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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission file number 001-32936
hlxlogo.jpg
HELIX ENERGY SOLUTIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
Minnesota
 
95-3409686
State or other jurisdiction of incorporation or organization
 
(I.R.S. Employer Identification No.)
  
 
 
 
3505 West Sam Houston Parkway North
 
 
Suite 400 
 
 
Houston
Texas
 
77043
(Address of principal executive offices)
 
 (Zip Code)
Registrant’s telephone number, including area code (281618-0400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock
 
HLX
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes   No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes   No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer 
Non-accelerated filer 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2019 was approximately $905.9 million.
The number of shares of the registrant’s common stock outstanding as of February 21, 2020 was 149,962,115.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders to be held on May 20, 2020 are incorporated by reference into Part III hereof.
 




HELIX ENERGY SOLUTIONS GROUP, INC. INDEX — FORM 10-K
 
 
Page
PART I
PART II
 
 
 
 
 
 
 
 
PART III
PART IV
 

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Forward Looking Statements
 
This Annual Report on Form 10-K (“Annual Report”) contains or incorporates by reference various statements that contain forward-looking information regarding Helix Energy Solutions Group, Inc. 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 (the “Securities Act”), 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 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, 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 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 general economic or political conditions, whether international, national or in the regional or local markets in which we do business;
statements regarding 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 oil and gas industry and the demand for our services;
the impact of oil and gas price fluctuations and the cyclical nature of the oil and gas industry;
the impact of any potential cancellation, deferral or modification of our work or contracts by our customers;
the ability to effectively bid 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 completion of our vessel and/or system upgrades and major maintenance items;
unexpected delays in the delivery, chartering or customer acceptance, and terms of acceptance, of our assets;
the effects of our indebtedness 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;
the effects of competition;
the availability of capital (including any financing) to fund our business strategy and/or operations;

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the impact of current and future laws and governmental regulations, including tax and accounting developments, such as the U.S. Tax Cuts and Jobs Act (the “2017 Tax Act”) and regulations thereunder;
the impact of U.K.’s exit from the European Union (the “EU”), known as Brexit, on our business, operations and financial condition, which is unknown at this time;
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 current and future hedging activities;
the potential impact of a loss of one or more key employees; and
the impact of general, market, industry or business conditions.
 
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 “Risk Factors” beginning on page 15 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 30 of this Annual Report. Should one or more of the risks or uncertainties described in this Annual 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 the 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 these 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, expressed or implied, included in this Annual 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 Annual Report and our reports filed with the Securities and Exchange Commission (“SEC”) and incorporated by reference herein that attempt to advise interested parties of the risks and factors that may affect our business. Please see “Website and Other Available Information” for further details.
PART I
Item 1.  Business
 
OVERVIEW
 
Helix Energy Solutions Group, Inc. (together with its subsidiaries, unless context requires otherwise, “Helix,” the “Company,” “we,” “us” or “our”) was incorporated in 1979 and in 1983 was re-incorporated in the state of Minnesota. 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. Our services cover the lifecycle of an offshore oil or gas field. We provide services and methodologies that we believe are critical to maximizing production economics. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our life of field services are segregated into three reportable business segments: Well Intervention, Robotics and Production Facilities. For additional information regarding our strategy and business operations, see sections titled “Our Strategy” and “Our Operations” included within Item 1. Business of this Annual Report.
 
Our principal executive offices are located at 3505 West Sam Houston Parkway North, Suite 400, Houston, Texas 77043; our phone number is 281-618-0400. Our common stock trades on the New York Stock Exchange (“NYSE”) under the ticker symbol “HLX.” Our Chief Executive Officer submitted the annual CEO certification to the NYSE as required under its Listed Company Manual in June 2019. Our principal executive officer and our principal financial officer have made the certifications required under Section 302 of the Sarbanes-Oxley Act, which are included as exhibits to this Annual Report.
 
Please refer to the subsection “Certain Definitions” on page 13 for definitions of additional terms commonly used in this Annual Report. Unless otherwise indicated, any reference to Notes herein refers to Notes to Consolidated Financial Statements in Item 8. Financial Statements and Supplementary Data located elsewhere in this Annual Report.
 

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OUR STRATEGY
 
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. We believe that focusing on these services should deliver favorable long-term financial returns. From time to time, we may make strategic investments that expand our service capabilities and/or the regions in which we operate or add capacity to existing services in our key operating regions. Our well intervention fleet expanded with the delivery in November 2019 of the Q7000, a newbuild semi-submersible vessel. The Q7000 commenced operations in Nigeria in January 2020. Chartering vessels with additional capabilities, such as the Grand Canyon vessels, should enable our robotics business to better serve the needs of our customers. We expect to benefit from longer-term contracts that offer firm utilization for our vessels and equipment, and we seek to improve utilization of our well intervention fleet in the Gulf of Mexico as we acquire oil and gas properties and perform the plug and abandonment (“P&A”) of the acquired assets as our schedule permits, subject to regulatory timelines.
 
In January 2015, Helix, OneSubsea LLC, OneSubsea B.V., Schlumberger Technology Corporation, Schlumberger B.V. and Schlumberger Oilfield Holdings Ltd. entered into a Strategic Alliance Agreement and related agreements for the parties to design, develop, manufacture, promote, market and sell on a global basis integrated equipment and services for subsea well intervention. The alliance leverages the parties’ capabilities to provide a unique, fully integrated offering to clients, combining marine support with well access and control technologies.
 
OUR OPERATIONS
 
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. We provide a full range of services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. Our Well Intervention segment includes our vessels and/or equipment used to perform well intervention services primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa. Our well intervention vessels include the Q4000, the Q5000, the Q7000, the Seawell, the Well Enhancer, and the chartered Siem Helix 1 and Siem Helix 2 vessels. Our well intervention equipment includes intervention riser systems (“IRSs”) and subsea intervention lubricators (“SILs”), some of which we provide on a stand-alone basis. Our Robotics segment includes remotely operated vehicles (“ROVs”), trenchers and a ROVDrill, which are designed to complement offshore construction and well intervention services, two robotics support vessels under long-term charter: the Grand Canyon II and the Grand Canyon III, and spot vessels, including the Ross Candies, which is under a flexible charter agreement. Our Production Facilities segment includes the Helix Producer I (the “HP I”), a dynamically positioned floating production vessel that currently processes production from the Phoenix field for the field operator, the Helix Fast Response System (the “HFRS”), our ownership interest in Independence Hub, LLC (“Independence Hub”) and our ownership of oil and gas properties. All of our current production facilities activities are located in the Gulf of Mexico. See Note 15 for financial results related to our business segments.
 
Our current services include:
 
Production.  Well intervention; intervention engineering; production enhancement; inspection, repair and maintenance of production structures, trees, jumpers, risers, pipelines and subsea equipment; and support for life of field services.
Decommissioning.  Reclamation and remediation services; well P&A services; pipeline abandonment services; and site inspections.
Development.  Installation of flowlines, control umbilicals, manifold assemblies and risers; trenching and burial of pipelines; installation and tie-in of riser and manifold assembly; commissioning, testing and inspection; and cable and umbilical lay and connection. We have experienced increased demand for our services from the renewable energy industry. Some of the services that we provide to these renewable energy businesses include subsea power cable installation, trenching and burial, along with seabed coring and preparation for construction of wind turbine foundations.
Production facilities.  Provision of our HP I vessel as an oil and natural gas processing facility for services to oil and gas companies operating in the deepwater of the Gulf of Mexico. Currently, the HP I is being utilized to process production from the Phoenix field.
Fast Response System.  Provision of the HFRS as a response resource in the Gulf of Mexico that can be identified in permit applications to U.S. federal and state agencies and respond to a well control incident.
 

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Well Intervention
 
We engineer, manage and conduct well intervention operations, which include production enhancement and abandonment, and construction operations in water depths ranging from 200 to 10,000 feet. As major and independent oil and gas companies develop deepwater reserves, we expect the number of subsea trees to increase, which can improve long-term demand for well intervention services. Historically, drilling rigs were used in subsea well intervention to troubleshoot or enhance production, shift sleeves, log wells or perform recompletions. Our well intervention vessels serve as work platforms for well intervention services at costs that generally have been less than those of offshore drilling rigs. Our vessels derive competitive advantages from their lower operating costs, with an ability to mobilize quickly and to maximize operational time by performing a broad range of tasks related to intervention, construction, inspection, repair and maintenance. Our services provide a cost advantage in the development and management of subsea reservoirs. We expect demand for our services to increase due to efficiency gains from our specialized intervention assets.
 
Our well intervention business currently operates seven vessels and various equipment such as IRSs and SILs, providing services primarily in the Gulf of Mexico, Brazil, the North Sea and West Africa.
 
The Q7000, our newly completed semi-submersible well intervention vessel built to U.K. North Sea standards, was delivered to us in November 2019. The vessel commenced integrated well intervention operations offshore Nigeria in January 2020.
 
In the Gulf of Mexico, our Q4000, a riser-based semi-submersible well intervention vessel, commenced operations in 2002 and serves customers in the spot market. In 2010, the Q4000 served as a key emergency response vessel in the Macondo well control and containment efforts. Our Q5000 riser-based semi-submersible well intervention vessel commenced operations in the Gulf of Mexico in 2015 and is under a five-year contract with BP into 2021.
 
In Brazil, we provide well intervention services to Petróleo Brasileiro S.A. (“Petrobras”) with the Siem Helix 1 and Siem Helix 2 vessels that we charter from Siem Offshore AS (“Siem”). The initial term of the agreements with Petrobras is for four years, with options to extend by agreement of both parties for an additional period of up to four years. The Siem Helix 1 commenced operations for Petrobras in April 2017 and the Siem Helix 2 commenced operations for Petrobras in December 2017. The initial term of the charter agreements with Siem is for seven years with options to extend.
 
In the North Sea, the Well Enhancer has performed well intervention, abandonment and coil tubing services since it joined our fleet in 2009. The Seawell has provided well intervention and abandonment services since 1987, and the vessel underwent major capital upgrades in 2015 to extend its estimated useful economic life by approximately 15 years.
 
Robotics
 
We have been actively engaged in robotics for over three decades. We operate robotics assets designed to complement offshore construction, maintenance and well intervention services, and often integrate these services with chartered vessels. Our robotics business unit primarily operates in the Gulf of Mexico, North Sea, West Africa and Asia Pacific regions. As global marine construction support operates in deeper waters, the use and scope of robotics services has expanded. Our robotics assets and experience, coupled with our chartered vessel fleet and schedule flexibility, allow us to meet the technological challenges of our customers’ subsea activities worldwide. Our robotics assets currently include 44 ROVs, four trenchers and one ROVDrill. We charter vessels to support deployment of our robotics assets, and engage spot vessels on short-term charter agreements as needed. Vessels currently under long-term charter agreements include the Grand Canyon II and the Grand Canyon III. The Grand Canyon charter terminated in November 2019.
 

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Over the last decade there has been an increase in offshore activity associated with the growing renewable energy industry. As the level of activity for offshore renewable energy projects, including wind farm projects, has increased, so has the need for reliable services and related equipment. Historically, this work was performed by barges and other similar vessels, but these types of services are increasingly being contracted to vessels more suitable for harsh offshore weather conditions, especially in Northern Europe where offshore wind farming is currently concentrated. We provide burial services related to subsea power cable installations as well as seabed clearing services around the world using our chartered vessels, ROVs and trenchers. In 2019, revenues derived from offshore renewables contracts accounted for 36% of our global robotics revenues. We believe that over the long term our robotics business unit is positioned to continue providing services to a range of clients in the renewable energy industry.
 
Production Facilities
 
We own the HP I, a ship-shaped dynamically positioned floating production vessel capable of processing up to 45,000 barrels of oil and 80 million cubic feet of natural gas per day. The HP I has been under contract to the Phoenix field operator since February 2013 and is currently under a fixed fee agreement through at least June 1, 2023.
 
We own a 20% interest in Independence Hub, which owns the Independence Hub platform. The platform is currently in the process of being decommissioned.
 
We developed the HFRS in 2011 as a culmination of our experience as a responder in the 2010 Macondo well control and containment efforts. The HFRS combines the HP I , the Q4000 and the Q5000 with certain well control equipment that can be deployed to respond to a well control incident. In January 2019 we renewed the agreements that provide various operators with access to the HFRS for well control purposes on newly agreed-upon rates and terms. These agreements are through March 31, 2021 and automatically renew on an annual basis absent proper notice of termination.
 
In January 2019 we acquired from Marathon Oil Corporation (“Marathon Oil”) several wells and related infrastructure associated with the Droshky Prospect located in offshore Gulf of Mexico Green Canyon Block 244. As part of the transaction, Marathon Oil agreed to pay us certain amounts as we complete the P&A of the acquired assets, which we can perform as our schedule permits, subject to regulatory timelines. We completed the P&A of two of the Droshky wells during 2019, and we expect limited production associated with the remaining Droshky wells.
 
GEOGRAPHIC AREAS
 
We primarily operate in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. See Note 15 for revenues as well as property and equipment by geographic location.
 
CUSTOMERS
 
Our customers consist primarily of major and independent oil and gas producers and suppliers, pipeline transmission companies, renewable energy companies and offshore engineering and construction firms. The level of services required by any particular customer depends, in part, on the size of that customer’s budget in a particular year. Consequently, a customer that accounts for a significant portion of revenues in one fiscal year may represent an immaterial portion of revenues in subsequent fiscal years. The percentages of consolidated revenues from major customers (those representing 10% or more of our consolidated revenues) are as follows: 2019 — Petrobras (29%), BP (15%) and Shell (13%); 2018 — Petrobras (28%) and BP (15%); and 2017 — BP (19%), Petrobras (13%) and Talos (10%). We provided services to over 50 customers in 2019.
 

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COMPETITORS
 
The oilfield services industry is highly competitive. While price is a factor, the ability to access specialized vessels, attract and retain skilled personnel, and operate safely are also important to competing in the industry. Our principal competitors in the well intervention business include Baker Hughes, Expro Group, Oceaneering International, Inc., TIOS and international drilling contractors. Our principal competitors in the robotics business include C-Innovation, LLC, DeepOcean Group, DOF Subsea Group, Fugro N.V., Oceaneering International, Inc. and ROVOP. Our competitors may have more financial, personnel, technological and other resources available to them.
 
