e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
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or
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
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Commission file number
001-32936
HELIX ENERGY SOLUTIONS GROUP,
INC.
(Exact name of registrant as
specified in its charter)
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Minnesota
(State or other
jurisdiction of incorporation or organization)
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95-3409686
(I.R.S. Employer
Identification No.)
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400 N. Sam Houston
Parkway E. Suite 400
Houston, Texas
(Address of principal
executive offices)
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77060
(Zip Code)
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(281) 618-0400
(Registrants
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock (no par value)
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New York Stock Exchange
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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. þ Yes o 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. o Yes þ 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. þ Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated
filer in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). o Yes þ No
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2006 was $2,926,119,938 based on the last reported
sales price of the Common Stock on June 30, 2006, as
reported on the NASDAQ National Market System. On July 18,
2006, the registrants Common Stock began trading on the
New York Stock Exchange.
The number of shares of the registrants Common Stock
outstanding as of February 27, 2007 was 91,228,195.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 7, 2007, are
incorporated by reference into Part III hereof.
HELIX
ENERGY SOLUTIONS GROUP, INC. INDEX
FORM 10-K
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Forward
Looking Statements
This Annual Report on
Form 10-K
(Annual Report) contains certain statements that
are, or may be deemed to be, forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical facts, included herein or
incorporated herein by reference are forward-looking
statements. Included among forward-looking
statements are, among other things:
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statements related to the volatility in commodity prices for oil
and gas and in the supply of and demand for oil and natural gas
or the ability to replace oil and gas reserves;
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statements regarding our anticipated production volumes, results
of exploration, exploitation, development, acquisition or
operations expenditures and current or prospective reserve
levels with respect to any property or well; and
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statements regarding any financing transactions or arrangements,
or ability to enter into such transactions;
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statements relating to the construction or acquisition of
vessels or equipment and our proposed acquisition of any
producing property or well prospect, including statements
concerning the engagement of any engineering, procurement and
construction contractor and any anticipated costs related
thereto;
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statements that our proposed vessels, when completed, will have
certain characteristics or the effectiveness of such
characteristics;
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statements regarding projections of revenues, gross margin,
expenses, earnings or losses or other financial items;
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statements regarding our business strategy, our business plans
or any other plans, forecasts or objectives, any or all of which
are subject to change;
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statements regarding any Securities and Exchange Commission or
other governmental or regulatory inquiry or investigation;
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statements regarding anticipated legislative, governmental,
regulatory, administrative or other public body actions,
requirements, permits or decisions;
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statements regarding anticipated developments, industry trends,
performance or industry ranking relating to our services or any
statements related to the underlying assumptions related to any
projection or forward-looking statement;
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statements related to environmental risks, drilling and
operating risks, or exploration and development risks and the
ability of the combined company to retain key members of its
senior management and key employees;
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statements regarding general economic or political conditions,
whether internationally, nationally or in the regional and local
market areas in which we are doing business;
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any other statements that relate to non-historical or future
information.
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These forward-looking statements are often identified by the use
of terms and phrases such as achieve,
anticipate, believe,
estimate, expect, forecast,
plan, project, propose,
strategy, predict, envision,
hope, intend, will,
continue, may, potential,
achieve, should, could and
similar terms and phrases. Although we believe that the
expectations reflected in these forward-looking statements are
reasonable, they do involve assumptions, risks and
uncertainties, and these expectations may prove to be incorrect.
You should not place undue reliance on these forward-looking
statements.
Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a
variety of factors, including those discussed in Risk
Factors beginning on page 18 of this Annual Report.
All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety
by these risk factors. 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 or provide reasons why actual
results may differ.
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PART I
OVERVIEW
Helix Energy Solutions Group, Inc. (Helix) is an
international offshore energy company, incorporated in the state
of Minnesota in 1979, that provides development solutions and
other key services (contracting services operations) to the open
energy market as well as to our own reservoirs (oil and gas
operations). Our oil and gas business is a prospect generation,
exploration, development and production company. Employing our
own key services and methodologies, we seek to lower finding and
development (F&D) costs, relative to industry norms. Unless
the context indicates otherwise, as used in this Annual Report,
the terms Company, we, us
and our refer collectively to Helix and its
subsidiaries, including Cal Dive International, Inc.
(collectively with its subsidiaries referred to as
Cal Dive or CDI), our
majority-owned subsidiary.
Our principal executive offices are located at 400 North Sam
Houston Parkway East, Suite 400, Houston, Texas 77060;
phone number
281-618-0400.
Our stock trades on the New York Stock Exchange under the ticker
symbol HLX. 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 report.
Please refer to the subsection Certain
Definitions on page 7 for definitions of additional
terms used in this Annual Report.
CONTRACTING
SERVICES OPERATIONS
We seek to provide services and methodologies which we believe
are critical to finding and developing offshore reservoirs and
maximizing the economics especially from marginal fields. Those
life of field services are organized in five
disciplines: reservoir and well tech services, drilling,
production facilities, construction and well operations. We have
disaggregated our contracting services operations into three
reportable segments in accordance with Financial Accounting
Standards Board (FASB) Statement No. 131
Disclosures about Segments of an Enterprise and Related
Information (SFAS 131): Contracting
Services (which includes deepwater construction, well ops,
reservoir and well tech services and in the future, drilling),
Shelf Contracting and Production Facilities.
Construction
Since 1975, we have provided services in support of offshore oil
and natural gas infrastructure projects involving the
construction and maintenance of pipelines, production platforms,
risers and subsea production systems primarily in the Gulf of
Mexico. We provide construction services in two divisions:
Deepwater and Shelf Contracting.
In the Deepwater division, we focus on construction services
that provide the highest financial return from third-parties and
add value to our oil and gas properties. Our deepwater
construction services include pipelay, for which we own two
deepwater pipelay vessels and are in the process of converting a
third vessel (the Caesar), and robotics, for which we own
27 ROVs and four trenchers. We also provide construction
services periodically from our well intervention vessels, the
Seawell and Q4000. We provide these services
primarily in the Gulf of Mexico, North Sea and Asia Pacific.
In our Shelf Contracting business segment, we perform
traditional subsea services, including air and saturation
diving, salvage work and shallow water pipelay on the OCS of the
Gulf of Mexico, in water depths up to 1,000 feet. We
believe that we are the market leader in the diving support
business in the Gulf of Mexico OCS. We also provide these
services in select international offshore markets, such as Asia
Pacific and the Middle East. Within this segment we currently
own and operate a diversified fleet of 26 vessels,
including 23 surface and saturation diving support vessels
capable of operating in water depths of up to 1,000 feet,
as well as three shallow-water pipelay vessels. This division
retained our former name Cal Dive, and we
successfully completed a carve-out initial public offering
(IPO) of that company in December 2006. We currently
own a 73.0% interest in Cal Dive and have
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consolidated the results of Cal Dive as of
December 31, 2006. Cal Dive stock publicly trades on
the New York Stock Exchange under the ticker symbol
DVR.
Well
Ops
We are the global leader in rig alternative subsea well
intervention. Utilizing the Seawell in the North Sea and
the Q4000 in the Gulf of Mexico, we engineer, manage and
conduct well construction, intervention and decommissioning
operations in water depths from 200 to 10,000 feet. With
the increased demand for these services due to the growing
number of subsea tree installations, coupled with the shortfall
in rig availability, and, as a result, have committed to the
construction of a newbuild North Sea vessel, the Well
Enhancer. We have recently expanded geographically in
Australia and Asia with the acquisition of a controlling
interest in Seatrac, an established Australian well operations
company now called Well Ops SEA Pty. Limited.
Production
Facilities
When a production facility is required on a deepwater
development, the cost can be a significant component of the
F&D cost. We participate in the ownership of production
facilities in hub locations where there is potential for
significant subsea tieback activity (Marco Polo TLP and
the Independence Hub). Ownership of production facilities
enables us to earn a transmission company type return through
tariff charges while providing construction work for our
vessels. In addition, we are constructing a minimal floating
production unit to be utilized on the Phoenix field
(acquired in 2006 in the Gulf of Mexico) in a consolidated
variable interest entity in which we own a 50% equity interest.
Once production in this field ceases, this redeployable facility
will be contracted to third parties or utilized on other
internally owned reservoirs.
Reservoir
and Well Tech Services
Until 2005, our reservoir and well tech services were an
in-house service utilized solely with respect to our own wells
and reservoirs. With the acquisition of Helix Energy Limited
(Helix RDS) in 2005, which included a technical
staff of over 160, we increased the resources that we can bring
to our own projects as well as provide these services to our
clients. With offices in Aberdeen, Perth, London and Kuala
Lumpur, these services provide the market presence in regions we
have identified as strategically important to future growth.
Drilling
This is a service we have not historically provided, but have
been contemplating since the construction of the Q4000 five
years ago. The drilling cost of a subsea deepwater development
can be as much as 50% of the total F&D costs. We plan to add
drilling capability to the Q4000 during 2007. The type of
drilling intended for the Q4000 is a hybrid slim-bore
technology capable of drilling and completing
6-inch
slimbore wells to 22,000 feet total depth in up to
6,000 feet of water, which covers most of the deepwater
prospects acquired in our acquisition of Remington Oil and Gas
Corporation (Remington) during 2006 (see
Oil and Gas Operations below and
Item 8. Financial Statements and Supplementary Data
Note 4 Acquisition of
Remington Oil and Gas Corporation), as well as having
application on exploration and appraisal efforts for our clients.
OIL AND
GAS OPERATIONS
In 1992, we began our oil and gas operations to provide a more
efficient solution to offshore abandonment, to expand our
off-season asset utilization and to achieve better returns than
are likely through pure service contracting. Over the last
15 years we have evolved this business model to include not
only mature oil and gas properties but also proved reserves yet
to be developed, and most recently, with the acquisition of
Remington, an exploration, development and production company.
This has led to the assembly of services that allows us to
create value at key points in the life of a reservoir from
exploration through development, life of field management and
operating through abandonment. As of December 31, 2006 we
had 536 Bcfe of proved reserves with 91% of that located in
the Gulf of Mexico.
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Significant financial information relating to our operations by
segments and by geographic areas for the last three years is
contained in Item 8. Financial Statements and
Supplementary Data
Note 18 Business Segment
Information. Within Contracting Services for financial
reporting purposes, we have disclosed separately the financial
information for Shelf Contracting and Production Facilities.
THE
INDUSTRY AND OUR STRATEGY
The offshore oil and gas industry originated in the early 1950s
as producers began to explore and develop the new frontier of
offshore fields. The industry has grown significantly since the
1970s with service providers taking on greater roles on behalf
of the producers. Industry standards were established during
this period largely in response to the emergence of the North
Sea as a major province leading the way into a new hostile
frontier. The methodologies and standards involved were driven
by the requirement of mitigating the risk of developing
relatively large reservoirs in a then challenging environment.
These standards are still largely adhered to today for all
developments even if they are small and the frontier is more
understood. There are factors we believe will influence the
industry in the coming years: (1) increasing world demand
for oil and natural gas; (2) peaking global production
rates; (3) globalization of the natural gas market;
(4) increasing number of mature and small reservoirs;
(5) increasing ratio of contribution to global production
from marginal fields; (6) increasing offshore activity; and
(7) increasing number of subsea developments. Our two
stranded strategy of combining contracting services operations
and oil and gas operations allows us to focus on trends
(4) to (7) in that we pursue long-term sustainable
growth by applying specialized subsea services to the broad
external offshore market, but with a complementary focus on
marginal fields in which we have an equity stake. By
marginal, we mean reservoirs that are no longer
wanted by major operators or are too small to be material to
them.
We provide services and methodologies which we believe are
critical to finding and developing offshore reservoirs and
maximizing the economics from marginal fields. Our goal is for
our oil and gas operations to generate prospects and find and
develop oil and gas employing our key services and methodologies
resulting in a 20% reduction in F&D costs. Meeting this
objective drives our ability to achieve our primary goal of
achieving a return on invested capital of 15% or greater. In
order to achieve these goals we will:
Continue to Add Capacity to Key Services. We
will focus on services that provide the highest financial return
and, at the same time, add value by lowering F&D costs on
our oil and gas properties. We will commit capital to add
capacity in these areas. Current initiatives include:
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conversion of Deepwater pipelay vessel, the Caesar;
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construction of a North Sea well intervention vessel, the
Well Enhancer;
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completion of the upgrade of the Q4000 to include
drilling capability;
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conversion of a ferry vessel into a minimal floating production
system to be deployed initially on Phoenix field;
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addition of four new ROVs and a plencher (combination
plow/trencher); and
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completion of the design and engineering of the next generation
Q4000 (the H4500).
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Generate Prospects and Focus Exploration Drilling on Low Risk
Shallow Water Program and Deepwater Prospects Which Can Be
Drilled with the Q4000. In July 2006 we acquired
Remington, an independent oil and gas exploration and production
company with operations in the Gulf of Mexico. This acquisition
brought not only proved producing reserves, but also a portfolio
of prospects and a proven prospect-generating team. Remington
had a proven track record of cost effectively turning prospects
into production on the OCS and we believe similar success can
occur in the deepwater. Of the 22 prospects we currently have in
the Deepwater, 16 of them can be drilled with the Q4000
once the drilling upgrade is completed. We plan to seek
partners on these prospects to enhance financial results on the
drilling and development work as well as mitigate risk.
