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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 182 added, 160 removed, 163 unchanged (68% of the section changed)

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We are an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention and robotics operations.

With the delivery in November 2019 and the commencement of operations in January 2020 of the Q7000 , our well intervention fleet currently includes seven purpose-built well intervention vessels, six IRSs, three SILs and one ROAM.

Our robotics equipment currently includes 44 work-class ROVs, four trenchers and one ROVDrill.

We also charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations.

Our intervention and robotic operations are geographically dispersed throughout the world.

We believe that focusing on these services should deliver favorable long-term financial returns.

Our Production Facilities segment includes the HP I , the HFRS and several wells and related infrastructure associated with the Droshky Prospect.

Our alliance with OneSubsea leverages the parties’ capabilities to provide a unique, fully integrated offering to clients, combining marine support with well access and control technologies.

We and OneSubsea jointly developed a 15K IRS, which was completed and placed into service in January 2018, and our first ROAM, which is currently available to customers.

The services we offer to the oil and gas market cover the lifecycle of an offshore oil and gas field, and the services we offer to the renewable energy market are currently focused on offshore wind farm projects and cable burial operations.

Our well intervention fleet includes seven purpose-built well intervention vessels, six IRSs, three SILs and the ROAM.

Our robotics equipment includes 44 work-class ROVs, four trenchers and one ROVDrill.

We charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations.

Our well intervention and robotics operations are geographically dispersed throughout the world.

Our Production Facilities segment includes the HP I , the HFRS and our ownership of oil and gas properties.

Economic Outlook and Industry Influences

Demand for our services is primarily influenced by the condition of the oil and gas industry, and in particular, the willingness of oil and gas companies to spend on operational activities and capital projects.

The performance of our business is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, and several other factors, including:

worldwide economic activity and general economic and business conditions, including available access to global capital and capital markets;

Demand for our services is primarily influenced by the condition of the oil and gas and the renewable energy markets, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects.

The performance of our business is also largely affected by the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, global health, and several other factors, including:

• worldwide economic activity and general economic and business conditions, including access to global capital and capital markets;

• the global supply and demand for oil and natural gas;

political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in the Middle East and other oil-producing regions;

actions taken by OPEC;

• political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in oil-producing regions;

• actions taken by OPEC and/or OPEC+;

• the availability and discovery rate of new oil and natural gas reserves in offshore areas;

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• the ability of oil and gas companies to generate funds or otherwise obtain external capital for capital projects and production operations;

• the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community;

• the sale and expiration dates of offshore leases globally;

• governmental restrictions on oil and gas leases, including executive actions taken with respect to permitting in connection with oil and gas leases on federal land announced in January 2021;

• technological advances affecting energy exploration, production, transportation and consumption;

the environmental and social sustainability of the oil and gas industry and the perception thereof, including within the investing community;

• potential acceleration of the development of alternative fuels;

shifts in end-customer preferences toward fuel efficiency and the use of natural gas;

weather conditions, natural disasters, and epidemic and pandemic diseases;

• shifts in end-customer preferences toward fuel efficiency and the use of natural gas or renewable energy alternatives;

• weather conditions, natural disasters, and epidemic and pandemic diseases, including the ongoing COVID-19 pandemic;

• laws, regulations and policies directly related to the industries in which we provide services, and their interpretation and enforcement;

• environmental and other governmental regulations;

• domestic and international tax laws, regulations and policies.

Crude oil prices declined significantly in 2014 and have been volatile since then.

Brent crude oil prices fluctuated between $53 and $75 per barrel during 2019.

The volatility and uncertainty in future prices have discouraged oil and gas companies from making longer-term investments in offshore exploration and production as well as other offshore operational activities, which has decreased the demand and rates for services provided by drilling rig contractors.

The decrease in rates for drilling rig contractors affects us as drilling rigs historically have been the asset class used for offshore well intervention work.

Furthermore, the uncertainty and volatility in oil prices have caused our customers to use drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities.

This rig overhang, combined with lower volumes of work for drilling rig contractors, continues to affect the utilization and/or rates we can achieve for our assets.

Furthermore, volatile and uncertain macroeconomic conditions in some regions and countries around the world, such as West Africa, Brazil, China and the U.K.

following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further currency volatility into our operations and/or financial results.

Many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells.

As oil and gas companies begin to increase overall spending levels, we expect that it will likely be weighted towards production enhancement activities rather than exploration projects.

Crude oil prices declined significantly in 2014 and have been volatile since then, most recently experiencing a precipitous decline through April 2020 due to the ongoing COVID-19 pandemic as well as the price war among OPEC+ nations during the first quarter 2020.

Prices have since begun a modest recovery as OPEC+ nations have cut production, fears of vast oversupply and a lack of storage capacity have subsided, and economic shutdowns resulting from the pandemic have eased in certain regions.

However, oil prices remained low through the end of 2020 and their recovery remains uncertain.

The decline in oil prices and the volatility and uncertainty in prices have caused oil and gas operators to drastically reduce spending (on both operational activities and capital projects), which has decreased the demand and rates for services provided by offshore oil and gas services providers.

Historically, drilling rigs have been the asset class used for offshore well intervention work, and our customers have used drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities.

Rig day rates are also a pricing indicator for our services.

Rig overhang, combined with lower volumes of work and lower day rates quoted by drilling rig contractors, affects the utilization and/or rates we can achieve for our assets and services.

Furthermore, additional volatile and uncertain macroeconomic conditions in some regions and countries around the world, such as West Africa, Brazil, China and the U.K.

following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further volatility into our operations and/or financial results.

