Please ensure Javascript is enabled for purposes of website accessibility

Helix Energy Solutions Group, inc (HLX) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribers – Jul 28, 2021 at 1:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

HLX earnings call for the period ending June 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Helix Energy Solutions Group, inc (HLX 1.87%)
Q2 2021 Earnings Call
Jul 27, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Helix Energy Solutions' Second Quarter 2021 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]

It is now my pleasure to turn the conference over to Erik Staffeldt, Executive Vice President and Chief Financial Officer with Helix Energy Solutions. Please go ahead, sir.

10 stocks we like better than Helix Energy Solutions Group
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Helix Energy Solutions Group wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of June 7, 2021

Erik Staffeldt -- Chief Financial Officer

Good morning, everyone, and thanks for joining us today on our conference call for our Second Quarter 2021 Earnings Release. Participating on this call for Helix today are: Owen Kratz, our CEO; Scotty Sparks, our COO; Ken Neikirk, our General Counsel; and myself. Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through the For the Investor page on our website at www.helixesg.com. The press release can be accessed under the Press Releases tab and the slide presentation can be accessed by clicking on today's webcast icon.

Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken?

Ken Neikirk -- General Counsel

During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations. All statements in this conference call or in the associated presentation, other than statements of historical fact are forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of factors including those set forth in Slide 2 in our most recently filed Annual Report on Form 10-K and in our other filings with the SEC.

Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slide of our presentation provides reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations along with this presentation, the earnings press release, our annual report and a replay of this broadcast are available under the For the Investor page of our website at www.helixesg.com.

Owen?

Owen Kratz -- Chief Executive Officer

Good morning. We hope everyone out there and their families are doing well, healthy and staying safe. This morning, we will review our Q2 and year-to-date performance, our operations, our view of the current market dynamics and provide our outlook for the balance of 2021.

Moving to the presentation Slides 5 through 7 provide a high level summary of our results. Our performance for the quarter and year-to-date continues to be in-line with the expectations as our teams continue to execute at high levels of operability.

The Q7000 continued successful operations in West Africa; North Sea intervention activity increased in tandem with good weather season; the Well Enhancer achieved good utilization; the Seawell was activated late Q2 for a brief project; Gulf of Mexico intervention, while generally exited the quarter with both vessels working; in Brazil, both vessels worked the entire quarter; robotics benefited from the good weather season with increased activity and trenching and site clearance work; production facilities benefited from the new HWCG agreement for response services.

During the quarter, we completed production enhancement efforts on the Droshky field with expected benefit in the second half of the year. Our results for the second quarter of 2021 were slightly down compared to our results for the first quarter of 2021. Revenues were reported $162 million with a net loss of $14 million and EBITDA of $25 million. Our gross profit was $3 million or 2%.

On Slide 8 from a balance sheet perspective, our cash balance at the end of the quarter was $244 million, with an additional $71 million in temporarily restricted cash associated with the short-term LC for our work in West Africa. During the second quarter, we generated $53 million of operating cash flows and spent $5 million on CapEx with the resulting free cash flow of $47 million. Year-to-date, we've generated $93 million of operating cash flow and $86 million of free cash flow. Our net debt at the end of the quarter was $21 million and our net debt-to-book capital was 1%.

I'll now turn the call over to Scotty for an in-depth discussion of our operating results.

Scotty Sparks -- Chief Operating Officer

Thanks, Owen, and good morning, everyone. Moving on to Slide 10. We continue to operate all of our business lines for a challenging year with the ongoing COVID-19 pandemic. Both onshore and offshore, our teams and partners are doing an incredible job and continuously at that, the situations are presented.

We have now reopened the office to our staff in our Houston headquarters and support base and our offices and facilities in Aberdeen Scotland. Safety measures and protocols have been put in place that are designed so our safe access to work in these locations. Our offices still remain closed in Rio and in Singapore and the teams in those locations effectively working remotely.

The COVID-19 pandemic still presents many logistical challenges including travel restrictions, quarantines, testing and screening personnel over 18,000 times to date, and we continue to successfully transport personnel to our work sites globally. Testing is more easily available and the vaccine rollout is aiding the situation and in certain locations, some travel and quarantine restrictions have been eased or removed.

In the second quarter, we continue to operate 11 vessels globally with minimal operational disruption despite the logistical challenges. Continuing [Phonetic] to operate in the high standards with 98.5% uptime efficiency. Our personnel produced some of our best safety statistics since our records began. Concluding the quarter, matching our lowest total recordable incident rates emphasizing our strong supportive safety culture and leadership.

Over to Slide 11. During the second quarter, we produced revenues of $162 million, resulting in a gross profit margin of 2%, producing the gross profits of $3 million, compared to $163 million revenue and $15 million gross profit in the first quarter, producing EBITDA for the second quarter of $25 million. In the second quarter, the well intervention fleets achieved utilization of 72% globally with 100% utilization in Brazil and 58% utilization in the Gulf of Mexico, 63% utilization in the North Sea in West Africa. The Robotics chartered-vessel fleet achieved 93% globally.