Focus on Exploitation Activities and Converting PUD/PDNP
Reserves into Production. Over the years our oil
and gas operations have been able to achieve a significant
return on capital due in part to their ability to convert PUD
reserves from the proved undeveloped category to the proved
developed category through exploitation drilling
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and well work. As of December 31, 2006, we had 55% of our
proved reserves, or 300 Bcfe in the PUD category. We will
focus on cost effectively developing these reserves to
production, or alternatively, selling them.
Seek to Monetize Services and Assets which are not Critical
to Minimizing F & D Costs. As stated
previously, we will focus on services which are critical to
lowering F&D costs, particularly on marginal fields in the
deepwater. As the strategy of our Shelf Contracting segment does
not focus on minimizing F&D cost, in December 2006, a
minority stake (26.5%) in this business was sold through a
carve-out initial public offering. Subject to market conditions,
we may sell additional interests in this subsidiary in the
future. In addition, from time to time we intend to sell certain
production assets, particularly once the contracting services
work relating to the asset has been completed.
International Expansion of the Model. We
regard the North Sea and certain areas of the Far East as
targets for the expansion of our business model. We have built a
strong service presence in the North Sea and recently acquired
our first mature oil and gas property in that area. In Asia
Pacific, we completed two important service acquisitions in 2006
and will seek to grow our business there in a measured way over
the near term.
Certain
Definitions
Defined below are certain terms helpful to understanding our
business:
Bcfe: Billions of cubic feet equivalent, used
to describe oil volumes converted to their energy equivalent in
natural gas as measured in billions of cubic feet.
Deepwater: Water depths beyond 1,000 feet.
Dive Support Vessel (DSV): Specially equipped
vessel that performs services and acts as an operational base
for divers, ROVs and specialized equipment.
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 the vessel to maintain
its position without the use of anchors.
DP-2: Two DP systems on a single vessel
pursuant to which the redundancy allows the vessel to maintain
position even with failure of one DP system; required for
vessels which support both manned diving and robotics and for
those working in close proximity to platforms. DP-2 are
necessary to provide the redundancy required to support safe
deployment of divers, while only a single DP system is necessary
to support ROV operations.
EHS: Environment, Health and Safety programs
to protect the environment, safeguard employee health and
eliminate injuries.
E&P: Oil and gas exploration and
production activities.
F&D: Total cost of finding and developing
oil and gas reserves.
G&G: Geological and geophysical.
IMR: Inspection, maintenance and repair
activities.
Life of Field Services: Services performed on
offshore facilities, trees and pipelines from the beginning to
the economic end of the life of an oil field, including
installation, inspection, maintenance, repair, contract
operations, well intervention, recompletion and abandonment.
MBbl: When describing oil, refers to
1,000 barrels containing 42 gallons each.
Minerals Management Service (MMS): The federal
regulatory body for the United States having responsibility for
the mineral resources of the United States OCS.
MMcf: When describing natural gas, refers to
1 million cubic feet.
Moonpool: An opening in the center of a vessel
through which a saturation diving system or ROV may be deployed,
allowing safe deployment in adverse weather conditions.
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MSV: Multipurpose support vessel.
Outer Continental Shelf (OCS): For purposes of
our industry, areas in the Gulf of Mexico from the shore to
1,000 feet of water depth.
Peer Group-Contracting Services: Defined in
this Annual Report as comprising Global Industries, Ltd.
(NASDAQ: GLBL), Acergy US, Inc. (NASDAQ: ACGY), Oceaneering
International, Inc. (NYSE: OII), Technip-Coflexip (NYSE: TKP),
Superior Energy Services, Inc. (NYSE: SPN), TETRA Technologies,
Inc. (NYSE: TTI) and Subsea 7.
Oil and Gas: Defined in this Annual Report as
comprising Newfield Exploration Company (NYSE: NFX); ATP
Oil & Gas Corp (NASDAQ: ATPG); W&T Offshore, Inc.
(NYSE: WTI); Energy Partners, Ltd. (NYSE:EPL); and Mariner
Energy, Inc. (NYSE: ME).
Proved Developed Non-Producing (PDNP): Proved
developed oil and gas reserves that are expected to be recovered
from (1) completion intervals which are open at the time of
the estimate but which have not started producing,
(2) wells which were shut-in for market conditions or
pipeline connections, or (3) wells that require additional
completion work or future recompletion prior to the start of
production.
Proved Undeveloped Reserve (PUD): Proved
undeveloped oil and gas reserves that are expected to be
recovered from a new well on undrilled acreage, or from existing
wells where a relatively major expenditure is required for
recompletion.
Remotely Operated Vehicle (ROV): Robotic
vehicles used to complement, support and increase the efficiency
of diving and subsea operations and for tasks beyond the
capability of manned diving operations.
Saturation Diving: Saturation diving, required
for work in water depths between 200 and 1,000 feet,
involves divers working from special chambers for extended
periods at a pressure equivalent to the pressure at the work
site.
Spar: Floating production facility anchored to
the sea bed with catenary mooring lines.
Spot Market: Prevalent market for subsea
contracting in the Gulf of Mexico, characterized by projects
generally short in duration and often of a turnkey nature. These
projects often require constant rescheduling and the
availability or interchangeability of multiple vessels.
Stranded Field: Smaller PUD reservoir that
standing alone may not justify the economics of a host
production facility
and/or
infrastructure connections.
Subsea Construction Vessels: Subsea services
are typically performed with the use of specialized construction
vessels which provide an above-water platform that functions as
an operational base for divers and ROVs. Distinguishing
characteristics of subsea construction vessels include DP
systems, saturation diving capabilities, deck space, deck load,
craneage and moonpool launching. Deck space, deck load and
craneage are important features of a vessels ability to
transport and fabricate hardware, supplies and equipment
necessary to complete subsea projects.
Tension Leg Platform (TLP): A floating
Deepwater compliant structure designed for offshore hydrocarbon
production.
Trencher or Trencher System: A subsea robotics
system capable of providing post lay trenching, inspection and
burial (PLIB) and maintenance of submarine cables and flowlines
in water depths of 30 to 7,200 feet across a range of
seabed and environmental conditions.
Ultra-Deepwater: Water depths beyond
4,000 feet.
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CONTRACTING
SERVICES OPERATIONS
We provide a full range of contracting services in both the
shallow water and deepwater primarily in the Gulf of Mexico,
North Sea and Asia Pacific. Our services include:
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Exploration. Pre-installation surveys; rig
positioning and installation assistance; drilling inspection;
subsea equipment maintenance; reservoir engineering; G&G;
modeling; well design; and engineering;
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Development. Installation of production
platforms; installation of subsea production systems; pipelay
and burial; installation and tie in of riser and manifold
assembly; integrated production modeling; commissioning, testing
and inspection; cable and umbilical lay and connection;
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Production. Inspection, maintenance and repair
of production structures, risers, pipelines and subsea
equipment; well intervention; life of field support; reservoir
management; production technology; and intervention
engineering; and
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Decommissioning. Decommissioning and
remediation services; plugging and abandonment services;
platform salvage and removal; pipeline abandonment; site
inspections.
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Our strategic focus is to provide services and methodologies
which we believe are critical to the finding and development of
offshore reservoirs and maximizing the economics from marginal
fields. Those life of field services are organized
in five disciplines: reservoir and well tech services, drilling,
production facilities, construction and well operations.
Construction
Deepwater
Construction services which we believe are critical to the
development of marginal fields in the Deepwater are pipelay and
robotics. We currently own three deepwater umbilical and pipelay
vessels. The Intrepid is a 381 foot DP-2 vessel
capable of laying rigid and flexible pipe (up to 12) and
umbilicals. The Express, which was acquired in the Torch
Offshore Inc. (Torch) acquisition in 2005, is a 502
foot DP-2 vessel also capable of laying rigid and flexible
pipe (up to 14) and umbilicals. In January 2006, we
acquired the Caesar, a mono-hull built in 2002 for the
cable lay market. The vessel is 485 feet long and already
has a
state-of-the-art
DP-2 system. We plan to convert this vessel to a Deepwater
pipelay asset capable of laying rigid pipe up to 42 in
diameter. The total estimated cost to acquire and convert the
vessel is $137.5 million and the conversion should be
completed by late 2007. We also periodically provide
construction services from our well intervention vessels,
Seawell and Q4000. Our Deepwater and
Well Ops divisions have backlog of over $380 million for
certain of our deepwater vessels as of the end of 2006.
Our subsidiary, Canyon Offshore, Inc., operates ROVs and
trenchers designed for offshore construction, rather than
supporting drilling rig operations. As marine construction
support in the Gulf of Mexico and other areas of the world moves
to deeper waters, ROV systems play an increasingly important
role. Our vessels add value by supporting deployment of our
ROVs. We have positioned ourselves to provide our customers with
vessel availability and schedule flexibility to meet the
technological challenges of these Deepwater construction
developments in the Gulf and internationally. Our 27 ROVs and
four trencher systems operate in three regions: the Americas,
Europe/West Africa and Asia Pacific. In addition, we plan to
acquire five new work class ROVs and a combination robotic
plow/trencher in 2007 for approximately $37 million.
The results of our Deepwater division are reported under our
Contracting Services segment. See Item 8. Financial
Statements and Supplementary Data
Note 18 Business Segment
Information.
Shelf
Contracting
In shallower waters we provide manned diving, pipelay and pipe
burial services to the offshore oil and natural gas industry.
Based on the size of our fleet, we believe that we are the
market leader in the diving support business, which involves
services such as construction, inspection, maintenance, repair
and decommissioning of offshore production and pipeline
infrastructure, on the Gulf of Mexico OCS. We also provide these
services directly or through partnering relationships in select
international offshore markets, such as the Middle East and Asia
Pacific.
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Within this segment we currently own and operate a diversified
fleet of 26 vessels, including 23 surface and saturation
diving support vessels as well as three shallow water pipelay
vessels. We believe that our fleet of diving support vessels is
the largest in the world.
Our Shelf Contracting services, including saturation, surface
and mixed gas diving, enable us to provide a full complement of
marine contracting services in water depths of up to
1,000 feet. We provide our saturation diving services in
water depths of 200 to 1,000 feet through our fleet of
eight saturation diving vessels and eight portable saturation
diving systems. We also believe that our fleet of diving support
vessels is among the most technically advanced in the industry
because a number of these vessels have features such as dynamic
positioning, or DP, hyperbaric rescue chambers, multi-chamber
systems for split-level operations and moon pool deployment,
which allow us to operate effectively in challenging offshore
environments. We provide surface and mixed gas diving services
in water depths typically less than 300 feet through our 15
surface diving vessels. Shelf Contracting also has three vessels
dedicated exclusively to pipelay and pipe burial services in
water depths of up to approximately 400 feet. Pipelay and
pipe burial operations typically require extensive use of our
diving services; therefore, we consider these services to be
complementary.
In the last 18 months, we have substantially increased the
size of our Shelf Contracting fleet and expanded our operating
capabilities on the Gulf of Mexico OCS through strategic
acquisitions of Acergy US, Inc. (formerly known as Stolt
Offshore, Inc.) (Acergy), and the assets of Torch.
Pursuant to our growth strategy, we also acquired Fraser Diving
International Limited (Fraser).
The Shelf Contracting division retained our former name of
Cal Dive, and completed a carve-out initial
public offering in December 2006. It trades on the New York
Stock Exchange under the ticker symbol of DVR. We
received pre-tax net proceeds of $464.4 million, which
included the sale of a 26.5% interest and transfer of debt to
the subsidiary. Together with the shares issued to CDI employees
immediately after the initial public offering, at
December 31, 2006, we still retain 73.0% interest in CDI
and have consolidated the results of Cal Dive.
Well
Ops
In both the Gulf of Mexico and the North Sea, the increased
number of subsea wells installed, the increasing value of the
product, and the shortfall in both rig availability and
equipment have resulted in an increased demand for Well Ops
services.
As major and independent oil and gas companies expand operations
in the deepwater basins of the world, development of these
reserves will often require the installation of subsea trees.
Historically, drilling rigs were typically necessary for subsea
well operations to troubleshoot or enhance production, shift
zones or perform recompletions. Two of our vessels serve as work
platforms for well ops services at costs significantly less than
drilling rigs. In the Gulf of Mexico, our multi-service
semi-submersible, the Q4000, has set a series of well
operations firsts in increasingly deep water without
the use of a rig. In the North Sea, the Seawell has
provided intervention and abandonment services for over 500
North Sea wells since 1987. Competitive advantages of our
vessels stem from their lower operating costs, together with an
ability to mobilize quickly and to maximize production time by
performing a broad range of tasks for intervention,
construction, inspection, repair and maintenance. These services
provide a cost advantage in the development and management of
subsea reservoir developments. With the increased demand for
these services due to the growing number of subsea tree
installations coupled with the shortfall in rig availability, we
have significant backlog for both working assets and have
committed to the construction of a newbuild North Sea vessel,
the Well Enhancer.
The results of Well Ops are reported under our Contracting
Services segment. See Item 8. Financial Statements and
Supplementary Data
Note 18 Business Segment
Information.
Production
Facilities
There are a significant number of small discoveries that cannot
justify the economics of a dedicated host facility. These
discoveries are typically developed as subsea tie backs to
existing facilities when capacity through the facility is
available. We invest in over-sized facilities that allow
operators of these fields to tie back without burdening the
operator of the hub reservoir. We are well positioned to
facilitate the tie back of the smaller reservoir
10
to these hubs through our services and production groups. At the
Marco Polo field, our 50% ownership in the production
facility through Deepwater Gateway, L.L.C. (Deepwater
Gateway) allows us to realize a return on our investment
consisting of both a fixed monthly demand charge and a
volumetric tariff charge. In addition, we assisted with the
installation of the TLP and will work to develop the surrounding
acreage that can be tied back to the platform by our
construction vessels. Our 20% interest in the Independence
Hub platform, scheduled for installation in mid 2007, should
enable us to repeat the Marco Polo strategy.