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
 
We continue to implement and improve Environmental, Social and Governance (“ESG”) initiatives and disclosures throughout our business. In conjunction with support from management and our Board of Directors (our “Board”), we incorporate ESG initiatives into our core business values and priorities of safety, sustainability and value creation. We emphasize constant improvement by continually striving to improve our safety record, reducing our environmental impact, and increasing transparency. In 2019, we continued to decrease our Total Recordable Incident Rate from prior years, continued to expand our business with renewable energy customers, and published our first Corporate Sustainability Report. A copy of our current Corporate Sustainability Report is available on our website at www.HelixESG.com/about-helix/corporate-sustainability.
 
TRAINING, SAFETY, HEALTH, ENVIRONMENT AND QUALITY ASSURANCE
 
Our corporate vision of a zero-incident workplace is based on the belief that all incidents are preventable and that we manage our working conditions to eliminate unsafe behavior. We have established a corporate culture in which QHSE takes priority over our other business objectives. Everyone at Helix has the authority and the duty to “STOP WORK” they believe is unsafe.
 
Our QHSE management systems and training programs were developed based on common industry work practices, and by employees with on-site experience who understand the risk and physical challenges of the offshore work environment. As a result, we believe that our QHSE programs are among the best in the industry, and we continuously seek to improve our control of QHSE risks and the safe behavior of our employees. We assess risk by using selected risk analysis tools, controlling work through management system procedures, assessing job risk of all routine and non-routine tasks, documenting daily observations, and collecting data, all in an effort to provide a better understanding of our QHSE risks and at-risk behaviors. We schedule hazard hunts on our vessels and regularly audit QHSE management systems, with assigned responsibilities and action due dates.
 
The management systems of our business units have been independently assessed and registered compliant with ISO 9001 (Quality Management Systems) and ISO 14001 (Environmental Management Systems). Our safety management systems were created in accordance with OHSAS 18001.
 
GOVERNMENT REGULATION
 
Overview
 
We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions, and as such we are subject to numerous laws and regulations, including international treaties, flag state requirements, environmental laws and regulations, requirements for obtaining operating and navigation licenses, local content requirements, and other national, state and local laws and regulations in force in the jurisdictions in which our vessels and other assets operate or are registered, all of which can significantly affect the ownership and operation of our vessels and other assets. Beginning in 2019 we operate end of life offshore oil and gas wells, some of which may be producing and which we plan to ultimately decommission. Being an operator of wells subjects us to additional regulatory oversight from the Bureau of Ocean Energy Management (“BOEM”) and the Bureau of Safety and Environmental Enforcement (“BSEE”).
 

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International Conventions
 
Our vessels are subject to applicable international maritime convention requirements, which include, but are not limited to, the International Convention for the Prevention of Pollution from Ships (“MARPOL”), the International Convention on Civil Liability for Oil Pollution Damage of 1969, the International Convention on Civil Liability for Bunker Oil Pollution Damage of 2001 (ratified in 2008), the International Convention for the Safety of Life at Sea of 1974 (“SOLAS”), the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention (the “ISM Code”), the Code for the Construction and Equipment of Mobile Offshore Drilling Units (the “MODU Code”), and the International Convention for the Control and Management of Ships’ Ballast Water and Sediments (the “BWM Convention”). These regimes are applicable in most countries where we operate; however, the flag state and the country where we operate may impose additional requirements. In addition, these conventions impose liability for certain environmental discharges, including strict liability in some cases.
 
U.S. Overview
 
In the U.S., we are subject to the jurisdiction of the U.S. Coast Guard (the “Coast Guard”), the U.S. Environmental Protection Agency (the “EPA”) as well as state environmental protection agencies for those jurisdictions in which we operate, three divisions of the U.S. Department of the Interior (BOEM, BSEE and the Office of Natural Resources Revenue), and the U.S. Customs and Border Protection (the “CBP”), as well as classification societies such as the American Bureau of Shipping (the “ABS”). We are also subject to the requirements of the federal Occupational Safety and Health Act and comparable state laws that regulate the protection of employee health and safety for our land-based operations.
 
International Overview
 
While we provide services globally and generally can be subject to local laws and regulations wherever we operate, the regulatory regimes of the U.K. and Brazil are of particular importance given the locations of our current operations. The U.K. Continental Shelf in the North Sea is regulated by the Oil and Gas Authority (the “OGA”) in accordance with the Petroleum Act 1998. The OGA controls all of the Petroleum Operations Notices with which we comply for various well intervention and subsea construction projects, as required. The OGA also regulates the environmental requirements for our operations in the North Sea. We comply as required by the Oil Pollution Prevention and Control Regulations 2005. In the North Sea, international regulations govern working hours and the working environment, as well as standards for diving procedures, equipment and diver health. We also note that the U.K.’s exit from the EU may result in the imposition of new laws, rules or regulations affecting operations inside U.K. territorial waters.
 
Our operations in Brazil are predominantly regulated by the Brazilian National Agency of Petroleum, Natural Gas and Biofuels, the federal government agency responsible for the regulation of the oil sector. Additional regulatory oversight is provided, among others, by the Brazilian Institute of the Environment and Renewable Natural Resources, which oversees Brazilian environmental legislation, implements the National Environmental Policy and exercises control and supervision of the use of natural resources, the Brazilian Health Regulatory Agency, which regulates products and services subject to health regulations, and the Ministry of Labor, which regulates a variety of subjects including work-related accident prevention and use of machinery and equipment.
 
Operating Certification
 
Each of our vessels is subject to regulatory requirements of the country in which the vessel is registered, also known as the flag state. In addition, the country in which a vessel is operating may have its own requirements with respect to safety and environmental protections. These requirements must be satisfied in order for the vessel to operate. Flag state requirements are largely established by international treaties such as MARPOL, SOLAS, the ISM Code and the MODU Code, and in some instances, specific requirements of the flag state. These include engineering, safety, safe manning and other requirements related to the maritime industry. Each of our vessels must also maintain its “in-class” status with a classification society, evidencing that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable flag state rules and international conventions. Our vessels generally must undergo a class survey once every five years. In the U.S., the Coast Guard sets safety standards and is authorized to investigate marine incidents, recommend safety standards, and inspect vessels at will. We also adhere to manning requirements implemented by the Coast Guard for operations on the U.S. Outer Continental Shelf (“OCS”).
 

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Cabotage Rules
 
A number of jurisdictions where we operate require that certain work may only be performed by vessels built and/or registered in that jurisdiction. In some instances, an exemption may be available, or we may be subject to an additional tax to use a non-local vessel. In the U.S., we are subject to the Coastwise Merchandise Statute (commonly known as the “Jones Act”), which generally provides that only vessels built in the U.S., owned 75% by U.S. citizens, and crewed by U.S. citizen seafarers may transport merchandise between points in the U.S. The Jones Act has been applied to offshore oil and gas work in the U.S. through interpretations by the CBP.
 
BOEM and BSEE
 
Our business is affected by laws and regulations as well as changing tax laws and policies relating to the oil and gas industry in general. The operation of oil and gas properties located on the OCS is regulated primarily by BOEM and BSEE. Among other requirements, BOEM requires lessees of OCS properties to post bonds or provide other adequate financial assurance in connection with the P&A of wells located offshore and the removal of production facilities. Following the Deepwater Horizon incident in April 2010, BSEE implemented enhanced standards for companies engaged in the development of offshore oil and gas wells. As an operator of wells, we are also required to have a BSEE-approved Oil Spill Response Plan. In April 2016 BSEE issued the final Oil and Gas and Sulfur Operations in the Outer Continental Shelf-Blowout Preventer Systems and Well Control Rule, which updated requirements for equipment and operations for well control activities associated with drilling, completion, workover and decommissioning operations, and provided further guidance for the design and operation of remotely operated tools. In May 2019, BSEE released revised regulations for well control and blowout preventer systems in response to previous Executive and Secretarial Orders that directed BSEE to review regulations that potentially burdened the development or use of domestically produced energy resources. While leaving the majority of the regulations unchanged, certain provisions were revised and others were added, all in an effort to improve operations on the OCS. The final revised regulations address offshore oil and gas drilling, completions, workovers, and decommissioning activities, and to the extent that any changes are applicable to systems that we own or operate, we have incorporated those changes into our operations as appropriate.
 
Local Content Requirements
 
Governments in some countries, notably in Brazil and in the West Africa region, have become increasingly active in establishing and enforcing local content requirements with respect to equipment and crews utilized in operations such as ours, along with other aspects of the oil and gas industries in their respective countries.
 
Other Regulatory Impact
 
Additional proposals and proceedings before various international, federal and state regulatory agencies and courts could affect the oil and gas industry, including curtailing production and demand for fossil fuels. We cannot predict when or whether any such proposals may become effective.
 
ENVIRONMENTAL REGULATION
 
Overview
 
Our operations are subject to a variety of national (including federal, state and local) and international laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental departments issue rules and regulations to implement and enforce these laws that are often complex, costly to comply with, and carry substantial administrative, civil and possibly criminal penalties for compliance failure. There is currently little uniformity among the regulations issued by the governmental agencies with authority over environmental regulation. Under these laws and regulations, we may be liable for remediation or removal costs, damages, civil, criminal and administrative penalties and other costs associated with releases of hazardous materials (including oil) into the environment, and that liability may be imposed on us even if the acts that resulted in the releases were in compliance with all applicable laws at the time those acts were performed. Some of the environmental laws and regulations that are applicable to our business operations are discussed in the following paragraphs, but the discussion does not cover all environmental laws and regulations that govern or otherwise affect our operations.
 

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MARPOL
 
The U.S. is one of approximately 170 member countries party to the International Maritime Organization (“IMO”), an agency of the United Nations responsible for developing measures to improve the safety and security of international shipping and to prevent marine pollution from ships. The IMO has negotiated MARPOL, which imposes on the shipping industry environmental standards relating to oil spills, management of garbage, the handling and disposal of noxious liquids, harmful substances in packaged forms, sewage, and air emissions.
 
OPA 90
 
The Oil Pollution Act of 1990, as amended (“OPA”), imposes a variety of requirements on offshore facility owners or operators, and the lessee or permittee of the area in which an offshore facility is located, as well as owners and operators of vessels. Any of these entities or persons can be “responsible parties” and are strictly liable for removal costs and damages arising from facility and vessel oil spills or threatened spills. Failure to comply with OPA may result in the assessment of civil, administrative and criminal penalties. In addition, OPA requires owners and operators of vessels over 300 gross tons to provide the Coast Guard with evidence of financial responsibility to cover the cost of cleaning up oil spills from those vessels. A number of foreign jurisdictions also require us to present satisfactory evidence of financial responsibility. We satisfy these requirements through appropriate insurance coverage.
 
Water Pollution
 
For operations in the U.S., the Clean Water Act imposes controls on the discharge of pollutants into the navigable waters of the U.S. and imposes potential liability for the costs of remediating releases of petroleum and other substances. Permits must be obtained to discharge pollutants into state and federal waters. The EPA issues Vessel General Permits (“VGPs”) covering discharges incidental to normal vessel operations, including ballast water, and implements various training, inspection, monitoring, recordkeeping and reporting requirements, as well as corrective actions upon identification of each deficiency. Additionally, certain state regulations and VGPs prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and certain other substances related to the exploration for, and production of, oil and natural gas into certain coastal and offshore waters. Many states have laws analogous to the Clean Water Act and also require remediation of releases of hazardous substances in state waters. Internationally, the BWM Convention covers mandatory ballast water exchange requirements.
 
Air Pollution and Emissions
 
A variety of regulatory developments, proposals and requirements and legislative initiatives focused on restricting the emissions of carbon dioxide, methane and other greenhouse gases apply to the jurisdictions in which we operate. Annex VI of MARPOL addresses air emissions, including emissions of sulfur and nitrous oxide, and requires the use of low sulfur fuels worldwide in both auxiliary and main propulsion diesel engines on vessels. Beginning in 2010, the IMO designated the waters off North America as an Emission Control Area, meaning that vessels operating in the U.S. must use fuel with a sulfur content no greater than 0.1%. Directives have been issued designed to reduce the emission of nitrogen oxides and sulfur oxides. These can impact both the fuel and the engines that may be used onboard vessels.
 
CERCLA
 
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) requires the remediation of releases of hazardous substances into the environment and imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons, including owners and operators of contaminated sites where the release occurred and those companies that transport, dispose of or arrange for the disposal of, hazardous substances released at the sites.
 
OCSLA
 
The Outer Continental Shelf Lands Act, as amended (“OCSLA”), provides the U.S. government with broad authority to impose environmental protection requirements applicable to lessees and permittees operating in the OCS. Specific design and operational standards may apply to OCS vessels, rigs, platforms, vehicles and structures. Violations can result in substantial civil and criminal penalties, as well as potential court injunctions that could curtail operations and cancel leases. 

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Current Compliance and Potential Material Impact
 
We believe that we are in compliance in all material respects with the applicable environmental laws and regulations to which we are subject. We maintain a robust operational compliance program to ensure that we maintain and update our programs to meet or exceed applicable regulatory requirements. We do not anticipate that compliance with existing environmental laws and regulations will have a material effect upon our capital expenditures, earnings or competitive position. However, changes in environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities, and thus there can be no assurance that we will not incur significant environmental compliance costs in the future. Liability related to environmental compliance could have a material adverse effect on our financial position, results of operations and cash flows, and could have a significant impact on our financial ability to carry out our operations.
 
INSURANCE MATTERS
 
Our businesses involve a high degree of operational risk. Hazards such as vessels sinking, grounding, colliding and sustaining damage from severe weather conditions and operational hazards such as rigging failures, human error, or accidents are inherent in marine operations. These hazards can cause marine and subsea operational equipment failures resulting in personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and the suspension of operations. Damages arising from such occurrences may result in lawsuits asserting large claims. Insurance may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. A successful claim for which we are not fully insured could have a material adverse effect on our financial position, results of operations and cash flows.
 
As discussed below, we maintain insurance policies to cover some of our risk of loss associated with our operations. We maintain the amount of insurance we believe is prudent based on our estimated loss potential. However, not all of our business activities can be insured at the levels we desire because of either limited market availability or unfavorable economics (i.e., limited coverage considering the underlying cost).
 
Our current insurance program is valid until June 30, 2020.
 