The ongoing COVID-19 pandemic has resulted in a new period of market weakness.

While the full impact of the COVID-19 pandemic, including the duration of the decrease in economic activity and the resulting impact on the demand and price of oil, remains unknown, we expect that the industry will be challenged through 2021 and possibly longer.

We have seen and expect to continue to see operators reducing spending and deferring work, driving down the rates they are presently willing to pay for services, asserting claims of force majeure and/or cancelling contracts and rig contractors likewise are lowering prices, stacking rigs, furloughing employees, and recognizing losses.

We believe the uncertainty and other conditions of the current environment will make it more difficult for us to secure long-term contracts for our vessels and systems, as operators may be less willing to commit to future spending.

These developments have also impacted, and are expected to continue to impact, many other aspects of our industry and the global economy, including limiting access to and use of capital across various sources and markets, disrupting supply chains and increasing costs, and negatively affecting human capital resources including complicating offshore crew changes due to health and travel restrictions as well as the overall health of the global workforce.

The COVID-19 pandemic and the decrease in the price of oil impacted our 2020 operating results.

Most if not all of our oil and gas customers have drastically cut their spending, which has reduced the demand and rates for the services offered to our oil and gas customers.

We warm-stacked two of our well intervention vessels in April 2020 as a result of decreased demand and government lock-downs:

the Seawell in the North Sea and the Q700 0, which completed a project offshore Nigeria in the first quarter 2020.

The COVID-19 pandemic continues to pose challenges with, and increase costs related to, our supply chain, logistics and human capital resources, including minimizing the direct impact of COVID-19 on our offshore workforce and challenges with offshore crew changes due to travel restrictions and quarantine measures.

The impact of COVID-19 on energy companies’ market values was a key contributor to our recognition of a goodwill impairment charge during the first quarter 2020.

While these market disruptions may be temporary, we cannot reliably estimate the duration of the COVID-19 pandemic or current market conditions, or the ultimate impact they will have on our financial position, results of operations and cash flows.

Despite this current period of market weakness and volatility, over the longer term we expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells.

As oil and gas companies re-assess and focus their budgetary spend allocations, we expect that it may be weighted towards production enhancement activities rather than exploration projects as enhancement is less expensive per incremental barrel of oil than new exploration.

Moreover, as the subsea tree base expands and ages, the demand for P&A services should persist.

We believe that we have a competitive advantage in performing well intervention services efficiently.

Our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations.

Thus, we believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services.

We continue to position ourselves for future market recovery while managing through this sustained period of market weakness.

Our position is based on multiple factors, including:

Our well intervention and robotics operations are intended to service the lifecycle of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations.

We believe that we have a competitive advantage in performing well intervention services efficiently and we believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services.

This belief is

based on multiple factors, including:

(1) the need to extend the life of subsea wells is significant to the commercial viability of the wells as P&A costs are considered;

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and (3) in past cycles, well intervention and workover have been some of the first activities to recover, and in a prolonged market downturn are important to the commercial viability of deepwater wells.

Despite being in an ongoing weak market, we did see improvements in 2019 compared to 2018.

In the Gulf of Mexico, offshore activity increased with higher utilization and an increase in rig count during the year.

Measured signs of improvements also began to show in rates, which typically lag those in utilization.

We are seeing positive developments that drive demand for our business, including (1) the decrease in rig overhang as long-term rig contracts expire, which contracts were viewed by our customers as a sunk cost and (2) the decrease in the attractiveness of unconventional onshore oil and gas opportunities, which may diverge investments offshore.

We expect to see a continued recovery, albeit a slow recovery, in offshore oil and gas activities in the Gulf of Mexico in 2020.

Demand for our services in the renewable energy market is affected by various factors, including the pace of consumer shift towards renewable energy sources, global electricity demand, technological advancements that increase the production and/or reduce the cost of renewable energy, expansion of offshore renewable energy projects to deeper water, and government subsidies for renewable energy projects.

Business Activity Summary

We have been focused on enhancing our financial position and strengthening our balance sheet through various means including securities offerings (the last of which occurred in March 2018), which has allowed us to strategically focus on our core well intervention and robotics businesses.

In January 2019, we renewed the agreements that provide various operators with access to the HFRS for well control purposes through March 31, 2020 on newly agreed-upon rates and terms.

These agreements automatically renew on an annual basis absent proper notice of termination.

Also in January 2019, we acquired from Marathon Oil several wells and related infrastructure associated with the Droshky Prospect located in offshore Gulf of Mexico Green Canyon Block 244.

As part of the transaction, Marathon Oil agreed to pay us certain amounts as we complete the P&A of the acquired assets, which we can perform as our schedule permits, subject to regulatory timelines.

We completed the P&A of two of the Droshky wells during 2019, and we expect limited production associated with the remaining Droshky wells.

In May 2019, we acquired a 70% controlling interest in Subsea Technologies Group Limited (“STL”), an Aberdeen-based subsea engineering company that specializes in the design and manufacture of subsea pressure control equipment, including well intervention, well control and subsea control systems.

In November 2019, we took delivery of the Q7000 , a newbuild semi-submersible well intervention vessel built to U.K.

North Sea standards.

The vessel then transited from the shipyard in Singapore to Nigeria where it commenced operations in January 2020.

In November 2019, we returned the Grand Canyon to its owner upon expiration of the long-term charter agreement.

The vessel continues to serve as a spot vessel on a short-term basis.

We have been focused on enhancing our financial position and strengthening our balance sheet through various means including securities offerings (the last of which occurred in August 2020), which has allowed us to strategically focus on our core well intervention and robotics businesses.