When a hub is not feasible, we intend to apply an integrated
application of our services in a manner that cumulatively lowers
development costs to a point that allows for a small dedicated
facility to be used. This strategy will permit the development
of some fields that otherwise would be non-commercial to
develop. The commercial risk is mitigated because we have a
portfolio of reservoirs and the assets to redeploy the facility.
For example, we are currently converting a ferry vessel into a
minimal floating production unit. This facility will first be
utilized on the Phoenix field (formerly known as
Typhoon) which we acquired in 2006 after the hurricanes
of 2005 destroyed the TLP which was being used to produce the
field. Once production in the Phoenix area ceases, this
redeployable facility will be moved to a new location,
contracted to a third party, or used to produce other
internally-owned reservoirs.
Reservoir
and Well Tech Services
In 2005 we acquired Helix RDS. Helix RDS is the largest
outsource provider of
sub-surface
technology skills in the North Sea. With offices in Aberdeen,
London, Kuala Lumpur and Perth, the more than 160 employees are
organized around a core team concept. Each team, assigned to a
specific client, contains a diverse set of skills, including
reservoir engineering, geologists, modeling, flow assurance,
completions, well design and production enhancement. The
acquisition allows us to offer, as an outsource service, one of
the most comprehensive sets of
sub-surface
skills of any company our size. The acquisition also provides
sufficient capacity to have these skills available for our own
production. The results of reservoir and well tech services are
reported under our Contracting Services segment. See
Item 8. Financial Statements and Supplementary Data
Note 18 Business Segment
Information.
Drilling
With the well engineering skill sets in Helix RDS and the
portfolio of Deepwater prospects acquired with Remington, we
made the decision to add drilling capability to the
Q4000. The type of drilling intended for the Q4000
is a hybrid slimbore technology which result in a smaller well
bore diameter from a traditional rig. The vessel will be capable
of drilling and completing
6-inch
slimbore wells to 22,000 total depth in up to 6,000 feet of
water and will also be able to drill a
4-inch bore
to 22,000 total depth in up to 10,000 feet of water. There
is great commercial application for this type of drilling with
marginal reservoir sizes in 6,000 feet of water. The
Q4000 will be capable of providing most of our oil and
gas operations drilling needs in the deeper water.
Drilling equipment for the Q4000 is scheduled to be
installed mid-2007.
Assuming successful application of this technology, we expect
internal need and market demand to create the conditions that
will warrant the construction of the next Q-vessel (the
H4500).
OIL &
GAS OPERATIONS
We formed our oil and gas operations in 1992 to exploit a market
opportunity to provide a more efficient solution to offshore
abandonment, to expand our off-season asset utilization of our
contracting services business and to achieve better returns than
are likely through pure service contracting. Over the last
15 years we have evolved the model to include not only
mature oil and gas properties but also proved reserves yet to be
developed and most recently, the acquisition of Remington, an
exploration, development and production company. This has led to
the assembly of services that allows us to create value at key
points in the life of a reservoir from exploration through
development, life of field management and operating through
abandonment. As of December 31, 2006, we had 536 Bcfe
of proved reserves with 91% located in the Gulf of Mexico.
11
Our oil and gas operations now seek to be involved in the
reservoir at any stage of its life if we can apply our
methodologies. The cumulative effect of our model is the ability
to meaningfully improve the economics of a reservoir that would
otherwise be considered non-commercial or non-impact, as well as
making us a value adding partner to producers. Our expertise,
along with similarly aligned interests, allows us to develop
more efficient relationships with other producers. With a focus
on acquiring non-impact reservoirs or mature fields, our
approach taken as a whole is, itself, a service in demand by our
producer clients and partners. As a result, during 2005, we were
successful in acquiring equity interests in several deepwater
undeveloped reservoirs. Developing these fields over the next
few years will require meaningful capital commitments but will
also provide significant backlog for our construction assets.
In July 2006, we acquired Remington for approximately
$1.4 billion in cash and Helix stock and the assumption of
$349.6 million of liabilities. Remington was an
exploration, development and production company with operations
primarily in the Gulf of Mexico. Remington has a significant
prospect inventory, mostly in the Deepwater, which we believe
will likely generate over $1 billion of life of field
services for our vessels. As stated previously, our strategy is
to focus exploration drilling primarily on low risk OCS
prospects and Deepwater prospects which can be drilled with the
Q4000. The Remington acquisition brought not only
producing reserves, but also a portfolio of prospects and a
proven prospect-generating team. Remington had a proven track
record of cost effectively turning prospects into production on
the OCS and we believe similar success will occur in the
Deepwater. Of the 22 prospects we currently have in the
Deepwater, 16 of them can be drilled with the Q4000, once
the drilling upgrade to the vessel is completed. We plan to seek
partners on these prospects to enhance financial results on the
drilling and development work as well as mitigate risk.
We identify prospective oil and gas properties primarily by
using 3-D
seismic technology. After acquiring an interest in a prospective
property, we drill one or more exploratory wells. If the
exploratory well(s) find commercial oil
and/or gas
reserves, we complete the well(s) and begin producing the oil or
gas. Because most of our operations are located in the offshore
Gulf of Mexico, we must install facilities such as offshore
platforms and gathering pipelines in order to produce the oil
and gas and deliver it to the marketplace. Certain properties
require additional drilling to fully develop the oil and gas
reserves and maximize the production from a particular discovery.
Within oil and gas operations, we have assembled a team of
personnel with experience in geology, geophysics, reservoir
engineering, drilling, production engineering, facilities
management, lease operations and petroleum land management. Our
oil and gas operations generate income in a number of ways:
mitigating abandonment liability risk, lowering development time
and cost, mitigating finding (exploration) costs, operating the
field more effectively, and having a focus on extending the
reservoir life through well exploitation operations. When a
company sells an OCS property, it retains the financial
responsibility for plugging and decommissioning if its purchaser
becomes financially unable to do so. Thus, it becomes important
that a property be sold to a purchaser who has the financial
wherewithal to perform its contractual obligations. Although
there is significant competition in this mature field market,
our oil and gas operations reputation, supported by
Helixs financial strength, has made it the purchaser of
choice of many major and independent oil and gas companies. In
addition, our reservoir engineering and geophysical expertise,
and having access to service assets and an ability to impact
development costs, have made us a preferred partner in
development projects. We share ownership in our oil and gas
properties with various industry participants. We currently
operate the majority of our offshore properties. An operator is
generally able to maintain a greater degree of control over the
timing and amount of capital expenditures than can a
non-operating interest owner. See Item 2.
Properties Summary of Natural Gas and Oil
Reserve Data for detailed disclosures of our oil and gas
properties.
CUSTOMERS
Our customers include major and independent oil and gas
producers and suppliers, pipeline transmission companies and
offshore engineering and construction firms. The level of
construction services required by any particular contracting
customer depends on the size of that customers capital
expenditure budget devoted to construction plans in a particular
year. Consequently, customers that account for a significant
portion of contract revenues in one fiscal year may represent an
immaterial portion of contract revenues in subsequent fiscal
years. The percent of consolidated revenue of major customers
was as follows: 2006 Louis Dreyfus Energy Services
(10%)
12
and Shell Offshore, Inc. (10%); 2005 Louis Dreyfus
Energy Services (10%) and Shell Trading (US) Company (10%); and
2004 Louis Dreyfus Energy Services (11%) and Shell
Trading (US) Company (10%). All of these customers were
purchasers of our oil and gas production. We estimate that in
2006 we provided subsea services to over 150 customers.
Our contracting services projects have historically been of
shorter duration and are generally awarded shortly before
mobilization. As a result, no significant backlog existed prior
to 2006. In 2006, we entered into several long-term contracts,
for certain of our Deepwater and Well Ops vessels. In addition,
our production portfolio inherently provides a backlog of work
for our services that we can complete at our option based on
market conditions. We do not typically tender in the Engineering
Procurement and Installation Contract (EPIC) market
as other contractors do. For that reason, other contractors are
more likely to be our customers and we serve as a
contractors contractor.
COMPETITION
The marine contracting industry is highly competitive. While
price is a factor, the ability to acquire specialized vessels,
attract and retain skilled personnel, and demonstrate a good
safety record are also important. Our competitors on the OCS
include Global Industries, Ltd., Oceaneering International, Inc.
and a number of smaller companies, some of which only operate a
single vessel and often compete solely on price. For Deepwater
projects, our principal competitors include Acergy,
Subsea 7, and Technip-Coflexip.
Our oil and gas operations compete with large integrated oil and
gas companies as well as independent exploration and production
companies for offshore leases on properties. Our primary oil and
gas competitors include Newfield Exploration Company, ATP
Oil & Gas Corp, W&T Offshore, Inc., Energy
Partners, Ltd. and Mariner Energy, Inc. We also encounter
significant competition for the acquisition of mature oil and
gas properties. Our ability to acquire additional properties
depends upon our ability to evaluate and select suitable
properties and consummate transactions in a highly competitive
environment. Competition includes TETRA Technologies, Inc. and
Superior Energy Services, Inc. for Gulf of Mexico mature
properties. Small or mid-sized producers, and in some cases
financial players, with a focus on acquisition of proved
developed and undeveloped reserves are often competition on
development properties.
TRAINING,
SAFETY AND QUALITY ASSURANCE
We have established a corporate culture in which EHS remains
among the highest of priorities. Our corporate goal, based on
the belief that all accidents can be prevented, is to provide an
injury-free workplace by focusing on correct, safe behavior. Our
EHS procedures, training programs and management system were
developed by management personnel, common industry work
practices and by employees with
on-site
experience who understand the physical challenges of the ocean
work site. As a result, management believes that our EHS
programs are among the best in the industry. We have introduced
a company-wide effort to enhance and provide continual
improvements to our behavioral based safety process, as well as
our training programs, that continue to focus on safety through
open communication. The process includes the documentation of
all daily observations, collection of data and data treatment to
provide the mechanism of understanding of both safe and unsafe
behaviors at the worksite. In addition, we initiated scheduled
Hazard Hunts by project management on each vessel, complete with
assigned responsibilities and action due dates. To further this
continual improvement effort, progressive auditing is done to
continue improvement of our EHS management system. Results from
this program were evident as our safety performance improved
significantly from 2003 through 2006.
GOVERNMENT
REGULATION
Many aspects of the offshore marine construction industry are
subject to extensive governmental regulations. We are subject to
the jurisdiction of the U.S. Coast Guard, the
U.S. Environmental Protection Agency, the MMS and the
U.S. Customs Service, as well as private industry
organizations such as the American Bureau of Shipping. In the
North Sea, international regulations govern working hours and a
specified working environment, as well as standards for diving
procedures, equipment and diver health. These North Sea
standards are some of the most
13
stringent worldwide. In the absence of any specific regulation,
our North Sea branch adheres to standards set by the
International Marine Contractors Association and the
International Maritime Organization. In addition, we operate in
other foreign jurisdictions that have various types of
governmental laws and regulations to which we are subject.
We support and voluntarily comply with standards of the
Association of Diving Contractors International. The Coast Guard
sets safety standards and is authorized to investigate vessel
and diving accidents, and to recommend improved safety
standards. The Coast Guard also is authorized to inspect vessels
at will. We are required by various governmental and
quasi-governmental agencies to obtain various permits, licenses
and certificates with respect to our operations. We believe that
we have obtained or can obtain all permits, licenses and
certificates necessary for the conduct of our business.
In addition, we depend on the demand for our services from the
oil and gas industry, and therefore, our business is affected by
laws and regulations, as well as changing taxes and policies
relating to the oil and gas industry generally. In particular,
the development and operation of oil and gas properties located
on the OCS of the United States is regulated primarily by the
MMS.
The MMS requires lessees of OCS properties to post bonds or
provide other adequate financial assurance in connection with
the plugging and abandonment of wells located offshore and the
removal of all production facilities. Operators on the OCS are
currently required to post an area-wide bond of
$3.0 million, or $500,000 per producing lease. We have
provided adequate financial assurance for our offshore leases as
required by the MMS.
We acquire production rights to offshore mature oil and gas
properties under federal oil and gas leases, which the MMS
administers. These leases contain relatively standardized terms
and require compliance with detailed MMS regulations and orders
pursuant to the Outer Continental Shelf Lands Act, or OCSLA.
These MMS directives are subject to change. The MMS has
promulgated regulations requiring offshore production facilities
located on the OCS to meet stringent engineering and
construction specifications. The MMS also has issued regulations
restricting the flaring or venting of natural gas and
prohibiting the burning of liquid hydrocarbons without prior
authorization. Similarly, the MMS has promulgated other
regulations governing the plugging and abandonment of wells
located offshore and the removal of all production facilities.
Finally, under certain circumstances, the MMS may require any
operations on federal leases to be suspended or terminated or
may expel unsafe operators from existing OCS platforms and bar
them from obtaining future leases. Suspension or termination of
our operations or expulsion from operating on our leases and
obtaining future leases could have a material adverse effect on
our financial condition and results of operations.
Under the OCSLA and the Federal Oil and Gas Royalty Management
Act, MMS also administers oil and gas leases and establishes
regulations that set the basis for royalties on oil and gas. The
regulations address the proper way to value production for
royalty purposes, including the deductibility of certain
post-production costs from that value. Separate sets of
regulations govern natural gas and oil and are subject to
periodic revision by MMS.
