Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS AND ASSUMPTIONS
This Quarterly Report on Form 10-Q contains or incorporates by reference various statements that contain forward-looking information regarding Helix and represent our current expectations or forecasts of future events. This forward-looking information is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995 as set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements included herein or incorporated by reference herein that are predictive in nature, that depend upon or refer to future events or conditions, or that use terms and phrases such as “achieve,” “anticipate,” “believe,” “estimate,” “budget,” “expect,” “forecast,” “plan,” “project,” “propose,” “strategy,” “predict,” “envision,” “hope,” “intend,” “will,” “continue,” “may,” “potential,” “should,” “could” and similar terms and phrases are forward-looking statements although not all forward-looking statements contain such identifying words. Included in forward-looking statements are, among other things:
● statements regarding our business strategy, corporate initiatives and any other business plans, forecasts or objectives, any or all of which are subject to change;
● statements regarding projections of revenues, gross margins, expenses, earnings or losses, working capital, debt and liquidity, capital expenditures or other financial items;
● statements regarding our backlog and commercial contracts and rates thereunder;
● statements regarding our ability to enter into and/or perform commercial contracts, including the scope, timing and outcome of those contracts;
● statements regarding the spot market, the continuation of our current backlog, our spending and cost reduction plans and our ability to manage changes, and the COVID-19 pandemic and oil price volatility and their respective effects and results on the foregoing as well as our protocols and plans;
● statements regarding the acquisition, construction, completion, upgrades to or maintenance of vessels, systems or equipment and any anticipated costs or downtime related thereto;
● statements regarding any financing transactions or arrangements, or our ability to enter into such transactions or arrangements;
● statements regarding potential legislative, governmental, regulatory, administrative or other public body actions, requirements, permits or decisions;
● statements regarding our trade receivables and their collectability;
● statements regarding potential developments, industry trends, performance or industry ranking;
● statements regarding our Environmental, Social and Governance (“ESG”) initiatives and the successes thereon or regarding our environmental efforts, including greenhouse gas emissions targets;
● statements regarding global, market or investor sentiment with respect to fossil fuels;
● statements regarding our existing activities in, and future expansion into, the offshore renewable energy market;
● statements regarding general economic or political conditions, whether international, national or in the regional or local markets in which we do business;
● statements regarding our human capital resources, including our ability to retain our senior management and other key employees;
● statements regarding the underlying assumptions related to any projection or forward-looking statement; and
● any other statements that relate to non-historical or future information.
Although we believe that the expectations reflected in our forward-looking statements are reasonable and are based on reasonable assumptions, they do involve risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. These factors include:
● the impact of domestic and global economic conditions and the future impact of such conditions on the offshore energy industry and the demand for our services;
● the general impact of oil and gas price volatility and the cyclical nature of the oil and gas market;
● the potential effects of regional tensions that have escalated or may escalate, including into conflicts or wars, and their impact on the global economy, oil and gas market, our operations, international trade, or our ability to do business with certain parties or in certain regions, and any governmental sanctions resulting therefrom;
● the results and effects of the COVID-19 pandemic and actions by governments, customers, suppliers and partners with respect thereto;
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● the results of corporate initiatives such as alliances, partnerships, joint ventures, mergers, acquisitions, divestitures and restructurings, or the determination not to pursue or effect such initiatives;
● the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;
● the ability to effectively bid, renew and perform our contracts, including the impact of equipment problems or failure;
● the impact of the imposition by our customers of rate reductions, fines and penalties with respect to our operating assets;
● unexpected future capital expenditures, including the amount and nature thereof;
● the effectiveness and timing of our vessel and/or system upgrades, regulatory recertification and inspection as well as major maintenance items;
● unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets;
● the effects of our indebtedness, our ability to comply with debt covenants and our ability to reduce capital commitments;
● the results of our continuing efforts to control costs and improve performance;
● the success of our risk management activities, including with respect to our cybersecurity initiatives;
● the effects of competition;
● the availability of capital (including any financing) to fund our business strategy and/or operations;
● the effectiveness of our ESG initiatives and disclosures;
● the impact of current and future laws and governmental regulations and how they will be interpreted or enforced, including related to litigation and similar claims in which we may be involved;
● the future impact of international activity and trade agreements on our business, operations and financial condition;
● the effect of adverse weather conditions and/or other risks associated with marine operations;
● the impact of foreign currency exchange controls, potential illiquidity of those currencies and exchange rate fluctuations;
● the effectiveness of our future hedging activities;
● the potential impact of a negative event related to our human capital resources, including a loss of one or more key employees;
● the impact of general, market, industry or business conditions; and
● the impact of inflation and our ability to recoup rising costs in the rates we charge to our customers.