In January 2020, the Q7000 , a newbuild semi-submersible well intervention vessel built to U.K.

North Sea standards, commenced operations.

During 2020, the COVID-19 pandemic and related governmental shut-downs significantly affected oil and gas prices, which negatively affected customer demand for our services.

Consequently, we warm-stacked the Seawell and the Q7000 during part of 2020 and focused on maintaining utilization on our other vessels and equipment.

We implemented a number of health and safety protocols as a result of the pandemic, including significant measures to protect personnel working in the offshore environment.

The vast majority of our onshore personnel are working remotely during the pandemic.

We have continued to expand our services and offerings into the offshore renewable energy sector.

During 2020, we completed a site clearance project in the North Sea as well as performed services for renewable energy customers in Asia and the U.S., including the first wind farm installed in U.S.

federal waters.

We provide services and methodologies that we believe are critical to maximizing production economics.

Our services cover the lifecycle of an offshore oil or gas field.

In addition to serving the oil and gas market, our robotics assets are contracted for the development of offshore renewable energy projects (wind farms).

We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions.

In addition to serving the oil and gas market, our Robotics assets are contracted for the development of renewable energy projects (wind farms).

As of December 31, 2020, our consolidated backlog that is supported by written agreements or contracts totaled $407 million, of which $301 million is expected to be performed in 2021.

The substantial majority of our backlog is associated with our Well Intervention business segment.

As of December 31, 2019 , our well intervention backlog was $568 million , including $402 million expected to be performed in 2020.

The substantial majority of our backlog is associated with our Well Intervention segment.

As of December 31, 2020, our well intervention backlog was $226 million, all of which is expected to be performed in 2021.

Our contract with BP to provide well intervention services with our Q5000 semi-submersible vessel, our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 1 and Siem Helix 2 chartered vessels, and our fixed fee agreement for the HP I represent approximately 69% of our total backlog.

As of December 31, 2018 , the total backlog associated with our operations was $1.1 billion.

As of December 31, 2019, the total backlog associated with our operations was $796 million.

Backlog is not necessarily a reliable indicator of revenues derived from these contracts as services may be added or subtracted;

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The following table details various financial and operational highlights for the periods presented (dollars in thousands):

Year Ended December 31,

Increase/(Decrease)

Year Ended December 31, Increase/(Decrease)

2020 2019 Amount Percent

Net revenues —

Well Intervention $ 539,249 $ 593,300 $ (54,051) (9) %

Robotics 178,018 171,672 6,346 4 %

Production Facilities 58,303 61,210 (2,907) (5) %

Intercompany eliminations (42,015) (74,273) 32,258

$ 733,555 $ 751,909 $ (18,354) (2) %

Gross profit (loss) —

Well Intervention $ 41,037 $ 104,376 $ (63,339) (61) %

Robotics 22,716 15,809 6,907 44 %

Production Facilities 17,883 19,222 (1,339) (7) %

Corporate, eliminations and other (1,727) (1,569) (158)

$ 79,909 $ 137,838 $ (57,929) (42) %

Gross margin —

Well Intervention 8 % 18 %

Robotics 13 % 9 %

Production Facilities 31 % 31 %

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Robotics assets (3)

49/34% 50/41%

Chartered robotics vessels 2/94% 3/87%

Represents the number of vessels or robotics assets as of the end of the period, including vessels under both short-term and long-term charters, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.

(1) Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under long-term charter, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.

(2) Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period.

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(3) Consists of ROVs, trenchers and ROVDrill.

Percent calculation not meaningful.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties.

Intercompany segment amounts are derived primarily from equipment and services provided to other business segments.

Intercompany segment revenues are as follows (in thousands):

Year Ended December 31,

Year Ended December 31, Increase/

2020 2019 (Decrease)

Well Intervention $ 15,039 $ 43,484 $ (28,445)

Robotics 26,976 30,789 (3,813)

$ 42,015 $ 74,273 $ (32,258)

Net Revenues.

Our total net revenues increased by 2% in 2019 as compared to 2018 reflecting a mix of higher revenues from our Well Intervention and Robotics business segments, lower revenues from our Production Facilities business segment, and higher intercompany eliminations.

Our Well Intervention revenues increased by 6% in 2019 as compared to 2018 , primarily reflecting higher revenues in the Gulf of Mexico and Brazil, partially offset by lower revenues in the North Sea.

The increase in revenues in the Gulf of Mexico was primarily attributable to higher utilization of the Q4000 during 2019 as compared to 2018.

This revenue increase was offset by a reduction in IRS rental revenues during the comparative year-over-year periods.

Our Well Intervention revenues in the Gulf of Mexico during 2019 also included $27.5 million associated with intercompany P&A work on two of the Droshky wells for our Production Facilities segment, for which we received payments from Marathon Oil in 2019.

The increase in revenues in Brazil was primarily a result of higher utilization of both the Siem Helix 1 and the Siem Helix 2 during 2019.

Our Well Intervention revenues in Brazil during 2019 also included approximately $3.9 million of contractual adjustments related to withholding taxes in Brazil, of which $2.1 million related to previous years (Note 12).

The decrease in revenues in the North Sea primarily reflected a weaker British pound and lower rates as compared to 2018.

Our Robotics revenues increased by 8% in 2019 as compared to 2018 .

The increase primarily reflected increased utilization of our chartered vessels (from 76% in 2018 to 87% in 2019) and our robotics assets also achieved higher utilization in 2019 as compared to 2018.