We maintain Hull and Increased Value insurance, which provides coverage for physical damage up to an agreed amount for each vessel. The deductibles are $1.0 million on the Q4000, the Q5000, the Q7000, the HP I and the Well Enhancer, and $500,000 on the Seawell. In addition to the primary deductibles, the vessels are subject to an annual aggregate deductible of $5 million. We also carry Protection and Indemnity (“P&I”) insurance, which covers liabilities arising from the operation of the vessels, and General Liability insurance, which covers liabilities arising from construction operations. The deductible on both the P&I and General Liability is $100,000 per occurrence. Onshore employees are covered by Workers’ Compensation. Offshore employees and marine crews are covered by a Maritime Employers Liability (“MEL”) insurance policy, which covers Jones Act exposures and currently includes a deductible of $100,000 per occurrence plus a $750,000 annual aggregate deductible. In addition to the liability policies described above, we currently carry various layers of Umbrella Liability for total limits of $500 million in excess of primary limits as well as OPA insurance for our newly-acquired offshore properties with $35 million of coverage as required by BOEM. Our self-insured retention on our medical and health benefits program for employees is $300,000 per participant.
 
We also maintain Operator Extra Expense coverage that provides up to $150 million of coverage per each loss occurrence for a well control issue. Separately, we also maintain $500 million of liability insurance and $150 million of oil pollution insurance. For any given oil spill event we have up to $650 million of insurance coverage.
 
We customarily have agreements with our customers and vendors in which each contracting party is responsible for its respective personnel. Under these agreements we are indemnified against third party claims related to the injury or death of our customers’ or vendors’ personnel, and vice versa. With respect to well work contracted to us, the customer is generally contractually responsible for pollution emanating from the well. We separately maintain additional coverage for an amount up to $100 million that would cover us under certain circumstances against any such third party claims associated with well control events.
 

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We incur workers’ compensation, MEL and other insurance claims in the normal course of business. We analyze each claim for potential exposure and estimate the ultimate liability of each claim. We have not incurred any significant losses as a result of claims denied by our insurance carriers. Our services are provided in hazardous environments where accidents involving catastrophic damage or loss of life could occur, and litigation arising from such an event may result in our being named a defendant in lawsuits asserting large claims. Although there can be no assurance the amount of insurance we carry is sufficient to protect us fully in all events, or that such insurance will continue to be available at current levels of cost or coverage, we believe that our insurance protection is adequate for our business operations.
 
EMPLOYEES
 
As of December 31, 2019, we had 1,650 employees. Of our total employees, we had 378 non-U.S. employees covered by collective bargaining agreements or similar arrangements. We consider our overall relationships with our employees to be satisfactory.
 
WEBSITE AND OTHER AVAILABLE INFORMATION
 
We maintain a website on the Internet with the address of www.HelixESG.com. Copies of this Annual Report for the year ended December 31, 2019, previous and subsequent copies of our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K, and any amendments thereto, are or will be available free of charge at our website as soon as reasonably practicable after they are filed with, or furnished to, the SEC. In addition, the “Investors” section of our website contains copies of our Code of Business Conduct and Ethics and our Code of Ethics for Chief Executive Officer and Senior Financial Officers. We make our website content available for informational purposes only. Information contained on our website is not part of this report and should not be relied upon for investment purposes. Please note that prior to March 6, 2006, the name of the Company was Cal Dive International, Inc.
 
The SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. The Internet address of the SEC’s website is www.sec.gov.
 
We satisfy the requirement under Item 5.05 of Form 8-K to disclose any amendments to our Code of Business Conduct and Ethics and our Code of Ethics for Chief Executive Officer and Senior Financial Officers and any waiver from any provision of those codes by posting that information in the “Investors” section of our website at www.HelixESG.com.
 
From time to time, we also provide information about Helix on social media, including on Facebook (www.facebook.com/HelixEnergySolutionsGroup), Instagram (www.instagram.com/helixenergysolutions), LinkedIn (www.linkedin.com/company/helix-energy-solutions-group) and Twitter (@Helix_ESG).
 
CERTAIN DEFINITIONS
 
Defined below are certain terms helpful to understanding our business that are located throughout this Annual Report:
 
Bureau of Ocean Energy Management (BOEM):  BOEM is responsible for managing environmentally and economically responsible development of U.S. offshore resources. Its functions include offshore leasing, resource evaluation, review and administration of oil and gas exploration and development plans, renewable energy development, National Environmental Policy Act analysis and environmental studies.
 
Bureau of Safety and Environmental Enforcement (BSEE):  BSEE is responsible for safety and environmental oversight of U.S. offshore oil and gas operations, including permitting and inspections of offshore oil and gas operations. Its functions include the development and enforcement of safety and environmental regulations, permitting offshore exploration, development and production, inspections, offshore regulatory programs, oil spill response and newly formed training and environmental compliance programs.
 
Deepwater:  Water depths exceeding 1,000 feet.
 

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Dynamic Positioning (DP):  Computer directed thruster systems that use satellite-based positioning and other positioning technologies to ensure the proper counteraction to wind, current and wave forces enabling a vessel to maintain its position without the use of anchors.
 
DP2:  Two DP systems on a single vessel providing the redundancy that allows the vessel to maintain position even in the absence of one DP system.
 
DP3:  DP control system comprising a triple-redundant controller unit and three identical operator stations. The system is designed to withstand fire or flood in any one compartment. Loss of position should not occur from any single failure.
 
Intervention Riser System (IRS):  A subsea system that establishes a direct connection from a well intervention vessel, through a rigid riser, to a conventional or horizontal subsea tree in depths up to 10,000 feet. An IRS can be utilized for wireline intervention, production logging, coiled-tubing operations, well stimulation, and full plug and abandonment operations, and provides well control in order to safely access the well bore for these activities.
 
Life of field services:  Services performed on offshore facilities, trees and pipelines from the beginning to the end of the economic life of an oil field, including installation, inspection, maintenance, repair, well intervention and abandonment.
 
Plug and abandonment (P&A):  P&A operations usually consist of placing several cement plugs in the wellbore to isolate the reservoir and other fluid-bearing formations when a well reaches the end of its lifetime.
 
Pound per square inch (p.s.i.):  A unit of measurement for pressure or stress resulting from a force of one pound-force applied to an area of one square inch.
 
QHSE:  Quality, Health, Safety and Environmental programs designed to protect the environment, safeguard employee health and avoid injuries.
 
Riserless Open-water Abandonment Module (ROAM):  A subsea system designed to act as a barrier to the environment during upper abandonment operations and during production tubing removal in open water, when run as a complement to an IRS. ROAM provides the ability to capture contaminants or gas within the system and circulate them back to the safe handling systems on board the vessel, such that no well contaminants are released into the environment.
 
Remotely Operated Vehicle (ROV):  A robotic vehicle used to complement, support and increase the efficiency of diving and subsea operations and for tasks beyond the capability of manned diving operations.
 
ROVDrill:  A coring system deployed with an ROV system capable of taking cores from the seafloor in water depths up to 10,000 feet. Because the ROV system operates from the seafloor there is no need for surface drilling strings or the larger support spreads required for conventional coring.
 
Saturation diving:  Divers working from special chambers for extended periods at a pressure equivalent to the pressure at the work site, required for work in water depths between 200 and 1,000 feet.
 
Spot vessels:  Vessels not owned or under long-term charter but contracted on a short-term basis to perform specific projects.
 
Subsea Intervention Lubricator (SIL):  A riserless system designed to facilitate access to subsea wells from a monohull vessel to provide safe, efficient and cost effective riserless well intervention and abandonment solutions. A SIL can be utilized for wireline, logging, light perforating, zone isolation, plug setting and removal, and decommissioning, and provides access to the well bore while providing well control safety for activities that do not require a riser conduit.
 
Trencher or trencher system:  A subsea robotics system capable of providing post-lay trenching, inspection and burial and maintenance of submarine cables and flowlines in water depths of 30 to 7,200 feet across a range of seabed and environmental conditions.
 
Well intervention services:  Activities related to well maintenance and production management/enhancement services. Our well intervention operations include the utilization of slickline and electric line services, pumping services, specialized tooling and coiled tubing services.

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Item 1A.  Risk Factors
 
Shareholders should carefully consider the following risk factors in addition to the other information contained herein. We operate globally in challenging and highly competitive markets and thus our business is subject to a variety of risks. The risks and uncertainties described below are not the only ones facing Helix. We are subject to a variety of risks that affect many other companies generally, as well as additional risks and uncertainties not known to us or that, as of the date of this Annual Report, we believe are not as significant as the risks described below. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Annual Report could have a material adverse effect on our business, results of operations and financial position.
 
Our business is adversely affected by low oil and gas prices, which occur in a cyclical oil and gas industry.
 
Our services are substantially dependent upon the condition of the oil and gas industry, and in particular, the willingness of oil and gas companies to make capital and other expenditures for offshore exploration, development, drilling and production operations. Although our services are used for other operations during the entire life cycle of a well, when industry conditions are unfavorable such as the current environment, oil and gas companies will likely continue to reduce their budgets for expenditures on all types of operations, and will defer certain activities to the extent possible. The levels of both capital and operating expenditures generally depend on the prevailing view of future oil and gas prices, which is influenced by numerous factors, including:
 
worldwide economic activity and general economic and business conditions, including available access to global capital and capital markets;
the global supply and demand for oil and natural gas;
political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in the Middle East and other oil-producing regions;
actions taken by the Organization of Petroleum Exporting Countries (“OPEC”);
the availability and discovery rate of new oil and natural gas reserves in offshore areas;
the exploration and production of onshore shale oil and natural gas;
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 external capital for capital projects and production operations;
the sale and expiration dates of offshore leases globally;
technological advances affecting energy exploration, production, transportation and consumption;
the environmental and social sustainability of the oil and gas industry and the perception thereof, including within the investing community;
potential acceleration of the development of alternative fuels;
shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
weather conditions, natural disasters, and epidemic and pandemic diseases;
environmental and other governmental regulations; and
tax laws, regulations and policies.
 
A prolonged period of low level of activity by offshore oil and gas operators may continue to adversely affect demand for our services and could lead to an even greater surplus of available vessels and therefore increasingly downward pressure on the rates we can charge for our services. Our customers, in reaction to negative market conditions, may continue to seek to negotiate contracts at lower rates, both during and at the expiration of the term of our contracts, to cancel earlier work and shift it to later periods, or to cancel their contracts with us even if cancellation involves their paying a cancellation fee. The extent of the impact of these conditions on our results of operations and cash flows depends on the length and severity of an unfavorable industry environment and the potential decreased demand for our services.
 

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The majority of our current backlog is concentrated in a small number of long-term contracts that we may fail to renew or replace.
 
Although historically our service contracts were of relatively short duration, over the last several years we have entered into longer term contracts, including the five-year contract with BP for work in the Gulf of Mexico, the two four-year contracts with Petrobras for well intervention services offshore Brazil and the seven-year contract for the HP I. As of December 31, 2019, the BP contract, the Petrobras contracts and the contract for the HP I represented approximately 82% of our total backlog. Any cancellation, termination or breach of those contracts would have a larger impact on our operating results and financial condition than shorter term contracts. In addition, the BP contract and the Petrobras contracts expire in 2021 and the contract for the HP I expires in 2023. Our ability to renew or replace these contracts when they expire or obtain new contracts as alternatives, and the terms of any such contracts, will depend on various factors, including market conditions and the specific needs of our customers. Given the historically cyclical nature of our industry, we may not be able to renew or replace the contracts or we may be required to renew or replace expiring contracts or obtain new contracts at rates that are below our existing contract rates, or that have other terms that are less favorable to us than our existing contracts. Failure to renew or replace expiring contracts or secure new contracts at comparable rates and with favorable terms could have a material adverse effect on our financial position, results of operations and cash flows.
 
Our current backlog may not be ultimately realized for various reasons, and our contracts may be terminated early.
 
As of December 31, 2019, backlog for our services supported by written agreements or contracts totaled $796 million, of which $509 million is expected to be performed in 2020. We may incur capital costs (a substantial portion of which we expect to recover from these contracts), we may charter vessels for the purpose of performing these contracts, and/or we may forgo or not seek other contracting opportunities in light of these contracts.
 
We may not be able to perform under our contracts for various reasons giving our customers certain contractual rights under their contracts with us, which ultimately could include termination of a contract. In addition, our customers may seek to cancel, terminate, suspend or renegotiate our contracts in the event of our customers’ diminished demand for our services due to industry conditions affecting our customers and their own revenues. Some of these contracts provide for a cancellation fee that is substantially less than the expected rates from the contracts. In addition, some of our customers could experience liquidity issues or could otherwise be unable or unwilling to perform under a contract, in which case a customer may repudiate or seek to cancel or renegotiate the contract. The repudiation, early cancellation, termination or renegotiation of our contracts by our customers could have a material adverse effect on our financial position, results of operations and cash flows.
 
Our operations involve numerous risks, which could result in our inability or failure to perform operationally under our contracts and result in reduced revenues, contractual penalties and/or contract termination.
 
Our equipment and services are very technical and the offshore environment poses its own challenges. Performing the work we do pursuant to the terms of our contracts can be difficult for various reasons, including equipment failure or reduced performance, human error, third-party failure or other fault, design flaws, weather, water currents or soil conditions. In particular, our Q7000 vessel is a unique, new-build asset that may experience start-up challenges, and although we have worked in West Africa previously, operating in that region presents certain incremental complications; any of these factors could lead to performance concerns. Additionally, the occurrence or threat of an epidemic or pandemic disease could cause vessel downtime or suspension of operations, which may be beyond our control. Failure to perform in accordance with contract specifications can result in reduced rates (or zero rates), contractual penalties, and ultimately, termination in the event of sustained non-performance. Reduced revenues and/or contract termination due to our inability or failure to perform operationally could have a material adverse effect on our financial position, results of operations and cash flows.
 

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Our customers and other counterparties may be unable to perform their obligations.
 
Continued industry uncertainty and domestic and global economic conditions, including the financial condition of our customers, counterparties, insurers and financial institutions generally, could jeopardize the ability of such parties to perform their obligations to us, including obligations to pay amounts owed to us. Although we assess the creditworthiness of our counterparties, a variety of conditions and factors unrelated to those identified above could lead to changes in a counterparty’s liquidity and increase our exposure to credit risk and bad debts. In particular, our robotics business unit tends to do business with smaller customers that may not be capitalized to the same extent as larger operators. In addition, we may offer favorable payment terms to customers in order to secure contracts. These circumstances may lead to more frequent collection issues. Our financial results and liquidity could be adversely affected and we could incur losses.
 