Our actual results could also differ materially from those anticipated in any forward-looking statements as a result of a variety of factors, including those described in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K. Should one or more of the risks or uncertainties described in this Quarterly Report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
We caution you not to place undue reliance on forward-looking statements. Forward-looking statements are only as of the date they are made, and other than as required under the securities laws, we assume no obligation to update or revise forward-looking statements, all of which are expressly qualified by the statements in this section, or provide reasons why actual results may differ. All forward-looking statements, express or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. We urge you to carefully review and consider the disclosures made in this Quarterly Report and our reports filed with the SEC and incorporated by reference in our 2021 Form 10-K that attempt to advise interested parties of the risks and factors that may affect our business.
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EXECUTIVE SUMMARY
Our Business
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. The services we offer to the oil and gas market cover the lifecycle of an offshore oil or gas field, and the services we offer to the renewable energy market are currently focused on offshore wind farm projects, including trenching and cable burial and seabed clearance operations. Our well intervention fleet includes seven purpose-built well intervention vessels and 10 intervention systems. Our robotics equipment includes 40 work-class ROVs and four trenchers. We charter robotics 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 and the renewable energy markets and, in particular, the willingness of offshore energy companies to spend on operational activities and capital projects. The performance of our business is 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 various other factors.
Oil and gas prices experienced recent highs during the first quarter 2022 as global demand continued to recover from COVID-19 related restrictions and supply was disrupted by regional conflicts. The increases in oil prices, as well as the outlook for higher sustained oil prices, should lead to higher customer spending for the industry. However, despite the current strong commodity price environment, there are broad headwinds to commodity price stability. The headwinds include those regional conflicts, high inflation, ongoing COVID-related uncertainties, various governmental and customer ESG initiatives and continued shifting of resource allocation to renewable energy. We expect this will contribute to commodity price volatility and may temper customer spending for oil and gas projects.
Historically, drilling rigs have been the asset class used for offshore well intervention work, and rig day rates are a pricing indicator for our services. Our customers have used drilling rigs on existing long-term contracts (rig overhang) to perform well intervention work instead of new drilling activities. Current volumes of work, the day rates quoted by drilling rig contractors and existing rig overhang affect the utilization and/or rates we can achieve for our assets and services.
The COVID-19 pandemic resulted in new market dynamics and challenges to us, including contributing significantly to oil and gas price volatility and increased costs related to our supply chain, logistics and human capital resources. While the full impact of the COVID-19 pandemic, including the duration of its impact on economic activity, remains unknown, we expect such impact may continue into the foreseeable future, including affecting our customers’ willingness to commit to future spending, limiting access to and use of capital, disrupting supply chains and increasing costs, and negatively affecting human capital resources.
Over the near-term, as oil and gas companies evaluate their budgetary spend allocations, we expect they may be weighted towards short-cycle production enhancement of existing wells rather than new long-cycle exploration projects, as historically enhancement is less expensive per incremental barrel of oil than exploration. Over the longer term, we continue to expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells. Moreover, as the subsea tree base expands and ages and customers shift resources to renewable energy, the demand for P&A services should persist. Our well intervention and robotics operations service the lifecycle of an oil and gas field and provide P&A services at the end of the life of a field as required by governmental regulations, and we believe that we have a competitive advantage in performing these services efficiently.
