Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis should be read in conjunction with our historical consolidated financial statements located in Item 8. Financial Statements and Supplementary Data of this Annual Report. Any reference to Notes in the following management’s discussion and analysis refers to the Notes to Consolidated Financial Statements located in Item 8. Financial Statements and Supplementary Data of this Annual Report. The results of operations reported and summarized below are not necessarily indicative of future operating results. This discussion also contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Item 1A. Risk Factors and located earlier in this Annual Report.
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, robotics and full-field decommissioning operations. Our services are centered on a three-legged business model well positioned for a global energy transition by maximizing production of remaining oil and gas reserves, supporting renewable energy developments and decommissioning end-of-life oil and gas fields. Our well intervention fleet includes seven purpose-built well intervention vessels and 12 intervention systems. Our robotics equipment includes 41 work-class ROVs, seven trenchers and the IROV boulder grab. We charter robotics support vessels on long-term, short-term, flexible and spot bases to facilitate our ROV and trenching operations. Our Production Facilities segment includes the HP I , the HFRS and our ownership of oil and gas properties including the recently acquired interest in the Thunder Hawk Field. On July 1, 2022, we completed our acquisition of Alliance and formed a new reporting segment in the third quarter 2022 comprised of the Helix Alliance business. Our new Shallow Water Abandonment segment includes 10 liftboats, six OSVs, three DSVs, one 1760T heavy lift derrick barge, one crew boat, 15 marketable P&A systems (with the ability to scale up to 20 systems) and six coiled tubing systems.
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, including:
● worldwide economic activity and general economic and business conditions, including access to 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 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;
● the cost of offshore exploration for and production and transportation of oil and natural gas;
● the level of excess production capacity;
● the ability of oil and gas companies to generate funds or otherwise obtain capital for capital projects and production operations;
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● the environmental and social sustainability of the oil and gas sector and the perception thereof, including within the investing community;
● the transition towards renewable energy and carbon neutrality and away from fossil fuels;
● national energy sovereignty and energy security;
● the sale and expiration dates of offshore leases globally;
● technological advances affecting energy exploration, production, transportation and consumption;
● the exploration and production of onshore shale oil and natural gas;
● potential acceleration of the development of alternative fuels;
● 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 COVID-19 pandemic;
● laws, regulations and policies directly related to the industries in which we provide services, including restrictions on oil and gas leases, and their interpretation and enforcement;
● environmental and other governmental regulations; and
● domestic and international tax laws, regulations and policies.
Oil and gas prices reached ten-year highs during the middle of 2022 and experienced moderate declines and volatility during the remainder of 2022. Global demand for oil and gas continues to recover as supply has been disrupted by regional conflicts. We expect oil and gas prices will remain robust for the near term, which should lead to higher customer spending for the industry. However, despite the current strong commodity price environment, there remain headwinds to commodity price stability, including those regional conflicts, high inflation and in particular governments’ and central banks’ efforts to taper economic growth, COVID-related uncertainties, various governmental and customer ESG initiatives and continued shifting of resource allocation to renewable energy. We expect these factors will continue to contribute to commodity price volatility and may temper customer spending for oil and gas projects.
We maximize production of remaining oil and gas reserves for our customers primarily in our Well Intervention segment. 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, rig utilization rates, 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.
Over the near-term, with the current high commodity price environment we expect oil and gas companies to invest in new long-cycle exploration projects in addition to maintaining and/or increasing production from their remaining reserves. As historically production enhancement through well intervention is less expensive per incremental barrel of oil than exploration, we continue to expect oil and gas companies to increasingly focus on optimizing production of their existing subsea wells. 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 is the primary driver of demand for our production enhancement 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.
We support the energy transition to renewables through our services in offshore wind farm developments, primarily including subsea cable trenching and burial as well as seabed clearance and preparation services. 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 expect growth in our renewables services as the energy market transitions to continued renewable energy developments.
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Once end-of-life oil and gas wells have depleted their production, we decommission wells and infrastructure in our Well Intervention and Shallow Water Abandonment segments. As the subsea tree base expands and ages and customers shift resources to renewable energy, the demand for P&A services should persist. Our operations service the life cycle 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 are subject to the effects of changing prices. Inflation rates have been relatively low and stable over the previous three decades; however, inflation rates have risen significantly since 2021 due in part to supply chain disruptions and the effects of the COVID-19 pandemic. Although we may be able to mitigate 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 management 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.
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 COVID-19 pandemic has significantly receded since its peak, the full impact of the COVID-19 pandemic, including the duration of its impact on economic activity, remains unknown, we expect such impact could escalate in the 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.
Business Activity Summary
As the oil and gas market has improved due to the post-COVID-19 recovery and the impact of sovereign energy security and independence, and as the energy market continues its migration of energy transition towards renewables, we executed a number of transactions during 2022 that demonstrate our commitment to our strategy and outlook for the markets we serve.
In February 2022, we entered into a two-year P&A contract with Trident for the Siem Helix 1 , which commenced in December 2022. In September 2022, our contract with Petrobras for the Siem Helix 2 was extended for two years until December 2024. In October 2022, we entered into an intervention and decommissioning contract with Shell Brasil Petroleo LTDA for the Q7000 , which is scheduled to commence in 2024. In November 2022, we extended the agreement for the HP 1 for one year until at least June 1, 2024.
In January 2022, we executed a time charter agreement for the Horizon Enabler in the North Sea with minimum firm periods in 2022 and 2023. In February 2022, we executed a time charter agreement for the Shelia Bordelon in the Gulf of Mexico until June 2024. In February 2022, the charter agreements for the Siem Helix 1 and the Siem Helix 2 were extended to February 2025 and February 2027, respectively. In August 2022, the time charter agreements for the Grand Canyon II and Grand Canyon III vessels were extended to December 2027 and May 2028, respectively.
In July 2022, we completed the acquisition of Alliance, expanding our services to the shallow waters predominantly in the Gulf of Mexico shelf.
In August 2022, we acquired from MP GOM a 62.5% interest in the Thunder Hawk Field, which is comprised of mature wells located in the Gulf of Mexico.
In December 2022, we acquired a 50% interest in two deepwater IRSs that can be used on our vessels, serve as backups, or be deployed on a stand-alone basis to our customers around the world.
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We have continued to expand our services and offerings into the offshore renewable energy sector. During 2022, we performed site clearance and/or ROV support work on multiple renewable energy projects in the Asia Pacific and North Sea regions and offshore U.S. East Coast. In November 2022, we acquired two jet trenchers and one plough trencher, which will enable us to expand our renewables trenching services into new markets.
Backlog
We define backlog as firm commitments represented by signed contracts. As of December 31, 2022, our consolidated backlog totaled $847 million, of which $533 million is expected to be performed in 2023. As of December 31, 2022, our contracts with Shell in the Gulf of Mexico, U.K. and Brazil, our contracts with Trident and Petrobras in Brazil and our agreement for the HP I in the Gulf of Mexico represented approximately 69% of our total backlog. As of December 31, 2021, our consolidated backlog totaled $348 million. 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 U.S. generally accepted accounting principles (“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, Free Cash Flow and Net Debt. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt are non-GAAP financial measures that are commonly used but are not recognized accounting terms under GAAP. We use EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt 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, Free Cash Flow and Net Debt 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, Free Cash Flow and Net Debt differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt 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.
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, acquisition and integration costs, the change in fair value of contingent consideration 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. Net Debt is calculated as long-term debt including current maturities of long-term debt less cash and cash equivalents and restricted cash. In the following reconciliation, we provide amounts as reflected in the condensed consolidated financial statements unless otherwise noted.
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The reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA is as follows (in thousands):
Year Ended December 31,
2022
2021
2020
Net income (loss)
$
(87,784)
$
(61,684)
$
20,084
Adjustments:
Income tax provision (benefit)
12,603
(8,958)
(18,701)
Net interest expense
18,950
23,201
28,531
(Gain) loss on extinguishment of long-term debt
—
136
(9,239)
Other (income) expense, net
23,330
1,490
(4,724)
Depreciation and amortization
142,686
141,514
133,709
Goodwill impairment
—
—
6,689
Gain on equity investment
(8,262)
—
(264)
EBITDA
101,523
95,699
156,085
Adjustments:
(Gain) loss on disposition of assets, net
—
631
(889)
Acquisition and integration costs
2,664
—
—
Change in fair value of contingent consideration
16,054
—
—
General provision (release) for current expected credit losses
781
(54)
746
Realized losses from foreign exchange contracts not designated as hedging instruments
—
—
(682)
Adjusted EBITDA
$
121,022
$
96,276
$
155,260
The reconciliation of our cash flows from operating activities to Free Cash Flow is as follows (in thousands):
Year Ended December 31,
2022
2021
2020
Cash flows from operating activities
$
51,108
$
140,117
$
98,800
Less: Capital expenditures, net of proceeds from sale of assets
(33,504)
(8,271)
(19,281)
Free Cash Flow
$
17,604
$
131,846
$
79,519
The reconciliation of our long-term debt to Net Debt is as follows (in thousands):
December 31,
2022
2021
Long-term debt including current maturities
$
264,075
$
305,010
Less: Cash and cash equivalents and restricted cash
(189,111)
(327,127)
Net Debt
$
74,964
$
(22,117)
Comparison of Years Ended December 31, 2022 and 2021
We have four reportable business segments: Well Intervention, Robotics, Shallow Water Abandonment 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):
Year Ended December 31,
Increase/(Decrease)
2022
2021
Amount
Percent
Net revenues —
Well Intervention
$
524,241
$
516,564
$
7,677
1
%
Robotics
191,921
137,295
54,626
40
%
Shallow Water Abandonment
124,810
—
124,810
100
%
Production Facilities
82,315
69,348
12,967
19
%
Intercompany eliminations
(50,187)
(48,479)
(1,708)
$
873,100
$
674,728
$
198,372
29
%
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Year Ended
Increase/
December 31,
(Decrease)
2022
2021
Amount
Percent
Gross profit (loss) —
Well Intervention
$
(40,107)
$
(21,262)
$
(18,845)
89
%
Robotics
37,507
13,441
24,066
179
%
Shallow Water Abandonment
23,919
—
23,919
100
%
Production Facilities
30,666
25,024
5,642
23
%
Corporate, eliminations and other
(1,369)
(1,810)
441
$
50,616
$
15,393
$
35,223
229
%
Gross margin —
Well Intervention
(8)
%
(4)
%
Robotics
20
%
10
%
Shallow Water Abandonment
19
%
—
%
Production Facilities
37
%
36
%
Total company
6
%
2
%
Number of vessels, Robotics assets or Shallow Water Abandonment systems (1) / Utilization (2)
Well Intervention vessels
7 / 80
%
7 / 67
%
Robotics assets (3)
48 / 53
%
47 / 36
%
Chartered Robotics vessels
5 / 95
%
3 / 97
%
Shallow Water Abandonment vessels (4)
21 / 73
%
— / —
%
Shallow Water Abandonment systems (5)
21 / 62
%
— / —
%
(1) Represents the number of vessels, Robotics assets or marketable Shallow Water Abandonment systems 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, vessels managed on behalf of third parties 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, Robotics assets or marketable Shallow Water Abandonment systems generated revenues by the total number of calendar days in the applicable period. Utilization rates of chartered Robotics vessels in 2022 and 2021 included 420 and 477 spot vessel days, respectively, at near full utilization.
(3) Consists of ROVs, trenchers and the IROV boulder grab.
(4) Consists of liftboats, OSVs, DSVs, a heavy lift derrick barge and a crew boat.
(5) Consists of marketable P&A and coiled tubing systems.
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,
Increase/
2022
2021
(Decrease)
Well Intervention
$
16,545
$
21,521
$
(4,976)
Robotics
33,642
26,958
6,684
$
50,187
$
48,479
$
1,708
Net Revenues. Our consolidated net revenues increased by 29% in 2022 as compared to 2021, reflecting the addition of Shallow Water Abandonment segment in the third quarter 2022 and higher revenues from all of our segments.
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Our Well Intervention revenues increased by 1% in 2022 as compared to 2021, primarily reflecting higher vessel utilization and rates in the Gulf of Mexico and the North Sea as well as higher utilization on the Siem Helix 1 during 2022, offset in part by lower utilization on the Q7000 due to its scheduled maintenance during 2022, lower rates on the Siem Helix 1 and the Siem Helix 2 as they transitioned from their legacy contracts with Petrobras, and a weaker British pound during 2022 as compared to 2021. Overall Well Intervention vessel utilization increased to 80% in 2022 as compared to 67% in 2021.
Our Robotics revenues increased by 40% in 2022 as compared to 2021, primarily reflecting higher vessel, trenching and ROV activities. Chartered vessel days increased to 1,401 days, which included 420 spot vessel days, in 2022 as compared to 1,178 days, which included 477 spot vessel days, in 2021. Trenching days increased to 483 days during 2022 as compared to 336 days during 2021. Overall ROV and trencher utilization increased to 53% during 2022 from 36% during 2021.
Our Shallow Water Abandonment revenues in 2022 reflected revenues generated by Helix Alliance since the acquisition on July 1, 2022 (Note 3). The Epic Hedron heavy lift barge was 21% utilized, utilization of other Helix Alliance vessels was 76%, and utilization across marketable P&A and coiled tubing systems was 2,324 days, or 62%.
Our Production Facilities revenues increased by 19% in 2022 as compared to 2021, primarily reflecting higher oil and gas prices and improved rates related to the HFRS, offset in part by lower oil and gas production volumes in 2022. Revenues also benefitted from retroactive rate adjustment on our production contract with the HP I .
Gross Profit (Loss). Our consolidated 2022 gross profit increased by $35.2 million as compared to 2021, primarily reflecting increased profitability in our Robotics and Production Facilities segments and the addition of Shallow Water Abandonment segment in the third quarter 2022, offset in part by decreased profitability in our Well Intervention segment.
Our Well Intervention segment had a gross loss of $40.1 million in 2022 as compared to a gross loss of $21.3 million in 2021, primarily reflecting our mix of contracting year over year, with our lower rates in Brazil generating higher losses, offset in part by increased Gulf of Mexico and North Sea revenues generating lower incremental margins driven by an increase in integrated projects and reimbursable revenues during 2022.
Our Robotics gross profit increased by $24.1 million in 2022 as compared to 2021, primarily reflecting higher revenues due to increased trenching and ROV activities and a higher number of vessel days.
Our Shallow Water Abandonment gross profit in 2022 reflected results from Helix Alliance since the acquisition on July 1, 2022.
Our Production Facilities gross profit increased by $5.6 million in 2022 as compared to 2021, primarily reflecting increases in revenues, offset in part by higher costs during 2022.
Acquisition and Integration Costs. Our acquisition and integration costs of $2.7 million reflected Alliance acquisition related costs incurred during 2022 (Note 3).
Change in Fair Value of Contingent Consideration. The $16.1 million change in fair value of contingent consideration reflected an increase in the estimated earn-out payable in 2024 to the seller in the Alliance transaction as Helix Alliance’s 2022 results following the acquisition date and its expected 2023 results have both improved as compared to forecasts and information available at the time of acquisition (Notes 3 and 19).
Selling, General and Administrative Expenses. Our selling, general and administrative expenses were $76.8 million in 2022 as compared to $63.4 million in 2021, primarily reflecting higher employee incentive and share-based compensation costs as well as increased general and administrative expenses related to Helix Alliance.
Equity in Earnings of Investment. Equity in earnings of investment of $8.3 million primarily reflected the cash distribution as a result of the sale of the “Independence Hub” platform in 2022 (Note 2).
Net Interest Expense. Our net interest expense totaled $19.0 million in 2022 as compared to $23.2 million in 2021, primarily reflecting lower funded debt, which decreased by $42.9 million during 2022, and lower fees associated with our credit facility as compared to 2021 (Note 7).
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Other Income (Expense), Net. Net other expense was $23.3 million in 2022 as compared to $1.5 million in 2021, primarily reflecting higher foreign currency losses due to weakening of the British pound in 2022.
Income Tax Provision (Benefit). Income tax provision was $12.6 million for 2022 as compared to income tax benefit of $9.0 million for 2021. The effective tax rates for 2022 and 2021 were (16.8)% and 12.7%, respectively. These variances were primarily attributable to the earnings mix between our higher and lower tax rate jurisdictions as well as losses in certain jurisdictions for which no financial statement benefits have been recognized (Note 8).
Comparison of Years Ended December 31, 2021 and 2020
Various financial and operational highlights for the years ended December 31, 2021 and 2020 were previously presented in our 2021 Annual Report on Form 10-K.
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):
December 31,
2022
2021
Net working capital
$
162,634
$
251,255
Long-term debt
225,875
262,137
Liquidity
284,729
304,660
Net Working Capital
Net working capital is equal to current assets minus current liabilities and includes current maturities of long-term debt. Net working capital measures short-term liquidity and is important for predicting cash flow and debt servicing capacity.
Long-Term Debt
Long-term debt in the table above is net of unamortized debt issuance costs and excludes current maturities of $38.2 million and $42.9 million, respectively, at December 31, 2022 and 2021. See Note 7 for information relating to 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 December 31, 2022 included $186.6 million of cash and cash equivalents and $98.1 million of available borrowing capacity under the ABL Facility (Note 7) and excluded $2.5 million of restricted cash. 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 reduction in cash and cash equivalents was primarily attributable to our acquisition of Alliance on July 1, 2022 (Note 3). The increase in available borrowing capacity under the ABL Facility resulted from debt repayments during 2022. As of December 31, 2022, we had approximately $28.9 million in Nigerian Naira, which is subject to currency exchange controls established by the Central Bank of Nigeria. Those exchange controls have to date restricted our ability to convert our Nigerian Naira into U.S. dollars.
During 2022, we saw an improvement in the markets we serve as evidenced by increases in our revenues and gross profit. We expect continued improvements in our operating performance, increases in our cash position and high availability on the ABL Facility. 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.
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A period of weak 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. We currently do not anticipate borrowing under the ABL Facility other than for the issuance of letters of credit.
On February 20, 2023, we announced that our Board authorized a new share repurchase program under which we are authorized to repurchase up to $200 million issued and outstanding shares of our common stock. The repurchase program has no set expiration date. Repurchases under the program would be made through open market purchases in compliance with Rule 10b-18 under the Exchange Act, privately negotiated transactions or plans, instructions or contracts established under Rule 10b5-1 under the Exchange Act. The manner, timing and amount of any purchase will be determined by management based on an evaluation of market conditions, stock price, liquidity and other factors. The program does not obligate us to acquire any particular amount of common stock and may be modified or superseded at any time at our discretion. The purchase of shares by us under the program is at our discretion and subject to prevailing financial and market conditions. Any repurchased shares are expected to be cancelled. No repurchases have been made pursuant to this program at the time of this filing.
Cash Flows
The following table provides summary data from our consolidated statements of cash flows (in thousands):
Year Ended December 31,
2022
2021
2020
Cash provided by (used in):
Operating activities
$
51,108
$
140,117
$
98,800
Investing activities
(138,289)
(8,271)
(19,281)
Financing activities
(44,844)
(95,997)
(52,578)
Operating Activities
The decrease in our operating cash flows for 2022 as compared to 2021 primarily reflects higher regulatory recertification costs for our vessels and systems and negative changes in net working capital. Regulatory recertification spend on our vessels and systems amounted to $35.1 million and $9.6 million, respectively, during the comparable year over year periods. Operating cash flows for 2022 and 2021 included the receipt of $1.1 million and $18.9 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 2022 as compared to 2021 primarily reflect $112.6 million in net cash paid to acquire Alliance (Note 3), offset in part by $7.8 million in net cash distribution from Independence Hub in May 2022 (Note 2) and 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 in 2022 primarily reflect the repayment of $7.9 million related to the MARAD Debt and $35 million related to the 2022 Notes (Note 7). Net cash outflows from financing activities of $96.0 million in 2021 primarily reflect the repayment of $90.9 million related to our indebtedness, including the final maturity of $53.6 million of the Nordea Q5000 Loan in January 2021 and $28.0 million in full repayment of the Term Loan in September 2021.
