Helix Energy Makes A Splash In Offshore Rig Market

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Offshore oil drilling rigs are like any other piece of equipment.

They need regular maintenance, repair and cleaning to operate properly.

The difference is, some of the gear goes thousands of feet under the ocean's surface, which means you need more than a truck and a nice set of tools to get the job done.


The work requires special expertise and equipment -- including large unmanned robots called remote-operated vehicles (ROVs), which are tethered to a ship and controlled by personnel on board.

Because offshore and deepwater rig work is so specialized, not a lot of companies do it. One that does,Helix Energy Solutions ( HLX ), has enjoyed robust growth in recent quarters, thanks to rising demand for services to improve offshore well production.

Three Specialty Segments

Helix, formerly known as Cal Dive International, provides specialty service to the offshore energy industry, primarily in the Gulf of Mexico, North Sea, Asia-Pacific and West Africa regions.

The company operates three segments: well intervention, robotics and production facilities.

Its robotics business includes Canyon Offshore, a supplier of subsea engineering service, ROVs, seabed trenching and geotechnical vehicles, and support vessels.

The ROVs are used in oil and gas, renewable energy, subsea mining and other projects.

Helix's well intervention business focuses on entering, enhancing, restoring or decommissioning deepwater wells.

This part of the operation has been in high demand lately due to the world's aging fleet of deepwater rigs.

"Deepwater oil wells are like homes in an old neighborhood -- they need cleaning, repair, new plumbing," said Michael Marino, analyst at Stephens. "That's sort of the simple way of looking at what Helix does."

One reason Helix is hired to do the work is because of its skill and efficiency, he says.

"You often don't know what you will need to do until you actually get down into the well hole, so the ability to analyze and do the work quickly is an advantage," Marino told IBD."Helix is basically getting to the hole and dealing with it faster than other companies. Much of the competition comes from the drilling rigs themselves, and Helix can do the work faster than drilling rigs."

During its second quarter, revenue from Helix's well intervention business grew 13% from a year earlier.

The company, which did not respond to requests for comment, benefited from full utilization of its three North Sea vessels as well as full utilization of its Helix 534 vessel in the Gulf of Mexico.

Helix's solid well intervention results came despite a few headwinds in the deepwater market.

"Even with deepwater-drilling day rates declining, we believe there are limited rigs that could compete with Helix's specialized well intervention assets," Iberia Capital Partners analyst Trey Stolz wrote in a note.

Although some investors have concerns about potential competition from rig fleets in the well intervention market, Marino says those worries are overstated.

"Helix has seen none of this competition to date," he said. "Their backlog continues to grow."

Marino points out that Helix's Q4000 and 534 vessels in the Gulf of Mexico both carry full backlogs through the rest of 2014.

Triple Play

Meanwhile, all three of its North Sea vessels have full backlogs through the end of the third quarter and limited availability during the fourth quarter.

Helix plans to expand its fleet in the coming years to better meet demand for its services, Marino said: "They are comfortable going up to 10 vessels" from the current five.

Two of the vessels due to be built will operate in Brazil.

In February, Helix signed a deal with Brazilian oil giantPetroleo Brasileiro ( PBR ), or Petrobras, to supply well intervention service off Brazil's shore.

The agreement called for Helix to deliver two new-build chartered monohull vessels.

In a report at the time, Morgan Stanley analyst Ole Slorer said the contracts "pave the way for additional opportunities as Petrobras begins to realize the efficiency benefits of these vessels over rigs. These contracts also imply that a soft rig market poses little threat to Helix's intervention business."

Helix continues to build its business in the robotics sector.

In May, the company's Canyon Offshore unit reached an agreement with a subsidiary ofMcDermott International ( MDR ) to provide ROV service and equipment for McDermott's fleet of subsea construction and pipe-laying support vessels.

The agreement is for a fixed term of three years, with options to extend the deal.

Solid Performance

Helix's robotics business recorded a 36% year-over-year revenue gain during the second quarter amid a rise in the unit's fleet utilization rate.

Overall revenue for the quarter rose 32% from a year earlier to $305.6 million, marking the third straight quarter of accelerated top-line growth.

Earnings more than doubled to 58 cents a share, topping consensus estimates. It was the third straight quarter of triple-digit growth.

Helix reported its Q2 results after the close on July 21. The next day its share price popped nearly 8% to close at 26.28.

The stock kept pushing higher in subsequent sessions, setting a six-year high of 28 on July 24. Shares currently trade near 25.

Analysts polled by Thomson Reuters expect Helix's full-year earnings to rise 78% in 2014 and an additional 10% in 2015.

Helix belongs to IBD's Oil & Gas-Field Services group, which ranks No. 19 of 197 industries tracked.

Another stock in the group that operates ROVs isOceaneering International ( OII ).



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: HLX , PBR , MDR , OII

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