In the Gulf of Mexico, we have both the Q4000 and the Q5000 work in an operation with some schedule gaps between projects. In the North Sea, the Well Enhancer was operational for most of the quarter and the Seawell was activated to undertake a brief project prior to returning to warm stack mode. In the West Africa region, the Q7000 works in Nigeria for two clients, undertaking production enhancement works with strong operational uptime.

Operating performance in Brazil was at the usual high standards. Both vessels achieved high utilization of 100% undertaken abandonment activity. The Robotics chartered-vessel fleets achieved high utilization in the quarter, working between ROV support, trenching and renewable works globally, completing 236 days with 157 days of work undertaken on renewable related green projects.

Slide 12 provides a more detailed review of our operations for our Well Intervention business in the Gulf of Mexico. The Q5000 had 72% utilization, continuing under the contracts for BP until mid-April, then undertaken a production enhancement scope on our Droshky well. The vessel completed two construction support scopes and commenced a production enhancement scope for another client in the quarter with some schedule gaps between projects. The Q4000 had 45% utilization and current [Phonetic] idle time between projects completing construction and support work for one client performed the production enhancement scopes and ultra deepwater for another client and then mobilized for a two-well campaign for another client. Both Q vessels have an integrated Helix J-line [Phonetic] single point contract mechanism, allowing for easier contracting for our clients with both teams integrated and working very well as one complete team. Pleasingly, both vessels have contracted work in Q3 with some gaps between projects. We've contracted and awarded work in Q4 and visibility for potential further activity in Q4 and into 2022.

Moving to Slide 13. Our North Sea Well Intervention business continues to be most affected by reduced work opportunities related to COVID due to the extended lockdown in the United Kingdom, leading to the continued warm stacking up the Seawell. The Well Enhancer had a good quarter and achieved 83% utilization in Q2, working for two clients in the quarter, including completing four production enhancement scopes to one client, followed by one production enhancement in the scope for the other client. The vessel is contracted to work into Q3 and has visibility of potential further works. The Seawell remained warm stack and leave Scotland with significantly reduced costs and reduced crews for most of the quarter. The vessel was activated for a short period undertaking a production enhancement work on three wells for one client, then return into warm stack mode. The vessel currently has contracted work with three clients commencing early August, scheduled until the end of Q3.

The Q7000 had a strong performing quarter in Q2. The vessel performed extremely well, working with the multinational integrated Helix from Jline's team. The vessel worked on three wells in the quarter for two clients and now has contracted work in Nigeria into Q4 with potential further works identified.

Moving on to Slide 14. In Brazil, both vessels achieved strong utilization in the second quarter the Siem Helix 1 had 100% utilization in Q2 and completed abandonment work on four wells. Although we remain in discussions with Petrobras regarding the Siem Helix 1, the current schedule has work complete in mid-August. Our focus is on pursuing other works for the vessel in Brazil and other markets internationally.

The Siem Helix 2 had 100% utilization and completed abandonment work on three wells for the quarter. Our discussions regarding the Siem Helix 1 will inform the approach in the outlook for the Siem Helix 2, which is under contract into December.

Moving on to slide 15 for our Robotics review. Robotics had another good quarter and just having another good year in 2021. Operating free vessels during the quarter primarily work in non-oil and gas and renewables related projects. In the APAC region, the Grand Canyon II had 100% utilization in Q2, performing works on a renewable energy project in Taiwan. The vessel is now contracted in Thailand undertaken a decommissioning project that is expected to continue through most of 2021.

In the North Sea, the Grand Canyon III was utilized 93% undertaking renewables trenching for two clients. The vessel has contracted oil and gas and renewable trenching scope utilizing the vessel for most of 2021. The chartered-vessel [indecipherable] continued site clearance and survey works for 61 days on a wind farm project. The [indecipherable] is now being replaced by another vessel, the box-suite [Phonetic], which should continue to work on the projects that is now expected to last into Q4.

In the Gulf of Mexico, ROV activity remained strong and we continue to market the share of order long as our payers regain vessel going forward this year. We've now commenced mobilization of a further spot vessel the Siem Dorado and have contracted on the cable installation projects on our first work offshore Guyana. The Robotics Group continues its transition for integrating the renewables sector, adding new clients and more services. We've recently been contracted to undertake a further site clearance and survey project and recently been awarded another UXO clearance and detonation scope. Both projects are slated to commence in 2021. We have also recently been awarded a further significant in size but renewable trenching works in 2022 and 2023.

Over to Slide 16. I'll leave this slide detail in the vessels, ROV and trenching utilization for your reference. Before I turn the call over to Eric, I would again like to thank our Helix global team, our offshore personnel, our onshore personnel and our partners for continuing to evolve and doing a fantastic job under these challenging circumstances. It's also great to see our personnel return, have our teams here back working in the office, tackling these challenges in this market face-to-face rather screen-to-screen.