Our Production Facilities revenues decreased by 5% in 2019 as compared to 2018 primarily reflecting lower revenues from the HFRS during 2019, offset in part by production revenues from the oil and gas properties that we acquired from Marathon Oil in January 2019 (Note 1).

The increase in intercompany eliminations was primarily the result of $27.5 million in revenue that our Well Intervention business segment recognized with its completion of P&A work on behalf of our Production Facilities segment.

Our consolidated net revenues decreased by 2% in 2020 as compared to 2019, reflecting lower revenues from our Well Intervention and Production Facilities segments, offset in part by higher revenues in our Robotics segment and lower intercompany eliminations.

Our Well Intervention revenues decreased by 9% in 2020 as compared to 2019, primarily reflecting lower vessel utilization in the North Sea and Gulf of Mexico, lower IRS rental utilization and lower foreign currency rates in Brazil.

The decrease in revenues was offset in part by revenues on the Q7000 , which commenced operations offshore West Africa in January 2020.

Vessel utilization in the North Sea and Gulf of Mexico were negatively impacted by the downturn in the offshore oil and gas market due to the COVID-19 pandemic, which resulted in our warm-stacking the Seawell and the Q7000 during the year, as well as scheduled regulatory certification inspections in the Gulf of Mexico during the first quarter 2020.

Additionally, our Well Intervention revenues in the Gulf of Mexico in 2019 included $27.5 million associated with intercompany P&A work for our Production Facilities segment and no such P&A work was performed in 2020.

Our Well Intervention revenues in 2019 also included approximately $3.9 million of contractual adjustments related to increases in withholding taxes in Brazil.

Our Robotics revenues increased by 4% in 2020 as compared to 2019, primarily reflecting improvements in chartered vessel utilization, offset in part by lower ROV, trencher and ROVDrill utilization.

Chartered vessel days included a significant increase in spot vessel days primarily due to an offshore wind farm site clearance project in the North Sea and a marine salvage project offshore Australia.

Our results included 1,690 vessel days and 407 trenching days (including 161 days on third-party vessels) in 2020 as compared to 1,086 vessel days and 729 trenching days (including 245 days on third-party vessels) in 2019.

Our Production Facilities revenues decreased by 5% in 2020 as compared to 2019, primarily reflecting reduced revenues associated with the HFRS and a reduction in oil and gas production revenues.

The decrease in intercompany eliminations was primarily attributable to a $27.5 million elimination of revenues that our Well Intervention segment earned in 2019 associated with its P&A work on the Droshky oil and gas properties on behalf of our Production Facilities segment.

There were no such P&A-related intercompany eliminations in 2020.

Gross Profit (Loss).

Our 2019 gross profit increased by $16.2 million , or 13% , as compared to 2018 reflecting improvements in our Well Intervention and Robotics business segments, offset in part by lower gross profit in our Production Facilities business segment.

The gross profit related to our Well Intervention segment increased by $3.2 million , or 3% , in 2019 as compared to 2018 , primarily reflecting improved operating results in Brazil and the Gulf of Mexico, offset in part by reduced operating results in the North Sea and lower IRS rental unit utilization.

Our Robotics segment achieved a gross profit of $15.8 million in 2019 as compared to a gross loss of $5.0 million in 2018 primarily reflecting increased utilization for our chartered vessels and our robotics assets as well as a reduction in vessel costs due to the termination of the Grand Canyon charter in November 2019 (Notes 1 and 17) and the expiration of the hedge of the Grand Canyon II charter payments in July 2019 (Note 21).

The gross profit related to our Production Facilities segment decreased by 30% in 2019 as compared to 2018 primarily reflecting revenue decreases for the HFRS.

Our consolidated 2020 gross profit decreased by $57.9 million, or 42%, as compared to 2019, primarily reflecting lower gross profit in our Well Intervention and Production Facilities segments, offset in part by higher gross profit in our Robotics segment.

The gross profit related to our Well Intervention segment decreased by $63.3 million, or 61%, in 2020 as compared to 2019, primarily reflecting lower revenues, which included the warm stacking of the Seawell , lower vessel utilization in the Gulf of Mexico and higher costs associated with the Q 7000 , which commenced operations in January 2020 and was warm stacked beginning in April 2020 and until commencing its mobilization to West Africa in mid-November 2020.

The gross profit related to our Robotics segment increased by $6.9 million, or 44%, in 2020 as compared to 2019, primarily reflecting higher revenues as well as a full year of cost reductions relating to certain vessels, including the termination of the Grand Canyon charter in November 2019 and the expiration of the Grand Canyon II hedge in July 2019 and the Grand Canyon III hedge in February 2020 (Note 21).

The gross profit related to our Production Facilities segment decreased by 7% in 2020 as compared to 2019, primarily reflecting decreases in revenues.

Goodwill Impairment.

The $6.7 million charge in 2020 reflects the impairment of the entire goodwill balance associated with our acquisition of a controlling interest in Subsea Technologies Group Limited (“STL”) (Note 7).

Selling, General and Administrative Expenses.

Our selling, general and administrative expenses decreased by $0.4 million in 2019 as compared to 2018 .

The decrease was primarily attributable to a net reduction in employee compensation costs in 2019 as compared to 2018 (Note 14).

Equity in Earnings (Losses) of Investment.

Equity in earnings (losses) of investment was $1.4 million in 2019 as compared to $(3.9) million in 2018 primarily reflecting a reduction in our share of estimated obligations to decommission the Independence Hub platform (Note 5).

Our selling, general and administrative expenses in 2020 included a $2.7 million provision for credit losses (Note 19).