Our forward-looking statements assume that our customers, lenders, insurers and other financial institutions will be able to fulfill their obligations under our various contracts, credit agreements and insurance policies. The inability of our customers and other counterparties to perform under these agreements may materially adversely affect our business, financial position, results of operations and cash flows.
 
We may own assets with ongoing costs that cannot be recouped if the assets are not under contract, and time chartering vessels requires us to make ongoing payments regardless of utilization of and revenue generation from those vessels.
 
We own vessels and equipment for which there are ongoing costs, including maintenance, manning, insurance and depreciation. We may also construct assets without first obtaining service contracts covering the cost of those assets. Our failure to secure contracts for vessels or other assets could materially adversely affect our financial position, results of operations and cash flows.
 
Further, we charter our ROV support vessels under long-term time charter agreements. We also have entered into long-term charter agreements for the Siem Helix 1 and Siem Helix 2 vessels to perform work under our contracts with Petrobras. Should our contracts with customers be canceled, terminated or breached and/or if we do not secure work for the chartered vessels, we are still required to make charter payments. Making those payments absent revenue generation could have a material adverse effect on our financial position, results of operations and cash flows.
 
Because we have certain debt and other obligations, a prolonged period of low demand and rates for our services could lead to a material adverse effect on our liquidity.
 
Although we continue to seek to reduce the level of our capital and other expenses and have raised capital by means of several securities offerings, in the event of a more prolonged period of difficult industry conditions, the failure of our customers to expend funds on our services or a longer period of lower rates for our services, coupled with certain fixed obligations that we have related to debt repayment, long-term time charter contracts for our vessels and certain other commitments related to ongoing operational activities, could lead to a material adverse effect on our liquidity and financial position.
 
Asset upgrade, modification, refurbishment, repair, dry dock and construction projects, and customer contractual acceptance of vessels and equipment, are subject to risks, including delays, cost overruns, loss of revenue and failure to commence or maintain contracts.
 
We incur significant upgrade, modification, refurbishment, repair and dry dock expenditures on our existing fleet from time to time. We also construct or make capital improvements to other pieces of equipment (such as the 15K IRS and the ROAM that we jointly constructed with OneSubsea). While some of these capital projects are planned, some are unplanned. Additionally, as vessels and equipment age, they are more likely to be subject to higher maintenance and repair activities. These projects are subject to the many risks, including delay and cost overruns, inherent in any large capital project.
 
Estimated capital expenditures could materially exceed our planned capital expenditures. Moreover, assets undergoing upgrades, modifications, refurbishment or repair may not earn revenue during the period they are out of service. Any significant period of unplanned maintenance and repairs related to our assets could have a material adverse effect on our financial position, results of operations and cash flows.
 

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In addition, delays in the delivery of vessels and other operating assets being constructed or undergoing upgrades, modifications, refurbishment, repair, or dry docks may result in delay in customer acceptance and/or contract commencement, resulting in a loss of revenue and cash flow to us, and may cause our customers to seek to terminate or shorten the terms of their contracts with us and/or seek delay damages under applicable late delivery clauses. In the event of termination of a contract due to late delivery, we may not be able to secure a replacement contract on favorable terms, if at all, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
 
We may not be able to compete successfully against current and future competitors.
 
The oilfield services business in which we operate is highly competitive. An oversupply of offshore drilling rigs coupled with a significant slowdown in industry activities results in increased competition from drilling rigs as well as substantially lower rates on work that is being performed. Several of our competitors are substantially larger and have greater financial and other resources to better withstand a prolonged period of difficult industry conditions. In order to compete for customers, these larger competitors may undercut us substantially by reducing rates to levels we are unable to withstand. Further, certain other companies may seek to compete with us by hiring vessels of opportunity from which to deploy modular systems and/or be willing to take on additional risks. If other companies relocate or acquire assets for operations in the regions in which we operate, levels of competition may increase further and our business could be adversely affected.
 
Our indebtedness and the terms of our indebtedness could impair our financial condition and our ability to fulfill our debt obligations.
 
As of December 31, 2019, we had $405.9 million of consolidated indebtedness outstanding. The level of indebtedness may have an adverse effect on our future operations, including:
 
limiting our ability to refinance maturing debt or to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements;
increasing our vulnerability to a continued general economic downturn, competition and industry conditions, which could place us at a disadvantage compared to our competitors that are less leveraged;
increasing our exposure to potential rising interest rates for the portion of our borrowings at variable interest rates;
reducing the availability of our cash flows to fund our working capital requirements, capital expenditures, acquisitions, investments and other general corporate requirements because we will be required to use a substantial portion of our cash flows to service debt obligations;
limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
limiting our ability to expand our business through capital expenditures or pursuit of acquisition opportunities due to negative covenants in credit facilities that place limitations on the types and amounts of investments that we may make;
limiting our ability to use, or post security for, bonds or similar instruments required under the laws of certain jurisdictions with respect to, among other things, the temporary importation of vessels and equipment and the decommissioning of offshore oil and gas properties; and
limiting our ability to use proceeds from asset sales for purposes other than debt repayment (except in certain circumstances where proceeds may be reinvested under criteria set forth in our credit agreements).
 
A prolonged period of weak economic conditions and other events beyond our control may make it increasingly difficult to comply with our covenants and other restrictions in agreements governing our debt. If we fail to comply with these covenants and other restrictions, it could lead to reduced liquidity, an event of default, the possible acceleration of our repayment of outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral. These conditions and events may limit our access to the credit markets if we need to replace our existing debt, which could lead to increased costs and less favorable terms, including shorter repayment schedules and higher fees and interest rates.
 

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Lack of access to the financial markets could negatively impact our ability to operate our business and to execute our strategy.
 
Access to financing may be limited and uncertain, especially in times of economic weakness. If capital and credit markets are limited, we may be unable to refinance or we may incur increased costs and obtain less favorable terms associated with refinancing of our maturing debt. Also, we may incur increased costs and obtain less favorable terms associated with any additional financing that we may require for future operations. Limited access to the financial markets could adversely impact our ability to take advantage of business opportunities or react to changing economic and business conditions. Additionally, if capital and credit markets are limited, this could potentially result in our customers curtailing their capital and operating expenditure programs, which could result in a decrease in demand for our vessels and a reduction in revenues and/or utilization. Certain of our customers could experience an inability to pay suppliers, including us, in the event they are unable to access financial markets as needed to fund their operations. Likewise, our suppliers may be unable to sustain their current level of operations, fulfill their commitments and/or fund future operations and obligations, each of which could adversely affect our operations. Continued lower levels of economic activity and weakness in the financial markets could also adversely affect our ability to implement our strategic objectives.
 
A further decline in the offshore energy services market could result in additional impairment charges.
 
Prolonged periods of low utilization and low rates for our services could result in the recognition of impairment charges for our assets if future cash flow estimates, based on information available to us at the time, indicate that their carrying value may not be recoverable.
 
Our North Sea business typically declines in the winter, and bad weather can adversely affect our operations.
 
Marine operations conducted in the North Sea are seasonal and depend, in part, on weather conditions. Historically, we have enjoyed our highest North Sea vessel utilization rates during the summer and fall when weather conditions are favorable for offshore operations, and we typically have experienced our lowest North Sea utilization rates in the first quarter. As is common in our industry, we may bear the risk of delays caused by some adverse weather conditions. Accordingly, our results in any one quarter are not necessarily indicative of annual results or continuing trends.
 
Certain areas in which we operate experience unfavorable weather conditions including hurricanes and extreme storms on a relatively frequent basis. Substantially all of our facilities and assets offshore and along the Gulf of Mexico and the North Sea are susceptible to damage and/or total loss by these storms. Damage caused by high winds and turbulent seas could potentially cause us to curtail service operations for significant periods of time until damage can be assessed and repaired. Moreover, even if we do not experience direct damage from any of these weather events, we may experience disruptions in our operations because customers may curtail their offshore activities due to damage to their platforms, pipelines and other related facilities.
 
The operation of marine vessels is risky, and we do not have insurance coverage for all risks.
 
Vessel-based offshore services involve a high degree of operational risk. Hazards, such as vessels sinking, grounding, colliding and sustaining damage from severe weather conditions, are inherent in marine operations. These hazards can cause personal injury or loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage, and suspension of operations. Damage arising from such occurrences may result in lawsuits asserting large claims. Insurance may not be sufficient or effective under all circumstances or against all hazards to which we may be subject. A successful liability claim for which we are not fully insured could have a material adverse effect on our financial position, results of operations and cash flows. Moreover, we cannot make assurances that we will be able to maintain adequate insurance in the future at rates that we consider reasonable. In some instances, certain insurance could become unavailable or available only for reduced amounts of coverage. For example, insurance carriers require broad exclusions for losses due to war risk and terrorist acts, and limitations for wind storm damage. The current insurance on our assets is in amounts approximating replacement value. In the event of property loss due to a catastrophic disaster, mechanical failure, collision or other event, insurance may not cover a substantial loss of revenue, increased costs and other liabilities, and therefore the loss of any of our assets could have a material adverse effect on us.
 

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Our oil and gas operations involve a high degree of operational risk, particularly risk of personal injury, damage, loss of equipment and environmental accidents.
 
Beginning in January 2019 we own oil and gas properties as part of our strategy to secure utilization for our vessels and other equipment. Engaging in oil and gas production and transportation operations subjects us to certain risks inherent in the operation of oil and gas wells, including but not limited to uncontrolled flows of oil, gas, brine or well fluids into the environment; blowouts; cratering; pipeline or other facility ruptures; mechanical difficulties or other equipment malfunction; fires, explosions or other physical damage; hurricanes, storms and other natural disasters and weather conditions; and pollution and other environmental damage; any of which could result in substantial losses to us. Although we maintain insurance against some of these risks we cannot insure against all possible losses. As a result, any damage or loss not covered by our insurance could have a material adverse effect on our financial condition, results of operations and cash flow.
 
Our customers may be unable or unwilling to indemnify us.
 
Consistent with standard industry practice, we typically obtain contractual indemnification from our customers whereby they agree to protect and indemnify us for liabilities resulting from various hazards associated with offshore operations. We can provide no assurance, however, that we will obtain such contractual indemnification or that our customers will be willing or financially able to meet these indemnification obligations.
 
Government regulations may affect our business operations, including making our operations more difficult and/or costly.
 
Our business is affected by changes in public policy and by federal, state, local and foreign laws and regulations relating to the offshore oil and gas industry. Offshore oil and gas operations are affected by tax, environmental, safety, labor, cabotage and other laws, by changes in those laws, application or interpretation of existing laws, and changes in related administrative regulations or enforcement priorities. It is also possible that these laws and regulations in the future may add significantly to our capital and operating costs or those of our customers or otherwise directly or indirectly affect our operations.
 
On December 20, 2019 CBP finalized a new set of rulings (the “2019 CBP Rulings”) which (i) restrict the scope of items that may be transported aboard non-coastwise qualified vessels on the OCS and (ii) establish rules regarding incidental vessel movements related to offshore lifting operations. The 2019 CBP Rulings constitute a significant step towards establishing a predictable regime of regulation for offshore operations. We are aware, however, that certain organizations are seeking to overturn the 2019 CBP Rulings, particularly with respect to offshore lifting operations. CBP, its parent agency, the Department of Homeland Security, the federal courts or the U.S. Congress could revisit the issue and, if a challenge to the 2019 CBP Rulings were successful along the lines sought by those organizations, the resulting interpretation of the Jones Act could adversely impact the operations of non-coastwise qualified vessels working in the Gulf of Mexico, and could potentially make it more difficult and/or costly to perform our offshore services in the area.
 
Tax laws are dynamic and subject to change as new laws are passed and new interpretations are issued or applied. In 2017 the U.S. enacted significant tax reform, and certain provisions of the new law may ultimately adversely affect us. Certain members of the EU are undergoing significant changes to their tax systems, which may have an adverse effect on us. In addition, risks of substantial costs and liabilities related to environmental compliance issues are inherent in our operations. Our operations are subject to extensive federal, state, local and international laws and regulations relating to the generation, storage, handling, emission, transportation and discharge of materials into the environment. Permits are required for the operations of various facilities, including vessels, and those permits are subject to revocation, modification and renewal. Governmental authorities have the power to enforce compliance with their regulations, and violations are subject to fines, injunctions or both. In some cases, those governmental requirements can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of others or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. It is possible that other developments, such as stricter environmental laws and regulations, and claims for damages to property or persons resulting from our operations, would result in substantial costs and liabilities. Our insurance policies and the contractual indemnity protection we seek to obtain from our customers, assuming they are obtained, may not be sufficient or effective to protect us under all circumstances or against all risk involving compliance with environmental laws and regulations.
 

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Enhanced regulations for deepwater offshore drilling may reduce the need for our services.
 
Exploration and development activities and the production and sale of oil and natural gas are subject to extensive federal, state, local and international regulations. To conduct deepwater drilling in the Gulf of Mexico, an operator is required to comply with existing and newly developed regulations and enhanced safety standards. Before drilling may commence, BSEE conducts many inspections of deepwater drilling operations for compliance with its regulations. Operators also are required to comply with Safety and Environmental Management System (“SEMS”) regulations within the deadlines specified by the regulations, and ensure that their contractors have SEMS-compliant safety and environmental policies and procedures in place. Additionally, each operator must demonstrate that it has containment resources that are available promptly in the event of a deepwater blowout. It is expected that BOEM and BSEE will continue to issue further regulations regarding deepwater offshore drilling. Our business, a significant portion of which is in the Gulf of Mexico, provides development services to newly drilled wells, and therefore relies heavily on the industry’s drilling of new oil and gas wells. If the issuance of permits is significantly delayed, or if other oil and gas operations are delayed or reduced due to increased costs of complying with regulations, demand for our services may also decline. Moreover, if our assets are not redeployed such that we can provide our services at profitable rates, our business, financial condition, results of operations and cash flows would be materially adversely affected.
 
We cannot predict with any certainty the substance or effect of any new or additional regulations in the U.S. or in other areas around the world. If the U.S. or other countries where our customers operate enact stricter restrictions on offshore drilling or further regulate offshore drilling, and this results in decreased demand for or profitability of our services, our business, financial position, results of operations and cash flows could be materially adversely affected.
 