Erik Staffeldt -- Chief Financial Officer

Thanks, Scott, and good morning. Moving to Slide 18, it outlines our debt instruments and the maturity profile at June 30. Our total funded debt is $346 million at the end of Q2. We have $32 million of scheduled principal payments in the second half of the year.

Moving on to Slide 19. This provides an update on key balance sheet metrics, including long-term debt and net debt levels at year-end at June 30. With $350 million of cash and restricted cash as of June 30, our net debt approximated $21 million at the end of the quarter. Our long-term debt balance and net debt balance at June 30 reflect the early adaption of the ASU 2020-06 which simplified the accounting treatment of our convertible notes. Our cash position at the end of Q2 was $244 million with an additional $71 million of restricted cash that supports a temporary project LC. Our quarter-end net debt-to-book capitalization was 1%.

Moving to Slides 20 to 24. We continue to operate in a challenging market. Our customers continue to be cautious in committing to spending in 2021. The current relatively stable macro backdrop has increased customer dialog and interest, but has been slow to develop into firm orders. The positive developments globally and within our sector are providing a positive foundation for recovery in our markets, but primarily beyond 2021. We have made slight updates to our Q1 guidance. Our guidance is a good-faith attempt to provide investors information. Those are probably caveated as best we can against the backdrop of the current environment.

Our guidance for 2021 is as follows. Revenues in the $600 million to $670 million range; EBITDA $75 million to $100 million; free cash flow of $45 million to $90 million. Our EBITDA outlook is based on the following. Beyond Q2, we anticipate working six well intervention vessels in the spot market where visibility is currently limited. We expect visibility utilization will be on a quarter-to-quarter basis. In the Gulf of Mexico Well Intervention business, both vessels would likely be in the spot market for the remainder of the year, with the expected gaps between projects. We generally expect lower levels of activity in 2021 compared to 2020.

In the North Sea Well Intervention business, we expect both vessels to be working in the third quarter with expected gaps in their schedules. Work will likely taper off during the winter months. In Brazil, the Siem Helix 2 is on contract to December. The Siem Helix 1 expected to complete its extension period in August. Beyond that, it's outlook is uncertain. In West Africa, we expect to work the Q7000 into Q4 with possibilities thereafter.

Robotics may benefit from the active several months in the North Sea. Overall, Robotics may have a weaker year compared with 2020 with less site clearance work, but overall continues to be a steady performer. Production facility should benefit from the Droshky production in our agreement with the HWCG. We have made slight increases to the upper range of our cash flow forecast. Our free cash flow outlook is supported by the strong year-to-date cash generation and highlights both the challenges and the range of possibilities during the second half of the year. The range provided acknowledges the expected range of our second half EBITDA and the range of our annual capital spending of $20 million to $35 million. The range also accounts for potential delay in the remaining approximate $12 million of CARES Act tax refund. Working capital is assumed to be flat for the year in anticipation of working capital requirements to support 2022 activity.

Providing a bit more color to our key assumptions by segment and region on Slide 23, first with our Well Intervention segment. Gulf of Mexico, the Q5000 and Q4000 both have contracted work in the third and fourth quarters. We are targeting additional opportunities but do expect gaps in their schedules. In the UK North Sea, the Well Enhancer and Seawell have contracted work into Q3. The Q7000 commenced operations in late January with contracted work in West Africa expected to last into Q4. In Brazil, the Siem Helix 2 has the contract December the Siem Helix 1 is expected to complete its extension in August. Beyond that, outlook is uncertain. The vessel is expected to be out of service and unavailable with the dry dock scheduled for approximately 40 days between Q3 and Q4.

Moving to our Robotics segment, Slide 24. Robotics second half of the year is expected to be stronger than the first half of the year. The Grand Canyon II in APAC is on contract in Thailand into Q4 and is expected to have strong utilization for the balance of 2021 in that region. The Grand Canyon III is contracted to be performing trenching in the North Sea with expected strong utilization into Q4. The follow-on wind farm survey and site clearance work began at the end of Q1 and has additional recent awards. Moving to production facilities, the HP1 is on contract with no expected change. In Q2, the new HWCG agreement became effective. We also expect to benefit from Droshky production enhancement.

Continuing to Slide 25, our CapEx forecast range is $20 million to $35 million. The majority of our CapEx forecast is maintenance and project-related. It also includes the production enhancement opportunities at Droshky completed in April. Reviewing our balance sheet. Our funded debt decreased to $346 million with an additional $32 million decrease expected during the balance of 2021 as a result of scheduled principal payments. Our cash position at the end of Q2 was $244 million. Once again, this does not include $71 million of restricted cash that supports a temporary project LC.