Historically, the transportation and sale for resale of natural
gas in interstate commerce has been regulated pursuant to the
Natural Gas Act of 1938, the Natural Gas Policy Act of 1978, or
NGPA, and the regulations promulgated thereunder by the Federal
Energy Regulatory Commission (FERC). In the past,
the federal government has regulated the prices at which oil and
gas could be sold. While sales by producers of natural gas, and
all sales of crude oil, condensate and natural gas liquids
currently can be made at uncontrolled market prices, Congress
could reenact price controls in the future. Deregulation of
wellhead sales in the natural gas industry began with the
enactment of the NGPA. In 1989, the Natural Gas Wellhead
Decontrol Act was enacted. This act amended the NGPA to remove
both price and non-price controls from natural gas sold in
first sales no later than January 1, 1993.
Sales of natural gas are affected by the availability, terms and
cost of transportation. The price and terms for access to
pipeline transportation remain subject to extensive federal and
state regulation. Several major regulatory changes have been
implemented by Congress and FERC since 1985 that affect the
economics of natural gas production, transportation and sales.
In addition, FERC continues to promulgate revisions to various
aspects of the rules and regulations affecting those segments of
the natural gas industry, most notably interstate natural gas
transmission companies that remain subject to FERC jurisdiction.
Changes in FERC rules and regulations may also affect the
intrastate transportation of natural gas under certain
circumstances. The stated purpose of many of these
14
regulatory changes is to promote competition among the various
sectors of the natural gas industry. We cannot predict what
further action FERC will take on these matters, but we do not
believe any such action will materially adversely affect us
differently from other companies with which we compete.
Additional proposals and proceedings before various federal and
state regulatory agencies and the courts could affect the oil
and gas industry. We cannot predict when or whether any such
proposals may become effective. In the past, the natural gas
industry has been heavily regulated. There is no assurance that
the regulatory approach currently pursued by FERC will continue
indefinitely. Notwithstanding the foregoing, we do not
anticipate that compliance with existing federal, state and
local laws, rules and regulations will have a material effect
upon our capital expenditures, financial conditions, earnings or
competitive position.
ENVIRONMENTAL
REGULATION
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 such laws that are often complex and
costly to comply with and that carry substantial administrative,
civil and possibly criminal penalties for failure to comply.
Under these laws and regulations, we may be liable for
remediation or removal costs, damages and other costs associated
with releases of hazardous materials (including oil) into the
environment, and such 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 such 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 our operations.
The Oil Pollution Act of 1990, as amended, or OPA, imposes a
variety of requirements on responsible parties
related to the prevention of oil spills and liability for
damages resulting from such spills in waters of the United
States. A Responsible Party includes the owner or
operator of an onshore facility, a vessel or a pipeline, and the
lessee or permittee of the area in which an offshore facility is
located. OPA imposes liability on each Responsible Party for oil
spill removal costs and for other public and private damages
from oil spills. Failure to comply with OPA may result in the
assessment of civil and criminal penalties. OPA establishes
liability limits of $350 million for onshore facilities,
all removal costs plus $75 million for offshore facilities,
and the greater of $500,000 or $600 per gross ton for
vessels other than tank vessels. The liability limits are not
applicable, however, if the spill is caused by gross negligence
or willful misconduct; if the spill results from violation of a
federal safety, construction, or operating regulation; or if a
party fails to report a spill or fails to cooperate fully in the
cleanup. Few defenses exist to the liability imposed under OPA.
Management is currently unaware of any oil spills for which we
have been designated as a Responsible Party under OPA that will
have a material adverse impact on us or our operations.
OPA also imposes ongoing requirements on a Responsible Party,
including preparation of an oil spill contingency plan and
maintaining proof of financial responsibility to cover a
majority of the costs in a potential spill. We believe that we
have appropriate spill contingency plans in place. With respect
to financial responsibility, OPA requires the Responsible Party
for certain offshore facilities to demonstrate financial
responsibility of not less than $35 million, with the
financial responsibility requirement potentially increasing up
to $150 million if the risk posed by the quantity or
quality of oil that is explored for or produced indicates that a
greater amount is required. The MMS has promulgated regulations
implementing these financial responsibility requirements for
covered offshore facilities. Under the MMS regulations, the
amount of financial responsibility required for an offshore
facility is increased above the minimum amounts if the
worst case oil spill volume calculated for the
facility exceeds certain limits established in the regulations.
We believe that we currently have established adequate proof of
financial responsibility for our onshore and offshore facilities
and that we satisfy the MMS requirements for financial
responsibility under OPA and applicable regulations.
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 such vessels. We currently own and operate six
vessels over 300 gross tons. We have provided satisfactory
evidence of financial responsibility to the Coast Guard for all
of our vessels.
15
The Clean Water Act imposes strict controls on the discharge of
pollutants into the navigable waters of the United States and
imposes potential liability for the costs of remediating
releases of petroleum and other substances. The controls and
restrictions imposed under the Clean Water Act have become more
stringent over time, and it is possible that additional
restrictions will be imposed in the future. Permits must be
obtained to discharge pollutants into state and federal waters.
Certain state regulations and the general permits issued under
the Federal National Pollutant Discharge Elimination System
Program 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 gas
into certain coastal and offshore waters. The Clean Water Act
provides for civil, criminal and administrative penalties for
any unauthorized discharge of oil and other hazardous substances
and imposes liability on responsible parties for the costs of
cleaning up any environmental contamination caused by the
release of a hazardous substance and for natural resource
damages resulting from the release. Many states have laws that
are analogous to the Clean Water Act and also require
remediation of releases of petroleum and other hazardous
substances in state waters. Our vessels routinely transport
diesel fuel to offshore rigs and platforms and also carry diesel
fuel for their own use. Our vessels transport bulk chemical
materials used in drilling activities and also transport liquid
mud which contains oil and oil by-products. Offshore facilities
and vessels operated by us have facility and vessel response
plans to deal with potential spills. We believe that our
operations comply in all material respects with the requirements
of the Clean Water Act and state statutes enacted to control
water pollution.
OCSLA provides the federal government with broad discretion in
regulating the production of offshore resources of oil and gas,
including authority to impose safety and 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 of lease conditions or regulations issued
pursuant to OCSLA can result in substantial civil and criminal
penalties, as well as potential court injunctions curtailing
operations and cancellation of leases. Because our operations
rely on offshore oil and gas exploration and production, if the
government were to exercise its authority under OCSLA to
restrict the availability of offshore oil and gas leases, such
action could have a material adverse effect on our financial
condition and results of operations. As of this date, we believe
we are not the subject of any civil or criminal enforcement
actions under OCSLA.
The Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) contains provisions requiring
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 who transport,
dispose of, or arrange for disposal of hazardous substances
released at the sites. Under CERCLA, such persons may be subject
to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the
environment, for damages to natural resources and for the costs
of certain health studies. Third parties may also file claims
for personal injury and property damage allegedly caused by the
release of hazardous substances. Although we handle hazardous
substances in the ordinary course of business, we are not aware
of any hazardous substance contamination for which we may be
liable.
We operate in foreign jurisdictions that have various types of
governmental laws and regulations relating to the discharge of
oil or hazardous substances and the protection of the
environment. Pursuant to these laws and regulations, we could be
held liable for remediation of some types of pollution,
including the release of oil, hazardous substances and debris
from production, refining or industrial facilities, as well as
other assets we own or operate or which are owned or operated by
either our customers or our
sub-contractors.
Management believes that we are in compliance in all material
respects with all applicable environmental laws and regulations
to which we are subject. 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 the 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.
16
EMPLOYEES
We rely on the high quality of our workforce. As of
December 31, 2006, we had over 2,300 employees, nearly 980
of which were salaried personnel. Of the total employees,
approximately 1,300 were employees of Cal Dive. As of
December 31, 2006, we also contracted with third parties to
utilize approximately 580
non-U.S. citizens
to crew our foreign flag vessels. None of our employees belong
to a union nor are employed pursuant to any collective
bargaining agreement or any similar arrangement. We believe our
relationship with our employees and foreign crew members is good.
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, 2006, and copies of our Quarterly
Reports on
Form 10-Q
for 2006 and 2007 and any Current Reports on
Form 8-K
for 2006 and 2007, and any amendments thereto, are or will be
available free of charge at such website as soon as reasonably
practicable after they are filed with, or furnished to, the SEC.
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 general public may read and copy any materials we file with
the SEC at the SECs Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
We are an electronic filer, and 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
SECs website is www.sec.gov.
17
Shareholders should carefully consider the following risk
factors in addition to the other information contained herein.
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.
Risks
Relating to our Contracting Services Operations
Our
contracting services operations are adversely affected by low
oil and gas prices and by the cyclicality of the oil and
gas industry.
Our contracting services operations 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 expenditures for offshore exploration, drilling and
production operations. The level of capital expenditures
generally depends on the prevailing view of future oil and gas
prices, which are influenced by numerous factors affecting the
supply and demand for oil and gas, including, but not limited to:
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worldwide economic activity;
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demand for oil and natural gas, especially in the United States,
China and India;
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economic and political conditions in the Middle East and other
oil-producing regions;
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actions taken by the Organization of Petroleum Exporting
Countries (OPEC);
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the availability and discovery rate of new oil and natural gas
reserves in offshore areas;
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the cost of offshore exploration for and production and
transportation of oil and gas;
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the ability of oil and natural gas companies to generate funds
or otherwise obtain external capital for exploration,
development and production operations;
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the sale and expiration dates of offshore leases in the United
States and overseas;
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the discovery rate of new oil and gas reserves in offshore areas;
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technological advances affecting energy exploration, production,
transportation and consumption;
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weather conditions;
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environmental and other governmental regulations, and
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tax policies.
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The level of offshore construction activity improved somewhat in
2004 with the trend continuing through 2006, following higher
commodity prices from 2003 to 2006 and significant damage
sustained to the Gulf of Mexico infrastructure in Hurricanes
Katrina and Rita in 2005. We cannot assure you
that activity levels will remain the same or increase. A
sustained period of low drilling and production activity or the
return of lower commodity prices would likely have a material
adverse effect on our financial position, cash flows and results
of operations.
The
operation of marine vessels is risky, and we do not have
insurance coverage for all risks.
Marine construction involves 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. We maintain such insurance
protection as we deem prudent, including Jones Act employee
coverage, which is the maritime equivalent of workers
compensation, and hull insurance on our vessels. We cannot
assure you that any such insurance will 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 us.
Moreover, we cannot assure you that we will be able to maintain
adequate insurance in the future at rates that
18
we consider reasonable. As a result of market conditions,
premiums and deductibles for certain of our insurance policies
have increased substantially and could escalate further. In some
instances, certain insurance could become unavailable or
available only for reduced amounts of coverage. For example,
insurance carriers are now requiring broad exclusions for losses
due to war risk and terrorist acts and limitations for wind
storm damages. As construction activity expands into deeper
water in the Gulf of Mexico and other deepwater basins of the
world and with the initial public offering of CDI, a greater
percentage of our revenues may be from deepwater construction
projects that are larger and more complex, and thus riskier,
than shallow water projects. As a result, our revenues and
profits are increasingly dependent on our larger vessels. The
current insurance on our vessels, in some cases, is in amounts
approximating book value, which could be less than replacement
value. In the event of property loss due to a catastrophic
marine disaster, mechanical failure, collision or other event,
insurance may not cover a substantial loss of revenues,
increased costs and other liabilities, and therefore, the loss
of any of our large vessels could have a material adverse effect
on our operating performance.
Our
contracting business typically declines in winter, and bad
weather in the Gulf or North Sea can adversely affect our
operations.
Marine operations conducted in the Gulf and North Sea are
seasonal and depend, in part, on weather conditions.
Historically, we have enjoyed our highest vessel utilization
rates during the summer and fall when weather conditions are
favorable for offshore exploration, development and construction
activities. We typically have experienced our lowest utilization
rates in the first quarter. As is common in the industry, we
typically 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.
If we
bid too low on a turnkey contract, we suffer adverse economic
consequences.
A significant amount of our projects are performed on a
qualified turnkey basis where described work is delivered for a
fixed price and extra work, which is subject to customer
approval, is billed separately. The revenue, cost and gross
profit realized on a turnkey contract can vary from the
estimated amount because of changes in offshore job conditions,
variations in labor and equipment productivity from the original
estimates, and the performance of third parties such as
equipment suppliers. These variations and risks inherent in the
marine construction industry may result in our experiencing
reduced profitability or losses on projects.
Delays
or cost overruns in our construction projects could adversely
affect our business or the expected cash flows from these
projects upon completion may not be timely or as high as
expected.
We currently have the following significant construction
projects in our contracting services operations:
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the construction of a newbuild North Sea Vessel, the Well
Enhancer;
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the conversion of the Caesar into a deepwater pipelay
asset;
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the addition of a modular-based drilling system on the
Q4000; and
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the construction of a minimal floating production unit to be
utilized on the Phoenix field, the Helix
Producer I, through a consolidated 50% owned variable
interest entity.
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Although the construction contracts provide for delay penalties,
these projects are subject to the risk of delay or cost overruns
inherent in construction projects. These risks include, but are
not limited to:
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unforeseen quality or engineering problems;
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work stoppages;
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weather interference;
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unanticipated cost increases;
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delays in receipt of necessary equipment; and
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inability to obtain the requisite permits or approvals.