Failure to comply with anti-bribery laws could have a material adverse impact on our business.
 
The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions, including the United Kingdom Bribery Act 2010 and Brazil’s Clean Company Act, generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business. We operate in many parts of the world that have experienced corruption to some degree. We have a robust ethics and compliance program that is designed to deter or detect violations of applicable laws and regulations through the application of our anti-corruption policies and procedures, Code of Business Conduct and Ethics, training, internal controls, investigation and remediation activities, and other measures. However, our ethics and compliance program may not be fully effective in preventing all employees, contractors or intermediaries from violating or circumventing our compliance requirements or applicable laws and regulations. Failure to comply with anti-bribery laws could subject us to civil and criminal penalties, and such failure, and in some instances even the mere allegation of such a failure, could create termination or other rights in connection with our existing contracts, negatively impact our ability to obtain future work, or lead to other sanctions, all of which could have a material adverse effect on our business, financial position, results of operations and cash flows, and cause reputational damage. We could also face fines, sanctions and other penalties from authorities, including prohibition of our participating in or curtailment of business operations in certain jurisdictions and the seizure of vessels or other assets. Further, we may have competitors who are not subject to the same laws, which may provide them with a competitive advantage over us in securing business or gaining other preferential treatment.
 
Our operations outside of the U.S. subject us to additional risks.
 
Our operations outside of the U.S. are subject to risks inherent in foreign operations, including:
 
the loss of revenue, property and equipment from expropriation, nationalization, war, insurrection, acts of terrorism and other political risks;
increases in taxes and governmental royalties;
laws and regulations affecting our operations, including with respect to customs, assessments and procedures, and similar laws and regulations that may affect our ability to move our assets in and out of foreign jurisdictions;
renegotiation or abrogation of contracts with governmental and quasi-governmental entities;
changes in laws and policies governing operations of foreign-based companies;
currency exchange restrictions and exchange rate fluctuations;
global economic cycles;
restrictions or quotas on production and commodity sales;

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limited market access; and
other uncertainties arising out of foreign government sovereignty over our international operations.
 
Certain countries have in place or are in the process of developing complex laws for foreign companies doing business in these countries, such as local content requirements. Some of these laws are difficult to interpret, making compliance uncertain, and others increase the cost of doing business, which may make it difficult for us in some cases to be competitive. In addition, laws and policies of the U.S. affecting foreign trade and taxation may adversely affect our international operations.
 
Our international operations are exposed to currency devaluation and fluctuation risk.
 
Since we are a global company, our international operations are exposed to foreign currency exchange rate risks on all contracts denominated in foreign currencies. For some of our international contracts, a portion of the revenue and local expenses is incurred in local currencies and we are at risk of changes in the exchange rates between the U.S. dollar and such currencies. In some instances, we may receive payments in currencies that are not easily traded and may be illiquid. The reporting currency for our consolidated financial statements is the U.S. dollar. Certain of our assets, liabilities, revenues and expenses are denominated in other countries’ currencies. Those assets, liabilities, revenues and expenses are translated into U.S. dollars at the applicable exchange rates to prepare our consolidated financial statements. Therefore, changes in exchange rates between the U.S. dollar and those other currencies affect the value of those items as reflected in our consolidated financial statements, even if their value remains unchanged in their original currency.
 
The loss of the services of one or more of our key employees, or our failure to attract and retain other highly qualified personnel in the future, could disrupt our operations and adversely affect our financial results.
 
Our industry has lost a significant number of experienced professionals over the years due to its cyclical nature. Many companies, including us, have had employee layoffs as a result of reduced business activities in an industry downturn. Our continued success depends on the active participation of our key employees. The loss of our key people could adversely affect our operations. The delivery of our services also requires personnel with specialized skills, qualifications and experience. As a result, our ability to remain productive and profitable will depend upon our ability to employ and retain skilled, qualified and experienced workers, and we may have competition for personnel with the requisite skill set.
 
Cybersecurity breaches or business system disruptions may adversely affect our business.
 
We rely on our information technology infrastructure and management information systems to operate and record almost every aspects of our business. Similar to other companies, we may be subject to cybersecurity breaches caused by, among other things, illegal hacking, insider threats, computer viruses, phishing, malware, ransomware, or acts of vandalism or terrorism. Although we continue to refine our procedures, educate our employees and implement tools and security measures to protect against such cybersecurity risks, there can be no assurance that these measures will prevent or detect every type of attempt or attack. In addition, a cyberattack or security breach could go undetected for an extended period of time. A breach or failure of our information technology systems or networks, critical third-party systems on which we rely, or those of our customers or vendors, could result in an interruption in our operations, disruption to certain systems that are used to operate our vessels or ROVs, unplanned capital expenditures, unauthorized publication of our confidential business or proprietary information, unauthorized release of customer or employee data, theft or misappropriation of funds, violation of privacy or other laws, and exposure to litigation. Any such breach could have a material adverse effect on our business, reputation, financial position, results of operations and cash flows.
 

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Failure to protect our intellectual property or other technology may adversely affect our business.
 
Our industry is highly technical. We utilize and rely on a variety of advanced assets and other tools, such as our vessels, DP systems, IRSs, SILs and ROVDrill, to provide customers with services designed to meet the technological challenges of their subsea activities worldwide. In some instances we hold intellectual property (“IP”) rights related to our business. We rely significantly on proprietary technology, processes and other information that are not subject to IP protection, as well as IP licensed from third parties. We employ confidentiality agreements to protect our IP and other proprietary information, and we have management systems in place designed to protect our legal and contractual rights. We may be subject to, among other things, theft or other misappropriation of our IP and other proprietary information, challenges to the validity or enforceability of our or our licensors’ IP rights, and breaches of confidentiality obligations. These risks are heightened by the global nature of our business, as effective protections may be limited in certain jurisdictions. Although we endeavor to identify and protect our IP and other proprietary information as appropriate, there can be no assurance that these measures will adequately protect such IP or other technology. Such a failure could result in an interruption in our operations, increased competition, unplanned capital expenditures, and exposure to litigation. Any such failure could have a material adverse effect on our business, competitive position, financial position, results of operations and cash flows.
 
Certain provisions of our corporate documents and Minnesota law may discourage a third party from making a takeover proposal.
 
We are authorized to fix, without any action by our shareholders, the rights and preferences on up to 5,000,000 shares of preferred stock, including dividend, liquidation and voting rights. In addition, our by-laws divide our Board into three classes. We are also subject to certain anti-takeover provisions of the Minnesota Business Corporation Act. We have employment arrangements with all of our executive officers that could require cash payments in the event of a “change of control.” Any or all of these provisions or factors may discourage a takeover proposal or tender offer not approved by management and our Board and could result in shareholders who may wish to participate in such a proposal or tender offer receiving less in return for their shares than otherwise might be available in the event of a takeover attempt.
Item 1B.  Unresolved Staff Comments
 
None.
Item 2.  Properties
 
VESSELS AND OTHER OPERATING ASSETS
 
Our fleet currently includes six vessels, six IRSs, three SILs, one ROAM, 44 ROVs, four trenchers and one ROVDrill. We also have four vessels under long-term charter. Currently all of our vessels, both owned and chartered, have DP capabilities specifically designed to meet the needs of our customers’ offshore and deepwater activities. Our Seawell and Well Enhancer vessels have built-in saturation diving systems.
 

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Listing of Vessels and Other Assets Related to Operations (1) 
 

Flag
State
 
Placed
in
Service (2)
 

Length
(Feet)
 

DP
Floating Production Unit —
 
 
 
 
 
 
 
Helix Producer I (3)
Bahamas
 
4/2009
 
528
 
DP2
Well Intervention —
 
 
 
 
 
 
 
Q4000 (4)
U.S.
 
4/2002
 
312
 
DP3
Seawell
U.K.
 
7/2002
 
368
 
DP2
Well Enhancer
U.K.
 
10/2009
 
432
 
DP2
Q5000 (5)
Bahamas
 
4/2015
 
358
 
DP3
Siem Helix 1 (6)
Bahamas
 
6/2016
 
521
 
DP3
Siem Helix 2 (6)
Bahamas
 
2/2017
 
521
 
DP3
Q7000
Bahamas
 
1/2020
 
320
 
DP3
6 IRSs, 3 SILs and 1 ROAM (7)
 
Various
 
 
Robotics —
 
 
 
 
 
 
 
44 ROVs, 4 Trenchers and 1 ROVDrill (3), (8)
 
Various
 
 
Grand Canyon II (6)
Norway
 
4/2015
 
419
 
DP3
Grand Canyon III (6)
Norway
 
5/2017
 
419
 
DP3
(1)
Under governmental regulations and our insurance policies, we are required to maintain our vessels in accordance with standards of seaworthiness and safety set by governmental regulations and classification organizations. We maintain our fleet to the standards for seaworthiness, safety and health set by the ABS, Bureau Veritas (“BV”), Det Norske Veritas (“DNV”), Lloyds Register of Shipping (“Lloyds”), and the Coast Guard. ABS, BV, DNV and Lloyds are classification societies used by vessel owners to certify that their vessels meet certain structural, mechanical and safety equipment standards.
(2)
Represents the date we placed our owned vessels in service (rather than the date of commissioning) or the date the charters for our chartered vessels commenced, as applicable.
(3)
Serves as security for the Credit Agreement described in Note 8.
(4)
Subject to a vessel mortgage securing our MARAD Debt described in Note 8.
(5)
Serves as security for our Nordea Q5000 Loan described in Note 8.
(6)
Chartered vessel.
(7)
We own a 50% interest in the 15K IRS and the ROAM, both of which we jointly developed with OneSubsea.
(8)
Average age of our fleet of ROVs, trenchers and ROVDrill is approximately 9.9 years.
 
We incur routine dry dock, inspection, maintenance and repair costs pursuant to applicable statutory regulations in order to maintain our vessels in accordance with the rules of the applicable class society. In addition to complying with these requirements, we have our own asset maintenance programs that we believe permit us to continue to provide our customers with well-maintained, reliable assets. In the normal course of business, we charter other vessels on a short-term basis, such as tugboats, cargo barges, utility boats and additional robotics support vessels.
 
FACILITIES
 
Our corporate headquarters are located at 3505 West Sam Houston Parkway North, Suite 400, Houston, Texas 77043. We currently lease all of our facilities, which are primarily located in Texas, Scotland, Singapore and Brazil.
Item 3.  Legal Proceedings
 
We are, from time to time, party to litigation arising in the normal course of business. We believe that there are currently no legal proceedings the outcome of which would have a material adverse effect on our financial position, results of operations or cash flows.

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Item 4.  Mine Safety Disclosures
 
Not applicable.
Information about our Executive Officers
 
Our executive officers are as follows: 
Name
 
Age
 
Position
Owen Kratz
 
65
 
President, Chief Executive Officer and Director
Erik Staffeldt
 
48
 
Executive Vice President and Chief Financial Officer
Scott A. Sparks
 
46
 
Executive Vice President and Chief Operating Officer
Kenneth E. Neikirk
 
44
 
Senior Vice President, General Counsel and Corporate Secretary
 
Owen Kratz is President and Chief Executive Officer of Helix. He was named Executive Chairman in October 2006 and served in that capacity until February 2008 when he resumed the position of President and Chief Executive Officer. He served as Helix’s Chief Executive Officer from April 1997 until October 2006. Mr. Kratz served as President from 1993 until February 1999, and has served as a Director since 1990 (including as Chairman of our Board from May 1998 to July 2017). He served as Chief Operating Officer from 1990 through 1997. Mr. Kratz joined Cal Dive International, Inc. (now known as Helix) in 1984 and held various offshore positions, including saturation diving supervisor, and management responsibility for client relations, marketing and estimating. From 1982 to 1983, Mr. Kratz was the owner of an independent marine construction company operating in the Bay of Campeche. Prior to 1982, he was a superintendent for Santa Fe and various international diving companies, and a diver in the North Sea. From February 2006 to December 2011, Mr. Kratz was a member of the Board of Directors of Cal Dive International, Inc., a once publicly traded company, which was formerly a subsidiary of Helix. Mr. Kratz has a Bachelor of Science degree from State University of New York (SUNY).
 
Erik Staffeldt is Executive Vice President and Chief Financial Officer of Helix. Mr. Staffeldt oversees Helix’s finance, treasury, accounting, tax, information technology and corporate planning functions. Since joining Helix in July 2009 as Assistant Corporate Controller, Mr. Staffeldt has served as Director — Corporate Accounting from August 2011 until March 2013, Director of Finance from March 2013 until February 2014, Finance and Treasury Director February 2014 until July 2015, Vice President — Finance and Accounting from July 2015 to June 2017, and Senior Vice President and Chief Financial Officer from June 2017 until February 2018. Mr. Staffeldt was also designated as Helix’s “principal accounting officer” for purposes of the Securities Act, the Exchange Act and the rules and regulations promulgated thereunder in July 2015. Mr. Staffeldt served in various financial and accounting capacities prior to joining Helix and has over 24 years of experience in the energy industry. Mr. Staffeldt is a graduate of the University of Notre Dame with a BBA in Accounting and an MBA from Loyola University in New Orleans, and is a Certified Public Accountant.
 
Scott A. (“Scotty”) Sparks is Executive Vice President and Chief Operating Officer of Helix, having joined Helix in 2001. He served as Executive Vice President — Operations of Helix from May 2015 until February 2016. From October 2012 until May 2015, he was Vice President — Commercial and Strategic Development of Helix. He has also served in various positions within Helix Robotics Solutions, Inc. (formerly known as Canyon Offshore, Inc.), including as Senior Vice President from 2007 to September 2012. Mr. Sparks has over 29 years of experience in the subsea industry, including as Operations Manager and Vessel Superintendent at Global Marine Systems and BT Marine Systems.
 
Kenneth E. (“Ken”) Neikirk is Senior Vice President, General Counsel and Corporate Secretary of Helix. Mr. Neikirk has over 19 years of experience practicing law in the corporate and energy sectors, and has been a member of Helix’s legal department since 2007, most recently serving as Helix’s Corporate Counsel, Compliance Officer and Assistant Secretary from February 2016 until April 2019. Prior to joining Helix Mr. Neikirk was in private practice in New York and Houston. Mr. Neikirk holds a Bachelor of Arts degree from Duke University and a Juris Doctor from the University of Houston Law Center.

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PART II
Item 5.  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “HLX.” On February 21, 2020, the closing sale price of our common stock on the NYSE was $8.25 per share. As of February 21, 2020, there were 293 registered shareholders and approximately 22,300 beneficial shareholders of our common stock.
 
We have not declared or paid cash dividends on our common stock in the past nor do we intend to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any, for the future operation and growth of our business. In addition, our current financing arrangements prohibit the payment of cash dividends on our common stock. See Management’s Discussion and Analysis of Financial Condition and Results of Operations “— Liquidity and Capital Resources.”
 
Shareholder Return Performance Graph
 
The following graph compares the cumulative total shareholder return on our common stock for the period since December 31, 2014 to the cumulative total shareholder return for (i) the stocks of 500 large-cap corporations maintained by Standard & Poor’s (“S&P 500”), assuming the reinvestment of dividends; (ii) the Philadelphia Oil Service Sector index (the “OSX”), a price-weighted index of leading oil service companies, assuming the reinvestment of dividends; and (iii) a peer group selected by us (the “Peer Group”) consisting of the following companies: Dril-Quip, Inc., Forum Energy Technologies, Inc., Frank’s International N.V., McDermott International, Inc., Newpark Resources, Inc., Noble Corporation plc, Oceaneering International, Inc., Oil States International, Inc., SEACOR Holdings Inc., Superior Energy Services Inc., TETRA Technologies, Inc., and Valaris plc. The returns of each member of the Peer Group have been weighted according to each individual company’s equity market capitalization as of December 31, 2019 and have been adjusted for the reinvestment of any dividends. We believe that the members of the Peer Group provide services and products more comparable to us than those companies included in the OSX. The graph assumes $100 was invested on December 31, 2014 in our common stock at the closing price on that date price and on December 31, 2014 in the three indices presented. We paid no cash dividends during the period presented. The cumulative total percentage returns for the period presented are as follows: our stock — (55.6)%; the Peer Group — (59.7)%; the OSX — (58.9)%; and S&P 500 — 73.9%. These results are not necessarily indicative of future performance.
 
hlx1231201_chart-43520.jpg

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Comparison of Five Year Cumulative Total Return among Helix, S&P 500,
OSX and Peer Group
 
As of December 31,
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Helix
$
100.0

 
$
24.2

 
$
40.7

 
$
34.8

 
$
24.9

 
$
44.4

Peer Group Index
$
100.0

 
$
71.7

 
$
71.0

 
$
57.1

 
$
36.3

 
$
40.3

Oil Service Index
$
100.0

 
$
76.6

 
$
91.2

 
$
75.5

 
$
41.4

 
$
41.1

S&P 500
$
100.0

 
$
101.4

 
$
113.5

 
$
138.3

 
$
132.2

 
$
173.9

Source: Bloomberg
 
Issuer Purchases of Equity Securities
Period
 
(a)
Total number
of shares
purchased (1)
 
(b)
Average
price paid
per share
 
(c)
Total number of shares
purchased as part of publicly
announced program
 
(d)
Maximum number of shares
that may yet be purchased
under the program (2) (3)
October 1 to October 31, 2019
 

 
$

 

 
4,751,642

November 1 to November 30, 2019
 

 

 

 
4,751,642

December 1 to December 31, 2019
 
36,627

 
9.13

 

 
4,866,645

 
 
36,627

 
$
9.13

 

 
 
(1)
Includes shares forfeited in satisfaction of tax obligations upon vesting of restricted shares.
(2)
Under the terms of our stock repurchase program, we may repurchase shares of our common stock in an amount equal to any equity granted to our employees, officers and directors under our share-based compensation plans, including share-based awards under our existing long-term incentive plans and shares issued to our employees under our Employee Stock Purchase Plan (Note 14), and such shares increases the number of shares available for repurchase. For additional information regarding our stock repurchase program, see Note 11.
(3)
In December 2019, we issued approximately 0.1 million shares of restricted stock to independent members of our Board. In January 2020, we issued approximately 0.4 million shares of restricted stock to our executive officers, select management employees, and certain members of our Board who have elected to take their quarterly fees in stock in lieu of cash. These issuances increase the number of shares available for repurchase under our stock repurchase program by a corresponding amount.
Item 6.  Selected Financial Data.
 
The financial data presented below for each of the five years ended December 31, 2019 should be read in conjunction with Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data included elsewhere in this Annual Report.

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Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except per share amounts)
Statement of Operations Data:
 
 
 
 
 
 
 
 
 
Net revenues
$
751,909

 
$
739,818

 
$
581,383

 
$
487,582

 
$
695,082

Gross profit (loss) (1)
137,838

 
121,684

 
62,166

 
46,516

 
(233,774
)
Income (loss) from operations (2)
67,997

 
51,543

 
(1,130
)
 
(63,235
)
 
(307,360
)
Net income (loss), including noncontrolling interests (3)
57,697

 
28,598

 
30,052

 
(81,445
)
 
(376,980
)
Net income applicable to noncontrolling interests
(222
)
 

 

 

 

Net income (loss) applicable to common shareholders
57,919

 
28,598

 
30,052

 
(81,445
)
 
(376,980
)
Adjusted EBITDA (4)
180,088

 
161,709

 
107,216

 
89,544

 
172,736

Earnings (loss) per share of common stock:
 
 
 
 
 
 
 
 
 
Basic
$
0.39

 
$
0.19

 
$
0.20

 
$
(0.73
)
 
$
(3.58
)
Diluted
$
0.38

 
$
0.19

 
$
0.20

 
$
(0.73
)
 
$
(3.58
)
Weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
147,536

 
146,702

 
145,295

 
111,612

 
105,416

Diluted
149,577

 
146,830

 
145,300

 
111,612

 
105,416

(1)
Amount in 2015 included impairment charges of $205.2 million for the Helix 534, $133.4 million for the HP I and $6.3 million for certain capitalized vessel project costs.
(2)
Amount in 2016 included a $45.1 million goodwill impairment charge related to our robotics reporting unit. Amount in 2015 included a $16.4 million goodwill impairment charge related to our U.K. well intervention reporting unit.
(3)
Amount in 2017 included a $51.6 million income tax benefit as a result of the U.S. tax law changes enacted in December 2017 (Note 9). Amount in 2015 included losses totaling $124.3 million related to our investments in Deepwater Gateway, L.L.C. (“Deepwater Gateway”) and Independence Hub. Amount in 2015 also included unrealized losses totaling $18.3 million on our foreign currency exchange contracts associated with the Grand Canyon, Grand Canyon II and Grand Canyon III chartered vessels.
(4)
This is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for an explanation of the definition and use of such measure as well as a reconciliation of these amounts to each year’s respective reported net income or loss.
 
 
December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Working capital
$
153,508

 
$
259,440

 
$
186,004

 
$
336,387

 
$
473,123

Total assets
2,596,731

 
2,347,730

 
2,362,837

 
2,246,941

 
2,399,959

Total debt
405,853

 
440,315

 
495,627

 
625,967

 
749,335

Total shareholders’ equity
1,699,591

 
1,617,779

 
1,567,393

 
1,281,814

 
1,278,963

 
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.

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We measure our operating performance based on EBITDA and free cash flow. 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 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 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.
 
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. We separately disclose our non-cash asset impairment charges, which, if not material, would be reflected as a component of our depreciation and amortization expense. Because these impairment charges are material for certain period presented, we have reported them as a separate line item. Non-cash goodwill impairment 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 gains and losses on disposition of assets, if any. In addition, we include realized losses from foreign currency exchange contracts not designated as hedging instruments and other than temporary loss on note receivable, 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 reconciliations, we provide amounts as reflected in our accompanying consolidated financial statements unless otherwise noted.
 
The reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA is as follows (in thousands): 
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
57,697

 
$
28,598

 
$
30,052

 
$
(81,445
)
 
$
(376,980
)
Adjustments:
 
 
 
 
 
 
 
 
 
Income tax provision (benefit)
7,859

 
2,400

 
(50,424
)
 
(12,470
)
 
(101,190
)
Net interest expense
8,333

 
13,751

 
18,778

 
31,239

 
26,914

Loss on extinguishment of long-term debt
18

 
1,183

 
397

 
3,540

 

Other (income) expense, net (1)
(1,165
)
 
6,324

 
1,434

 
(3,510
)
 
24,310

Depreciation and amortization
112,720

 
110,522

 
108,745

 
114,187

 
120,401

Asset impairments (2)

 

 

 

 
345,010

Goodwill impairments (3)

 

 

 
45,107

 
16,399

Gain (loss) on equity investments (4)
(1,613
)
 
3,430

 
1,800

 
1,674

 
122,765

EBITDA
183,849

 
166,208

 
110,782

 
98,322

 
177,629

Adjustments:
 
 
 
 
 
 
 
 
 
(Gain) loss on disposition of assets, net

 
(146
)
 
39

 
(1,290
)
 
(92
)
Realized losses from foreign exchange contracts not designated as hedging instruments
(3,761
)
 
(3,224
)
 
(3,605
)
 
(7,488
)
 
(4,801
)
Other than temporary loss on note receivable

 
(1,129
)
 

 

 

Adjusted EBITDA
$
180,088

 
$
161,709

 
$
107,216

 
$
89,544

 
$
172,736

(1)
Amount in 2015 includes unrealized losses totaling $18.3 million on our foreign currency exchange contracts associated with the Grand Canyon, Grand Canyon II and Grand Canyon III chartered vessels.

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(2)
Amount in 2015 reflects asset impairment charges for the Helix 534, the HP I and certain capitalized vessel project costs.
(3)
Amount in 2016 reflects a goodwill impairment charge related to our robotics reporting unit. Amount in 2015 reflects a goodwill impairment charge related to our U.K. well intervention reporting unit.
(4)
Amount in 2015 primarily reflects losses from our share of impairment charges that Deepwater Gateway and Independence Hub recorded in December 2015 and the write-offs of the remaining capitalized interest related to these equity investments.
 
The reconciliation of our cash flows from operating activities to free cash flow is as follows (in thousands): 
 
Year Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
169,669

 
$
196,744

 
$
51,638

 
$
38,714

 
$
110,805

Less: Capital expenditures, net of proceeds from sale of assets
(138,304
)
 
(137,058
)
 
(221,127
)
 
(173,310
)
 
(302,719
)
Free cash flow
$
31,365

 
$
59,686

 
$
(169,489
)
 
$
(134,596
)
 
$
(191,914
)
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 and robotics operations. With the delivery in November 2019 and the commencement of operations in January 2020 of the Q7000, our well intervention fleet currently includes seven purpose-built well intervention vessels, six IRSs, three SILs and one ROAM. Our robotics equipment currently includes 44 work-class ROVs, four trenchers and one ROVDrill. We also charter ROV support vessels on both long-term and spot bases to facilitate our ROV and trenching operations. Our intervention and robotic operations are geographically dispersed throughout the world. We believe that focusing on these services should deliver favorable long-term financial returns. Our Production Facilities segment includes the HP I, the HFRS and several wells and related infrastructure associated with the Droshky Prospect.
 
Our alliance with OneSubsea leverages the parties’ capabilities to provide a unique, fully integrated offering to clients, combining marine support with well access and control technologies. We and OneSubsea jointly developed a 15K IRS, which was completed and placed into service in January 2018, and our first ROAM, which is currently available to customers.
 
Economic Outlook and Industry Influences
 
Demand for our services is primarily influenced by the condition of the oil and gas industry, and in particular, the willingness of oil and gas companies to spend on operational activities and capital projects. The performance of our business is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by domestic and global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, and several other factors, including:

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worldwide economic activity and general economic and business conditions, including available access to global capital and capital markets;
the global supply and demand for oil and natural gas;
political and economic uncertainty and geopolitical unrest, including regional conflicts and economic and political conditions in the Middle East and other oil-producing regions;
actions taken by OPEC;
the availability and discovery rate of new oil and natural gas reserves in offshore areas;
the exploration and production of onshore shale oil and natural gas;
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 external capital for capital projects and production operations;
the sale and expiration dates of offshore leases globally;
technological advances affecting energy exploration, production, transportation and consumption;
the environmental and social sustainability of the oil and gas industry and the perception thereof, including within the investing community;
potential acceleration of the development of alternative fuels;
shifts in end-customer preferences toward fuel efficiency and the use of natural gas;
weather conditions, natural disasters, and epidemic and pandemic diseases;
environmental and other governmental regulations; and
domestic and international tax laws, regulations and policies.
 
Crude oil prices declined significantly in 2014 and have been volatile since then. Brent crude oil prices fluctuated between $53 and $75 per barrel during 2019. The volatility and uncertainty in future prices have discouraged oil and gas companies from making longer-term investments in offshore exploration and production as well as other offshore operational activities, which has decreased the demand and rates for services provided by drilling rig contractors. The decrease in rates for drilling rig contractors affects us as drilling rigs historically have been the asset class used for offshore well intervention work. Furthermore, the uncertainty and volatility in oil prices have caused our customers to use drilling rigs on existing long-term contracts to perform well intervention work instead of new drilling activities. This rig overhang, combined with lower volumes of work for drilling rig contractors, continues to affect the utilization and/or rates we can achieve for our assets. Furthermore, volatile and uncertain macroeconomic conditions in some regions and countries around the world, such as West Africa, Brazil, China and the U.K. following Brexit, may have a direct and/or indirect impact on our existing contracts and contracting opportunities and may introduce further currency volatility into our operations and/or financial results.
 
Many oil and gas companies are increasingly focusing on optimizing production of their existing subsea wells. As oil and gas companies begin to increase overall spending levels, we expect that it will likely be weighted towards production enhancement activities rather than exploration projects. Moreover, as the subsea tree base expands and ages, the demand for P&A services should persist. We believe that we have a competitive advantage in performing well intervention services efficiently. Our well intervention and robotics operations are intended to service the life span of an oil and gas field as well as to provide P&A services at the end of the life of a field as required by governmental regulations. Thus, we believe that fundamentals for our business remain favorable over the longer term as the need to prolong well life in oil and gas production and safely decommission end of life wells are primary drivers of demand for our services.
 
We continue to position ourselves for future market recovery while managing through this sustained period of market weakness. Our position is based on multiple factors, including: (1) the need to extend the life of subsea wells is significant to the commercial viability of the wells as P&A costs are considered; (2) our services offer commercially viable alternatives for reducing the finding and development costs of reserves as compared to new drilling as well as extending and enhancing the commercial life of subsea wells; and (3) in past cycles, well intervention and workover have been some of the first activities to recover, and in a prolonged market downturn are important to the commercial viability of deepwater wells.
 

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Despite being in an ongoing weak market, we did see improvements in 2019 compared to 2018. In the Gulf of Mexico, offshore activity increased with higher utilization and an increase in rig count during the year. Measured signs of improvements also began to show in rates, which typically lag those in utilization. We are seeing positive developments that drive demand for our business, including (1) the decrease in rig overhang as long-term rig contracts expire, which contracts were viewed by our customers as a sunk cost and (2) the decrease in the attractiveness of unconventional onshore oil and gas opportunities, which may diverge investments offshore. We expect to see a continued recovery, albeit a slow recovery, in offshore oil and gas activities in the Gulf of Mexico in 2020.
 
Business Activity Summary
 
We have been focused on enhancing our financial position and strengthening our balance sheet through various means including securities offerings (the last of which occurred in March 2018), which has allowed us to strategically focus on our core well intervention and robotics businesses.
 
In January 2019, we renewed the agreements that provide various operators with access to the HFRS for well control purposes through March 31, 2020 on newly agreed-upon rates and terms. These agreements automatically renew on an annual basis absent proper notice of termination.
 
Also in January 2019, we acquired from Marathon Oil several wells and related infrastructure associated with the Droshky Prospect located in offshore Gulf of Mexico Green Canyon Block 244. As part of the transaction, Marathon Oil agreed to pay us certain amounts as we complete the P&A of the acquired assets, which we can perform as our schedule permits, subject to regulatory timelines. We completed the P&A of two of the Droshky wells during 2019, and we expect limited production associated with the remaining Droshky wells.
 
In May 2019, we acquired a 70% controlling interest in Subsea Technologies Group Limited (“STL”), an Aberdeen-based subsea engineering company that specializes in the design and manufacture of subsea pressure control equipment, including well intervention, well control and subsea control systems.
 
In November 2019, we took delivery of the Q7000, a newbuild semi-submersible well intervention vessel built to U.K. North Sea standards. The vessel then transited from the shipyard in Singapore to Nigeria where it commenced operations in January 2020.
 
In November 2019, we returned the Grand Canyon to its owner upon expiration of the long-term charter agreement. The vessel continues to serve as a spot vessel on a short-term basis.
 
Backlog
 
We provide services and methodologies that we believe are critical to maximizing production economics. Our services cover the lifecycle of an offshore oil or gas field. We provide services primarily in deepwater in the Gulf of Mexico, Brazil, North Sea, Asia Pacific and West Africa regions. In addition to serving the oil and gas market, our Robotics assets are contracted for the development of renewable energy projects (wind farms). As of December 31, 2019, our consolidated backlog that is supported by written agreements or contracts totaled $796 million, of which $509 million is expected to be performed in 2020. The substantial majority of our backlog is associated with our Well Intervention business segment. As of December 31, 2019, our well intervention backlog was $568 million, including $402 million expected to be performed in 2020. Our contract with BP to provide well intervention services with our Q5000 semi-submersible vessel, our agreements with Petrobras to provide well intervention services offshore Brazil with the Siem Helix 1 and Siem Helix 2 chartered vessels, and our fixed fee agreement for the HP I represent approximately 82% of our total backlog. As of December 31, 2018, the total backlog associated with our operations was $1.1 billion. Backlog is not necessarily a reliable indicator of revenues derived from these contracts as services may be added or 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 the rates we would have generated had we performed the contract.

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RESULTS OF OPERATIONS
 
We have three reportable business segments: Well Intervention, Robotics and Production Facilities. All material intercompany transactions between the segments have been eliminated in our consolidated financial statements, including our consolidated results of operations.
 
Comparison of Years Ended December 31, 2019 and 2018 
 
The following table details various financial and operational highlights for the periods presented (dollars in thousands): 
 
Year Ended December 31,
 
Increase/(Decrease)
 
2019
 
2018
 
Amount
 
Percent
Net revenues —
 
 
 
 
 
 
 
Well Intervention
$
593,300

 
$
560,568

 
$
32,732

 
6
 %
Robotics
171,672

 
158,989

 
12,683

 
8
 %
Production Facilities
61,210

 
64,400

 
(3,190
)
 
(5
)%
Intercompany eliminations
(74,273
)
 
(44,139
)
 
(30,134
)
 
 
 
$
751,909

 
$
739,818

 
$
12,091

 
2
 %
 
 
 
 
 
 
 
 
Gross profit (loss) —
 
 
 
 
 
 
 
Well Intervention
$
104,376

 
$
101,129

 
$
3,247

 
3
 %
Robotics
15,809

 
(4,978
)
 
20,787

 
(4)

Production Facilities
19,222

 
27,626

 
(8,404
)
 
(30
)%
Corporate, eliminations and other
(1,569
)
 
(2,093
)
 
524

 
 
 
$
137,838

 
$
121,684

 
$
16,154

 
13
 %
 
 
 
 
 
 
 
 
Gross margin —
 
 
 
 
 
 
 
Well Intervention
18
%
 
18
 %
 
 
 
 
Robotics
9
%
 
(3
)%
 
 
 
 
Production Facilities
31
%
 
43
 %
 
 
 
 
Total company
18
%
 
16
 %
 
 
 
 
 
 
 
 
 
 
 
 
Number of vessels or robotics assets (1) / Utilization (2)
 
 
 
 
 
 
 
Well Intervention vessels
6/89%

 
6/83%

 
 
 
 
Robotics assets (3)
50/41%

 
52/37%

 
 
 
 
Chartered robotics vessels
3/87%

 
3/76%

 
 
 
 
(1)
Represents the number of vessels or robotics assets as of the end of the period, including vessels under both short-term and long-term charters, and excluding acquired vessels prior to their in-service dates and vessels or assets disposed of and/or taken out of service.
(2)
Represents the average utilization rate, which is calculated by dividing the total number of days the vessels or robotics assets generated revenues by the total number of available calendar days in the applicable period. The average utilization rates of chartered robotics vessels in 2019 and 2018 included 191 and 245 spot vessel days, respectively, at near full utilization.
(3)
Consists of ROVs, trenchers and ROVDrill.
(4)
Percent calculation not meaningful.
 

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Intercompany segment amounts are derived primarily from equipment and services provided to other business segments at rates consistent with those charged to third parties. Intercompany segment revenues are as follows (in thousands): 
 
Year Ended December 31,
 
Increase/
 
2019
 
2018
 
(Decrease)
 
 
 
 
 
 
Well Intervention
$
43,484

 
$
14,218

 
$
29,266

Robotics
30,789

 
29,921

 
868

 
$
74,273

 
$
44,139

 
$
30,134

 
Net Revenues.  Our total net revenues increased by 2% in 2019 as compared to 2018 reflecting a mix of higher revenues from our Well Intervention and Robotics business segments, lower revenues from our Production Facilities business segment, and higher intercompany eliminations.
 
Our Well Intervention revenues increased by 6% in 2019 as compared to 2018, primarily reflecting higher revenues in the Gulf of Mexico and Brazil, partially offset by lower revenues in the North Sea. The increase in revenues in the Gulf of Mexico was primarily attributable to higher utilization of the Q4000 during 2019 as compared to 2018. This revenue increase was offset by a reduction in IRS rental revenues during the comparative year-over-year periods. Our Well Intervention revenues in the Gulf of Mexico during 2019 also included $27.5 million associated with intercompany P&A work on two of the Droshky wells for our Production Facilities segment, for which we received payments from Marathon Oil in 2019. The increase in revenues in Brazil was primarily a result of higher utilization of both the Siem Helix 1 and the Siem Helix 2 during 2019. Our Well Intervention revenues in Brazil during 2019 also included approximately $3.9 million of contractual adjustments related to withholding taxes in Brazil, of which $2.1 million related to previous years (Note 12). The decrease in revenues in the North Sea primarily reflected a weaker British pound and lower rates as compared to 2018.
 
Our Robotics revenues increased by 8% in 2019 as compared to 2018. The increase primarily reflected increased utilization of our chartered vessels (from 76% in 2018 to 87% in 2019) and our robotics assets also achieved higher utilization in 2019 as compared to 2018.
 
Our Production Facilities revenues decreased by 5% in 2019 as compared to 2018 primarily reflecting lower revenues from the HFRS during 2019, offset in part by production revenues from the oil and gas properties that we acquired from Marathon Oil in January 2019 (Note 1).
 
The increase in intercompany eliminations was primarily the result of $27.5 million in revenue that our Well Intervention business segment recognized with its completion of P&A work on behalf of our Production Facilities segment.

Gross Profit (Loss).  Our 2019 gross profit increased by $16.2 million, or 13%, as compared to 2018 reflecting improvements in our Well Intervention and Robotics business segments, offset in part by lower gross profit in our Production Facilities business segment.
 
The gross profit related to our Well Intervention segment increased by $3.2 million, or 3%, in 2019 as compared to 2018, primarily reflecting improved operating results in Brazil and the Gulf of Mexico, offset in part by reduced operating results in the North Sea and lower IRS rental unit utilization.
 
Our Robotics segment achieved a gross profit of $15.8 million in 2019 as compared to a gross loss of $5.0 million in 2018 primarily reflecting increased utilization for our chartered vessels and our robotics assets as well as a reduction in vessel costs due to the termination of the Grand Canyon charter in November 2019 (Notes 1 and 17) and the expiration of the hedge of the Grand Canyon II charter payments in July 2019 (Note 21).
 
The gross profit related to our Production Facilities segment decreased by 30% in 2019 as compared to 2018 primarily reflecting revenue decreases for the HFRS.
 

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Selling, General and Administrative Expenses.  Our selling, general and administrative expenses decreased by $0.4 million in 2019 as compared to 2018. The decrease was primarily attributable to a net reduction in employee compensation costs in 2019 as compared to 2018 (Note 14).
 
Equity in Earnings (Losses) of Investment.  Equity in earnings (losses) of investment was $1.4 million in 2019 as compared to $(3.9) million in 2018 primarily reflecting a reduction in our share of estimated obligations to decommission the Independence Hub platform (Note 5).
 
Net Interest Expense.  Our net interest expense totaled $8.3 million in 2019 as compared to $13.8 million in 2018 primarily reflecting higher capitalized interest and a reduction in our overall debt levels from $479.2 million in 2018 to $436.1 million in 2019. Capitalized interest totaled $20.2 million for 2019 as compared to $15.6 million for 2018 as a result of the construction and completion of the Q7000.
 
Loss on Extinguishment of Long-term Debt.  The $1.2 million loss in 2018 was attributable to the write-off of the unamortized debt issuance costs related to the prepayment of $61 million of the then-existing term loan in March 2018 and costs associated with the redemption of the 2032 Notes (Note 8).
 
Other Income (Expense), Net.  Net other income was $1.2 million for 2019 as compared to net other expense of $6.3 million for 2018. Net other income (expense) in 2019 and 2018 included foreign currency transaction gains (losses) of $1.5 million and $(4.3) million, respectively. These amounts primarily reflect foreign exchange fluctuations in our non-U.S. dollar currencies. Also included in the comparable year over year periods were net losses of $0.4 million in 2019 and $0.9 million in 2018 associated with our foreign currency exchange contracts that were not designated as cash flow hedges (Note 21). In addition, net other expense for 2018 included a $1.1 million other than temporary loss on a note receivable.
 
Royalty Income and Other.  Royalty income and other decreased by $1.3 million in 2019 as compared to 2018. The decrease was primarily attributable to the reduction in our overriding royalty income, which was affected by lower average oil prices and lower production volumes in 2019 as compared to 2018.
 
Income Tax Provision (Benefit).  Income tax provision was $7.9 million for 2019 as compared to $2.4 million for 2018. The effective tax rate was 12.0% for 2019 as compared to 7.7% for 2018. The increase was primarily attributable to improvements in profitability in the U.S. year over year (Note 9).
 
Comparison of Years Ended December 31, 2018 and 2017 
 
Various financial and operational highlights for the years ended December 31, 2018 and 2017 were previously presented in our 2018 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
 
Overview 
 
The following table presents certain information useful in the analysis of our financial condition and liquidity (in thousands): 
 
December 31,
 
2019
 
2018
 
 
 
 
Working capital (1)
$
153,508

 
$
259,440

Long-term debt (2)
306,122

 
393,063

Liquidity (3)
379,533

 
426,813

(1)
Working capital as of December 31, 2019 included the recognition of $53.8 million of current operating lease liabilities as a result of the adoption of Accounting Standards Update No. 2016-02, “Leases (Topic 842)” in 2019 (Notes 2 and 6) and the classification of the Nordea Q5000 Loan of $89.0 million in current maturities of long-term debt (Note 8).

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(2)
Long-term debt does not include the current maturities portion of our long-term debt as that amount is included in net working capital. Long-term debt is also net of unamortized debt discounts and debt issuance costs. See Note 8 for information relating to our long-term debt.
(3)
Liquidity, as defined by us, is equal to cash and cash equivalents plus available capacity under the Revolving Credit Facility, which capacity is reduced by letters of credit drawn against that facility. Our liquidity at December 31, 2019 included cash and cash equivalents of $208.4 million and $171.1 million of available borrowing capacity under the Revolving Credit Facility (Note 8). Our liquidity at December 31, 2019 did not include $54.1 million of restricted cash (short-term). Our liquidity at December 31, 2018 included cash and cash equivalents of $279.5 million and $147.4 million of available borrowing capacity under our then-existing revolving credit facility.
 
The carrying amount of our long-term debt, including current maturities, net of unamortized debt discounts and debt issuance costs, is as follows (in thousands): 
 
December 31,
 
2019
 
2018
 
 
 
 
Term Loan (matures June 2020)
$
32,869

 
$
33,321

Nordea Q5000 Loan (matures April 2020)
89,031

 
123,980

MARAD Debt (matures February 2027)
60,073

 
66,443

Convertible Senior Notes Due 2022 (mature May 2022) (1)
115,765

 
112,192

Convertible Senior Notes Due 2023 (mature September 2023) (1)
108,115

 
104,379

Total debt
$
405,853

 
$
440,315

(1)
Convertible Senior Notes Due 2022 (the “2022 Notes”) and Convertible Senior Notes Due 2023 (the “2023 Notes”) will increase to their face amounts through accretion of the debt discounts through May 1, 2022 and September 15, 2023, respectively.
 
The following table provides summary data from our consolidated statements of cash flows (in thousands): 
 
Year Ended December 31,
 
2019
 
2018
 
2017
Cash provided by (used in):
 
 
 
 
 
Operating activities
$
169,669

 
$
196,744

 
$
51,638

Investing activities
(142,385
)
 
(136,014
)
 
(221,127
)
Financing activities
(45,818
)
 
(46,186
)
 
77,482

 
Our current requirements for cash primarily reflect the need to fund our operations and capital spending for our current lines of business and to service our debt. As of December 31, 2019, the remaining principal balance of the Nordea Q5000 Loan was classified to current as its maturity date is April 30, 2020. Although we currently have no plans to do so, we have the ability to fund the repayment of the Nordea Q5000 Loan when due with available borrowing capacity under the Revolving Credit Facility.
 
Given the ongoing industry-wide spending reductions, we continue to remain focused on maintaining a strong balance sheet and adequate liquidity. Over the near term, we may seek to reduce, defer or cancel certain planned capital expenditures. We believe that our cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will be sufficient to fund our operations over at least the next 12 months.
 
In accordance with the Credit Agreement, the 2022 Notes, the 2023 Notes, the MARAD Debt agreements and the Nordea Credit Agreement, we are required to comply with certain covenants, including with respect to the Credit Agreement, certain financial ratios such as a consolidated interest coverage ratio and various leverage ratios, as well as the maintenance of a minimum cash balance, net worth, working capital and debt-to-equity requirements. The Credit Agreement also contains provisions that limit our ability to incur certain types of additional indebtedness. These provisions effectively prohibit us from incurring additional secured indebtedness or indebtedness guaranteed by us. The Credit Agreement does permit us to incur certain unsecured indebtedness and also provides for our

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subsidiaries to incur project financing indebtedness (such as the MARAD Debt and the Nordea Q5000 Loan) secured by the underlying asset, provided that such indebtedness is not guaranteed by us. The Credit Agreement also permits Unrestricted Subsidiaries to incur indebtedness provided that it is not guaranteed by us or any of our Restricted Subsidiaries (as defined in the Credit Agreement). As of December 31, 2019 and 2018, we were in compliance with all of the covenants in our long-term debt agreements.
 
A prolonged period of weak industry activity may make it difficult to comply with our covenants and the other restrictions in the agreements governing our debt. Furthermore, during any period of sustained weak economic activity and reduced EBITDA, our ability to fully access the Revolving Credit Facility may be impacted. At December 31, 2019, our available borrowing capacity under the Revolving Credit Facility, based on the applicable leverage ratio covenant, was $171.1 million, net of $3.9 million of letters of credit issued under that facility. We currently have no plans or forecasted requirements to borrow under the Revolving Credit Facility other than for the issuance of letters of credit. Our ability to comply with loan agreement covenants and other restrictions is affected by economic conditions and other events beyond our control. Our failure to comply with these covenants and other restrictions could lead to an event of default, the possible acceleration of our outstanding debt and the exercise of certain remedies by our lenders, including foreclosure against our collateral.
 
Subject to the terms of the Credit Agreement, we may borrow and/or obtain letters of credit of up to $25 million under the Revolving Credit Facility. See Note 8 for additional information relating to our long-term debt, including more information regarding the Credit Agreement and related covenants and collateral.
 
The 2022 Notes and the 2023 Notes can be converted into our common stock by the holders or redeemed by us prior to their stated maturity under certain circumstances specified in the applicable indenture governing the notes. We can settle any conversion in cash, shares of our common stock or a combination thereof.
 
Operating Cash Flows 
 
Total cash flows from operating activities decreased by $27.1 million in 2019 as compared to 2018 primarily reflecting changes in our working capital during 2019 as well as higher regulatory certification costs for our vessels and systems, which included costs related to planned dry docks for three of our vessels.
 
Total cash flows from operating activities increased by $145.1 million in 2018 as compared to 2017 primarily reflecting improvements in our operations, collection of accounts receivable and reductions in interest payments.
 
Investing Activities 
 
Capital expenditures represent cash paid principally for the acquisition, construction, completion, upgrade, modification and refurbishment of long-lived property and equipment such as dynamically positioned vessels, topside equipment and subsea systems. Capital expenditures also include interest on property and equipment under development. Significant (uses) sources of cash associated with investing activities are as follows (in thousands): 
 
Year Ended December 31,
 
2019
 
2018
 
2017
Capital expenditures:
 
 
 
 
 
Well Intervention
$
(139,212
)
 
$
(136,164
)
 
$
(230,354
)
Robotics
(417
)
 
(151
)
 
(648
)
Production Facilities
(123
)
 
(325
)
 

Other
(1,102
)
 
(443
)
 
(125
)
STL acquisition, net
(4,081
)
 

 

Proceeds from sale of assets (1)
2,550

 
25

 
10,000

Other

 
1,044

 

Net cash used in investing activities
$
(142,385
)
 
$
(136,014
)
 
$
(221,127
)
(1)
Amount in 2019 primarily reflects cash received from the sale of certain property acquired from Marathon Oil (Note 16). Amount in 2017 reflects cash received from the sale of our former spoolbase facility located in Ingleside, Texas.
 

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Our capital expenditures above primarily included payments associated with the construction and completion of the Q7000 (see below), the investment in the topside well intervention equipment for the Siem Helix 1 and Siem Helix 2 vessels that we charter to perform our agreements with Petrobras (see below), and the investment in the 15K IRS and the ROAM.
 
In September 2013, we entered into a contract for the construction of the Q7000, a newbuild semi-submersible well intervention vessel built to U.K. North Sea standards. Pursuant to the contract and subsequent amendments, 20% of the contract price was paid upon the signing of the contract, 20% was paid in each of 2016, 2017 and 2018, and the remaining 20% was paid upon the delivery of the vessel in November 2019. At December 31, 2019, our total investment in the Q7000 was $536.4 million, including $346.0 million of installment payments to the shipyard. The vessel commenced operations in Nigeria in January 2020.
 
In February 2014, we entered into agreements with Petrobras to provide well intervention services offshore Brazil. The initial term of the agreements with Petrobras is for four years, with options to extend by agreement of both parties for an additional period of up to four years. In connection with the Petrobras agreements, we entered into charter agreements with Siem for two monohull vessels, the Siem Helix 1, which commenced operations for Petrobras in April 2017, and the Siem Helix 2, which commenced operations for Petrobras in December 2017.
 
Financing Activities 
 
Cash flows from financing activities consist primarily of proceeds from debt and equity transactions and repayments of our long-term debt. Net cash outflows from financing activities of $45.8 million in 2019 primarily reflected the repayment of $42.6 million of our indebtedness and $2.0 million in net cash outflows related to repayments and net refinancing, including fees, of the Term Loan (Note 8). Net cash outflows from financing activities of $46.2 million in 2018 primarily reflected the repayment of $166.4 million of our indebtedness using cash and the net proceeds from the issuance in March 2018 of $125 million of the 2023 Notes (Note 8).
 
Net cash outflows from financing activities were $46.2 million in 2018 as compared to net cash inflows of $77.5 million in 2017. In 2018, we repaid approximately $166 million of our indebtedness using cash and the net proceeds from the issuance in March 2018 of $125 million of our 2023 Notes. Cash inflows from financing activities in 2017 included the net proceeds of approximately $220 million we received from our underwritten public equity offering in January 2017, offset in part by debt repayments in 2017.
 
Free Cash Flow
 
Free cash flow decreased by $28.3 million in 2019 as compared to 2018 attributable to the decrease in operating cash flows and higher capital expenditures in 2019.
 
Free cash flow increased by $229.2 million in 2018 as compared to 2017 primarily attributable to higher operating cash flows and reduced capital expenditures in 2018 as a result of the completion of the Siem Helix 1 and Siem Helix 2 vessels during 2017.
 
Free cash flow is a non-GAAP financial measure. See Item 6 for the definition and calculation of free cash flow.
 
Outlook 
 
We anticipate that our capital expenditures, including capitalized interest and regulatory certification costs for our vessels and systems, will approximate $50 million for 2020. We believe that cash on hand, internally generated cash flows and availability under the Revolving Credit Facility will provide the capital necessary to continue funding our 2020 operating needs and to meet our debt obligations due in 2020.
 

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Contractual Obligations and Commercial Commitments 
 
The following table summarizes our contractual cash obligations as of December 31, 2019 and the scheduled years in which the obligations are contractually due (in thousands): 
 
Total (1)
 
Less Than
1 Year
 
1-3 Years
 
3-5 Years
 
More Than
5 Years
 
 
 
 
 
 
 
 
 
 
Term Loan
$
33,250

 
$
3,500

 
$
29,750

 
$

 
$

Nordea Q5000 Loan
89,286

 
89,286

 

 

 

MARAD debt
63,610

 
7,200

 
15,497

 
17,082

 
23,831

2022 Notes (2)
125,000

 

 
125,000

 

 

2023 Notes (3)
125,000

 

 

 
125,000

 

Interest related to debt (4)
51,401

 
17,457

 
24,759

 
6,706

 
2,479

Property and equipment (5)
7,978

 
7,978

 

 

 

Operating leases (6)
378,642

 
107,565

 
192,501

 
72,325

 
6,251

Total cash obligations
$
874,167

 
$
232,986

 
$
387,507

 
$
221,113

 
$
32,561

(1)
Excludes unsecured letters of credit outstanding at December 31, 2019 totaling $3.9 million. These letters of credit may be issued to support various obligations, such as contractual obligations, contract bidding and insurance activities.
(2)
Notes mature in May 2022. The 2022 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds $18.06 per share, which is 130% of the conversion price. At December 31, 2019, the conversion trigger was not met. See Note 8 for additional information.
(3)
Notes mature in September 2023. The 2023 Notes can be converted prior to their stated maturity if the closing price of our common stock for at least 20 days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter exceeds $12.31 per share, which is 130% of the conversion price. At December 31, 2019, the conversion trigger was not met. See Note 8 for additional information.
(4)
Interest payment obligations were calculated using stated coupon rates for fixed rate debt and interest rates applicable at December 31, 2019 for variable rate debt.
(5)
Primarily reflects costs associated with the Q7000 prior to the commencement of its operations in January 2020 (Note 17).
(6)
Operating leases include vessel charters and facility and equipment leases. At December 31, 2019, our commitment related to long-term vessel charters totaled approximately $340.9 million, of which $137.0 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, 2019.
 
Contingencies
 
We believe that there are currently no contingencies that would have a material adverse effect on our financial position, results of operations and cash flows.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
 
Our discussion and analysis of our financial condition and results of operations, as reflected in the accompanying consolidated financial statements and related footnotes, are prepared in conformity with GAAP. As such, we are required to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We base our estimates on historical experience, available information and various other assumptions we believe to be reasonable under the circumstances. These estimates may change 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 policies in this regard are those described below. While these issues require us to make judgments that are somewhat subjective, they are generally based on a significant amount of historical data and current market data. See Note 2 for a detailed discussion on the application of our accounting policies.
 

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Property and Equipment
 
We review our property and equipment for impairment indicators at least quarterly or whenever changes in facts and circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. We base our evaluation on impairment indicators such as the nature of the asset or asset group, the future economic benefits of the asset or asset group, historical and estimated future profitability measures, and other external market conditions of factors that may be present. We often estimate future earnings and cash flows of our assets to corroborate our determination of whether impairment indicators exist. If impairment indicators suggest that the carrying amount of an asset may not be recoverable, we determine whether an impairment has occurred by estimating undiscounted cash flows of the asset to the asset’s carrying value. Impairment is recognized for the difference between the asset’s carrying value and its estimated fair value. The expected future cash flows used for the assessment of recoverability are based on judgmental assessments of operating costs, project margins and capital project decisions, considering information available at the date of review. Because there usually is a lack of quoted market prices for long-lived assets, the fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or based on a multiple of operating cash flows validated with historical market transactions of similar assets where possible. The fair value of impaired assets is typically determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants or based on a multiple of operating cash flows validated with historical market transactions of similar assets where possible.
 
The review of property and equipment for impairment indicators, the determination of the appropriate asset groups at which to evaluate impairment, the projection of future cash flows of property and equipment, and the estimated fair value of any property and equipment that may be deemed unrecoverable involve significant judgment and estimation by our management. Changes to those judgments and estimations could require us to recognize impairment charges in the future.
 
Income Taxes
 
We conduct business in numerous countries and earn income in various jurisdictions. Income taxes have been provided based upon the tax laws and rates in those jurisdictions. The provision of our income taxes involves the interpretation of various laws and regulations, and changes in those laws, our operations and/or legal structure could impact our income tax liabilities. Furthermore, our tax filings are subject to regular audits and examination by local taxing authorities. We provide for uncertain tax positions and related interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent we prevail in matters for which a liability for an unrecognized tax benefit is established or are required to pay amounts in excess of the liability, our effective tax rate in a given financial statement period may be affected.
 
We record deferred taxes based on the differences between financial reporting and the tax basis of assets and liabilities. The carrying value of deferred tax assets are based on our estimates, judgments and assumptions regarding future operating results and taxable income. Loss carryforwards and tax credits are assessed for realization, and a valuation allowance for deferred tax assets is recorded when it is more likely than not that some or all of the benefit from the deferred tax assets will not be realized. If we subsequently determine that we will be able to realize deferred tax assets in the future in excess of our net recorded amount, the resulting adjustment would increase earnings for the period in which such determination was made. We will continue to assess the adequacy of a valuation allowance on a quarterly basis. Any changes to our estimated valuation allowance could be material to our consolidated financial position and results of operations.
 
The 2017 Tax Act requires the taxable repatriation of foreign earnings that had been reinvested in previous years. Subsequently, repatriation of foreign earnings will generally be free of U.S. federal tax with the possible exception of withholding taxes and state taxes. As of December 31, 2019, we had accumulated undistributed earnings generated by our non-U.S. subsidiaries without operations in the U.S. of approximately $129.2 million. We intend to indefinitely reinvest these earnings, as well as future earnings from our non-U.S. subsidiaries without operations in the U.S., to fund our international operations. We have not accrued for the possibility of withholding taxes. The computation of the potential deferred tax liability associated with the amount of reinvested earnings and other basis difference is not practicable.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 
As of December 31, 2019, we were exposed to market risks associated with interest rates and foreign currency exchange rates.
 
Interest Rate Risk.  As of December 31, 2019,