We received $7 million tax refund in Q1 and anticipate the additional $12 million of CARES Act refund over the next 12 months as a result of tax changes. I'll skip Slide 27 and leave it for your reference. This time, I'll turn the call back to Owen for his closing comments.

Owen Kratz -- Chief Executive Officer

Thanks, Erik. First, let me start with some comments on the market in general, then I'll touch on some early observations about 2022 and finish with the Helix outlook for the second half of 2021 -- some comments. We were expecting 2021 to be another challenging year and it has not proven us wrong. I'd characterize it as the market in the early stages of an economic recovery. For whatever the reasons -- from virtual fatigue from producers working at home as a result of COVID response to reallocation of capital to renewables or the threat of OPEC and production increases, the volume of work in 2021 has only increased marginally over 2020. Almost every asset class continues to be in meaningful oversupply and consolidations while beginning, if not had a meaningful impact.

Helix vessel services have always been compared with rig day rates and that continues to be the case. In the current environment more than ever, we need to demonstrate our value proposition. The rig market is getting tighter and this is starting to drive work our way. However, rig contracts now are typically short one or two wells spot contracts, leaving short gaps in the rig schedules. As opposed to larger gaps between longer contracts, this leaves the rigs in operating mode. Some rig operators are taking on intervention work to fill these short gaps at a lose-less kind of rate versus laying up.

We missed this phenomena identifying it earlier in the year and priced to a tighter market. This cost us several significant awards. As always, we look for lessons learned and we have made adjustments since then. At present, about 60% of our world work is intervention for production enhancement and 40% P&A. For decades, P&A expectations have exceeded reality as there always seems to be a way for producers to defer the zero revenue work. It is early, but we're seeing the regulators in the Gulf of Mexico become less-willing to grant deferment.

In the North Sea, we're seeing a public push for abandonment of fields to occur even if there's little push from regulators. This is especially true of the new operators. In Australia, the fields are becoming very mature after a significant bankruptcy that resulted in an abandonment liability going to the government. There is mounting pressure to increase abandonment activity. These are observations highlighting the regulatory and environmental and social trends that are prevalent in our market and are clear indicators of significant opportunities. Our services and capabilities are well-positioned for when the work is no longer deferred.

We did expect to see a marked increase in production enhancement efforts this year. While there has been a slight tick and plenty of talk for whatever reason, a meaningful increase is yet to occur. In the Gulf of Mexico, we had little visibility for work at the start of the year. Fairly recently, there are last minute works being requested and planned. We're seeing a meaningful increase of work being planned or at least discussed for 2022. We're anticipating a stronger two-vessel market in the Gulf of Mexico for 2022.

The North Sea historically has been the first region to decline in the downturn and the first to recover. This cycle has been an exception. Actual work and visibility on future work for production enhancement has been lacking. We believe there is meaningful buildup of needed work, but so far, little is actually being engineered. However, we do anticipate a stronger year in 2022 and 2023 in the UK.

We previously announced our first contract in Australia with plans to build a campaign based on additional contracts. That work was recently deferred and is now under consideration for 2023. We do believe there is a market in Australia based on P&A that can support full time presence of a riser-base intervention vessel. We're tendering for work there in 2022, but our expectations for 2022 are uncertain at this time.

West Africa has been a positive market for us in 2021, for our Q7000 vessel after COVID interruption in 2020. Our initial expectations for this market was for a partial year campaign every other year. With just the initial customers we targeted, the Q7000 began its 2021 campaign in January and is expected to remain utilized in West Africa into November. There are ongoing discussions for additional campaign possibly starting as early as January. With a successful initial year, there is additional producers now indicating interest.

We may have underestimated the demand potential of this market. This is creating options as we consider our fleet deployment going forward, which brings us to our greatest challenge, which is Brazil. Helix has worked closely with Petrobras over the past seven years in a number of ways from stepping up when they found themselves needing additional intervention vessels, to providing various commercial accommodations along the way. From the beginning, Helix has approach our relationship as a long-term collaboration and I'm confident we've delivered operational excellence as evidenced by being their number one and number two vessels in the Petrobras fleet for most of the past years.

We've previously acknowledged and communicated that this environmental long-term contracting would be a challenge for operators and that has borne itself out. However, recently, Petrobras has gone largely quiet on their future plans. They've been a solid customer for us and I wouldn't rule out continuing to work for Petrobras, but our plan going forward will be to pursue other alternatives, given the options for fleet deployment that I've mentioned. This may result in 2022 being a challenging year, but ultimately may be the preferred direction to move toward.

Looking a little more near-term, we've kept our 2021 guidance at $75 million to $100 million. This may be a bit of a wide range but it's warranted. We are fairly confident about our results expected for Q3, but Q4 has a number of variabilities. The utilization for Q4 for the well-ops [Phonetic] UK vessels will depend on the potential award of a significant contract yet to be awarded. The SH1 is scheduled to complete charter extension with Petrobras in August. Any change to that or other we're filling in after that could have a meaningful impact on Q4.