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Significant delays could also have a material adverse effect on
expected contract commitments for these projects and our future
revenues and cash flow. We will not receive any material
increase in revenue or cash flows from these assets until they
are placed in service and customers enter into binding
arrangements for the assets, which can potentially be several
months after the construction or conversion projects are
completed. Furthermore, we cannot assure you that customer
demand for these assets will be as high as currently
anticipated, and, as a result, our future cash flows may be
adversely affected. In addition, new assets from third-parties
may also enter the market in the future and compete with us.
Risks
Relating to our Oil and Gas Operations
Exploration
and production of oil and natural gas is a high-risk activity
and is subject to a variety of factors that we cannot
control.
Our Oil & Gas business is subject to all of the risks
and uncertainties normally associated with the exploration for
and development and production of oil and natural gas, including
uncertainties as to the presence, size and recoverability of
hydrocarbons. We may not encounter commercially productive oil
and natural gas reservoirs. We may not recover all or any
portion of our investment in new wells. The presence of
unanticipated pressures or irregularities in formations,
miscalculations or accidents may cause our drilling activities
to be unsuccessful and result in a total loss of our investment,
which could have a material adverse effect on our financial
condition, results of operations and cash flows. In addition, we
often are uncertain as to the future cost or timing of drilling,
completing and operating wells.
Projecting future natural gas and oil production is imprecise.
Producing oil and gas reservoirs eventually have declining
production rates. Projections of production rates rely on
certain assumptions regarding historical production patterns in
the area or formation tests for a particular producing horizon.
Actual production rates could differ materially from such
projections. Production rates depend on a number of additional
factors, including commodity prices, market demand and the
political, economic and regulatory climate.
Further, our drilling operations may be curtailed, delayed or
canceled as a result of a variety of factors, including:
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unexpected drilling conditions;
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title problems;
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pressure or irregularities in formations;
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equipment availability, failures or accidents;
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adverse weather conditions; and
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compliance with environmental and other governmental
requirements, which may increase our costs or restrict our
activities.
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Natural
gas and oil prices are volatile, which makes future revenue
uncertain.
Our financial condition and results of operations depend in part
on the prices we receive for the oil and gas we produce. The
market prices for oil and gas are subject to fluctuation in
response to events beyond our control, such as:
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supply of and demand for oil and gas;
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market uncertainty;
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worldwide political and economic instability; and
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government regulations.
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Oil and gas prices have historically been volatile, and such
volatility is likely to continue. Our ability to estimate the
value of producing properties for acquisition and to budget and
project the financial returns of exploration and development
projects is made more difficult by this volatility. In addition,
to the extent we do not
20
forward sell or enter into costless collars in order to hedge
our exposure to price volatility, a dramatic decline in such
prices could have a substantial and material effect on:
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our revenues;
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financial condition;
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results of operations;
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our ability to increase production and grow reserves in an
economically efficient manner; and
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our access to capital.
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Our
commodity price risk management related to some of our oil and
gas production may reduce our potential gains from increases in
oil and gas prices.
Oil and gas prices can fluctuate significantly and have a direct
impact on our revenues. To manage our exposure to the risks
inherent in such a volatile market, from time to time, we have
forward sold for future physical delivery a portion of our
future production. This means that a portion of our production
is sold at a fixed price as a shield against dramatic price
declines that could occur in the market. In addition, we have
entered into costless collar contracts related to some of our
future oil and gas production. We may from time to time engage
in other hedging activities that limit our upside potential from
price increases. These sales activities may limit our benefit
from dramatic price increases.
Estimates
of our oil and gas reserves, future cash flows and abandonment
costs may be significantly incorrect.
This Annual Report contains estimates of our proved oil and gas
reserves and the estimated future net cash flows therefrom based
upon reports for the years ended December 31, 2006 and
2005, audited by our independent petroleum engineers. These
reports rely upon various assumptions, including assumptions
required by the Securities and Exchange Commission, as to oil
and gas prices, drilling and operating expenses, capital
expenditures, abandonment costs, taxes and availability of
funds. The process of estimating oil and gas reserves is
complex, requiring significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and
economic data for each reservoir. As a result, these estimates
are inherently imprecise. Actual future production, cash flows,
development expenditures, operating and abandonment expenses and
quantities of recoverable oil and gas reserves may vary
substantially from those estimated in these reports. Any
significant variance in these assumptions could materially
affect the estimated quantity and value of our proved reserves.
You should not assume that the present value of future net cash
flows from our proved reserves referred to in this Annual Report
is the current market value of our estimated oil and gas
reserves. In accordance with Securities and Exchange Commission
requirements, we base the estimated discounted future net cash
flows from our proved reserves on prices and costs on the date
of the estimate. Actual future prices and costs may differ
materially from those used in the net present value estimate. In
addition, if costs of abandonment are materially greater than
our estimates, they could have an adverse effect on financial
position, cash flows and results of operations.
Reserve
replacement may not offset depletion.
Oil and gas properties are depleting assets. We replace reserves
through acquisitions, exploration and exploitation of current
properties. If we are unable to acquire additional properties or
if we are unable to find additional reserves through exploration
or exploitation of our properties, our future cash flows from
oil and gas operations could decrease.
We are
in part dependent on third parties with respect to the
transportation of our oil and gas production and in certain
cases, third party operators who influence our
productivity.
Notwithstanding our ability to produce, we are dependent on
third party transporters to bring our oil and gas production to
the market. In the event a third party transporter experiences
operational difficulties, due to force majeure, pipeline
shut-ins, or otherwise, this can directly influence our ability
to sell commodities that we are able
21
to produce. In addition, with respect to oil and gas projects
that we do not operate, we have limited influence over
operations, including limited control over the maintenance of
safety and environmental standards. The operators of those
properties may, depending on the terms of the applicable joint
operating agreement:
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refuse to initiate exploration or development projects;
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initiate exploration or development projects on a slower or
faster schedule than we prefer;
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due to their own liquidity and cash flow problems, delay the
pace of drilling or development; and/or
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drill more wells or build more facilities on a project than we
can afford, whether on a cash basis or through financing, which
may limit our participation in those projects or limit the
percentage of our revenues from those projects.
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The occurrence of any of the foregoing events could have a
material adverse effect on our anticipated exploration and
development activities.
Government
regulation may affect our ability to conduct operations, and the
nature of our business exposes us to environmental
liability.
Numerous federal and state regulations affect our oil and gas
operations. Current regulations are constantly reviewed by the
various agencies at the same time that new regulations are being
considered and implemented. In addition, because we hold federal
leases, the federal government requires us to comply with
numerous additional regulations that focus on government
contractors. The regulatory burden upon the oil and gas industry
increases the cost of doing business and consequently affects
our profitability.
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 such laws that are often complex and
costly to comply with and that carry substantial administrative,
civil and possibly criminal penalties for failure to comply.
Under these laws and regulations, we may be liable for
remediation or removal costs, damages and other costs associated
with releases of hazardous materials including oil into the
environment, and such 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 such acts were performed.
We operate in foreign jurisdictions that have various types of
governmental laws and regulations relating to the discharge of
oil or hazardous substances and the protection of the
environment. Pursuant to these laws and regulations, we could be
held liable for remediation of some types of pollution,
including the release of oil, hazardous substances and debris
from production, refining or industrial facilities, as well as
other assets we own or operate or which are owned or operated by
either our customers or our
sub-contractors.
In addition, changes in the 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.
Such environmental liability could substantially reduce our net
income and could have a significant impact on our financial
ability to carry out our oil and gas operations.
Our
oil and gas operations involve significant risks, and we do not
have insurance coverage for all risks.
Our oil and gas operations are subject to risks incident to the
operation of oil and gas wells, including, but not limited to,
uncontrollable flows of oil, gas, brine or well fluids into the
environment, blowouts, cratering, mechanical difficulties,
fires, explosions or other physical damage, pollution and other
risks, any of which could result in substantial losses to us. We
maintain insurance against some, but not all, of the risks
described above. As a result, any damage not covered by our
insurance could have a material adverse effect on our financial
condition, results of operations and cash flows.
22
Risks
Relating to General Corporate Matters
We
have higher levels of indebtedness after the acquisition of
Remington in 2006.
As of December 31, 2006, we have approximately
$1.5 billion of indebtedness outstanding. The significant
level of combined indebtedness may have an adverse effect on our
future operations, including:
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limiting our ability 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;
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increasing our vulnerability to general economic downturns,
competition and industry conditions, which could place us at a
competitive disadvantage compared to our competitors that are
less leveraged;
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increasing our exposure to rising interest rates because a
portion of our borrowings are at variable interest rates;
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reducing the availability of our cash flow 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 flow
to service debt obligations;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we
operate; and
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limiting our ability to expand our business through capital
expenditures or pursuit of acquisition opportunities due to
negative covenants in senior secured credit facilities that
place annual and aggregate limitations on the types and amounts
of investments that we may make, and limit our ability to use
proceeds from asset sales for purposes other than debt repayment
(except in certain circumstances where proceeds will be
reinvested under criteria defined by our credit agreements).
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If we fail to comply with the covenants and other restrictions
in the agreements governing our debt, it could lead to an event
of default and the acceleration of our repayment of outstanding
debt. Our ability to comply with these covenants and other
restrictions may be affected by events beyond our control,
including prevailing economic and financial conditions.
We may
not be able to compete successfully against current and future
competitors.
The businesses in which we operate are highly competitive.
Several of our competitors are substantially larger and have
greater financial and other resources than we have. If other
companies relocate or acquire vessels for operations in the Gulf
or the North Sea, levels of competition may increase and our
business could be adversely affected. In the exploration and
production business, some of the larger integrated companies may
be better able to respond to industry changes including price
fluctuations, oil and gas demands, political change and
government regulations.
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, among other reasons, the
volatility in commodity prices. Our continued success depends on
the active participation of our key employees. The loss of our
key people could adversely affect our operations. We believe
that our success and continued growth are also dependent upon
our ability to attract and retain skilled personnel. We believe
that our wage rates are competitive; however, unionization or a
significant increase in the wages paid by other employers could
result in a reduction in our workforce, increases in the wage
rates we pay, or both. If either of these events occurs for any
significant period of time, our revenues and profitability could
be diminished and our growth potential could be impaired.
23
If we
fail to effectively manage our growth, our results of operations
could be harmed.
We have a history of growing through acquisitions of large
assets and acquisitions of companies. We must plan and manage
our acquisitions effectively to achieve revenue growth and
maintain profitability in our evolving market. If we fail to
effectively manage current and future acquisitions, our results
of operations could be adversely affected. Our growth has
placed, and is expected to continue to place, significant
demands on our personnel, management and other resources. We
must continue to improve our operational, financial, management
and legal/compliance information systems to keep pace with the
growth of our business.
We may
need to change the manner in which we conduct our business in
response to changes in government regulations.
Our subsea construction, intervention, inspection, maintenance
and decommissioning operations and our oil and gas production
from offshore properties, including decommissioning of such
properties, are subject to and affected by various types of
government regulation, including numerous federal, state and
local environmental protection laws and regulations. These laws
and regulations are becoming increasingly complex, stringent and
expensive to comply with, and significant fines and penalties
may be imposed for noncompliance. We cannot assure you that
continued compliance with existing or future laws or regulations
will not adversely affect our operations.
Certain
provisions of our corporate documents and Minnesota law may
discourage a third party from making a takeover
proposal.
In addition to the 55,000 shares of preferred stock issued
to Fletcher International, Ltd. under the First Amended and
Restated Agreement dated January 17, 2003, but effective as
of December 31, 2002, by and between Helix and Fletcher
International, Ltd., our board of directors has the authority,
without any action by our shareholders, to fix the rights and
preferences on up to 4,945,000 shares of undesignated
preferred stock, including dividend, liquidation and voting
rights. In addition, our by-laws divide the board of directors
into three classes. We are also subject to certain anti-takeover
provisions of the Minnesota Business Corporation Act. We also
have employment contracts with most of our senior officers that
require cash payments in the event of a change of
control. Any or all of the provisions or factors described
above may have the effect of discouraging a takeover proposal or
tender offer not approved by management and the board of
directors and could result in shareholders who may wish to
participate in such a proposal or tender offer receiving less
for their shares than otherwise might be available in the event
of a takeover attempt.
Our
operations outside of the United States subject us to additional
risks.
Our operations outside of the United States are subject to risks
inherent in foreign operations, including, without limitation:
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the loss of revenue, property and equipment from expropriation,
nationalization, war, insurrection, acts of terrorism and other
political risks;
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increases in taxes and governmental royalties;
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changes in laws and regulations affecting our operations;
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renegotiation or abrogation of contracts with governmental
entities;
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changes in laws and policies governing operations of
foreign-based companies;
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currency restrictions and exchange rate fluctuations;
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world economic cycles;
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restrictions or quotas on production and commodity sales;
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limited market access; and
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other uncertainties arising out of foreign government
sovereignty over our international operations.
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In addition, laws and policies of the United States affecting
foreign trade and taxation may also adversely affect our
international operations.
Our ability to market oil and natural gas discovered or produced
in any future foreign operations, and the price we could obtain
for such production, depends on many factors beyond our control,
including:
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ready markets for oil and natural gas;
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the proximity and capacity of pipelines and other transportation
facilities;
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fluctuating demand for crude oil and natural gas;
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the availability and cost of competing fuels; and
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the effects of foreign governmental regulation of oil and gas
production and sales.
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Pipeline and processing facilities do not exist in certain areas
of exploration and, therefore, any actual sales of our
production could be delayed for extended periods of time until
such facilities are constructed.
As the
initial public offering of CDI common stock was completed, in
the future, we may not have the same access to services and
equipment, as we had historically.
Although we have made arrangements to retain access to the
services and equipment of CDI through certain inter-company
agreements, it is possible that we will not have the same access
to those services and equipment as we had historically, and as
our ownership in CDI decreases over time, our access to such
equipment and services could be further diminished.
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Item 1B.
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Unresolved
Staff Comments.
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None.
We own a fleet of 33 vessels (one of which was
held-for-sale
at December 31, 2006 and sold in January 2007) and 31
ROVs and trenchers. We also lease one vessel. We believe that
the market in the Gulf of Mexico requires specially designed
and/or
equipped vessels to competitively deliver subsea construction
and well operations services. Eleven of our vessels have DP
capabilities specifically designed to respond to the deepwater
market requirements. Fifteen of our vessels (thirteen of which
are based in the Gulf of Mexico) have the capability to provide
saturation diving services.
Divestitures
in 2006
In December 2006, we contributed the assets of our Shelf
Contracting segment into CDI, our then wholly owned subsidiary.
CDI subsequently completed an initial public offering selling
22,173,000 shares of its common stock, which, together with
shares issued to CDI employees immediately after the offering,
reduced our ownership of CDI to 73.0%. CDI received net proceeds
of $264.4 million from its initial public offering. All of
the net proceeds were distributed to us as a dividend. In
connection with the offering, CDI entered into a
$250 million revolving credit facility. In December 2006,
Cal Dive borrowed $201 million under the facility and
distributed $200 million of the proceeds to us as a
dividend. See Note 3 Initial
Public Offering of Cal Dive International, Inc. in
Item 8 for additional information.
Related to the Acergy acquisition, we entered into a consent
order with the U.S. Department of Justice pursuant to which
we agreed to divest three assets: the Carrier, the
Defender and a portable saturation diving system acquired
from Torch. As a result, these vessels were classified as held
for sale at December 31, 2005. In 2006, we sold the
portable saturation diving system and the Defender. As of
December 31, 2006, the Carrier remained classified
as held for sale. In January 2007, the Carrier was sold
to an unrelated third-party. No gains or losses were recognized
related to the sale.
25
Acquisitions
in 2006
In January 2006, our wholly owned subsidiary, Vulcan Marine
Technology LLC, acquired the Caesar (formerly known as
the Baron), a four year old mono-hull vessel originally
built for the cable lay market. The vessel was under charter to
a third-party until mid January 2007. After the completion of
the charter, the vessel was in transit to a shipyard in China
where we plan to convert the vessel into a deepwater pipelay
asset. The vessel is 485 feet long and already has a
state-of-the-art,
class 2, dynamic positioning system. The conversion program
will primarily involve the installation of a conventional
S lay pipelay system together with a main crane and
a significant upgrade to the accommodation capability. A
conversion team has already been assembled with a base at
Rotterdam, the Netherlands, and the vessel is likely to enter
service during the second half of 2007. The estimated cost to
acquire and convert the vessel will be approximately
$137.5 million. We have entered into an agreement with the
third party currently leasing the vessel, whereby the third
party has an option to purchase up to 49% of Vulcan for
consideration totaling the proportionate share of the cost of
the vessel plus the actual cost of conversion (conversion cost
is estimated to be $110.0 million). The third party must
make all contributions to Vulcan on or before March 31,
2007.
In January 2006, the DLB 801 was acquired from Acergy.
Subsequent to our purchase of the DLB 801, we sold a 50%
interest in the vessel in January 2006 for approximately
$19.0 million. The vessel is currently under a
10-year
charter lease agreement with the purchaser of the 50% interest,
in which the purchaser has an option to purchase the remaining
50% interest in the vessel beginning in January 2009. This lease
was accounted for as an operating lease. In March 2006, we also
acquired the Kestrel from Acergy.
On July 1, 2006, we acquired 100% of Remington, an
independent oil and gas exploration and production company
headquartered in Dallas, Texas, with operations concentrated in
the onshore and offshore regions of the Gulf Coast, for
approximately $1.4 billion in cash and stock and the
assumption of $349.6 million of liabilities. The
acquisition of Remington increased our oil and gas properties by
approximately $860 million.
In addition, in July 2006, we acquired the business of
Singapore-based Fraser Diving International Ltd for an aggregate
purchase price of approximately $29.3 million, subject to
post-closing adjustments, and the assumption of
$2.2 million of liabilities. FDI owns six portable
saturation diving systems and 15 surface diving systems that
operate primarily in Southeast Asia, the Middle East, Australia
and the Mediterranean. Included in the purchase price is a
payment of $2.5 million made in December 2005 to FDI for
the purchase of one of the portable saturation diving systems.
The acquisition was accounted for as a business combination with
the acquisition price allocated to the assets acquired and
liabilities assumed based upon their estimated fair values. All
of the assets acquired from FDI are included in our Shelf
Contracting segment.
In August 2006, we acquired a 100% working interest in the
Typhoon oil field (Green Canyon Blocks 236/237), the
Boris oil field (Green Canyon Block 282) and the
Little Burn oil field (Green Canyon Block 238) for the
assumption of certain decommissioning liabilities. We have
received suspension of production (SOP) approval
from the MMS. We will also have farm-in rights on five near by
blocks where three prospects have been identified in the Typhoon
mini-basin. Following the acquisition of the Typhoon field and
MMS approval, we renamed the field Phoenix. We expect to
deploy a minimal floating production system in mid-2008 in the
Phoenix field (see below).
Further, in October 2006, we, along with Kommandor
RØMØ A/S (Kommandor RØMØ), a
Danish corporation, formed Kommandor, LLC
(Kommandor), a Delaware limited liability company,
to convert a ferry vessel into a dynamically-positioned minimal
floating production system (see Production
Facilities below). Kommandor qualified as a variable
interest entity (VIE) under FASB Interpretation
No. 46 Consolidation of Variable Interest Entities
(FIN 46). We are the primary beneficiary of
Kommandor. As a result, we have consolidated the results of
Kommandor at December 31, 2006.
Also in October 2006, we acquired a 58% interest in Seatrac Pty
Ltd. (Seatrac) for total consideration of
approximately $12.7 million (including $180,000 of
transaction costs), with approximately $9.1 million paid to
existing shareholders and $3.4 million for subscription of
new Seatrac shares (see Note 6 Other
Acquisitions in Item 8. Financial Statements and
Supplementary Data for a detailed discussion of Seatrac). We
changed the name of the entity to Well Ops SEA Pty Ltd.
26
In December 2006, we acquired a 100% working interest in the
Camelot oil field in the North Sea for the assumption of
certain decommissioning liabilities totaling approximately
$7.6 million. At December 31, 2006, Camelot had
proved reserves of approximately 24 Bcfe. We have commenced
existing field rejuvenation and expect first production in 2007.
It is our intent to sell down to a 50% working interest prior to
additional drilling or other large capital investments being
made in the Camelot field area.
27
OUR
VESSELS
Listing
of Vessels, Barges and ROVs Related to Contracting Services
Operations (1)
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DP or
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Flag
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Placed in
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Length
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SAT
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Anchor
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State
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Service(2)
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(Feet)
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Berths
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Diving
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Moored
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Crane Capacity (tons)
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SHELF CONTRACTING (CAL DIVE
INTERNATIONAL, INC.):
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Pipelay
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DLB
801 (3)
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Panama
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1/2006
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351
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230
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Capable
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Anchor
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815
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Brave
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U.S.
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11/2005
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275
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80
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Anchor
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30 and 50
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Rider
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U.S.
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11/2005
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275
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80
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Anchor
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50
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Saturation
Diving
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DP DSV Eclipse
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Bahamas
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3/2002
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367
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109
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X
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DP
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5; 4.3; 92/43; 20.4 A-Frame
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DP DSV Kestrel
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Vanuatu
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9/2006
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323
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80
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X
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DP
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40; 15 ; 10; Hydralift HLR 308
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DP DSV Mystic Viking
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Bahamas
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6/2001
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253
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60
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X
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DP
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50
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DP MSV Uncle John
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Bahamas
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11/1996
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254
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102
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X
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DP
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2×100
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DSV American Constitution
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Panama
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11/2005
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200
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46
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X
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4 point
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20.41
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DSV Cal Diver I
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U.S.
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7/1984
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196
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40
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X
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4 point
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20
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DSV Cal Diver II
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U.S.
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6/1985
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166
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32
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X
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4 point
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40 A-Frame
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DSV Carrier (4)
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Vanuatu
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270
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36
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Capable
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4 point
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DSV Midnight
Star (5)
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Vanuatu
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6/2006
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197
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42
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4 point
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20 and 40
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Surface
Diving
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American Diver
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U.S.
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11/2005
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105
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22
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American Liberty
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U.S.
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11/2005
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110
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22
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1.588
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Cal Diver IV
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U.S.
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3/2001
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120
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24
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DSV American Star
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U.S.
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11/2005
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165
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30
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4 point
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9.072
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DSV American Triumph
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U.S.
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11/2005
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164
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32
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4 point
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13.61
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DSV American Victory
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U.S.
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11/2005
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165
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34
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4 point
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9.072
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DSV Cal Diver V
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U.S.
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9/1991
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166
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34
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4 point
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20 A-Frame
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DSV Dancer
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U.S.
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3/2006
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173
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34
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4 point
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30
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DSV Mr. Fred
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U.S.
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3/2000
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166
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36
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4 point
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25
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Fox
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U.S.
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10/2005
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130
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42
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Mr. Jack
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U.S.
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1/1998
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120
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22
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10
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Mr. Jim
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U.S.
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2/1998
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110
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19
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Polo Pony
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U.S.
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3/2001
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110
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25
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Sterling Pony
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U.S.
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3/2001
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110
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25
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White Pony
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U.S.
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3/2001
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116
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25
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CONTRACTING SERVICES:
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Pipelay
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Caesar (6)
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Vanuatu
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1/2006
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482
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220
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DP
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300 and 36
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Express
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Vanuatu
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8/2005
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520
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132
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DP
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500 and 120
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Intrepid
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Bahamas
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8/1997
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381
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50
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DP
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400
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Talisman
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U.S.
|
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11/2000
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195
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14
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Well
Operations
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Q4000 (7)
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U.S.
|
|
4/2002
|
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312
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135
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Capable
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DP
|
|
160 and 360; 600 Derrick
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Seawell
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U.K.
|
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7/2002
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368
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129
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X
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DP
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130
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Robotics
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27 ROVs and 4 Trenchers (8)
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Various
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Northern
Canyon (9)
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Bahamas
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6/2002
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276
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58
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DP
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50
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(1) |
|
Under government regulations and our insurance policies, we are
required to maintain our vessels in accordance with standards of
seaworthiness and safety set by government regulations and
classification organizations. We maintain our fleet to the
standards for seaworthiness, safety and health set by the
American Bureau of Shipping, |
28
|
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|
or ABS, Bureau Veritas, or BV, Det Norske Veritas, or DNV,
Lloyds Register of Shipping, or Lloyds, and the U.S. Coast
Guard, or USCG. The ABS, BV, DNV and Lloyds are classification
societies used by ship owners to certify that their vessels meet
certain structural, mechanical and safety equipment standards. |
|
(2) |
|
Represents the date we placed the vessel in service and not the
date of commissioning. |
|
(3) |
|
The DLB 801 was purchased in January 2006 and a 50%
interest in the vessel was subsequently sold to an unaffiliated
purchaser that same month. The vessel is now under a
10-year
charter lease agreement with the purchaser of the 50% interest.
The charter lease agreement includes an option by the purchasers
to purchase our 50% interest in the vessel beginning in January
2009. |
|
(4) |
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Held for sale at December 31, 2006. The vessel was sold in
January 2007. |
|
(5) |
|
Expected to be converted in the second or third quarter of 2007
to full saturation diving capabilities. |
|
(6) |
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Currently under conversion into a deepwater pipelay asset by
late 2007. |
|
(7) |
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Expected to add drilling capabilities on the vessel in mid-2007. |
|
(8) |
|
Average age of our fleet of ROVs and trenchers is approximately
4.01 years. |
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(9) |
|
Leased. |
The following table details the average utilization rate for our
vessels by category (calculated by dividing the total number of
days the vessels in this category generated revenues by the
total number of calendar days in the applicable period) for the
years ended December 31, 2006, 2005 and 2004:
|
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|
|
|
|
|
|
Year Ended December 31,
|
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|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Contracting Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelay
|
|
|
86
|
%
|
|
|
86
|
%
|
|
|
72
|
%
|
Well operations
|
|
|
81
|
%
|
|
|
84
|
%
|
|
|
80
|
%
|
ROVs
|
|
|
71
|
%
|
|
|
69
|
%
|
|
|
51
|
%
|
Shelf Contracting
|
|
|
84
|
%
|
|
|
65
|
%
|
|
|
52
|
%
|
We incur routine drydock, inspection, maintenance and repair
costs pursuant to Coast Guard regulations and in order to
maintain our vessels in class under the rules of the applicable
class society. In addition to complying with these requirements,
we have our own vessel maintenance program that we believe
permits us to continue to provide our customers with well
maintained, reliable vessels. In the normal course of business,
we charter in other vessels on a short-term basis, such as
tugboats, cargo barges, utility boats and dive support vessels.
The Q4000 is subject to a mortgage that secures the MARAD
financing guarantees as described in Item 8. Financial
Statements and Supplementary Data
Note 10 Long-term
Debt.
29
SUMMARY
OF NATURAL GAS AND OIL RESERVE DATA
The table below sets forth information, as of December 31,
2006, with respect to estimates of net proved reserves, prepared
in accordance with guidance established by the SEC. Our
U.S. reserve estimates at December 31, 2006 have been
audited by Huddleston & Co., Inc., independent
petroleum engineers (83% of our most significant
U.S. proved reserves on a discounted future net revenue
basis). Proved reserves cannot be measured exactly because the
estimation of reserves involves numerous judgmental
determinations. Accordingly, reserve estimates must be
continually revised as a result of new information obtained from
drilling and production history, new geological and geophysical
data and changes in economic conditions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006
|
|
|
|
Proved Developed
|
|
|
Proved Undeveloped
|
|
|
Total Proved
|
|
|
|
Reserves
|
|
|
Reserves
|
|
|
Reserves
|
|
|
United States:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (Bcf)
|
|
|
156
|
|
|
|
138
|
|
|
|
294
|
|
Oil (MMBbls)
|
|
|
13
|
|
|
|
23
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Bcfe)
|
|
|
236
|
|
|
|
276
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (Bcf)
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
Oil (MMBbls)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Bcfe)
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (Bcf)
|
|
|
156
|
|
|
|
162
|
|
|
|
318
|
|
Oil (MMBbls)
|
|
|
13
|
|
|
|
23
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Bcfe)
|
|
|
236
|
|
|
|
300
|
|
|
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For additional information regarding estimates of oil and gas
reserves, including estimates of proved and proved developed
reserves, the standardized measure of discounted future net cash
flows, and the changes in discounted future net cash flows, see
Item 8. Financial Statements and Supplementary
Data Note 20 Supplemental
Oil and Gas Disclosures.
Production,
Price and Cost Data
Production, price and cost data for our oil and gas operations
in the United States are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Production:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (Bcf)
|
|
|
28
|
|
|
|
18
|
|
|
|
26
|
|
Oil (MMBbls)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (Bcfe)
|
|
|
48
|
|
|
|
33
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales prices realized
(including hedges):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas (per Mcf)
|
|
$
|
7.86
|
|
|
$
|
8.08
|
|
|
$
|
5.76
|
|
Oil (per Bbl)
|
|
$
|
60.41
|
|
|
$
|
49.15
|
|
|
$
|
33.92
|
|
Total (per Mcfe)
|
|
$
|
8.79
|
|
|
$
|
8.13
|
|
|
$
|
5.72
|
|
Average production cost per Mcfe
|
|
$
|
1.85
|
|
|
$
|
1.71
|
|
|
$
|
0.95
|
|
Average depletion and amortization
per Mcfe
|
|
$
|
2.79
|
|
|
$
|
2.14
|
|
|
$
|
1.66
|
|
As we acquired Camelot in December 2006 (which was not
then producing), we had no oil and gas production in the United
Kingdom in 2006.
30
Productive
Wells
The number of productive oil and gas wells in which we held
interest as of December 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Wells
|
|
|
Gas Wells
|
|
|
Total Wells
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
United States Offshore
|
|
|
145
|
|
|
|
107
|
|
|
|
155
|
|
|
|
71
|
|
|
|
300
|
|
|
|
178
|
|
United States Onshore
|
|
|
24
|
|
|
|
8
|
|
|
|
75
|
|
|
|
15
|
|
|
|
99
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
169
|
|
|
|
115
|
|
|
|
230
|
|
|
|
86
|
|
|
|
399
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Productive wells are producing wells and wells capable of
production. A gross well is a well in which a working interest
is owned. The number of gross wells is the total number of wells
in which a working interest is owned. A net well is deemed to
exist when the sum of fractional ownership working interests in
gross wells equals one. The number of net wells is the sum of
the fractional working interests owned in gross wells expressed
as whole numbers and fractions thereof. One or more completions
in the same borehole are counted as one well in this table.
The following table summarizes non-producing wells as of
December 31, 2006. Included in non-producing wells are
productive wells awaiting additional action, pipeline
connections or shut-in for various reasons.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Wells
|
|
|
Gas Wells
|
|
|
Total Wells
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Not producing (shut-in)
|
|
|
267
|
|
|
|
205
|
|
|
|
299
|
|
|
|
141
|
|
|
|
566
|
|
|
|
346
|
|
Developed
and Undeveloped Acreage
The developed and undeveloped acreage (including both leases and
concessions) that we held at December 31, 2006 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped
|
|
|
Developed
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
United States
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
|
|
|
625,100
|
|
|
|
393,870
|
|
|
|
711,189
|
|
|
|
378,731
|
|
Onshore
|
|
|
9,470
|
|
|
|
6,956
|
|
|
|
20,914
|
|
|
|
7,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
634,570
|
|
|
|
400,826
|
|
|
|
732,103
|
|
|
|
385,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom offshore
|
|
|
34,842
|
|
|
|
34,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
669,412
|
|
|
|
435,668
|
|
|
|
732,103
|
|
|
|
385,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed acreage is acreage spaced or assignable to productive
wells. A gross acre is an acre in which a working interest is
owned. A net acre is deemed to exist when the sum of fractional
ownership working interests in gross acres equals one. The
number of net acres is the sum of the fractional working
interests owned in gross acres expressed as whole numbers and
fractions thereof. Undeveloped acreage is considered to be those
leased acres on which wells have not been drilled or completed
to a point that would permit the production of commercial
quantities of crude oil and natural gas regardless of whether or
not such acreage contains proved reserves. Included within
undeveloped acreage are those leased acres (held by production
under the terms of a lease) that are not within the spacing unit
containing, or acreage assigned to, the productive well so
holding such lease. The current terms of our
31
leases on undeveloped acreage are scheduled to expire as shown
in the table below (the terms of a lease may be extended by
drilling and production operations (acreage):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore
|
|
|
Onshore
|
|
|
Total
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
2007
|
|
|
156,732
|
|
|
|
70,872
|
|
|
|
3,708
|
|
|
|
2,490
|
|
|
|
160,440
|
|
|
|
73,362
|
|
2008
|
|
|
144,461
|
|
|
|
79,876
|
|
|
|
4,292
|
|
|
|
2,996
|
|
|
|
148,753
|
|
|
|
82,872
|
|
2009
|
|
|
114,729
|
|
|
|
74,682
|
|
|
|
1,470
|
|
|
|
1,470
|
|
|
|
116,199
|
|
|
|
76,152
|
|
2010
|
|
|
105,966
|
|
|
|
80,652
|
|
|
|
|
|
|
|
|
|
|
|
105,966
|
|
|
|
80,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
521,888
|
|
|
|
306,082
|
|
|
|
9,470
|
|
|
|
6,956
|
|
|
|
531,358
|
|
|
|
313,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling
Activity
The following table shows the results of oil and gas wells
drilled in the United States for each of the years ended
December 31, 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Exploratory Wells
|
|
|
Net Development Wells
|
|
|
|
Productive
|
|
|
Dry
|
|
|
Total
|
|
|
Productive
|
|
|
Dry
|
|
|
Total
|
|
|
Year ended December 31, 2006
|
|
|
6.5
|
|
|
|
2.1
|
|
|
|
8.6
|
|
|
|
4.6
|
|
|
|
|
|
|
|
4.6
|
|
Year ended December 31, 2005
|
|
|
0.4
|
|
|
|
|
|
|
|
0.4
|
|
|
|
1.2
|
|
|
|
|
|
|
|
1.2
|
|
Year ended December 31, 2004
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
|
|
|
|
1.1
|
|
As we acquired Camelot in December 2006, no wells were
drilled in the United Kingdom in 2006.
A productive well is an exploratory or development well that is
not a dry hole. A dry hole is an exploratory or development well
determined to be incapable of producing either oil or gas in
sufficient quantities to justify completion as an oil or gas
well.
An exploratory well is a well drilled to find and produce oil or
gas in an unproved area, to find a new reservoir in a field
previously found to be productive of oil or gas in another
reservoir, or to extend a known reservoir. A development well,
for purposes of the table above and as defined in the rules and
regulations of the SEC, is a well drilled within the proved area
of a crude oil or natural gas reservoir to the depth of a
stratigraphic horizon known to be productive. The number of
wells drilled refers to the number of wells completed at any
time during the respective year, regardless of when drilling was
initiated. Completion refers to the installation of permanent
equipment for the production of crude oil or natural gas, or in
the case of a dry hole, to the reporting of abandonment to the
appropriate agency.
At December 31, 2006, our oil and gas operations were
drilling 2 gross (0.6 net) development wells and
6 gross (4 net) exploration wells, and 0.4 net
suspended exploratory wells. These wells are located in the Gulf
of Mexico. The drilling cost to us for these wells will be
approximately $104.2 million if all are dry and
approximately $163.4 million if all are completed as
producing wells.
PRODUCTION
FACILITIES
Through our interest in Deepwater Gateway, L.L.C., a limited
liability company in which Enterprise Products Partners L.P. is
the other member, we own a 50% interest in the Marco Polo
TLP, which was installed on Green Canyon Block 608 in
4,300 feet of water. Deepwater Gateway, L.L.C. was formed
to construct, install and own the Marco Polo TLP in order
to process production from Anadarko Petroleum Corporations
Marco Polo field discovery at Green Canyon
Block 608. Anadarko required 50,000 barrels of oil per
day and 150 million feet per day of processing capacity for
Marco Polo. The Marco Polo TLP was
designed to process 120,000 barrels of oil per day and
300 million cubic feet of gas per day and payload with
space for up to six subsea tie backs.
We also own a 20% interest in Independence Hub, LLC, an
affiliate of Enterprise Products Partners L.P., that will own
the Independence Hub platform, a 105 foot deep
draft, semi-submersible platform to be located in Mississippi
Canyon block 920 in a water depth of 8,000 feet that
will serve as a regional hub for natural gas production from
multiple ultra-Deepwater fields in the previously untapped
eastern Gulf of Mexico. Installation of
32
the platform is scheduled for the first quarter of 2007 and
first production is expected in mid-2007. The Independence Hub
facility will be capable of processing 1 billion cubic feet
(bcf) per day of gas.
We own a 20% interest in the Gunnison truss spar
facility, together with the operator Kerr-McGee Oil &
Gas Corporation, which owns a 50% interest, and Nexen, Inc.,
which owns the remaining 30% interest. The Gunnison spar,
which is moored in 3,150 feet of water and located on
Garden Banks Block 668, has daily production capacity of
40,000 barrels of oil and 200 million cubic feet of
gas. This facility is designed with excess capacity to
accommodate production from satellite prospects in the area.
Further, in October 2006, we invested $15 million for a 50%
interest in Kommandor to convert a ferry vessel into a
dynamically-positioned minimal floating production system. Upon
completion of the initial conversion, this vessel will be leased
under a bareboat charter to us for further conversion and
subsequent use as a floating production system in the Deepwater
Gulf of Mexico, initially for the Phoenix field.
Conversion of the vessel is expected to be completed in two
phases. The first phase is expected to be completed by the end
of 2007 for approximately $60 million. The second phase of
the conversion is expected to be completed by mid-2008.
Estimated cost of conversion for the second phase is
approximately $100 million, of which we expect to
fund 100%.
33
FACILITIES
Our corporate headquarters are located at 400 N. Sam
Houston Parkway E., Suite 400, Houston, Texas. Our primary
subsea and marine services operations are based in Port of
Iberia, Louisiana. We own the Aberdeen (Dyce), Scotland
facility. All of our other facilities are leased.
Properties
and Facilities Summary
|
|
|
|
|
Location
|
|
Function
|
|
Size
|
|
Houston, Texas
|
|
Helix Energy Solutions Group,
Inc.
Corporate Headquarters,
Project Management, and Sales Office
|
|
85,000 square feet
|
|
|
Cal Dive International,
Inc.
Corporate Headquarters,
Project Management, and Sales Office
|
|
|
|
|
Energy Resource Technology GOM,
Inc.Corporate
Headquarters
|
|
|
|
|
Well Ops Inc.
Corporate Headquarters,
Project Management, and Sales Office
|
|
|
|
|
Kommandor LLC (1)
Corporate Headquarters
|
|
|
Houston, Texas
|
|
Canyon Offshore, Inc.
Corporate, Management
and Sales Office
|
|
27,000 square ft.
|
Dallas, Texas
|
|
Energy Resource Technology GOM,
Inc.
Dallas Office
|
|
25,000 square ft.
|
Port of Iberia, Louisiana
|
|
Cal Dive International,
Inc. (2)
Operations, Offices and
Warehouse
|
|
23 acres (Buildings:
68,602 square feet)
|
Fourchon, Louisiana
|
|
Cal Dive International,
Inc. (2)
Marine, Operations,
Living Quarters
|
|
10 acres (Buildings:
2,300 square feet)
|
New Orleans, Louisiana
|
|
Cal Dive International,
Inc. (2)
Sales Office
|
|
2,724 square feet
|
Dubai, United Arab Emirates
|
|
Cal Dive International,
Inc. (2)
Sales Office and
Warehouse
|
|
12,916 square feet
|
Aberdeen (Dyce), Scotland
|
|
Well Ops (U.K.) Limited
Corporate Offices and
Operations
|
|
3.9 acres (Building:
42,463 square ft.)
|
|
|
Canyon Offshore Limited
Corporate Offices,
Operations and Sales Office
|
|
|
Aberdeen (Westhill), Scotland
|
|
Helix RDS Limited
Corporate Offices
|
|
11,333 square ft.
|
|
|
ERT (UK) Limited
Corporate Offices
|
|
|
London, England
|
|
Helix RDS Limited
Corporate Offices
|
|
3,365 square ft.
|
Kuala Lumpur, Malaysia
|
|
Helix RDS Sdn Bhd
Corporate Offices
|
|
2,227 square ft.
|
Perth, Australia
|
|
Cal Dive International,
Inc. (2)
Operations, Offices and
Project Management
|
|
28,738 square feet
|
Perth, Australia
|
|
Well Ops SEA Pty Ltd (3)
Corporate Offices
|
|
1.0 acre (Building:
12,040 square feet)
|
Perth, Australia
|
|
Helix RDS Pty Ltd
Corporate Offices
|
|
8,202 square ft.
|
|
|
Helix ESG Pty Ltd.