Excluding this charge, our selling, general and administrative expenses decreased by $11.4 million in 2020 as compared to 2019, primarily reflecting a reduction in employee compensation costs and other cost-saving measures during 2020.

Equity in Earnings of Investment.

Equity in earnings of investment was $0.2 million in 2020 and $1.4 million in 2019, primarily reflecting reductions in our remaining obligations to decommission the “Independence Hub” platform (Note 5).

Net Interest Expense.

Our net interest expense totaled $8.3 million in 2019 as compared to $13.8 million in 2018 primarily reflecting higher capitalized interest and a reduction in our overall debt levels from $479.2 million in 2018 to $436.1 million in 2019 .

Capitalized interest totaled $20.2 million for 2019 as compared to $15.6 million for 2018 as a result of the construction and completion of the Q7000 .

Loss on Extinguishment of Long-term Debt.

The $1.2 million loss in 2018 was attributable to the write-off of the unamortized debt issuance costs related to the prepayment of $61 million of the then-existing term loan in March 2018 and costs associated with the redemption of the 2032 Notes (Note 8).

Other Income (Expense), Net.

Net other income was $1.2 million for 2019 as compared to net other expense of $6.3 million for 2018 .

Net other income (expense) in 2019 and 2018 included foreign currency transaction gains (losses) of $1.5 million and $(4.3) million , respectively.

These amounts primarily reflect foreign exchange fluctuations in our non-U.S.

Our net interest expense totaled $28.5 million in 2020 as compared to $8.3 million in 2019, primarily reflecting lower capitalized interest in 2020 and higher yields associated with the 2026 Notes issued in August 2020.

Capitalized interest decreased to $1.2 million in 2020 with the completion of the Q7000 in January 2020 as compared to $20.2 million in 2019 (Note 8).

Gain on Extinguishment of Long-term Debt.

The $9.2 million gain on extinguishment of long-term debt in 2020 was associated with our repurchase of a portion of the 2022 and 2023 Notes (Note 8).

Other Income, Net.

Net other income increased by $3.6 million in 2020 as compared to 2019, primarily reflecting foreign exchange fluctuations in our non-U.S.

dollar currencies.

Also included in the comparable year over year periods were net losses of $0.4 million in 2019 and $0.9 million in 2018 associated with our foreign currency exchange contracts that were not designated as cash flow hedges (Note 21).

In addition, net other expense for 2018 included a $1.1 million other than temporary loss on a note receivable.

Net other income in 2020 and 2019 included foreign currency transaction gains of $4.6 million and $1.5 million, respectively.

Royalty Income and Other.

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Income Tax Provision (Benefit).

Income tax provision was $7.9 million for 2019 as compared to $2.4 million for 2018 .

The effective tax rate was 12.0% for 2019 as compared to 7.7% for 2018 .

The increase was primarily attributable to improvements in profitability in the U.S.

year over year (Note 9).

Income tax benefit was $18.7 million for 2020 as compared to an income tax provision of $7.9 million for 2019.

Our income tax benefit in 2020 included discrete benefits related to the restructuring of certain of our foreign subsidiaries and our carrying back certain net operating losses to prior periods with higher income tax rates under tax law changes associated with the CARES Act (Note 9).

Excluding these discrete items, we had an income tax benefit of $2.8 million and an effective tax rate of (200.5)% in 2020 as compared to an income tax provision of $7.9 million and an effective tax rate of 12.0% in 2019.

The negative effective tax rate was primarily attributable to our near break-even pre-tax income for 2020 as well as the earnings mix between our higher and lower tax rate jurisdictions.

Comparison of Years Ended December 31, 2019 and 2018

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The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):

Working capital (1)

Net working capital (1)

$ 246,338 $ 153,508

Long-term debt (1)

258,912 306,122

Liquidity (2)

Working capital as of December 31, 2019 included the recognition of $53.8 million of current operating lease liabilities as a result of the adoption of Accounting Standards Update No.

2016-02, “Leases (Topic 842)” in 2019 (Notes 2 and 6) and the classification of the Nordea Q5000 Loan of $89.0 million in current maturities of long-term debt (Note 8).

Long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital.

451,532 379,533

(1) Current maturities of our long-term debt of $90.7 million and $99.7 million, respectively, are included in net working capital and excluded from long-term debt.

Long-term debt is also net of unamortized debt discounts and debt issuance costs.

See Note 8 for information relating to our long-term debt.

Liquidity, as defined by us, is equal to cash and cash equivalents plus available capacity under the Revolving Credit Facility, which capacity is reduced by letters of credit drawn against that facility.

(2) Liquidity, as defined by us, is equal to cash and cash equivalents, excluding restricted cash, plus available capacity under the Revolving Credit Facility.

Our liquidity at December 31, 2020 included cash and cash equivalents of $291.3 million and $160.2 million of available borrowing capacity under the Revolving Credit Facility (Note 8).

Our liquidity at December 31, 2019 did not include $54.1 million of restricted cash (short-term).

Our liquidity at December 31, 2018 included cash and cash equivalents of $279.5 million and $147.4 million of available borrowing capacity under our then-existing revolving credit facility.

Our liquidity at December 31, 2019 included cash and cash equivalents of $208.4 million and $171.1 million of available borrowing capacity under the Revolving Credit Facility.

Our liquidity at December 31, 2019 excluded $54.1 million of restricted cash (short-term).

