Helix has 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."
- 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.
- 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.