The Q7000 currently is planned to work into November. What it does and where it goes from there will impact Q4. As you are aware, we continue to pursue additional Droshky-type mature property opportunities, the timing of which could also impact results for 2021. Until these variables are resolved, the range and the guidance is warranted. With our guidance, we try to appropriately identify in caveat the pros and cons we currently see and in this environment, it's fair to say we still have some variables for the second half of the year.

I would be remiss if I didn't add some color comments on our Robotics business. Our team is very adept at capturing what commercial opportunities this market has. We continue to be the global leader in jet trenching. While competitors have come into the market, the market has grown with the activity from renewables. We have contracted trenching work into 2022 and even more beyond. It's possible that we'll need another vessel to cover the potential demand that we're seeing in trenching for 2022.

We're seeing an uptick in construction support and this is bringing greater demand for our ROV services. We are also seeing rates creep up. This will likely be offset somewhat as we currently do not have plans for a large Jones Act vessel in the Gulf of Mexico. We were awarded and mobilized for a significant project providing decommissioning support in Asia Pacific and we'll continue to pursue additional work in that region. Our new offering of UXO in Boulder clearance for the wind farm market began in 2020, continues but with less work so far for 2021. However, we have recently been awarded two additional contracts for this type of work, but the margins are from almost all wind farm related work are under pressure from competition.

Our credibility has now been validated by these recent awards and we'll continue to explore possibilities for expanding our renewables efforts where its commercial to do so. While we may not be expecting exponential recovery in the robotics market, but I think get least we can expect steady as she goes with some potential upside. The disposition of the two SH vessels no doubt looms large for us. We are exploring the options, but at least we have options to explore.

And with that, I'll turn it back to Erik to start the Q&A.

Erik Staffeldt -- Chief Financial Officer

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question is from Ian Macpherson with Piper Sandler. Please, go ahead.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Thanks. Good morning, everyone.

Owen Kratz -- Chief Executive Officer

Good morning, Ian.

Erik Staffeldt -- Chief Financial Officer

Good morning.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

It's hard to remember a time when the fundamentals and the utilization of your fleet had been as disconnected from the UK customer economics for well intervention given the oil prices. So it does from the cheap seats over here, feel like a when, not if question as to the demand recovery, probably more in '22 in '21 but you've covered a lot of the fundamentals exhaustively already, but just wanted to get your sense on where Scotty on how customers are talking about it's up demand either in the Gulf of Mexico or elsewhere that should make more sense to us. Vis-a-vis where oil prices are now and the high returns associated with intervention projects? Thanks.

Scotty Sparks -- Chief Operating Officer

I'll start that one off. We are seeing a lot more, lot more discussions with the clients, especially in the Gulf of Mexico. The Gulf of Mexico as we came into this year. That's very bleak. But what I can say since the last earnings call, we had and well intervention, we've been awarded 15 projects and over 100 days of utilization between the Gulf of Mexico in the North Sea. The North Sea has taken longer to come back, but we feel that leaves more work coming in '22 and '23 because the wells are older there, you can't just leave them. And the Robotics side since our last earnings call we've been awarded seven major trenching scopes and over 380 days of trenching. So between the last earnings call just over 800 days of utilization has been awarded to the fleets. There is talk going on this projects happen but it's not as visible as it used to be. We're going quarter by quarter. We're on discussions with the clients where it's more of a quarterly discussion. I would like to also point out that we are in discussions with full clients for multi-year contracts, not full utilization, but good utilization and obviously we want to be careful we don't walk into too many of those because those guys a good clients but they're obviously looking for longer rates for longer lower rates for longer, sorry.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

That's great color. Thanks Scotty. Owen before we hit this setback with COVID. We had a pretty clear line of sight toward deleveraging the balance sheet and moving toward returning cash to shareholders and you've done a heroic job of grinding down the net debt despite the recession in the market and I know that the free cash flow for 2022 at this point is probably more uncertain than you thought it would be, but it's probably still a pretty high, certainly a positive number. So I just want to refresh the question on how you're thinking about the balance sheet and capital allocation heading into next year and what sort of signals or maybe EBITDA thresholds you would contemplate for revisiting that discussion on cash back?

Owen Kratz -- Chief Executive Officer

I'm not sure about the EBITDA part of your question, but our overall strategy is still the same. We believe we've got the most modern fleet. It is a matter of the market recovering, even without the market recovering, we're on a good trajectory for becoming net debt zero sometime next year. I think there is, we are holding cash right now because we want to cash settle our converts, we don't want to get into an equity settlement there of any kind. So there will be a certain amount of cash held back there, but we could deploy the cash. If the market recovery started to show greater signs of recovery and we felt a more certain about an EBITDA recovery. I'm not sure what level that occurs. But the biggest swing factor in that is really getting beyond the end of this year with identifying what's going to happen with the 2 SH vessels down in Brazil, primarily.

