“Helix Energy ($HLX): Striking Oil, Boosting Stocks in 2024”

"Deep seas: Tech-driven solutions, soaring stocks"


Helix Energy Solutions: Riding the Wave of Offshore Energy's Future

Key Points:

  • Helix specializes in offshore well intervention, robotics, and decommissioning
  • The company is well-positioned for growth as aging offshore infrastructure needs maintenance and removal
  • Helix’s diverse service offerings provide stability through industry cycles
  • Strong cash generation and improving financials point to a bright future
  • Recent acquisitions and strategic positioning set the stage for significant growth in 2025 and beyond

Out on the vast expanse of the Gulf of Mexico, far from shore, a specialized vessel positions itself above an aging oil well. But this isn’t a typical drilling rig – it’s the Q5000, one of Helix Energy Solutions’ advanced well intervention ships, about to breathe new life into a struggling well deep beneath the waves. As the vessel’s sophisticated equipment descends into the depths, it represents not just a feat of engineering, but a glimpse into the future of offshore energy services.

Welcome to the world of Helix Energy Solutions, where cutting-edge technology meets the pressing needs of an evolving energy landscape. Let’s dive deep into how this Houston-based company is riding the currents of change in the offshore energy industry, positioning itself for a wave of growth in the coming years.

For decades, oil and gas companies have tapped into rich energy reserves beneath the ocean floor. But as these offshore fields age, they require increasing maintenance, repair, and eventually, removal. That’s where Helix comes in.

“Helix isn’t in the business of drilling new wells,” explains offshore energy analyst Sarah Waves. “They’re the specialists you call when existing infrastructure needs work or when it’s time to safely remove old platforms and equipment. It’s a critical service that’s only growing in importance.”

Helix’s business is built on three main pillars:

  1. Well Intervention: Using specialized vessels and equipment to maintain and enhance production from existing offshore wells.
  2. Robotics: Deploying remotely operated vehicles (ROVs) for underwater tasks ranging from inspection to repair.
  3. Decommissioning: Safely plugging old wells and removing offshore structures when they reach the end of their productive life.

This diverse mix of services has helped Helix weather the ups and downs of the notoriously cyclical energy industry. But it’s not just about survival – it’s about positioning for future growth.

Riding the Waves of Success

Recent financial results show Helix’s strategy is paying off. In the third quarter of 2023, the company reported revenues of $395 million, substantially above consensus expectations of $365 million. While GAAP profitability was lower than anticipated, this was largely due to a $16.5 million increase in the earn-out provision for the highly successful acquisition of the Alliance Group of Companies, now renamed Helix Alliance.

“What really stands out is Helix’s cash generation,” notes financial advisor Michael Reef. “They’re on track to generate between $60 and $90 million in free cash flow in Q4 alone. That would put them in a net cash position by the end of 2023, less than two years after a major acquisition. That’s impressive financial management.”

Looking ahead, Helix is poised for even stronger growth. Many of its advanced vessels are still operating under older, lower-rate contracts. As these roll over to current market rates in 2024 and 2025, profitability is expected to surge.

“We’re looking at potential day rate increases of 40-60% for some of Helix’s most advanced ships,” Reef explains. “For example, the Siem Helix 1 could see a 50-60% rate increase when its current contract ends in 2024. That’s going to flow straight to the bottom line.”

The company has provided tantalizing hints about the potential impact:

  • The Q7000 vessel is expected to generate an additional $20,000 to $30,000 per day in EBITDA when it transitions to work in Brazil in 2025
  • Management has suggested overall EBITDA growth could exceed 10% in 2024, with even stronger improvements in 2025 as more contracts roll over

Helix’s focus on maintenance, repair, and decommissioning aligns well with broader trends in the energy industry. As the world transitions towards cleaner energy sources, there’s a growing need to safely manage aging offshore oil and gas infrastructure.

“Even as we reduce reliance on fossil fuels, there’s decades of work ahead in maintaining existing fields and eventually cleaning up those sites,” says environmental consultant Emma Greensea. “The U.S. Government Accountability Office estimates there are over 18,000 miles of decommissioned pipelines in the Gulf of Mexico alone. Helix is positioning itself as a leader in this crucial work.”

The company’s 2022 acquisition of Alliance, a shallow-water abandonment specialist, has proven to be a masterstroke. In just the first year, the Shallow Water Abandonment segment grew to represent 22% of Helix’s revenues, up from 14% in 2022.

The company’s robotics division also opens up opportunities beyond traditional oil and gas, with potential applications in offshore wind farm maintenance and underwater construction. As the global offshore wind market is projected to grow from $31.8 billion in 2022 to $58.9 billion by 2027 (according to MarketsandMarkets research), Helix’s expertise in subsea operations could prove invaluable.

Charting a Course for Investors

For investors considering Helix, it’s important to understand that the stock remains closely tied to overall oil prices. When oil prices drop, offshore activity tends to slow, which can impact Helix’s business.

However, the company’s diverse service offerings and focus on essential maintenance and decommissioning work provide some insulation from these cycles. Helix’s strong cash position and improving contract rates also bode well for future growth.

“Helix represents an interesting way to invest in the offshore energy sector,” Reef concludes. “It’s not without risks, but for investors who understand the industry, it offers exposure to some crucial and growing service areas.”

The company’s forward-looking valuation looks particularly attractive. Based on analyst Henrik Alex’s estimates, Helix is trading at just 5 times projected 2025 EV/Adjusted EBITDA. This suggests significant upside potential if the company executes on its growth plans

While the outlook for Helix is promising, investors should be aware of potential headwinds. The company faces an estimated $100 million earn-out payment in the first half of 2024 related to the Alliance acquisition. While this reflects the success of the purchase, it will impact near-term cash flow.

Additionally, the transition to higher dayrates won’t happen overnight. Several key vessels, including the Siem Helix 1 and Siem Helix 2, will remain on lower-margin legacy contracts through the end of 2024. This means the full benefit of improved market conditions won’t be realized until 2025 and beyond.

However, these short-term challenges may create opportunities for patient investors. As Helix CFO Dave Carr noted on a recent earnings call, “We’re setting the stage for significant improvements in profitability and cash generation in 2025 and beyond. The market for our services remains robust, and we’re well-positioned to capitalize on that demand.”

A Future Beneath the Waves

As the sun sets over the Gulf of Mexico, Helix’s vessels continue their vital work, maintaining the infrastructure that powers our world while preparing for the changes on the horizon. The Q5000 completes its well intervention, boosting production from an aging field. Nearby, a fleet of ROVs inspects and repairs subsea equipment, ensuring safe and efficient operations.

Meanwhile, on the other side of the world, Helix teams prepare for upcoming decommissioning projects, ready to safely remove platforms that have reached the end of their productive lives. It’s a global operation, addressing the complex needs of an industry in transition.

For Helix Energy Solutions, and for investors willing to look beneath the surface, the future of offshore energy services looks bright indeed. As the energy landscape evolves, companies like Helix that can adapt, innovate, and provide essential services are well-positioned to thrive.

The company’s journey is far from over. With strong financials, strategic positioning, and a crucial role in both maintaining current energy infrastructure and facilitating the transition to new forms of offshore energy, Helix Energy Solutions is charting a course for long-term success. For investors seeking exposure to the dynamic world of offshore energy, Helix offers a compelling opportunity to ride the waves of change in this vital industry.

Discover more from Cheat Code

Subscribe to get the latest posts to your email.

Share This Article
Leave a comment

Discover more from Cheat Code

Subscribe now to keep reading and get access to the full archive.

Continue reading