 66% utilization in the quarter after completing its regulatory dry dock maintenance and inspection in late April. The vessel then went back into own inspect mode until early May. The vessel then performed production enhancement scopes on four-wells with three customers followed by P&A scope on one well for another customer.

The Q7000 completed work in Nigeria early in April, and then completed transit to Namibia and has now completed its regulatory maintenance and inspection program. The vessel had an idle period and we have significant degree of uncertainty regarding her schedule but for now she has completed transit back to Nigeria to conduct work on one well with options that further three wells for an existing client.

On completion of the works in Nigeria, the vessel is scheduled to commence the paid transit for the APAC region to undertake a dry dock in preparation for our contracted work in New Zealand to be performed in the early part of 2023. Following the work in New Zealand, the vessel is scheduled then to transit to Australia to undertake work in the second half of 2023 on the now fully executed contracts conducting a 7-well abandonment campaign for Cooper Energy. Vessels in plans contracted abandonment works on Seawell for another client. There's now good visibility for the work for the Q7000 with further work and in Australia, West Africa, Brazil, in 2023 and onwards.

Moving to Slide 13. In Brazil, the Siem Helix 2, we had a strong quarter with 99% utilization. Completed production enhancement work on three wells, and abandonment on one well during the quarter. The rest is contracted Petrobras until mid-December and we are in advanced discussions on a possible expansion with Petrobras at a substantial rate increase, which likely would commence December 2022. The Siem Helix 1 with 77% utilized and our short-term FPSO and accommodation support projects in Ghana that completed in May. The vessel then transited back to Brazil to undertake awarded ROV survey work. Prior to commencing the long term decommissioning project in Q4 and the recently awarded Trident contract. The contract runs for initial two years with additional options to extend.

We expect 2023 is going to be far better year for us in Brazil with both vessels being back to Well Intervention rates and its previously good demand for the units, better rates and conditions. Forward-looking, there is more diversified market in Brazil. There's more operators discussing potential work as they take further field ownership as part of Petrobras is ongoing divestment program.

Moving to Slide 14 for Robotics review. Robotics had another good quarter and is having a good year and the business continues to see an improving market for all services we provide. Operating five vessels during the quarter primarily working between trenching, ROV support, decommissioning and non-oil and gas renewable-related projects.

In the APAC region, Grand Canyon II had 100% utilization in Q2. The vessel completed work in Thailand and the second and well had decommissioning project and then commenced the renewables ROV support project in Taiwan expected to last well into Q3 with further options to expand. In the North Sea, the Grand Canyon III was utilized 89% undertaking renewables trenching operations with two clients performed an extremely well on them some trenching contracts. The vessel has contracted oil and gas and renewables trenching scopes which were anticipated to keep the vessel busy for most of 2022. The project charted best of this offshore had 100% utilization continuing site clearance and survey works that were completed in July.

Also in the North Sea, the Horizon Enabler completed 25 days on an ROV support project and has been mobilized as the T-1200 trenching system and commenced work offshore regions on the oil and gas trenching projects. The vessel has contracted trenching works on oil and gas and renewables project into Q4. In the U.S.A, the Shelia Bordelon had joined back confined vessel will utilize 90% in Q2, undertaking ROV support work for four customers in the Gulf of Mexico. The vessel was then contracted on a renewable support project on the U.S. East Coast expected to last until late Q3 and recently has been awarded further work on the U.S. East Coast. Overall, the market for services we provided in renewables is expanding at a decent pace in size and geography and in duration.

The Robotics business has extended over 3000 trenching vessel base between 2023 and 2028 and we believe we are well-positioned to secure a good portion of these works. The renewables market globally is actively contracting a large portion of global moving contract and services and for Helix Robotics that has made into a tightening market to better this ROV trenches and personnel leading to increasingly high demand for our services.

Over to Slide 15, I believe this slide be on the vessels, ROV and trenching utilization for your reference. The first half of the year that we expected what -- and the second half of the year which is really shaping up nicely. We expect strong utilization for vessels and services in the second half of the year leading to a significantly improving 2023.