The carrying amount of our long-term debt, including current maturities, net of unamortized debt discounts and debt issuance costs, is as follows (in thousands):

Term Loan (matures June 2020)

Nordea Q5000 Loan (matures April 2020)

Term Loan (matures December 2021) $ 29,559 $ 32,869

Nordea Q5000 Loan (matures January 2021) (1)

53,532 89,031

MARAD Debt (matures February 2027) 53,361 60,073

Convertible Senior Notes Due 2022 (mature May 2022) (1)

Convertible Senior Notes Due 2023 (mature September 2023) (1)

Convertible Senior Notes Due 2022 (the “2022 Notes”) and Convertible Senior Notes Due 2023 (the “2023 Notes”) will increase to their face amounts through accretion of the debt discounts through May 1, 2022 and September 15, 2023, respectively.

2022 Notes (mature May 2022) (2)

33,477 115,765

2023 Notes (mature September 2023) (2)

26,922 108,115

2026 Notes (mature February 2026) (2)

Total debt $ 349,563 $ 405,853

(1) We repaid the Nordea Q5000 Loan in January 2021.

(2) Convertible Senior Notes Due 2022 (the “2022 Notes”), Convertible Senior Notes Due 2023 (the “2023 Notes”) and Convertible Senior Notes Due 2026 (the “2026 Notes”) will increase to their face amounts through accretion of their debt discounts and amortization of related debt issuance costs through their respective maturity dates (Note 8).

The following table provides summary data from our consolidated statements of cash flows (in thousands):

Year Ended December 31,

2020 2019 2018

Cash provided by (used in):

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Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt.

As of December 31, 2019 , the remaining principal balance of the Nordea Q5000 Loan was classified to current as its maturity date is April 30, 2020.

Although we currently have no plans to do so, we have the ability to fund the repayment of the Nordea Q5000 Loan when due with available borrowing capacity under the Revolving Credit Facility.

Given the ongoing industry-wide spending reductions, we continue to remain focused on maintaining a strong balance sheet and adequate liquidity.

Over the near term, we may seek to reduce, defer or cancel certain planned capital expenditures.

We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations over at least the next 12 months.

In accordance with the Credit Agreement, the 2022 Notes, the 2023 Notes, the MARAD Debt agreements and the Nordea Credit Agreement, we are required to comply with certain covenants, including with respect to the Credit Agreement, certain financial ratios such as a consolidated interest coverage ratio and various leverage ratios, as well as the maintenance of a minimum cash balance, net worth, working capital and debt-to-equity requirements.

The Credit Agreement also contains provisions that limit our ability to incur certain types of additional indebtedness.

These provisions effectively prohibit us from incurring additional secured indebtedness or indebtedness guaranteed by us.

The Credit Agreement does permit us to incur certain unsecured indebtedness and also provides for our

subsidiaries to incur project financing indebtedness (such as the MARAD Debt and the Nordea Q5000 Loan) secured by the underlying asset, provided that such indebtedness is not guaranteed by us.

The Credit Agreement also permits Unrestricted Subsidiaries to incur indebtedness provided that it is not guaranteed by us or any of our Restricted Subsidiaries (as defined in the Credit Agreement).

As of December 31, 2019 and 2018 , we were in compliance with all of the covenants in our long-term debt agreements.

A prolonged period of weak industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt.

Furthermore, during any period of sustained weak economic activity and reduced EBITDA, our ability to fully access the Revolving Credit Facility may be impacted.

The ongoing COVID-19 pandemic, challenging market conditions and industry-wide spending cuts have impacted our current year revenues and we expect these events to continue to impact our results into the near future.

Our operating cash flows are impacted to the extent we cannot reduce costs or replace those revenues.

Despite these challenges, we remain focused on maintaining a strong balance sheet and adequate liquidity.

Over the near term, we have reduced, deferred and cancelled certain planned capital expenditures and reduced our overall cost structure commensurate with our level of activities.

Over the mid-term, we have extended our debt maturity profile through refinancing a portion of our 2022 Notes and 2023 Notes in favor of the 2026 Notes.

We have reduced operating costs through various measures including warm stacking two of our vessels during the year.

These costs should return with increases in activity.

We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.

The ongoing COVID-19 pandemic and its impact on the energy and financial markets have contributed to rising yields on our existing debt as well as volatility in our stock price, both of which increase our cost of capital.

The COVID-19 pandemic has also contributed to limited access to certain capital markets.

Despite those limitations, in August 2020, we refinanced a portion of our 2022 Notes and 2023 Notes in favor of the 2026 Notes.

The yield on the 2026 Notes is significantly higher than that of the 2022 Notes and 2023 Notes.

An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt.

Current global market conditions have increased the potential for that difficulty.

Decreases in our revenues and EBITDA, including as may be attributable to the fallout from the ongoing COVID-19 pandemic, may also limit our ability to fully access the Revolving Credit Facility.

At December 31, 2020, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $160.2 million, net of $2.8 million of letters of credit issued under that facility.

We currently have no plans or forecasted requirements to borrow under the Revolving Credit Facility other than for the issuance of letters of credit.

Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control.

Our failure to comply with these covenants and other restrictions could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.

Subject to the terms of the Credit Agreement, we may borrow and/or obtain letters of credit of up to $25 million under the Revolving Credit Facility.

See Note 8 for additional information relating to our long-term debt, including more information regarding the Credit Agreement and related covenants and collateral.

The 2022 Notes and the 2023 Notes can be converted into our common stock by the holders or redeemed by us prior to their stated maturity under certain circumstances specified in the applicable indenture governing the notes.

We can settle any conversion in cash, shares of our common stock or a combination thereof.

We currently do not anticipate borrowing under the Revolving Credit Facility other than for the issuance of letters of credit.

Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control, and our failure to comply with these covenants and other restrictions could lead to an event of default.