The North Sea. I feel pretty confident that the North Sea will be a much stronger two vessel market next year. I think the Gulf of Mexico is going to be stronger next year supporting two vessels. The Q7000 has opportunities. And then I've mentioned a number of places where we have options of redeploying the SH vessels. So, I think we need to get some clarity as to what's going to happen with those vessels and what the financial impact is going to be, once we get that cleared and we see a path toward a stronger market, then we'll return to the plan of returning value to the shareholders.

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Makes a lot of sense. Thanks, Owen and thanks everyone.

Operator

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

Mike Sabella -- Bank of America -- Analyst

Hey, good morning everyone. Yeah, I know there's still a lot of uncertainty in the second half this year. You all in the past I've said '21 is likely a cyclical bottom you kind of touched around many moving pieces here. I was wondering if you could just kind of give us an update as to whether you're still thinking this year, generally the bottom from EBITDA perspective. As we're moving forward and thinking about all these moving pieces is next year higher [Phonetic]?

Owen Kratz -- Chief Executive Officer

Again, I think the biggest uncertainty or the 2 SH vessels where we wind up deploying those and what rates we achieve. I think another variable is what happens in the rig market. Right now, looking out in 2022 I don't see utilization is being the bigger challenge I think the bigger challenges achieving better rates and that's totally dependent on what happens with the rig market, whether not consolidation keeps occurring, whether not retirements keep occurring. The market needs to tighten up. So I don't know if '21 is the bottom year or '22 I'd say '21/'22 is the bottom and we are expecting tremendous recovery by '23.

Mike Sabella -- Bank of America -- Analyst

Understood. That's helpful. And then as we kind of think about, just from a capital perspective, you've got the $20 million to $35 million budget this year is that, is there anything coming on the horizon that we should be preparing for. Can we kind of think that you all are expecting to stay sort of in that range for the foreseeable future?

Owen Kratz -- Chief Executive Officer

I do expect us to stay in that range. We will try and manage it of the next year 2022 is a little heavier year for us on dry docks and there are some potential capital expenditures, that will be required depending on the fleet disposition as to where they go and that has to do with system COC's and getting the ancillary equipment that we need in order to enter into different contracts.

Mike Sabella -- Bank of America -- Analyst

Understood. Thanks everyone.

Owen Kratz -- Chief Executive Officer

Yeah. To be more clear. Right now, the two vessels down in Brazil. We do not have our Intervention systems on board, we use intervention system provided by Petrobras. So to the extent that we go a different direction, then we'll have to, we'll have to make sure that we have our systems on board.

Scotty Sparks -- Chief Operating Officer

But we're not talking major amount it's additions for this year, but it's not huge system.

Owen Kratz -- Chief Executive Officer

No, I think we'll be able to manage more or less at the same levels going forward. We have no anticipations from the company, major capital expenditures.

Operator

Our next question is from the line of Taylor Zurcher with Tudor Pickering and Holt. Please go ahead.

Taylor Zurcher -- Tudor Pickering and Holt -- Analyst

Hey, good morning everyone and thanks for taking my question. I just wanted to follow up on some of the potential range of outcomes for the two Brazil vessels, it sounds like it's definitely starting to bid those vessels into other markets outside of Brazil. And I was hoping you could just remind us what sort of markets, are those vessels are ideally suited for and to the extent they find some work outside of Brazil where should we expect them to go back to work?

Owen Kratz -- Chief Executive Officer

It's early days yet, and we're not giving up on Petrobras. It's just up until 2019 collaboration was the word we heard often. Right now, they are not talking to us at all, and certainly not using the word collaborate. So we're starting to plan on life without Petrobras if it came to that, but I wouldn't rule out Petrobras stepping up and taking the vessels. I think they performed well, they've done exceedingly well with them and they have a need going forward. But beyond that I touched on some of it in my color comments and then Scott, you mentioned the amount of trenching work that's increasing and we could an alternative market. So number one, there's an awful lot of intervention work in West Africa, more than we thought. We have the Australian market that we believe is market capable of supporting vessel full time.

The North Sea, we're waiting of outcome of a significant award that could also absorb the vessel. Beyond that, you get into fall back positions which maybe one of the vessels is used as the additional trenching asset that we're going to be needing. So, instead of picking up one in the open market, we use it. And then the ultimate fallback would be a combination work. So, I think there are a number of places where we can find the utilization. It just depends on the rates that will determine the outcome financially.

Taylor Zurcher -- Tudor Pickering and Holt -- Analyst

Okay, that's very helpful. My follow-up in Ian's first question, it sounded like you are in discussions around some potential multi-year contracts. I assume that's on the Well Intervention side and if I heard that correctly, just curious if you could give us a bit more color. Is that going to be around the Guam vessels, the Brazil vessels or kind of a mix of anything? Just any more color there would be helpful.