Based on all of this, the market is improving across all business lines. Stronger utilization, increasing rates and in certain areas of the business, rates are improving better and quicker than we expected along with better terms and conditions. We are securing longer term contracts and looking to see more works with some of the Well Intervention assets into 2025. The years ahead of us with fall backs in then the most recent period we have in June. I would again like to thank our Helix global team and partners, offshore and onshore you provided a much improved quarter compared to Q1. The minimal NPT or keeping a very high standards in safety performance and you have secured a good backlog for the second half of the year and beyond, clearly looking forward to a more exciting times are ahead.

I'll now turn the call over to Brent.

[Brent Arriaga, CAO & Corporate Controller]

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 as 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 bear witness to the challenges and headwind we have faced in 2022. We believe the first quarter signified the bottom of the market for Helix with the expected improvements thereafter. In the second quarter we begin the maintenance on three of Intervention vessels, Seawell, Q4000 and Q7000. In all regulatory maintenance was performed on six vessels during the first half of the year. With that behind us, and rapidly improving market regulatory maintenance was performed on six vessels during the first half of the year. With that behind us, and rapidly improving market, we expect the second half to be significantly stronger than the first half. In Well Intervention, the North Sea market is quickly becoming a healthy market with operators contracting vessel days for '22 and already planning work for '23 and beyond.

The Gulf of Mexico market continues to benefit from strong utilization and increasing rates. The market in Brazil was strong with international operators increasing activity. In West Africa we seen this year work on Q7000 prior to its expected departure to the APAC region. In Robotics, we continue to benefit from stronger renewables market with added benefit from expansion of the market into the U.S. East Coast. ROV utilization rates are improving. Although we will continue to deal with the headwinds from our operations in Brazil through 2022, much of the uncertainty associated with our outlook for 2022 is behind us. We are now in a position to provide our outlook for the full-year 2022. Our outlook is a good face attempt to provide investors information that balances the challenges faced between the first six months against the backdrop of an improving market for the remainder of the year and beyond.

We have included an outlook reliant the shallow water offshore energy services companies we acquired on July 1. We are setting our annual guidance for '22 as follows revenue in the $725 million to $825 million. EBITDA $85 million to a $110 million; free cash flow generation in the negative $20 million to a positive $15 million. These ranges includes some key assumptions and estimates, any significant variation for the key assumptions and estimates could cause our results to fall outside the ranges provided. Providing our key assumptions by segment and -- on Slide 21. Within our Well Intervention segment. In the Gulf of Mexico, this continues to be our strongest market with improving rates and expected strong utilization on the Q4000 and Q5000.

Contracted work extends into Q4, we expect strong utilization in this region except for a 15K plus schedule gap on the Q4000 as it awaited equipment mobilization. In the U.K. North Sea, both vessels commence their season in early May. Both vessels have contracted work into Q4 with strong utilization expected into Q4. The Well Enhancer did have 14 days of downtime in July for a sale of vehicle replacement. In West Africa, the Q7000 completed its maintenance in Q2 and transits back to Nigeria in July. We have a contract for a one well program with options up to four wells. Vessels then trying to transit to the APAC region to commence the Tui field abandonment towards the end of '22 or early '23.

In Brazil, the Siem Helix 2 is contracted into mid-December with Petrobras, the Siem Helix 1 is performing ROV survey work in Brazil into the fourth quarter prior to its contracted two-year well abandonment worked for Trident in late Q4. Moving to our Robotics at Slide 22. Grand Canyon II in APAC is on contract into Q3 and is expected to have good utilization for the balance of '22 in that region. Grand Canyon III is contracted to perform trenching in the North Sea for multiple customers with expected strong utilization for the balance of the year. In the North Sea, we continue to incrementally benefit from renewable site clearance work expected to continue into Q3.

The Horizon Enabler commenced trenching project offshore Egypt with high utilization into Q4. The Shelia Bordelon is working after U.S. East Coast on contracted windfarm work with expect good utilization through Q3 and good follow-on opportunity thereafter. Moving to production facilities, the HP1 is on contract for the balance of '22 with no expected changes. We have expected variability with production as the Droshky field continues to deplete and we continue to pursue similar opportunities which could impact our results.

Continuing on Slide 23, we're excited to include Alliance into the Helix family. The acquisition complements our existing offering and significantly enhances our position as a full field abandonment service provider. Alliance provides marine services with a diversified fleet of lift boats, offshore supply boats, and crew boats. Energy services comprise of plug and abandonment and intervention services in coastal areas and offshore for surface infrastructure with 24 P&A spreads, nine coiled tubing units and one snubbing unit. Diving & Heavy Lifting from three diving support vessels and from the EPIC Hedron derrick barge. There were some seasonality to the business particularly with the Diving & Heavy Lift service which we expect to slowdown during the first and fourth quarter of the year.

The outlook for Alliance for second half of '22 includes the following assumptions. We expect to have strong utilization from the lift boats and expect the OSVs and crewboats to have variability and utilization. Energy Services, we expect strong utilization on eight to 12 spreads and one to three coiled tubing units. So, Diving & Heavy Lift should have good utilization in Q3 prior to their seasonal slowdown. Moving on Slide 24. Our CapEx forecast for '22 is heavily impacted by the amount from '21 posted to '22 approximately $20 million. With heavy regulatory year and in Alliance our CapEx range for '22 is currently $50 million to $60 million. The majority of our CapEx forecast continues to be maintenance and project related which primarily falls into our operating cash flows.

Reviewing our balance sheet, funded debt of $275 million it is expected to decrease by $4 million over the remainder of '22 as a result of scheduled principal payments. I'll skip the remaining slides and leave them for your reference. At this time, I'll turn the call back to Owen for discussion on our outlook beyond '22 and for closing comments.

[Owen Kratz, CEO]

Thanks, Erik. We have well the certainties and variables that previously caused us to refrain from providing guess work guidance for the full-year '22 have been resolved to a point 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 at the uncertainties of 2022 becoming clear, 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 and -- ahead of next year. 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 vessel 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 a 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 as we 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're required to differ the cost in revenue for this transit period and amortize 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 even 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 it rates the guarantee the cash loss to Helix.

Petrobras did not extend the contract on the SH1. Helix saw it well to work in ROV support work 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 with 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 increasing 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. A discussion on rates is not a simple one but in general they're increasing dramatically and rapidly. Rates vary greatly depending on region, client, competitions, 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 just past 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 as 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 lightly 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 and that we decided to perform the dry docks and maintenance on seven of our own vessels. I've already the 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 un-availed 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 the 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 finish resuming one series of our notes in May.

Given the improving visibility on market and in the response to what we believe is the significant opportunity, we felt comfortable at this time to put a $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 field that are built up over time. We believe this demand will be sustained over the years ahead. Our initial estimates for Alliance for full-year was $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 to do offshore wind market. In addition, our Robotics division provide site clearance for the windfarms require prior to installation. We are seeing an increase in demand as well as rate increases out pass outpace in cost escalation as Scotty covered. This has resulted in our Robotics growth profit margin increasing from 3% for the year to-date ending July 30th, '21, to 17% for the year-to-date ending July 30th, '22, and 23% in the last quarter. We're seeing an increase in demand for all of our Robotics offering and especially trenching which generates our great greatest margin.

The seventh topic is production facility. The HP1 continues on contract would tell us with current expectations for further extension. The reserves on Droshky are declining in 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 the fairly rich environment for opportunities to consolidate or add to the Helix's business model as an energy transition story. We are mindful of maintaining a strong balance sheet and the alternative uses for catch cash such as returning value to shareholders. Our intent to is 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 win. 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 revolving 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 since we approach and proceed with budgeting process for '23 in this dynamic developing market. Again to be clear, we expect 2023 to be substantially better than 2022. We shared our views and recognize these are forward-looking statements and subjects that changed but you deserve to know what our current expectations are and how we're feeling at this time about the Company in the market and our prospects. Erik?