Operating Cash Flows

Total cash flows from operating activities decreased by $70.9 million in 2020 as compared to 2019, primarily reflecting lower operating income and larger increases in working capital as compared to 2019.

Total cash flows from operating activities decreased by $27.1 million in 2019 as compared to 2018, primarily reflecting changes in our working capital during 2019 as well as higher regulatory certification costs for our vessels and systems, which included costs related to planned dry docks for three of our vessels.

Total cash flows from operating activities increased by $145.1 million in 2018 as compared to 2017 primarily reflecting improvements in our operations, collection of accounts receivable and reductions in interest payments.

Investing Activities

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Year Ended December 31,

2020 2019 2018

Capital expenditures:

Well Intervention $ (19,523) $ (139,212) $ (136,164)

Robotics (257) (417) (151)

Production Facilities — (123) (325)

Other (464) (1,102) (443)

STL acquisition, net — (4,081) —

Proceeds from sale of assets (1)

Other — — 1,044

Net cash used in investing activities $ (19,281) $ (142,385) $ (136,014)

(1) Amount in 2019 primarily reflects cash received from the sale of certain property acquired from Marathon Oil (Note 16).

Amount in 2017 reflects cash received from the sale of our former spoolbase facility located in Ingleside, Texas.

Our capital expenditures above primarily included payments associated with the construction and completion of the Q7000 (see below), the investment in the topside well intervention equipment for the Siem Helix 1 and Siem Helix 2 vessels that we charter to perform our agreements with Petrobras (see below), and the investment in the 15K IRS and the ROAM.

In September 2013, we entered into a contract for the construction of the Q7000 , a newbuild semi-submersible well intervention vessel built to U.K.

North Sea standards.

Pursuant to the contract and subsequent amendments, 20% of the contract price was paid upon the signing of the contract, 20% was paid in each of 2016, 2017 and 2018, and the remaining 20% was paid upon the delivery of the vessel in November 2019.

At December 31, 2019 , our total investment in the Q7000 was $536.4 million , including $346.0 million of installment payments to the shipyard.

The vessel commenced operations in Nigeria in January 2020.

In February 2014, we entered into agreements with Petrobras to provide well intervention services offshore Brazil.

The initial term of the agreements with Petrobras is for four years, with options to extend by agreement of both parties for an additional period of up to four years.

In connection with the Petrobras agreements, we entered into charter agreements with Siem for two monohull vessels, the Siem Helix 1 , which commenced operations for Petrobras in April 2017, and the Siem Helix 2 , which commenced operations for Petrobras in December 2017.

Our capital expenditures primarily included payments associated with the construction and completion of the Q7000 , which commenced operations in January 2020, as well as the investment in the 15K IRS and the ROAM.

Financing Activities

Cash flows from financing activities consist primarily of proceeds from debt and equity transactions and repayments of our long-term debt.

Net cash outflows from financing activities of $45.8 million in 2019 primarily reflected the repayment of $42.6 million of our indebtedness and $2.0 million in net cash outflows related to repayments and net refinancing, including fees, of the Term Loan (Note 8).

Net cash outflows from financing activities of $46.2 million in 2018 primarily reflected the repayment of $166.4 million of our indebtedness using cash and the net proceeds from the issuance in March 2018 of $125 million of the 2023 Notes (Note 8).

Net cash outflows from financing activities were $46.2 million in 2018 as compared to net cash inflows of $77.5 million in 2017 .

In 2018, we repaid approximately $166 million of our indebtedness using cash and the net proceeds from the issuance in March 2018 of $125 million of our 2023 Notes.

Cash inflows from financing activities in 2017 included the net proceeds of approximately $220 million we received from our underwritten public equity offering in January 2017, offset in part by debt repayments in 2017.

Net cash outflows from financing activities of $52.6 million in 2020 primarily reflect the repayment of $46.4 million of scheduled maturities related to our indebtedness (Note 8) as well as the net cash flow from our issuance of the 2026 Notes and the related capped call transactions (the “2026 Capped Calls”) and our repurchase of a portion of the 2022 and 2023 Notes (as described below).

Net cash outflows from financing activities of $45.8 million in 2019 primarily reflect the repayment of $42.6 million of our indebtedness and $2.0 million in net cash outflows related to repayments and net refinancing, including fees, of the Term Loan.

Net cash outflows from financing activities of $46.2 million in 2018 primarily reflect the repayment of $166.4 million of our indebtedness using cash and the net proceeds from the issuance in March 2018 of $125 million of the 2023 Notes.

In August 2020, we issued the 2026 Notes, which have a principal amount of $200 million and a conversion price of approximately $6.97 per share.

We used the proceeds from the issuance to fund our repurchase of $90 million of the 2022 Notes and $95 million of the 2023 Notes, to acquire the 2026 Capped Calls to offset potential dilution of our common stock by increasing the effective conversion price of the 2026 Notes to approximately $8.42 per share, and to fund the related debt issuance costs.

Free Cash Flow

Free cash flow decreased by $28.3 million in 2019 as compared to 2018 attributable to the decrease in operating cash flows and higher capital expenditures in 2019.

Free cash flow increased by $229.2 million in 2018 as compared to 2017 primarily attributable to higher operating cash flows and reduced capital expenditures in 2018 as a result of the completion of the Siem Helix 1 and Siem Helix 2 vessels during 2017.

Free cash flow increased to $79.5 million in 2020 from $31.4 million in 2019.

The increase was due to the decrease in capital expenditures with the completion of the Q7000 , offset in part by the reduction in operating cash flows.

Free cash flow decreased to $31.4 million in 2019 from $59.7 million in 2018.