We expect the fundamentals for our business will 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 expectation is based on multiple factors, including (1) maintaining the optimal production of a well through enhancement is fundamental to maximizing the overall economics of well production; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling; and (3) extending the production of offshore wells not only maximizes a well’s production economics but also enables the financial benefit of delaying P&A costs, which can be substantial.
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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.
We are subject to the effects of changing prices. Inflation rates have been relatively low and stable over the previous three decades; however, in 2021 due in part to supply chain disruptions and the effects of the COVID-19 pandemic, inflation rates began to rise significantly and remained high through the first quarter 2022. Although we are able to reduce some of our exposure to price increases through the rates we charge, we bear the costs of operating and maintaining our assets, including labor and material costs as well as recertification and dry dock costs. While the cost outlook is not certain, we believe that we can manage these inflationary pressures by introducing appropriate sales price adjustments and by actively pursuing internal cost reduction efforts. However, competitive market pressures may affect our ability to recoup these price increases through the rates we charge, which may result in reductions in our operating margins and cash flows in the future. The recent high inflation rates seen in various major economies have caused concerns for central banks’ tightening of monetary policies. These concerns have contributed to stock market volatility as well as higher interest rates, which, combined with ongoing regional conflicts and unrest and continued COVID-related disruptions throughout the globe, could provide a strained macroeconomic outlook and in turn affect energy markets.
Backlog
We define backlog as firm commitments represented by signed contracts. As of March 31, 2022, our consolidated backlog totaled $548 million, of which $263 million is expected to be performed over the remainder of 2022. Our contract with Trident Energy Do Brasil LTDA. to provide P&A services offshore Brazil with the Siem Helix 1 chartered vessel, our contract with Petróleo Brasileiro S.A. (“Petrobras”) to provide well intervention services offshore Brazil with the Siem Helix 2 chartered vessel, our well intervention contract with Shell Offshore Inc. for the Q5000 and our fixed fee agreement for the HP I represented approximately 58% of our total backlog as of March 31, 2022. Backlog is not necessarily a reliable indicator of revenues derived from our contracts as services are often added but may sometimes be subtracted; contracts may be renegotiated, deferred, canceled and in many cases modified while in progress; and reduced rates, fines and penalties may be imposed by our customers. Furthermore, our contracts are in certain cases cancelable without penalty. If there are cancellation fees, the amount of those fees can be substantially less than amounts reflected in backlog.
RESULTS OF OPERATIONS
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined by the SEC as a numerical measure of a company’s historical or future performance, financial position or cash flows that includes or excludes amounts from the most directly comparable measure under GAAP. Non-GAAP financial measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures.
We measure our operating performance based on EBITDA, Adjusted EBITDA and Free Cash Flow. EBITDA, Adjusted EBITDA and Free Cash Flow are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA and Free Cash Flow to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA, Adjusted EBITDA and Free Cash Flow provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA and Free Cash Flow differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA and Free Cash Flow should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP.
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We define EBITDA as earnings before income taxes, net interest expense, gain or loss on extinguishment of long-term debt, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets and non-cash gains and losses on equity investments are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets and the general provision (release) for current expected credit losses, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments, which are excluded from EBITDA as a component of net other income or expense. We define Free Cash Flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
The reconciliation of our net loss to EBITDA and Adjusted EBITDA is as follows (in thousands):
Three Months Ended
March 31,
2022
2021
Net loss
$
(42,031)
$
(3,050)
Adjustments:
Income tax provision
2,140
116
Net interest expense
5,174
6,053
Other (income) expense, net
3,881
(1,617)
Depreciation and amortization
33,488
34,566
EBITDA
2,652
36,068
Adjustments:
General provision (release) for current expected credit losses
(126)
100
Adjusted EBITDA
$
2,526
$
36,168
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
Three Months Ended
March 31,
2022
2021
Cash flows from operating activities
$
(17,413)
$
39,869
Less: Capital expenditures, net of proceeds from sale of assets
(623)
(1,329)
Free Cash Flow
$
(18,036)
$
38,540
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Comparison of Three Months Ended March 31, 2022 and 2021
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our condensed consolidated financial statements, including our condensed consolidated results of operations. The following table details various financial and operational highlights for the periods presented (dollars in thousands):
Three Months Ended
Increase/
March 31,
(Decrease)
2022
2021
Amount
Percent
Net revenues —
Well Intervention
$
106,367
$
133,768
$
(27,401)
(20)
%
Robotics
37,351
22,156
15,195
69
%
Production Facilities
18,294
16,447
1,847
11
%
Intercompany eliminations
(11,887)
(8,956)
(2,931)
$
150,125
$
163,415
$
(13,290)
(8)
%
Gross profit (loss) —
Well Intervention
$
(28,446)
$
8,726
$
(37,172)
(426)
%
Robotics
3,520
(933)
4,453
477
%
Production Facilities
6,609
7,213
(604)
(8)
%
Corporate, eliminations and other
(292)
(382)
90
$
(18,609)
$
14,624
$
(33,233)
(227)
%
Gross margin —
Well Intervention
(27)
%
7
%
Robotics
9
%
(4)
%
Production Facilities
36
%
44
%
Total company
(12)
%
9
%
Number of vessels or robotics assets (1) / Utilization (2)
Well Intervention vessels
7 / 67
%
7 / 70
%
Robotics assets (3)
45 / 35
%
47 / 24
%
Chartered robotics vessels
5 / 90
%
3 / 90
%
(1) Represents the number of vessels or robotics assets as of the end of the period, including spot vessels and those under term charters, 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 calendar days in the applicable period. Utilization rates of chartered robotics vessels during the three-month periods ended March 31, 2022 and 2021 included 136 and three spot vessel days, respectively, at near full utilization.
(3) Consists of ROVs and trenchers.
Intercompany segment amounts are derived primarily from equipment and services provided to other business segments. Intercompany segment revenues are as follows (in thousands):
Three Months Ended
March 31,
Increase/
2022
2021
(Decrease)
Well Intervention
$
3,850
$
2,587
$
1,263
Robotics
8,037
6,369
1,668
$
11,887
$
8,956
$
2,931
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Net Revenues. Our consolidated net revenues for the three-month period ended March 31, 2022 decreased by 8% as compared to the same period in 2021, reflecting lower revenues from our Well Intervention segment, offset in part by higher revenues from our Robotics and Production Facilities segments.
Our Well Intervention revenues decreased by 20% for the three-month period ended March 31, 2022 as compared to the same period in 2021, primarily reflecting lower rates and vessel utilization in Brazil and the North Sea, offset in part by higher utilization in West Africa. Our Brazil operations were on legacy contract rates with Petrobras with near full utilization during the first quarter 2021. However, during the first quarter 2022, the Siem Helix 2 operated at lower rates under the extended contract with Petrobras and incurred 23 days off contract during its five-year regulatory inspection, and the Siem Helix 1 was operating on a short-term accommodations project offshore Ghana at lower rates. The Q7000 was fully utilized in West Africa during the first quarter 2022 as compared to 67% utilized during the first quarter 2021. Gulf of Mexico revenues were nominally changed from the prior year, with the Q5000 ’s higher-margin work on the legacy BP contract during the first quarter 2021 replaced by higher cost integrated projects during the first quarter 2022.
Our Robotics revenues increased by 69% for the three-month period ended March 31, 2022 as compared to the same period in 2021, primarily reflecting higher vessel and ROV activities. Chartered vessel days increased to 323 days during the first quarter 2022 as compared to 165 days during the first quarter 2021, although vessel utilization was flat at 90% during both periods. Vessel days during the first quarter 2022 included 136 spot vessel days performing seabed clearance work in the North Sea as compared to three spot vessel days during the first quarter 2021. ROV and trencher utilization increased to 35% in the first quarter 2022 from 24% during the first quarter 2021, although trenching days decreased to 66 days during the first quarter 2022 as compared to 72 days during the first quarter 2021.
Our Production Facilities revenues increased by 11% for the three-month period ended March 31, 2022 as compared to the same period in 2021, primarily reflecting higher oil and gas prices.
Gross Profit (Loss). Our consolidated gross loss was $18.6 million for the three-month period ended March 31, 2022 as compared consolidated gross profit of $14.6 million for the same period in 2021, primarily reflecting decreased profitability in our Well Intervention and Production Facilities segments, offset in part by increased profitability in our Robotics segment.
Our Well Intervention segment had a gross loss of $28.4 million for the three-month period ended March 31, 2022 as compared to a gross profit of $8.7 million for the same period in 2021, primarily reflecting lower segment revenues as well as lower margins in the Gulf of Mexico due to higher integrated project costs.
Our Robotics segment had a gross profit of $3.5 million for the three-month period ended March 31, 2022 as compared to a gross loss of $0.9 million for the same period in 2021, primarily reflecting higher revenues due to increased ROV activity and a higher number of vessel days.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $14.4 million for the three-month period ended March 31, 2022 as compared to $15.2 million for the same period in 2021, primarily reflecting lower employee incentive compensation costs.
Other Income (Expense), Net. Net other expense was $3.9 million for the three-month period ended March 31, 2022 primarily due to foreign currency transaction losses reflecting the weakening of the British pound. Net other income was $1.6 million for the same period in 2021 primarily due to foreign currency transaction gains reflecting the strengthening of the British pound.
Income Tax Provision. Income tax provision was $2.1 million for the three-month period ended March 31, 2022 as compared to $0.1 million for the same period in 2021. The effective tax rates for the three-month periods ended March 31, 2022 and 2021 were (5.4)% and (4.0)%, respectively. These variances were primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as losses for which no financial statement benefits have been recognized (Note 6).
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LIQUIDITY AND CAPITAL RESOURCES
Financial Condition and Liquidity
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands):
March 31,
December 31,
2022
2021
Net working capital
$
246,745
$
251,255
Long-term debt (1)
258,496
262,137
Liquidity
270,983
304,660
(1) Long-term debt is net of unamortized debt issuance costs. Current maturities of our long-term debt of $43.1 million and $42.9 million, respectively, are excluded from long-term debt. See Note 5 for information relating to our long-term debt.
Net Working Capital
Net working capital is equal to current assets minus current liabilities. It measures short-term liquidity and operational efficiency and is important for predicting cash flow and debt requirements. Our net working capital includes current maturities of our long-term debt.
Liquidity
We define liquidity as cash and cash equivalents, excluding restricted cash, plus available capacity under our credit facility. Our liquidity at March 31, 2022 included $229.7 million of cash and cash equivalents and $41.2 million of available borrowing capacity under the ABL Facility (Note 5) and excluded $72.9 million of restricted cash primarily related to a short-term project related letter of credit, the restriction from which is expected to be released upon completion of the project. Our liquidity at December 31, 2021 included $253.5 million of cash and cash equivalents and $51.1 million of available borrowing capacity under the ABL Facility and excluded $73.6 million of short-term project related restricted cash.
The COVID-19 pandemic impacted our operations and our revenues. We responded by deferring or reducing planned capital expenditures and operating costs during the past two years. This spending is expected to return with our outlook of increased activity. Furthermore, we have convertible debt instruments and other term debt maturities during 2022 that we intend to settle in cash. We believe that our cash on hand, internally generated cash flows and availability under the ABL Facility will be sufficient to fund our operations and service our debt over at least the next 12 months.
An ongoing period of weak, or continued decreases in, industry activity may make it difficult to comply with the covenants and other restrictions in our debt agreements. Our failure to comply with the covenants and other restrictions could lead to an event of default. Decreases in our borrowing base may limit our ability to fully access the ABL Facility. At March 31, 2022, our available borrowing capacity under the ABL Facility was $41.2 million, net of $2.3 million of letters of credit issued under that facility. We currently do not anticipate borrowing under the ABL Facility other than for the issuance of letters of credit.
Cash Flows
The following table provides summary data from our condensed consolidated statements of cash flows (in thousands):
Three Months Ended
March 31,
2022
2021
Cash provided by (used in):
Operating activities
$
(17,413)
$
39,869
Investing activities
(623)
(1,329)
Financing activities
(5,408)
(59,885)
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Operating Activities
The decrease in our operating cash flows for the three-month period ended March 31, 2022 as compared to the same period in 2021 primarily reflects lower earnings, higher regulatory recertification costs for our vessels and systems and negative changes in net working capital. Operating cash flows for the three-month periods ended March 31, 2022 and 2021 included the receipt of $1.1 million and $6.6 million, respectively, in income tax refunds related to the U.S. Coronavirus Aid, Relief, and Economic Security Act.
Investing Activities
Cash flows used in investing activities for the three-month periods ended March 31, 2022 and 2021 reflect the deferral or reduction of our planned capital expenditures as our response to the adverse impact to our operations as a result of the COVID-19 pandemic.
Financing Activities
Net cash outflows from financing activities for the three-month period ended March 31, 2022 primarily reflect the repayment of $3.9 million related to the MARAD Debt (Note 5). Net cash outflows from financing activities for the three-month period ended March 31, 2021 primarily reflect the repayment of $58.2 million related to our indebtedness, including the final maturity of $53.6 million of the Nordea Q5000 Loan.
Material Cash Requirements
Our material cash requirements include our obligations to repay our long-term debt, satisfy other contractual cash commitments and fund other obligations.
Long-term debt and other contractual commitments
The following table summarizes the principal amount of our long-term debt and related debt service costs as well as other contractual commitments, which include commitments for property and equipment and operating lease obligations, as of March 31, 2022 and the portions of those amounts that are short-term (due in less than one year) and long-term (due in one year or greater) based on their stated maturities (in thousands). Our property and equipment commitments include contractually committed amounts to purchase and service certain property and equipment (inclusive of commitments related to regulatory recertification and dry dock as discussed below) but do not include expected capital spending that is not contractually committed as of March 31, 2022. Our 2022 Notes, 2023 Notes and 2026 Notes have certain early redemption and conversion features that could affect the timing and amount of any cash requirements. Although upon conversion these notes are able to be settled in either cash or shares, we intend to settle their principal amounts in cash (Note 5).
Total
Short-Term
Long-Term
MARAD debt
$
44,930
$
8,133
$
36,797
2022 Notes
35,000
35,000
—
2023 Notes
30,000
—
30,000
2026 Notes
200,000
—
200,000
Interest related to debt
62,148
17,362
44,786
Property and equipment
9,125
9,125
—
Operating leases (1)
308,370
99,767
208,603
Total cash obligations
$
689,573
$
169,387
$
520,186
(1) Operating leases include vessel charters and facility and equipment leases. At March 31, 2022, our commitment related to long-term vessel charters totaled approximately $268.4 million, of which $111.8 million was related to the non-lease (services) components that are not included in operating lease liabilities in the condensed consolidated balance sheet as of March 31, 2022.
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Other material cash requirements
Other material cash requirements include the following:
Decommissioning. We have decommissioning obligations associated with our oil and gas properties (Note 11). Those obligations approximate $31.0 million (undiscounted) as of March 31, 2022 and are all expected to be paid during the next 12 months. We are entitled to receive certain amounts from Marathon Oil Corporation as these decommissioning obligations are fulfilled.
Regulatory recertification and dry dock. Our vessels and intervention systems are subject to certain regulatory recertification requirements that must be satisfied in order for the vessels and intervention systems to operate. Recertification may require dry dock and other compliance costs on a periodic basis, usually every 30 months. These costs can vary and generally range between $3.0 million to $15.0 million per vessel and $0.5 million to $5.0 million per intervention system. The timing of these costs can vary.
We expect the sources of funds to satisfy our material cash requirements to primarily come from our ongoing operations and existing cash on hand, but may also come from availability under the ABL Facility and access to capital markets.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our discussion and analysis of our financial condition and results of operations, as reflected in the condensed consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates involve a significant level of estimation uncertainty and may change over time as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. For information regarding our critical accounting estimates, see our “Critical Accounting Estimates” as disclosed in our 2021 Form 10-K.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.