Helix 1Q Earnings Increase on Oil Prices

Helix 1Q Earnings Increase on Oil Prices

Tuesday, April 26, 2011

Helix Energy Solutions Group Inc.

Helix reported net income of $25.9 million, or $0.24 per diluted share, for the first quarter of 2011 compared with a net loss of $17.9 million, or $(0.17) per diluted share, for the same period in 2010, and a net loss of $49.8 million, or $(0.48) per diluted share, in the fourth quarter of 2010.

Owen Kratz, President and Chief Executive Officer of Helix, stated, "While weakness in the subsea construction market in the Gulf of Mexico remains a challenge for our Contracting Services business, increased oil production combined with higher oil prices resulted in increased earnings and cash flow for Helix. Consistent with our higher earnings and cash flow, our liquidity position increased to $837 million at March 31, 2011 from $787 million at December 31, 2010. Separately, efforts to make our containment system, the Helix Fast Response System, available to producers in the Gulf of Mexico have begun to pay off in the permitting process. Six deepwater drilling permits referencing our containment system have been approved since late February, and we are optimistic that permitting activity will continue to increase. Consistent with improving activity levels for our Contracting Services business as well as the higher commodity price environment, we are upgrading our earnings outlook for 2011."

First quarter 2010 results included the following items:

• A $17.5 million ($11.5 million after-tax) settlement of litigation related to a terminated 2007 international construction contract.
• A net reduction of $5.2 million ($3.2 million after-tax) in the carrying values of certain oil and gas properties due primarily to the deterioration of field economics resulting from a significant decrease in natural gas prices.

The net impact of these items in the first quarter of 2010, after income taxes, was $(0.14) per diluted share.

Fourth quarter 2010 results included the following items:

• Non-cash impairment charge of $16.7 million to write-off the carrying value of goodwill and a $7.1 million deferred tax asset valuation allowance attributable to our Southeast Asia well operations subsidiary (total of $23.9 million after-tax).
• Impairment charges totaling $9.2 million primarily associated with a reduction in carrying values of certain oil and gas properties and $6.4 million related to expiring offshore leases ($10.2 million after-tax).
• Loss associated with the Lufeng project offshore China of $21.4 million ($22.4 million after-tax) related to weather, downhole and mechanical issues.

The net impact of these items in the fourth quarter of 2010, after income taxes, was $(0.54) per diluted share.

Contracting Services

• Subsea Construction and Robotics revenues decreased in the first quarter of 2011 compared to the fourth quarter of 2010 attributable to a weak subsea construction market in the Gulf of Mexico. Overall, our utilization rate for our owned and chartered construction vessels decreased to 44% in the first quarter of 2011 from 84% in the fourth quarter of 2010. Further, global Robotics utilization declined to 49% in the first quarter of 2011 from 60% in the fourth quarter of 2010.
• Well Operations revenues decreased in the first quarter of 2011 compared to the fourth quarter of 2010 due primarily to lower overall utilization (77% compared to 90%). The Seawell incurred 17 days of repair and maintenance downtime and the Well Enhancer incurred 40 days of maintenance downtime during the first quarter of 2011.
• Gross profit margins for our Contracting Services business were 8% in the first quarter of 2011 compared to 1% in the fourth quarter of 2010. Gross profit margins in the first quarter of 2011 were negatively impacted by low utilization in Subsea Construction and Robotics. Gross profit margins in the fourth quarter of 2010 were negatively impacted by the loss on the Lufeng project offshore China.

Production Facilities

• The HP I produced the Phoenix field throughout the first quarter of 2011.

Oil and Gas

• Oil and Gas revenues increased in the first quarter of 2011 compared to the fourth quarter of 2010 due primarily to increased oil production and higher oil prices. Production in the first quarter of 2011 totaled 14.4 Bcfe compared to 13.7 Bcfe in the fourth quarter of 2010.
• The average price realized for oil, including the effects of settled oil hedge contracts, totaled $90.49 per barrel in the first quarter of 2011 compared to $80.11 per barrel in the fourth quarter of 2010. For natural gas, including the effect of settled gas hedge contracts, we realized $5.77 per thousand cubic feet of gas (Mcf) in the first quarter of 2011 compared to $6.11 per Mcf in the fourth quarter of 2010.
• Our April 2011 oil and gas production rate has averaged approximately 140 million cubic feet of natural gas equivalent per day (MMcfe/d) through April 22, 2011, compared to an average of 160 MMcfe/d in the first quarter of 2011 and an average of 149 MMcfe/d in the fourth quarter of 2010.
• We currently have oil and gas hedge contracts in place totaling 19.9 Bcfe (2.1 million barrels of oil and 7.4 Bcf of gas) for the remainder of 2011 (April through December) and 7.6 Bcfe (0.6 million barrels of oil and 4.0 Bcf of gas) in 2012.

Other Expenses

• Selling, general and administrative expenses were 8.6% of revenue in the first quarter of 2011, 9.9% in the fourth quarter of 2010 and 11.4% in the first quarter of 2010 (excluding the $17.5 million pre-tax charge related to a payment to settle litigation related to a terminated 2007 international construction contract).
• Net interest expense and other increased to $22.3 million in the first quarter of 2011 compared with $21.5 million in the fourth quarter of 2010. Net interest expense increased to $24.2 million in the first quarter of 2011 compared with $23.7 million in the fourth quarter of 2010, primarily reflecting lower interest income on our invested cash due to lower interest rates.

Financial Condition and Liquidity

• Consolidated net debt at March 31, 2011 decreased to $916 million from $967 million at December 31, 2010. At March 31, 2011, we had no outstanding borrowings under our revolver. Our total liquidity at March 31, 2011 was approximately $837 million, consisting of cash on hand of $441 million and revolver availability of $396 million. Net debt to book capitalization as of March 31, 2011 was 41%. (Net debt to book capitalization is a non-GAAP measure. See reconciliation attached hereto.)
• As of March 31, 2011, we were in compliance with all covenants and restrictions under our various loan agreements.
• We incurred capital expenditures (including capitalized interest) totaling $44 million in the first quarter of 2011, compared to $33 million in the fourth quarter of 2010 and $75 million in the first quarter of 2010.