The decrease was primarily attributable to the decrease in operating cash flows and higher capital expenditures in 2019.

Free cash flow is a non-GAAP financial measure.

See Item 6 for the definition and calculation of free cash flow.

We anticipate that our capital expenditures, including capitalized interest and regulatory certification costs for our vessels and systems, will approximate $50 million for 2020.

We believe that cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will provide the capital necessary to continue funding our 2020 operating needs and to meet our debt obligations due in 2020.

Selected Financial Data of this Annual Report for the definition and calculation of free cash flow.

Contractual Obligations and Commercial Commitments

The following table summarizes our contractual cash obligations as of December 31, 2020 and the scheduled years in which the obligations are contractually due (in thousands):

1 Year 1-3 Years 3-5 Years More Than

Term Loan $ 29,750 $ 29,750 $ — $ — $ —

Nordea Q5000 Loan 53,572 53,572 — — —

MARAD debt 56,410 7,560 16,270 17,935 14,645

2022 Notes (2)

35,000 — 35,000 — —

2023 Notes (3)

30,000 — 30,000 — —

2026 Notes (4)

200,000 — — — 200,000

Interest related to debt (5)

85,654 20,842 33,499 29,198 2,115

Property and equipment 6,200 6,071 129 — —

Operating leases (6)

260,487 92,239 153,553 10,641 4,054

Total cash obligations $ 757,073 $ 210,034 $ 268,451 $ 57,774 $ 220,814

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See Note 8 for additional information.

(4) Notes mature in February 2026.

The 2026 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds $9.06 per share, which is 130% of the conversion price.

At December 31, 2020, the conversion trigger was not met.

See Note 8 for additional information.

(5) Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at December 31, 2020 for variable rate debt.

Primarily reflects costs associated with the Q7000 prior to the commencement of its operations in January 2020 (Note 17).

(6) Operating leases include vessel charters and facility and equipment leases.

At December 31, 2020, our commitment related to long-term vessel charters totaled approximately $233.3 million, of which $89.5 million was related to the non-lease (services) components that are not included in operating lease liabilities in the consolidated balance sheet as of December 31, 2020.

Contingencies

We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations and cash flows.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our discussion and analysis of our financial condition and results of operations, as reflected in the accompanying consolidated financial statements and related footnotes, are prepared in conformity with GAAP.

Our discussion and analysis of our financial condition and results of operations, as reflected in the consolidated financial statements and related footnotes included in Item 8 .

Financial Statements and Supplementary Data of this Annual Report, are prepared in conformity with GAAP.

As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.

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While these issues require us to make judgments that are somewhat subjective, they are generally based on a significant amount of historical data and current market data.

See Note 2 for a detailed discussion on the application of our accounting policies.

See Note 2 to our consolidated financial statements for a detailed discussion on the application of our accounting policies.

Property and Equipment

We review our property and equipment for impairment indicators at least quarterly or whenever changes in facts and circumstances indicate that the carrying amount of the asset or asset group may not be recoverable.

We base our evaluation on impairment indicators such as the nature of the asset or asset group, the future economic benefits of the asset or asset group, historical and estimated future profitability measures, and other external market conditions of factors that may be present.

We evaluate impairment indicators considering the nature of the asset or asset group, the future economic benefits of the asset or asset group, historical and estimated future profitability measures, and other external market conditions or factors that may be present.

We often estimate future earnings and cash flows of our assets to corroborate our determination of whether impairment indicators exist.

If impairment indicators suggest that the carrying amount of an asset may not be recoverable, we determine whether an impairment has occurred by estimating undiscounted cash flows of the asset to the asset’s carrying value.

Impairment is recognized for the difference between the asset’s carrying value and its estimated fair value.

The expected future cash flows used for the assessment of recoverability are based on judgmental assessments of operating costs, project margins and capital project decisions, considering information available at the date of review.

If the undiscounted cash flows are less than the asset’s carrying value (i.e., the asset is unrecoverable), impairment, if any, is recognized for the difference between the asset’s carrying value and its estimated fair value.

The expected future cash flows used for the assessment of recoverability are based on judgmental assessments of operating costs, project margins and capital project spending, considering information available at the date of review.

Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or based on a multiple of operating cash flows validated with historical market transactions of similar assets where possible.

The fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or based on a multiple of operating cash flows validated with historical market transactions of similar assets where possible.

The review of property and equipment for impairment indicators, the determination of the appropriate asset groups at which to evaluate impairment, the projection of future cash flows of property and equipment, and the estimated fair value of any property and equipment that may be deemed unrecoverable involve significant judgment and estimation by our management.

The determination of the appropriate asset groups at which to evaluate impairment, the review of property and equipment for impairment indicators, the projection of future cash flows of property and equipment, and the estimated fair value of any property and equipment that may be deemed unrecoverable involve significant judgment and estimation by our management.

Changes to those judgments and estimations could require us to recognize impairment charges in the future.

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Subsequently, repatriation of foreign earnings will generally be free of U.S.

federal tax with the possible exception of withholding taxes and state taxes.

federal tax but may be subject to changes in future tax legislation that may result in taxation.

As of December 31, 2020, we had accumulated undistributed earnings generated by our non-U.S.

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subsidiaries without operations in the U.S., to fund our international operations.

We have not accrued for the possibility of withholding taxes.

The computation of the potential deferred tax liability associated with the amount of reinvested earnings and other basis difference is not practicable.

We have not provided deferred income taxes on the accumulated earnings and profits as we consider them permanently reinvested.

The computation of the potential deferred tax liability associated with the amount of reinvested earnings and other basis differences is not practicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis