e425
Filed by Helix Energy Solutions Group, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 and Rule 14d-2(b)
of the Securities Exchange Act of 1934
Subject Company: Helix Energy Solutions Group, Inc.
Commission File No.: 0-22739
The following document is filed herewith pursuant to Rule 425 under the Securities Act of 1933:
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Transcript of presentation by Helix Energy Solutions Group, Inc. at the Sidoti & Companys
Tenth Annual Emerging Growth Institutional Investor Forum in New York, New York on April 4,
2006. |
Sidoti & Company, LLC
Tenth Annual Emerging Growth Institutional Investor
April 4, 2006
(Background Conversation/Off Mike)
Martin Ferron: We might have a new name, but our strategy is almost 14 years old, and its a
pretty unique one. The origins of this strategy are based on three trends that weve always seen
in the marketplace, in the energy marketplace. The first of them is that theres an increasing
number of mature fields. And as basins get older, and the infrastructure gets older, theres
opportunity to acquire mature reservoirs.
Theres also an increasing number of small fields, especially in deep water. For every big
field thats found by a major, theres probably 20 small ones, found by others. And the third
trend is that as the E&P companies move into deep water, more things are done underwater. So as a
diving company, we saw the opportunity to do things with deep water techniques and methodologies.
So what we tried to do back, actually in 92 when we started all this was come up with a
strategy that addresses those three trends. So in a nutshell, what we do is provide development
solutions and related services to the energy markets. But we specialize in the exploitation of
(Inaudible) called marginal fields. So either mature or small. And we also differentiate
ourselves, and this is a differentiation, by taking oil and gas production as well as cash for our
services, as payment for our services.
So like a double helix, we have a two-stranded strategy. We offer contracting services, just
like any other oil service play into the open marketplace. And were all seeing where the market
is being so good right now, were pretty well focused on that. But from time to time, we also
provide those services internally to develop internal reservoirs. And by doing that, we believe,
and well show you some financials a bit later, that we can reduce cyclicality, in other words,
provide steady growth; and also generate superior financial returns. And again weve got some
numbers to back up that claim.
Our structure is based on those two strands. We have a service organization, which is rich in
assets. And then we have an oil and gas company, which owns all of the reservoirs. And what we do
is, we treat the oil and gas company exactly the same as an external customer in terms of pricing.
So when I talk about cost advantages in a minute, Im not talking about playing games
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with pricing. We treat our oil and gas company the same way as a customer, and they make the
spending decisions exactly the same as any independent E&P company would.
We got a lot of attention for the announcement of our intention to acquire Remington Oil & Gas
back in January. The deal size is about $1.4 billion. But whats perhaps less understood is that
weve spent about a billion dollars in the last few years building up our services so that we can
offer cradle to grave service for small fields in deep water. So in other words, we can explore;
we can appraise; we can do all the development work; we can maintain the production; and then
finally, we can abandon the reservoir.
So this is really important to us because it makes us masters of our own destiny, in terms of
the way we apply our assets and our approaches to the reservoirs which we own. And we believe that
by doing that, we can reduce F&D costs, finding and development costs, on these reservoirs by
around 20 percent. So thats not pricing. Thats the application of our assets and our
methodologies on these particular types of reservoir. And as we progress the exploitation of
Remingtons portfolio, I hope to show you that. We can demonstrate it over the next two, three
years.
We are known for work in the Gulf of Mexico. But over the last two to three years, weve been
building our service presence in the North Sea, and in Southeast Asia. Because we see the
opportunity to acquire reservoirs in those two areas. And hopefully youll see us take our
strategy international over the next two to three years.
Lets talk about contracting services first. Now, as I mentioned, again we have a
two-stranded approach to contracting, in that we do external work, and we do internal work. Right
now, were probably only doing about ten percent of our utilization internally because the outside
market is so robust. You know, were enjoying good pricing, just like any other service company.
But this is a cyclical business, and in a downturn scenario, youll see us switch utilization to
internal (Inaudible). So that through a cycle, you can expect our internal jobs that may be
generated on average, 30 percent utilization for our fleet. Why thats important is that it gives
us internal backlog, and it keeps us away from the worst of competitive pricing issues.
You see in down cycles, that when utilization rates fall below 80 percent, maybe 70 percent,
pricing tends to erode very quickly, and service companies tend to try and outbid each other. So
by having this internal back order work, we cushion ourselves from the worst of that effect.
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In December, we picked up a reservoir management company, from which we took on (Inaudible).
Theyre actually called Helix RDS. And what was good about this particular company is that they
have 180 plus reservoir managers and engineers, all based on the North Sea and the Far East. You
know, I mentioned earlier that we want to take on more (Inaudible) those areas. So this
acquisition will re-enable us to understand the local geology and reservoirs in those areas. So
youll see us build upon this acquisition in the near term.
Next, were planning to go drilling next year. We have an asset that we can convert to
drilling. And its just adding components; its not a major conversion. So the rest is still
working, as I speak. And within a two-week period in the first quarter next year, well be adding
the equipment. And then well be able to drill on our own account. Well probably drill a couple
of our own reservoirs first. But theres a lot of interest in the open market in this asset.
Obviously youve seen drill rig rates increase dramatically in price. This particular asset can
work in 10,000 feet of water, if we choose to. So there, the prices are the highest. So weve got
a lot of pricing leverage with this particular asset.
The next service offering we have is production facilities. We provide floating production
units, to produce several small reservoirs simultaneously. So we choose particular spots in the
Gulf of Mexico, and then entice customers to bring their reservoirs to use that facility. So we
get a really nice, kind of mid-stream return, based on demand, fees, and tariffs. But as you can
see in the picture, theres a whole lot of construction work that we get to own these facilities,
and also our production company can farm in to all of the surrounding reservoirs, or has the
opportunity to farm in. So owning the facilities is a nice enabler for us to do the other things
that we like to do in the marketplace.
I guess construction is the service were best known for, and we started providing diving
construction in the 60s. And Ill start with shallow water. We actually doubled the size of our
fleet last year, just before the hurricanes blew through the Gulf of Mexico, so either lucky or
good, we made a nice move there. And were seeing obviously exceptional pricing with repair work
thats likely to last at least 18 months, just for the clean-up after the two hurricanes last year.
As I mentioned, we doubled the size of our fleet, and therefore the contribution from our unit
is much better and well show you some financials later. But deep water is where the real kind of
(Inaudible) growth is. If you follow companies like FMC and Cameron, you see tree
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orders going out
five, six, seven years, each of those trees generates construction work for us. So we really see
growth in that area, and thats where were adding assets at the moment.
The last of our service offerings is well operations. This is a particular niche that we
spotted several years ago. And most well intervention is actually done by drill rigs. But we have
two assets, one semi-submersible unit in the Gulf of Mexico,, and one monohull in the North Sea.
They can do well intervention, you know, simple down hole tasks for maintenance and repair purposes
a lot cheaper than the drill rig. But as drill rig rates have escalated, so have our prices for
well intervention. So were seeing exceptional demand for these assets right now. And youll see
more earnings from then than we enjoyed last year.
Turning to the second strand of the company, oil and gas production. As I mentioned, weve
been a producer for 14 years. And thats perhaps little known. But weve learned a few things
along the way. And one of the main things is that for us to get the fast returns, we have to be
the operator. Whenever youre a minority stakeholder in a reservoir, youre turning half
(Inaudible) to somebody elses team. You cant apply assets and methodologies in the way that you
choose. So we learn from our experience in buying shallow water mature fields that we divest as
operator. So we wanted to become an operator in the deep water.
And the Remington acquisition enables that. I mean, thats the key driver for us making that
move. At the end of 2004, we had 116 DCFE of reserves on an equivalent basis. By the time we
close Remington, well have all of 500 DCFE. So weve added a lot to proven reserves. Were going
to double our production, year over year. And all that while maintaining our ratio of proven to
undeveloped reserves for a very similar oil and gas mix.
But we didnt buy Remington just for their proved reserve components. Remington is a prospect
generation company. Theyve excelled over the last six years at generating both shallow water and
deep water prospects. And we believe that theyve got an inventory that we can exploit, that will
add over TCF of reserves over the next several years. Theyve got 150 prospects which we tend to
exploit. And our exploitation will involve the use of a lot of our assets. So we think that we
can generate well over a billion dollars of work for our services in that effort. So between the
program components, the prospect value, and the service value, I think this will be a great deal
for us.
Another thing Id like to point out about Remington is that their exploration was pretty,
their exploration effort, I think, is pretty clever. A lot of companies tend to look for big
fields in
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the middle of nowhere. Remington started (Inaudible) to try and find small fields
adjacent to prior finds. So it gives a better chance of success in terms of drilling. It also
means that we can quickly
develop these prospects. We are going to be drilling two of Remingtons prospects with an external
rig this year, so hopefully youll see the success of our effort come to bear very quickly.
So post-Remington, were going to combine production of over 220 (Inaudible) in a day. Proven
reserves over 500 DCFE. Well have 30 fields in deep water that we can exploit, at the time of our
own choosing. And well have combined risk prospects of over 1.4 Ts of gas equivalent, and over a
billion dollars of service (Inaudible).
We do hedge up to 50 percent of our PDP. Mainly to preserve our capital budgets. And we do
have some nice hedges in place right now, and Wade will speak to that a bit more in the financial
section. Round about now, Wade?
Wade Pursell: Thank you, Martin. The industry basically is a very cyclical one. This slide
doesnt look very cyclical, though. And thats primarily because of the business model that weve
employed that Martin took you through. You see a nice, linear growth line from 95 to 02. And
then more exponential from 02 through present. (Inaudible) back in 1997, the year we first went
public, we were pretty excited to do 100 million of revenues that year. And now were doing that
just about every month.
More important, the bottom line, you see a similar growth line over the last five years here.
Back in 2004, we did 80 million of net income. And based on the guidance weve given for 2006,
well easily double that, and might even triple it. Looking at it differently, cash flow, this
shows EBIDTA. We do generate a lot of cash. A look back at 2004 again, it was 240 million of
cash. And looking to 2006, we should generate over half a billion.
Probably our most important metric, return on capital invested, this is an after tax return.
We set as a target, for ten to 15 percent return on capital. You see back in 02 and 03, we fell
below that target. That was on the heels of an $850 million capital investment program, including
the construction of Q4000 and several other programs. We were early to the party. About 2004, the
party had caught up to us, and were back above our targets. For 05, we did 17 percent. And with
the fourth quarter being 22 percent, I look for 2006 to be about 20 percent as well.
This is an interesting slide showing our mix of our capital programs, between oil and gas
production and contracting services. Since the announcement of the Remington acquisition some
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people have thought weve sold our soul to E&P, but hopefully this slide shows you that thats not
the case. Looking in the middle pie of 2006, obviously with the cash component of that Remington
transaction, mostly oil and gas production related, CAP EX 06. But if you look at the
four years prior, and then our projections for the next three years, you see more of a balanced mix
between where were going to be spending our capital.
Turning to the debt picture, as of the end of 05, we had about $440 million of debt. This
was represented in two facilities, primarily. The Maroon facility being a $300 million convertible
notes facility that we did last, about a year ago, last March. Thats 20 year maturity with a
three and a quarter percent coupon. The green is a MARAD facility that we got for constructing the
Q4000 in the United States. Thats also a very long term facility, 25 years. It has mortgage
style amortization. We fixed the interest rate last year at about 4.8 percent, so our debt at year
end was very long term, low amortization, with a fixed interest cost.
Looking ahead, to close the Remington transaction for the cash part of the transaction, well
be putting in place a senior secured Term B facility for about $813 million. That facility has
already been underwritten. Were in the process of syndicating it now. But you see that facility,
it will be a floating interest, around (Inaudible) or plus 175. Low amortization as well, one
percent required every year with a bullet at the end of seven years. Completely pre-payable. And
Ive put some credit statistics up here to show that, you know, once we close in May or June,
coming out of the box, even with this additional debt will be somewhere around debt to trailing
EBIDTA of two times one. And even more important, looking at debt service coverage, well have
nearly coverage of ten times.
At the beginning of every year, the management team, we set some kind of general objectives
for ourselves for the coming year. And then throughout the year, we grade ourselves on those
objectives. You see in contracting services, were projecting a revenue number of $650 to $750
million this year. I think were well on our way to making that. That compares to $550 last year.
On the margin side, were projecting 25 to 35 percent. Were well on our way to meeting those as
well. Equity in earnings, this is just the contribution from the Marco Polo facility, $27 to $32
million. That compares to $11 million last year.
We want to achieve mechanical completion on our second production facility and its hub, and
begin construction on another facility by the end of the year. On the oil and gas production side,
and these targets, obviously excluding Remington, were looking for 44 to 47 BCFE of
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production
this year. We want to start production from at least one of our deepwater hubs. We want to bring
one of those on stream. We want to make our first North Sea acquisition.
On the financial side, our earnings guidance for the year remain in the range of $2.30 to
$3.30 per share. And last, but certainly not least, were shooting for an incident rate, safety
incident rate below 1.8. Ive added a couple of slides to the end of our presentations this year.
We want to just kind of give you an idea first of all, looking back six months, and going through
some highlights, I think we probably touched on all of these, so I wont go through them again.
But obviously its been very active consolidating the shelf construction market and announcing the
Remington acquisition, just to name a few.
And then looking over the next year, you know, I talked about our general objectives for the
coming year, but these are just kind of a very specific sheet for you to follow. And throughout the
year you can look at these and kind of see how things are going. I wont read through them but
theyre there for you to refer to and look at later.
And that concludes are presentation. Thank you.
M: (Off Mike) ... questions
M: I think its (Inaudible) room, isnt that right? Okay. All right.
(Off Mike Conversation)
(END OF TAPE)
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