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, including the payment of the Alliance earn-out consideration to the seller in the Alliance transaction.
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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 December 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 December 31, 2022. Our 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 7).
Total
Short-Term
Long-Term
MARAD debt
$
40,913
$
8,333
$
32,580
2023 Notes
30,000
30,000
—
2026 Notes
200,000
—
200,000
Interest related to debt
49,439
16,668
32,771
Property and equipment
14,350
14,350
—
Operating leases (1)
406,378
114,378
292,000
Earn-out consideration (2)
42,754
—
42,754
Total cash obligations
$
783,834
$
183,729
$
600,105
(1) Operating leases include vessel charters and facility and equipment leases. At December 31, 2022, our commitment related to long-term vessel charters totaled approximately $378.8 million, of which $157.3 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, 2022 .
(2) As part of the Alliance acquisition, we are required to make the earn-out payment to the seller in the Alliance transaction in 2024 in the event the Helix Alliance business achieves certain financial metrics in 2022 and 2023 (Note 3). Amount reflects the estimated fair value of the earn-out as of December 31, 2022 although the final earn-out payable is not capped.
Other material cash requirements
Other material cash requirements include the following:
Decommissioning. We have decommissioning obligations associated with our oil and gas properties (Note 15). Those obligations, which are presented on a discounted basis on the consolidated balance sheets, approximate $78.6 million (undiscounted) as of December 31, 2022, none of which is expected to be paid during the next 12 months. We are entitled to receive certain amounts from Marathon Oil as certain decommissioning obligations are fulfilled.
Regulatory certification and dry dock. Our Well Intervention vessels and systems are subject to certain regulatory recertification requirements that must be satisfied in order for the vessels and systems to operate. Recertification may require dry dock and other compliance costs on a periodic basis, usually every 30 months. Although the amount and timing of these costs may vary, they generally range between $3.0 million to $15.0 million per vessel and $0.5 million to $5.0 million per system.
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 Amended ABL Facility and access to capital markets.
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CRITICAL ACCOUNTING ESTIMATES
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 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. We believe that the most critical accounting estimates are described below. See Note 2 to our consolidated financial statements for a detailed discussion on the application of our accounting policies.
Business Acquisition
We account for business acquisitions under the acquisition method of accounting. We determine the purchase price to be the cash and other assets transferred to the seller and the value of any liabilities, such as contingent consideration or other seller financing incurred. The estimate of any contingent consideration and its fair value on the acquisition date and subsequent reporting periods is a significant estimate.
We allocate the purchase price of businesses we acquire to identifiable assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. Any excess purchase price over the fair value of the net identifiable assets acquired is recorded as goodwill. The allocation of the purchase price requires management to make significant estimates in determining the fair values of assets acquired and liabilities assumed. These estimates and assumptions may include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted average cost of capital, and the estimated useful lives. Changes in these assumptions could affect the carrying value of these assets, the amount of future depreciation or amortization and any possible impairment charges.
We use available and relevant information to estimate fair values (including quoted market prices when available) and the nominal value of acquired assets and assumed liabilities as well as deploy various valuation techniques such as discounted cash flows. We may engage third party specialists to assist in the fair value determination of acquired assets and liabilities, including identifiable long-lived assets and identifiable intangible assets, as well as any contingent earn-out consideration to be paid to the seller if certain future conditions are met. The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, the estimated fair value of contingent earn-out considerations, as well as the remaining useful lives of these assets, could materially impact our financial condition or results of operations. See Note 3 to our consolidated financial statements for further discussion on our acquisition of Alliance during 2022.
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 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 and comparing those cash flows to the asset’s carrying value. 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.
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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.
New Accounting Standards
For discussion on the potential impact of new accounting standards issued but not yet adopted, see Note 2 to our consolidated financial statements.