Scotty Sparks -- Chief Operating Officer

Yes, I'll take that. It's for the Gulf of Mexico and for good clients that we've had over the years. And yes, it is a multi-year. Not full utilization, but good utilization.

Taylor Zurcher -- Tudor Pickering and Holt -- Analyst

Okay, great. Thanks, guys.

Operator

Our next question is from the line of James Schumm with Cowen. Please, go ahead.

James Schumm -- Cowen and Company -- Analyst

Hey, good morning. I was wondering if you could help me understand the relative earnings contribution within production facilities in Q2 between the HP1 HFRS and Droshky? And then how do you expect this to change in the third quarter with the new Droshky well?

Erik Staffeldt -- Chief Financial Officer

So, Jim, in the second quarter, our production facilities obviously is driven by HP1 and what it's capable of doing on that contract. We had a little bit of benefit from the new HWCG contract that we have in place and I think that was next to no benefit and it might have actually been negative as from the production as we did the recompletion in April. And then there was facility maintenance in the months of May and June before the Droshky came back online in July. So, obviously, the driver is still the HP1. There was a little bit of a benefit from the HWCG and like I said, next to nothing from production.

James Schumm -- Cowen and Company -- Analyst

Thanks, Erik. And then is there any way you could help give us a sense of what Q3 might look like with the production coming online from the new Droshky well? Maybe it sounds like you get a little bit more benefit from HWCG?

Erik Staffeldt -- Chief Financial Officer

I would expect right now that the benefit that we saw in the second quarter on HWCG would go forward into the third quarter. I don't expect it to be minimal -- an uptick, I guess in that area. I expect it to be in the same range. I would expect to see a benefit in production once again dependent on uptime of that facility with the recompletion that we had. And once again, I would expect the benefit from production to be greater than what it was in the first quarter.

James Schumm -- Cowen and Company -- Analyst

Okay, thanks. And then maybe just sticking on this. The HP1 is contracted through at least June 2023, I believe. And will that contract be extended or what are the options for that vessel in two years' time?

Erik Staffeldt -- Chief Financial Officer

So yes, you are correct. The vessels under contract through June 1, 2023, that is a vessel that we put into service and I think 2010 associated with the Phoenix field and then as part of the divestment of the oil and gas, it continues to operate for the owner there processing from the Phoenix field. I think our expectation is that that field has a life that's longer than 2023. So, our current expectation is that vessel will be producing from that field for several years to come.

James Schumm -- Cowen and Company -- Analyst

Great. And sorry, if I could just sneak one more. What do you think the useful life of the vessel is? Like how many more years can you get from the HP1?

Owen Kratz -- Chief Executive Officer

It's like my old hammer. I've got three new heads for new handles, but it's the same old hammer.

James Schumm -- Cowen and Company -- Analyst

Okay. All right. Thank you very much, guys.

Erik Staffeldt -- Chief Financial Officer

Thanks, Jeff.

Operator

Our next question is from Igor Levi with BTIG. Please, go ahead.

Igor Levi -- BGIT Research -- Analyst

Good morning guys. I know we've talked quite a bit already about the Brazil, but I was hoping you could clarify how competitive are the team vessels outside of Brazil. I remember they were initially built with the Petrobras contracts in mind, so in other words, if you stack one of those vessels in the Pandora against the Q vessels in the Gulf of Mexico or West Africa, how would they perform in a tender.

Erik Staffeldt -- Chief Financial Officer

I think the equal and it's a very similar capable vessels as relatively similar cost base when we come out of Brazil, our costs will come down so that will be somewhat in line. So if you put the Siem Helix 1 side by side to the Q5000 when it's out of Brazil is to have a similar cost base, similar capability with quite an equal position.

Igor Levi -- BGIT Research -- Analyst

Great, that's very helpful. And you mentioned site clearance work through the end of the year; it still seems like some of the larger projects that we've had last year not repeating, but do you have any kind of outlook, any kind of scope for any projects that you already in discussions with for next year that are larger. Basically is there a point where you see some of those projects coming back and what's the competitive market and site clearance like comparing to a year ago when you're way able to win some of those bigger projects.

Erik Staffeldt -- Chief Financial Officer

First and foremost is a very competitive market and it is an increasing market. Next year, we actually believe there'll be a low because it's so dependent on the timing of the wind farms in the European market, so next year, we'll see a bit of a rough; this year we've won our second project, which gives us credibility. We are in discussions for a third project for this year, next year it will be a low, but then we see huge increase in activity in 2023, but it's very competitive market, but now we have some credibility behind us and we now secured a large project that started last year and it has gone in for this year and we've got our second one got a second year excite project now, so it's like a service that will keep providing, but it's not huge margins, it's just a different service.

Igor Levi -- BGIT Research -- Analyst

Great, thank you for the answers. I'll turn it back.

Operator

As a reminder, if you would like to register for a question or a follow-up, please press the 1 followed by the 4. Our next question is from Samantha Hoh with Evercore ISI. Please go ahead.

Samantha Hoh -- Evervore ISI -- Analyst

Hey guys, thanks for taking my question. You mentioned that you're in discussions with multiple clients for multi-year contracts and that these customers are looking to lock in the lower rates for longer, and I was just wondering what the discussion around maybe potentially you know seeing higher costs during that period. Are those rates going to be index. And then just an update on what you're seeing on the cost side.

Erik Staffeldt -- Chief Financial Officer

Most of our contracts do carry some sort of cost increase WebEx linked or index-linked, so just percentage driven. So we obviously in those discussions, we will be trying to answer that over the 3 to 5 year period. The cost will increase and our personnel cost will go up, our R&M costs will go up as the market recovers and those indexes and potential drivers that we trying keep those two cancel again those. Again, like we said earlier, we don't want to lock into too many of these businesses; we're talking about are favorable clients, we've had a good track record and a good history with, so we're not going to offer this to everybody is going to be, we will keep it to 3 or 4 clients types. I mean you saw good utilization to allow us to deal with the rest of the market as the recovery comes.

Samantha Hoh -- Evervore ISI -- Analyst

Okay. And then, just going trenching -- the niche that you guys might add, seek to this sort of what the economics are deciding to add a trenching, you know there like one-third party equipment providers that everyone, I'm just kind of wondering if there is like a long [indecipherable] to wait for something like this and what it entails in terms of what's from return profile, you guys are requiring to actually go ahead and make the decision to add trenching.

Erik Staffeldt -- Chief Financial Officer

So, I'll go ahead and try to frame it up and then Scotty if you could fill in. But I think Samantha when you look at it, we currently have 4 trenchers, this season we have a 1 trencher spread working in the North Sea and I think Owen alluded to that perhaps we might have a second spread working next year and so it would just be a matter of deploying one of our existing assets, one of our existing trenchers onto a second vessel and working that spread next year. So I think it's definitely within our say existing assets [indecipherable] capability as far as the opportunities are going forward.

Owen Kratz -- Chief Executive Officer

But we would need to pick up vessel of opportunity to support it.

Erik Staffeldt -- Chief Financial Officer

We will use one of the FX vessels this quarter.

Owen Kratz -- Chief Executive Officer

Sure.

Erik Staffeldt -- Chief Financial Officer

You know, there is some competition in the trenching market, but we do consider ourselves the market leaders and we have held rates both in jet trenching and hard ground trenching throughout this COVID period and like I said earlier, we've had significant and sizable awards for trenching in the renewables and oil and gas market in 2023 and that's sort of significant tenders out there, where we believe we the preferred supplier for 24 and onwards.

Samantha Hoh -- Evervore ISI -- Analyst

Okay, great. And just a couple more if I can. Can you quantify how much working capital contributed to your Q2 cash from operation.

Erik Staffeldt -- Chief Financial Officer

So we did have a significant benefit from working capital here in the second quarter, it was a significant contributor here in the second quarter. I think overall, we talked about, our expectation for the year are that working capital would be flat for the year, which would imply a potential draw in the second half, but that's all dependent on as we said the workload and expectation for 2022.

Samantha Hoh -- Evervore ISI -- Analyst

Okay and if I can squeeze one more, the Fast Response System in the Gulf is that now going to be sort of like a steady contributor to the segment or is that more of a call out type.

Erik Staffeldt -- Chief Financial Officer

So there are 2 components to the HWC CG, there is a retainer base fee that they it covers, I think a 2-year period where we would expect steady contributions to the expect that there was a call out that would be on top of it.

Samantha Hoh -- Evervore ISI -- Analyst

And then you have the call out [indecipherable].

Erik Staffeldt -- Chief Financial Officer

Sorry.

Samantha Hoh -- Evervore ISI -- Analyst

Was there a call out component that contributed to the Q2 results.

Erik Staffeldt -- Chief Financial Officer

No.

Samantha Hoh -- Evervore ISI -- Analyst

Okay. Great, thank you.

Operator

Mr. Staffeldt, it appears we have no further questions at this time. I'll turn the call back to you at this time, sir.

Erik Staffeldt -- Chief Financial Officer

Okay, thank you. Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our 3rd quarter 2021 call in October. Thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Erik Staffeldt -- Chief Financial Officer

Ken Neikirk -- General Counsel

Owen Kratz -- Chief Executive Officer

Scotty Sparks -- Chief Operating Officer

Ian MacPherson -- Piper Sandler & Co. -- Analyst

Mike Sabella -- Bank of America -- Analyst

Taylor Zurcher -- Tudor Pickering and Holt -- Analyst

James Schumm -- Cowen and Company -- Analyst

Igor Levi -- BGIT Research -- Analyst

Samantha Hoh -- Evervore ISI -- Analyst

More HLX analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Helix Energy Solutions Group Stock Quote
Helix Energy Solutions Group
HLX
$6.54 (1.87%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.