Helix Reports Third Quarter 2009 Results

October 28, 2009 6:30 PM EDT

HOUSTON--(BUSINESS WIRE)-- Helix Energy Solutions Group, Inc. (NYSE: HLX) reported net income of $3.9 million or $0.04 per diluted share, for the third quarter of 2009 compared with net income of $59.3 million, or $0.63 per diluted share, for the same period in 2008, and net income of $100.2 million, or $0.94 per diluted share, in the second quarter of 2009. Net income for the nine months ended September 30, 2009 was $157.6 million, or $1.48 per diluted share, compared with $222.0 million, or $2.34 per diluted share, for the nine months ended September 30, 2008.

Third quarter 2009 results included the following items on a pre-tax basis:

    --  A $17.9 million gain from the sale of 23.2 million shares of Cal Dive
        common stock.
    --  A $10.4 million charge associated with a weather derivative contract
        entered into in July 2009 to mitigate against possible losses during the
        2009 hurricane season. The derivative contract was purchased in lieu of
        traditional windstorm insurance coverage. The third quarter charge of
        $10.4 million was $7.1 million higher than if the cost of the weather
        derivative contract was charged to expense evenly over a twelve month
        period similar to a traditional insurance premium.

The net impact of these two items in the third quarter, after income taxes, was $0.07 per diluted share.

In addition, third quarter 2009 results excluded approximately $25 million of realized gains associated with the cash settlement of natural gas contracts that were previously recognized as unrealized gains in the first and second quarters of 2009.

Third quarter 2008 results included a pre-tax impairment charge of $6.7 million as a result of damage caused by Hurricane Ike.

Owen Kratz, President and Chief Executive Officer of Helix, stated, "the third quarter results reflect a slowdown in the contracting services market in response to customers reining in spending in late 2008 and early 2009 due to general economic conditions and a lower commodity price environment. Specific to Helix, our third quarter results were impacted as well by the dedication of our Express vessel to internal use, and lower oil and gas production due to a variety of third party pipeline and infrastructure issues. However, we are beginning to see evidence that activity levels for contracting services are likely to rebound in 2010. In addition, a significant third quarter event for Helix was the sale of nearly all of our remaining interest in Cal Dive in September which further serves to enhance our liquidity position and move us closer to our strategic goal of positioning Helix as a deepwater focused company."

Summary of Results(1) (2)

(in thousands, except per share amounts and percentages, unaudited)

              Quarter Ended                          Nine Months Ended

              September 30              June 30      September 30

              2009         2008         2009         2009           2008

Revenues      $ 216,025    $ 607,736    $ 494,639    $ 1,281,639    $ 1,579,635

Gross
Profit:

Operating     $ 5,058      $ 207,599    $ 200,312    $ 367,056      $ 535,650
(3)

                2       %    34      %    40      %    29        %    34        %

Oil and Gas
Impairments     (1,537  )    (6,874  )    (63,073 )    (64,610   )    (23,902   )
(4), (5)

Exploration     (904    )    (1,645  )    (1,483  )    (2,863    )    (5,007    )
Expense

Total         $ 2,617      $ 199,080    $ 135,756    $ 299,583      $ 506,741

Net Income
Applicable    $ 3,895      $ 59,297     $ 100,219    $ 157,564      $ 222,032
to Common
Shareholders

Diluted
Earnings Per  $ 0.04       $ 0.63       $ 0.94       $ 1.48         $ 2.34
Share

Adjusted      $ 38,306     $ 159,023    $ 147,909    $ 431,520      $ 519,933
EBITDAX(6)

    Results of Helix RDS Limited, our former reservoir consulting business,
(1) included as discontinued operations for all periods presented in our
    comparative condensed consolidated statements of operations.

    Results of Cal Dive, our former Shelf Contracting business, were
    consolidated through June 10, 2009, at which time our ownership interest
(2) dropped below 50%. Our remaining interest was accounted for under the equity
    method of accounting through September 23, 2009. Subsequent to September 23,
    2009 our investment in Cal Dive was accounted for as an available for sale
    security.

    Included $10.4 million of expense related to a weather derivative contract
(3) and $5.1 million of hurricane-related costs in the third quarter of 2009.
    Second quarter of 2009 included insurance recoveries of $102.6 million
    offset by hurricane-related costs of $8.1 million.

    Second quarter 2009 oil and gas impairments included $51.5 million of
(4) additional asset retirement and impairment costs resulting from Hurricane
    Ike. Third quarter 2008 oil and gas impairments included $6.7 million
    related to our deepwater Tiger field damaged by Hurricane Ike.

    Second quarter 2009 oil and gas impairments included $11.5 million in the
(5) reduction of the carrying values of certain oil and gas properties due to
    reserve revisions.

(6) Non-GAAP measure. See reconciliation attached hereto.

Segment Information, Operational and Financial Highlights(1)

(in thousands, unaudited)

                                          Three Months Ended

                                          September 30,             June 30,

                                          2009         2008         2009

Revenues:

Contracting Services                      $ 175,091    $ 276,131    $ 239,476

Shelf Contracting (2)                       -            278,709      197,656

Production Facilities                       5,888        -            5,472

Oil and Gas(3)                              63,715       134,619      89,992

Intercompany Eliminations                   (28,669 )    (81,723 )    (37,957 )

Total                                     $ 216,025    $ 607,736    $ 494,639

Income (Loss) from Operations:

Contracting Services                      $ 10,132     $ 57,235     $ 23,383

Shelf Contracting (2)                       -            72,719       38,145

Production Facilities                       (1,388  )    (140    )    (1,018  )

Oil and Gas (3)                             (23,599 )    42,717       103,380

Gain on Oil and Gas Derivative Commodity    4,598        2,705        4,121
Contracts

Oil and Gas Impairments(4), (5)             (1,537  )    (6,874  )    (63,073 )

Exploration Expense                         (904    )    (1,645  )    (1,483  )

Intercompany Eliminations                   (1,971  )    (13,494 )    (1,631  )

Total                                     $ (14,669 )  $ 153,223    $ 101,824

Equity in Earnings of Equity Investments  $ 13,385     $ 8,751      $ 6,264

    Results of Helix RDS Limited, our former reservoir consulting business, were
(1) included as discontinued operations for all periods presented in our
    comparative condensed consolidated statements of operations.

    Results of Cal Dive, our former Shelf Contracting business, were
    consolidated through June 10, 2009, at which time our ownership interest
(2) dropped below 50%. Our remaining interest was accounted for under the equity
    method of accounting through September 23, 2009. Subsequent to September 23,
    2009 our investment in Cal Dive was accounted for as an available for sale
    security.

    Included $10.4 million of expense related to a weather derivative contract
    and $5.1 million of hurricane-related costs in the third quarter of 2009.
(3) Included insurance recoveries of $97.7 million offset by hurricane-related
    costs of $7.4 million in the second quarter of 2009. Third quarter 2008
    results included $2.3 million of hurricane-related costs.

    Second quarter 2009 oil and gas impairments included $51.5 million of
(4) additional asset retirement and impairment costs resulting from Hurricane
    Ike. Third quarter 2008 oil and gas impairments included $6.7 million
    related to our deepwater Tiger field damaged by Hurricane Ike.

(5) Second quarter 2009 included $11.5 million in the reduction of the carrying
    values of certain oil and gas properties due to reserve revisions.

Contracting Services

    --  Subsea Construction revenues decreased from the second quarter of 2009
        as activity associated with a significant international pipelay
        construction contract was substantially completed in the early part of
        the third quarter. Further, our Express pipelay vessel experienced out
        of service days related to a regulatory drydock and subsequent transit
        to the Gulf of Mexico. Utilization for our construction vessels (both
        owned and chartered) decreased in the third quarter of 2009 compared
        with the second quarter of 2009 (77% compared with 88%). Robotics asset
        utilization in the third quarter of 2009 was comparable to that of the
        second quarter of 2009.
    --  Our well operations business experienced decreased revenues in the third
        quarter of 2009 compared with the second quarter of 2009 due to
        decreased utilization (92% compared with 98%). Further, the Q4000 was
        contracted at significantly lower day rates for much of the third
        quarter.
    --  Gross profit margins for Contracting Services decreased in the third
        quarter of 2009 over the second quarter of 2009 due primarily to lower
        vessel utilization and lower day rates for the Q4000.

Shelf Contracting (Cal Dive)

    --  As a result of our de-consolidation of Cal Dive's operating results in
        June 2009, we accounted for our interest for most of the third quarter
        as an equity method investment. Our share of Cal Dive's earnings for the
        third quarter totaled $7.2 million. In September, we sold a total of
        23.2 million shares of Cal Dive common stock in a secondary offering,
        which reduced our remaining ownership interest in Cal Dive to
        approximately 0.5%. We account for our remaining interest in Cal Dive as
        an investment available for sale.

Oil and Gas

    --  Oil and Gas revenues of $63.7 million for the third quarter of 2009 were
        lower than the second quarter of 2009 due primarily to lower oil
        production and lower realized oil prices. Production in the third
        quarter of 2009 totaled 9.8 Bcfe compared with 12.4 Bcfe in the second
        quarter of 2009. The average prices realized for our gas sales volumes,
        including the effect of settled natural gas hedge contracts, totaled
        $8.02 per thousand cubic feet of gas (Mcf) in the third quarter of 2009
        compared with $7.62 per Mcf in the second quarter of 2009. For our oil
        sales volumes, including the effects of settled hedge contracts, we
        realized $68.86 per barrel in the third quarter of 2009 compared with
        $72.29 per barrel in the second quarter of 2009.
    --  The Company's oil and gas production rate at September 30, 2009
        approximated 103 million cubic feet of natural gas equivalent per day
        (MMcfe/d). Production continues to be constrained due to mechanical
        issues in certain fields and continuing repairs to a third party
        pipeline related to the Noonan gas field. The third party pipeline
        operator has informed its customers that repairs to this key pipeline is
        expected to be completed by the end of November 2009.
    --  In addition, to date we have entered into additional oil and gas hedge
        contracts for approximately 25 Bcf of natural gas and 2.5 million
        barrels of oil to cover a portion of our forecasted production for 2010.

Other Expenses

    --  Selling, general and administrative expenses were 10.1% of revenue in
        the third quarter of 2009, 8.0% in the second quarter of 2009, and 8.0%
        in the third quarter of 2008. Although, the percentage increase was
        driven by lower third quarter revenues, total selling, general and
        administrative expenses decreased $1.7 million compared to the second
        quarter of 2009 (excluding Cal Dive's expenses in the second quarter of
        2009).
    --  Net interest expense and other increased to $10.3 million in the third
        quarter of 2009 from $7.5 million in the second quarter of 2009. The
        increase was due to $3.1 million of net hedging losses related to our
        foreign currency contracts and realized foreign exchange losses compared
        with net gains of $8.2 million in the second quarter. Net interest
        expense decreased to $7.3 million in the third quarter of 2009 compared
        with $15.6 million in the second quarter of 2009 as a result of lower
        debt levels.

Financial Condition and Liquidity

    --  Consolidated net debt at September 30, 2009 decreased to $950 million
        from $1.10 billion as of June 30, 2009. We had no borrowings under our
        revolver and our availability was $370 million (including $50 million of
        outstanding letters of credit) at September 30, 2009. Together with cash
        on hand of $411 million and our revolver availability, our total
        liquidity was approximately $781 million at September 30, 2009. Net debt
        to book capitalization as of September 30, 2009 was 39%. (Net debt to
        book capitalization is a non-GAAP measure. See reconciliation attached
        hereto.)
    --  On October 9, 2009, we extended the term of our revolving credit
        facility from July 1, 2011 to November 30, 2012. In addition, our
        lenders agreed to amend certain restrictive covenants related to asset
        sales, and furthermore, increased the amount of capacity under the
        revolving credit facility to $435 million through June 2011, decreasing
        to $407 million from July 2011 through November 2012. The revolving
        credit facility's accordion feature was also increased to allow for a
        potential increase in the maximum size of the facility from $450 million
        to $550 million. The July 1, 2013 maturity date of our senior secured
        term loan under the credit agreement remains unchanged. Lastly,
        borrowings under the amended revolving credit facility will bear
        interest based on current market rates.
    --  We incurred capital expenditures (including capitalized interest)
        totaling $87 million in the third quarter of 2009, compared with $57
        million in the second quarter of 2009 and $165 million in the third
        quarter of 2008. For the nine months ended September 30, 2009, capital
        expenditures totaled $209 million and we anticipate total capital
        spending in 2009 of approximately $340 million to $360 million. These
        amounts exclude all Cal Dive capital expenditures in the periods noted.

Further details are provided in the presentation for Helix's quarterly conference call to review its thirds quarter results (see the "Investor Relations" page of Helix's website, www.HelixESG.com). The call, scheduled for 9:00 a.m. Central Daylight Time on Thursday, October 29, 2009, will be audio webcast live from the "Investor Relations" page of Helix's website. Investors and other interested parties wishing to listen to the call via telephone may join the call by dialing 800 475 0212 (Domestic) or 1 312 470 7004 (International). The pass code is Tripodo. A replay will be available from the Audio Archives page on Helix's website.

Helix Energy Solutions, headquartered in Houston, Texas, is an international offshore energy company that provides development solutions and other key life of field services to the open energy market as well as to our own oil and gas business unit. That business unit is a prospect generation, exploration, development and production company. Employing our own key services and methodologies, we seek to lower finding and development costs, relative to industry norms.

Management evaluates Company performance and financial condition using certain non-GAAP metrics, primarily Adjusted EBITDAX, net debt and net debt to book capitalization. We calculate Adjusted EBITDAX as earnings before net interest expense, taxes, depreciation and amortization and exploration expense. Further, we do not include earnings from our interest in Cal Dive in any periods presented in our Adjusted EBITDAX calculation. Net debt is calculated as the sum of financial debt less cash and equivalents on hand. Net debt to book capitalization is calculated by dividing net debt by the sum of net debt, convertible preferred stock and shareholders' equity. These non-GAAP measures are useful to investors and other internal and external users of our financial statements in evaluating our operating performance because they are widely used by investors in our industry to measure a company's operating performance without regard to items which can vary substantially from company to company, and help investors meaningfully compare our results from period to period. Adjusted EBITDAX should not be considered in isolation or as a substitute for, but instead is supplemental to, income from operations, net income or other income data prepared in accordance with GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions which are excluded.

This press release contains forward-looking statements that involve risks, uncertainties and assumptions that could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, any projections of revenue, gross margin, expenses, earnings or losses from operations, or other financial items; future production volumes, results of exploration, exploitation, development, acquisition and operations expenditures, and prospective reserve levels of property or wells; any statements of the plans, strategies and objectives of management for future operations; any statement concerning developments, performance or industry rankings; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; complexities of global political and economic developments; geologic risks and other risks described from time to time in our reports filed with the Securities and Exchange Commission ("SEC"), including the company's Annual Report on Form 10-K for the year ending December 31, 2008 and any subsequent Quarterly Report on Form 10-Q. We assume no obligation and do not intend to update these forward-looking statements.

HELIX ENERGY SOLUTIONS GROUP, INC.

Comparative Condensed Consolidated Statements of Operations

                          Three Months Ended Sept. 30,  Nine Months Ended Sept.
                                                        30,

 (in thousands, except    2009         2008             2009         2008
 per share data)

                          (unaudited)                   (unaudited)

 Net revenues:

  Contracting             $ 152,310    $ 473,117        $ 967,751    $ 1,079,804
  services

  Oil and gas               63,715       134,619          313,888      499,831

                            216,025      607,736          1,281,639    1,579,635

 Cost of sales:

  Contracting               127,402      318,451          765,602      777,206
  services

  Oil and gas               86,006       90,205           216,454      295,688

                            213,408      408,656          982,056      1,072,894

 Gross profit               2,617        199,080          299,583      506,741

  Gain on oil and gas
  derivative commodity      4,598        2,705            83,328       2,705
  contracts

  Gain on sale of           -            (23     )        1,773        79,893
  assets, net

  Selling and
  administrative            21,884       48,539           102,609      136,953
  expenses

 Income (loss) from         (14,669 )    153,223          282,075      452,386
 operations

  Equity in earnings of     13,385       8,751            27,152       25,722
  investments

  Gain on subsidiary        17,901       -                77,343       -
  equity transaction

  Net interest expense      10,306       28,298           39,969       76,914
  and other

 Income before income       6,311        133,676          346,601      401,194
 taxes

  Provision of income       4,468        54,165           126,196      151,638
  taxes

 Income from continuing     1,843        79,511           220,405      249,556
 operations

  Income (loss) from
  discontinued              3,021        (93     )        10,303       1,671
  operations, net of tax

 Net income, including
 noncontrolling             4,864        79,418           230,708      251,227
 interests

  Net income applicable
  to noncontrolling         844          19,240           19,017       26,553
  interests

 Net income applicable      4,020        60,178           211,691      224,674
 to Helix

  Preferred stock           125          881              688          2,642
  dividends

  Preferred stock
  beneficial conversion     -            -                53,439       -
  charges

 Net income applicable
 to Helix common          $ 3,895      $ 59,297         $ 157,564    $ 222,032
 shareholders

 Weighted Avg. Common Shares
 Outstanding:

  Basic                     101,282      90,725           97,831       90,598

  Diluted                   101,334      94,583           105,868      95,096

 Basic earnings per share of common
 stock:

  Net income from         $ 0.01       $ 0.65           $ 1.49       $ 2.40
  continuing operations

  Net income from
  discontinued            $ 0.03       $ 0.00           $ 0.10       $ 0.02
  operations

  Net income per share    $ 0.04       $ 0.65           $ 1.59       $ 2.42
  of common stock

 Diluted earnings per share of common
 stock:

  Net income from         $ 0.01       $ 0.63           $ 1.38       $ 2.32
  continuing operations

  Net income from
  discontinued            $ 0.03       $ 0.00           $ 0.10       $ 0.02
  operations

  Net income per share    $ 0.04       $ 0.63           $ 1.48       $ 2.34
  of common stock

Comparative Condensed Consolidated Balance Sheets

ASSETS                                  LIABILITIES & SHAREHOLDERS' EQUITY

(in           Sept. 30,    Dec. 31,     (in thousands)   Sept. 30,     Dec. 31,
thousands)    2009         2008                          2009          2008

              (unaudited)                                (unaudited)

Current                                 Current
Assets:                                 Liabilities:

 Cash and     $ 410,506    $ 223,613    Accounts         $ 177,117     $ 344,807
 equivalents                            payable

 Accounts       224,701      545,106    Accrued            198,876       234,451
 receivable                             liabilities

 Other                                  Income taxes
 current        130,546      191,304    payable            108,213       -
 assets

                                        Current mat of     13,136        93,540
                                        L-T debt (1)

Total                                   Total Current
Current         765,753      960,023    Liabilities        497,342       672,798
Assets

                                        Long-term
Net Property & Equipment:               debt (1)           1,347,395     1,933,686
                                        (2)

 Contracting                            Deferred
 Services       1,401,534    1,876,795  income             456,728       615,504
                                        taxes

 Oil and Gas    1,454,798    1,541,648  Decommissioning    177,924       194,665
                                        liabilities

Equity          191,475      196,660    Other long-term    10,148        81,637
investments                             liabilities

                                        Convertible
Goodwill        78,220       366,218    preferred stock    6,000         55,000
                                        (1)

Other           79,310       125,722    Shareholders'      1,475,553     1,513,776
assets, net                             equity (1)

Total                                   Total
Assets        $ 3,971,090  $ 5,067,066  Liabilities &    $ 3,971,090   $ 5,067,066
                                        Equity

    Net debt to book capitalization - 39% at September 30, 2009. Calculated as
(1) total debt less cash and equivalents ($950,025) divided by sum of total net
    debt, convertible preferred stock and shareholders' equity ($2,431,578).

    Reflects impact of retrospective adoption of accounting standard which
(2) required bifurcation of Helix's convertible senior notes between debt and
    equity components. Impact on September 30, 2009 and December 31, 2008 was a
    reduction in debt totaling $28.9 million and $34.8 million, respectively.

Helix Energy Solutions Group, Inc.

Reconciliation of Non GAAP Measures

Three and Nine Months Ended September 30, 2009

Earnings Release:

Reconciliation From Net Income to Adjusted EBITDAX:

                 3Q09         3Q08         2Q09         2009         2008

                 (in thousands)

Net income
applicable to    $ 3,895      $ 59,297     $ 100,219    $ 157,564    $ 222,032
common
shareholders

Non-cash           533          6,874        19,261       19,794       23,902
impairment

(Gain) loss on     (17,869 )    23           (69,569 )    (87,892 )    (79,893 )
asset sales

Preferred stock    125          881          250          54,127       2,642
dividends

Income tax
provision          1,415        39,325       50,072       116,281      134,253
(benefit)

Net interest
expense and        10,192       25,992       5,776        36,561       69,650
other

Depreciation
and                46,315       70,275       68,221       188,513      226,748
amortization

Exploration        904          1,645        1,483        2,863        5,007
expense

Adjusted
EBITDAX          $ 45,510     $ 204,312    $ 175,713    $ 487,811    $ 604,341
(including Cal
Dive)

Less:
Previously
reported         $ (7,204  )  $ (45,289 )  $ (27,804 )  $ (56,291 )  $ (84,408 )
contribution
from Cal Dive

Adjusted         $ 38,306     $ 159,023    $ 147,909    $ 431,520    $ 519,933
EBITDAX

We calculate adjusted EBITDAX as earnings before net interest expense, taxes,
depreciation and amortization, and exploration expense. Further, we do not
include earnings from our interest in Cal Dive in any periods presented in our
adjusted EBITDAX calculation. These non-GAAP measures are useful to investors
and other internal and external users of our financial statements in evaluating
our operating performance because they are widely used by investors in our
industry to measure a company's operating performance without regard to items
which can vary substantially from company to company and help investors
meaningfully compare our results from period to period. Adjusted EBITDAX should
not be considered in isolation or as a substitute for, but instead is
supplemental to, income from operations, net income or other income data
prepared in accordance with GAAP. Non-GAAP financial measures should be viewed
in addition to, and not as an alternative to our reported results prepared in
accordance with GAAP. Users of this financial information should consider the
types of events and transactions which are excluded.

Helix Energy Solutions Group, Inc.

Reconciliation of Non GAAP Measures

Three Months Ended September 30, 2009

Earnings Release:

Reconciliation of unusual items:

                                      3Q09

                                      (in thousands)

Other charges:

 Gain on sale of Cal Dive             $ 17,901

 Weather derivative contract            (7,084  )

 Tax provision associated with above    (3,805  )

Other income, net                       7,012

Diluted shares                          101,334

Per share                             $ 0.07

    Source: Helix Energy Solutions Group, Inc.

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