[Erik Staffeldt, CFO]

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

[Operator]

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

[James Schumm, Cowen]

Hey, good morning, guys.

[Owen Kratz, CEO]

Good morning.

[James Schumm, Cowen]

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 -- 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 contracts 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 will be shortly having that contract in place.

[James Schumm, Cowen]

Okay, thanks.

[Scott Sparks, COO]

[I have outlined that the other options] -- other operators that have shown significant interest in the vessel in Brazil. That's healthy enough to be around discussions with.

[James Schumm, Cowen]

Right. Make sense. Okay. And then -- can you maybe just provide an update on the UK North Sea well, intervention market? I mean, it, it appears that we went from weak to strong almost overnight. Obviously there's seasonality at play. But how sustainable is this and just any other color, there would be great.

[Owen Kratz, CEO]

I'll take a shot. And then let Scott follow up with probably more detailed, but in general, a year ago, the only market the North Sea, was really talking about was the abandonment 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 at 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 taken 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, Cowen]

And I mean, do you guys, so that makes a lot of sense. But do you guys feel like this was a wakeup 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, Cowen]

Okay, thank you guys very much.

[Operator]

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

[Donald Crist, Johnson Rice]

Good morning, gentlemen, how are you all today?

[Owen Kratz, CEO]

Good. How are you?

[Donald Crist, Johnson Rice]

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 is it kind of focused on a couple of individual customers there? And number two, what is the 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 is 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 in 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 and the -- 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, [A&I] BHP, Chevron, 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 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 end we saw the opportunity, I think Steve Williams, the owner of Alliance had the foresight to start accumulating assets ahead of this.

And 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'd 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 enrolling 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-evolve 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, Johnson Rice]

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, 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 and into in the Well Intervention, the rates have really jumped up from the bottom when nearly 100% higher than where we were in the depth of the market in the Gulf of Mexico. That compared to last year's rates were up 40% and 50% in the Gulf of Mexico and increasing and seeing high visibility and 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 and all since we have a much lower cost base, but we are seeing an increase in rates.

[Donald Crist, Johnson Rice]

Right. Okay. And do you see anything that could be an impediment to increased utilization over say, 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 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, Johnson Rice]

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]

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

[David Smith, Pickering Energy Partners]

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 [indiscernible] like deals. So at the midpoint, that's what I'm reading this 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 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 and sharing. But like you said, we don't know where rates will eventually like wind 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 a 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 what's going to be the impact on demand at that point? What's the reaction to 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 such as 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. And 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 addressed and I think, with the Trident award early in the year, and we're in negotiations are going with Brazil, we feel that 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 face 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, Pickering Energy Partners]

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 outlook for additional [drasky] type deals. So I wanted to ask if the acquisition of Alliances means that those deals could be shallow water going forward. And if you're seeing more interest from operators 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, Pickering Energy Partners]

Perfect, appreciate the color. Thank you.

[Operator]

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

[Samantha Hoh, Evercore ISI]

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 is revenue synergy from having the Alliance acquisition and being gaining the credibility as a full field decommissioning company.

[Samantha Hoh, Evercore ISI]

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, 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 trencher. 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 and shareholder 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, Evercore ISI]

And if I could just sneak in one more. 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 like, 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 over awarded or attended trenching days out there between ‘23 and ‘28. I expected a much healthier year ‘23. And we are also increasing REITs 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 [indiscernible]. 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, Evercore ISI]

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

[Owen Kratz, CEO]

Thank you.

[Operator]

Next question from the line of [indiscernible]. Please go ahead.

[Unidentified Analyst]

Hi, thanks for taking the question. I believe I want to touch on this and has response to the last question. But I was wondering if you could provide a little more color on at a high level how the board is thinking about balancing M&A with returning capital to shareholders whether there are certain internal targets for all hurdles that a better particular M&A target needs 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 the recent years, there's been the greatest sense of just on 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]

Thank you.

[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 in participation and look forward to having you on our third quarter '22 call in October. Thank you.

[Operator]

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