Corporate Offices
|
|
|
Rotterdam, The Netherlands
|
|
Helix Energy Solutions BV
Corporate Offices
|
|
6,620 square ft.
|
Singapore
|
|
Cal Dive International,
Inc. (2)
Marine, Operations,
Offices, Project Management and Warehouse
|
|
29,772 square feet
|
Singapore
|
|
Canyon Offshore International
Corp
Corporate, Operations
and Sales
|
|
13,180 square ft.
|
|
|
Well Ops PTE Ltd
Corporate Headquarters
|
|
|
34
|
|
|
(1) |
|
Kommandor LLC is a joint venture in which we owned 50% at
December 31, 2006. Kommandor is included in our
consolidated results as of December 31, 2006. |
|
(2) |
|
Cal Dive International, Inc. is our Shelf Contracting
subsidiary, of which we owned 73.0% at December 31, 2006. |
|
(3) |
|
At December 31, 2006, we owned 58% of Well Ops SEA Pty Ltd. |
|
|
Item 3.
|
Legal
Proceedings.
|
Insurance
and Litigation
Our operations are subject to the inherent risks of offshore
marine activity, including accidents resulting in personal
injury and the loss of life or property, environmental mishaps,
mechanical failures, fires and collisions. We insure against
these risks at levels consistent with industry standards. We
also carry workers compensation, maritime employers
liability, general liability and other insurance customary in
our business. All insurance is carried at levels of coverage and
deductibles we consider financially prudent. 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 that 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. A successful liability
claim for which we are underinsured or uninsured could have a
material adverse effect on our business.
We are involved in various legal proceedings, primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence. In addition, we from time to time incur
other claims, such as contract disputes, in the normal course of
business. In that regard, in 1998, one of our subsidiaries,
Cal Dive Offshore Ltd (CDO), entered into a
subcontract with Seacore Marine Contractors Limited
(Seacore) to provide a vessel to Seacore for use in
performing a contract between Seacore and Coflexip Stena
Offshore Newfoundland (Coflexip) in Canada. Due to
various difficulties, that contract was terminated and an
arbitration to recover damages was commenced. We were not a
party to that arbitration. A liability finding was made by the
arbitrator against Seacore and in favor of Coflexip. Seacore and
Coflexip settled this matter with Seacore paying Coflexip
CAD$6.95 million. Seacore then initiated an arbitration
proceeding against CDO seeking payment of that amount, and
subsequently commenced a lawsuit against us seeking the same
recovery. Recently we have settled this litigation and
arbitration, with us making a payment to Seacore in the amount
of CAD$825,000 (or approximately $703,000), and the parties
fully and finally releasing each other from all claims
pertaining the matter.
On December 2, 2005, we received an order from the
U.S. Department of the Interior Minerals Management Service
(MMS) that the price threshold for both oil and gas
was exceeded for 2004 production and that royalties are due on
such production notwithstanding the provisions of the Deep Water
Royalty Relief Act of 2005 (DWRRA), which was
intended to stimulate exploration and production of oil and
natural gas in the deepwater Gulf of Mexico by providing relief
from the obligation to pay royalty on certain federal leases.
Our only oil and gas leases affected by this dispute are Garden
Banks Blocks 667, 668 and 669
(Gunnison). On May 2, 2006, the MMS
issued another order that superseded the December 2005 order,
and claimed that royalties on gas production are due for 2003 in
addition to oil and gas production in 2004. The May 2006 Order
also seeks interest on all royalties allegedly due. We filed a
timely notice of appeal with respect to both the December 2005
Order and the May 2006 Order. Other operators in the Deep Water
Gulf of Mexico who have received notices similar to ours are
seeking royalty relief under the DWRRA, including Kerr-McGee Oil
and Gas Corporation (Kerr-McGee), the operator of
Gunnison. In March of 2006, Kerr-McGee filed a lawsuit in
federal district court challenging the enforceability of price
thresholds in certain deepwater Gulf of Mexico Leases, such as
ours. We do not anticipate that the MMS director will issue
decisions in our or the other companies administrative
appeals until the Kerr-McGee litigation has been
resolved. As a result of this dispute, we have recorded reserves
for the disputed royalties (and any other royalties that may be
claimed for production during 2005 and 2006) plus interest
at 5% for our portion of the Gunnison related MMS claim.
The total reserved amount at December 31, 2006 was
approximately $42.6 million. At this time, it is not
anticipated that any penalties would be assessed even if we are
unsuccessful in our appeal.
35
Although the above discussed matters may have the potential for
additional liability and may have an impact on our consolidated
financial results for a particular reporting period, we believe
that the outcome of all such matters and proceedings will not
have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
Executive
Officers of the Company
The executive officers of Helix are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
|
Position
|
|
Owen Kratz
|
|
|
52
|
|
|
Executive Chairman and Director
|
Martin R. Ferron
|
|
|
50
|
|
|
President, Chief Executive Officer
and Director
|
Bart H. Heijermans
|
|
|
40
|
|
|
Executive Vice President and Chief
Operating Officer
|
Robert P. Murphy
|
|
|
48
|
|
|
Executive Vice
President Oil & Gas
|
A. Wade Pursell
|
|
|
42
|
|
|
Executive Vice President and Chief
Financial Officer
|
Alisa B. Johnson
|
|
|
49
|
|
|
Senior Vice President, General
Counsel and Corporate Secretary
|
Lloyd A. Hajdik
|
|
|
41
|
|
|
Vice President
Corporate Controller and Chief Accounting Officer
|
Owen Kratz is Executive Chairman and the principal
executive officer of Helix. He was appointed Chairman in May
1998 and served as our Chief Executive Officer from April 1997
until October 2006, at which time he was appointed Executive
Chairman. Mr. Kratz served as President from 1993 until
February 1999, and has been a Director since 1990. He served as
Chief Operating Officer from 1990 through 1997. Mr. Kratz
joined Helix in 1984 and has held various offshore positions,
including saturation diving supervisor, and has had management
responsibility for client relations, marketing and estimating.
Mr. Kratz has a Bachelor of Science degree in Biology and
Chemistry from State University of New York.
Martin R. Ferron has served on our Board of Directors
since September 1998. Mr. Ferron became President in
February 1999 and was appointed Chief Executive Officer in
October 2006. Mr. Ferron served as Chief Operating Officer
from January 1998 until September 2005. Mr. Ferron has over
25 years of experience in the oilfield industry, including
seven in senior management positions with the international
operations of McDermott and Oceaneering. Mr. Ferron has a
civil engineering degree, a masters degree in marine
technology, an MBA and is a chartered civil engineer.
Bart H. Heijermans became Executive Vice President and
Chief Operating Officer of Helix in September 2005. Prior to
joining Helix, Mr. Heijermans worked as Senior Vice
President Offshore and Gas Storage for Enterprise Products
Partners, L.P. from 2004 to 2005 and previously from 1998 to
2004 was Vice President Commercial and Vice President Operations
and Engineering for GulfTerra Energy Partners, L.P. Before his
employment with GulfTerra, Mr. Heijermans held various
positions with Royal Dutch Shell in the United States, the
United Kingdom and the Netherlands. Mr. Heijermans received
a Master of Science degree in Civil and Structural Engineering
from the University of Delft, the Netherlands and is a graduate
of the Harvard Business School Executive Program.
Robert P. Murphy was elected as Executive Vice
President Oil & Gas of Helix on
February 28, 2007, and as President and Chief Operating
Officer of Helix Oil & Gas, Inc., a wholly owned
subsidiary, on November 29, 2006. Mr. Murphy joined
Helix on July 1, 2006 when Helix acquired Remington
Oil & Gas Corporation, where Mr. Murphy served as
President, Chief Operating Officer and was on the Board of
Directors. Prior to joining Remington, Mr. Murphy was Vice
President Exploration of Cairn Energy USA, Inc, of
which company Mr. Murphy also served on the Board of
Directors. Mr. Murphy received a Bachelor of Science degree
in Geology from The University of Texas at Austin, and has a
Master of Science in Geosciences from the University of Texas at
Dallas.
36
A. Wade Pursell was elected as Executive Vice
President and Chief Financial Officer on February 28, 2007,
and prior to that, held the office of Senior Vice President and
Chief Financial Officer, to which he was appointed in October
2000. Mr. Pursell oversees the finance, treasury,
accounting, tax, information technology, administration and
corporate planning functions. He joined Helix in May 1997, as
Vice President Finance and Chief Accounting Officer.
From 1988 through 1997 he was with Arthur Andersen LLP, lastly
as an Experienced Manager specializing in the offshore services
industry. Mr. Pursell received a Bachelor of Science degree
from the University of Central Arkansas.
Alisa B. Johnson became Senior Vice President, General
Counsel and Secretary of Helix in September 2006.
Ms. Johnson has been involved with the energy industry for
over 15 years. Prior to joining Helix, Ms. Johnson
worked for Dynegy Inc. for nine years, at which company she held
various legal positions, including Senior Vice President and
Group General Counsel Generation. From 1990 to 1997,
Ms. Johnson held various legal positions at Destec Entergy,
Inc. Prior to that Ms. Johnson was in private law practice.
Ms. Johnson received her Bachelor of Arts degree from Rice
University and her law degree from the University of Houston.
Lloyd A. Hajdik joined the Company in December 2003 as
Vice President Corporate Controller and became Chief
Accounting Officer in February 2004. From January 2002 to
November 2003 he was Assistant Corporate Controller for
Houston-based NL Industries, Inc. Prior to NL Industries,
Mr. Hajdik served as Senior Manager of SEC Reporting and
Accounting Services for Compaq Computer Corporation from 2000 to
2002, and as Controller for Halliburtons Baroid Drilling
Fluids and Zonal Isolation product service lines from 1997 to
2000. Mr. Hajdik served as Controller for Engineering
Services for Cliffs Drilling Company from 1995 to 1997 and was
with Ernst & Young in the audit practice from 1989 to
1995. Mr. Hajdik graduated from Texas State
University San Marcos (formerly Southwest Texas
State University) receiving a Bachelor of Business
Administration degree. Mr. Hajdik is a Certified Public
Accountant and a member of the Texas Society of CPAs as well as
the American Institute of Certified Public Accountants.
37
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities.
|
Our common stock is traded on the New York Stock Exchange
(NYSE) under the symbol HLX. Prior to
July 18, 2006, our common stock was quoted on the NASDAQ
under the symbol HELX. Prior to March 6, 2006,
our common stock traded under the symbol CDIS on the
NASDAQ. The following table sets forth, for the periods
indicated, the high and low closing sale prices per share of our
common stock:
|
|
|
|
|
|
|
|
|
|
|
Common Stock Prices
|
|
|
|
High (1)
|
|
|
Low (1)
|
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
26.14
|
|
|
$
|
19.11
|
|
Second Quarter
|
|
$
|
26.94
|
|
|
$
|
20.57
|
|
Third Quarter
|
|
$
|
32.18
|
|
|
$
|
25.98
|
|
Fourth Quarter
|
|
$
|
40.17
|
|
|
$
|
26.40
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
45.61
|
|
|
$
|
32.85
|
|
Second Quarter
|
|
$
|
45.00
|
|
|
$
|
29.14
|
|
Third Quarter
|
|
$
|
41.92
|
|
|
$
|
30.00
|
|
Fourth Quarter
|
|
$
|
37.30
|
|
|
$
|
27.55
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter (2)
|
|
$
|
34.59
|
|
|
$
|
27.89
|
|
|
|
|
(1) |
|
Adjusted to reflect the
two-for-one
stock split effective as the close of business on
December 8, 2005. |
|
(2) |
|
Through February 28, 2007 |
On February 28, 2007, the closing sale price of our common
stock on the NYSE was $33.49 per share. As of
February 22, 2007, there were an estimated 313 registered
shareholders (approximately 56,179 beneficial owners) of our
common stock.
We have never declared or paid cash dividends on our common
stock and do not 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
financing arrangements prohibit the payment of cash dividends on
our common stock. See Managements 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, 2001 to the cumulative total shareholder
return for (i) the stocks of 500 large-cap corporations
maintained by Standard & Poors (S&P
500), assuming the reinvestment of dividends;
(ii) the Philadelphia Oil Service Sector index
(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: Global
Industries, Ltd., Acergy US, Inc., Oceaneering International,
Inc., Technip-Coflexip, Superior Energy Services, Inc., TETRA
Technologies, Inc., Subsea 7, Newfield Exploration Company, ATP
Oil & Gas Corp, W&T Offshore, Inc., Energy
Partners, Ltd., and Mariner Energy, Inc. The returns of each
member of the Peer Group have been weighted according to each
individual companys equity market capitalization as of
December 31, 2006 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, 2001 in our common stock
at the closing price on that date price and on December 31,
2001 in the three indices presented. We paid no cash dividends
during the period presented. The cumulative total
38
percentage returns for the period presented were as follows: our
stock 154.2%; the Peer Group 247.4%; the
OSX 132.2%; and S&P 500- 31.1%. These results
are not necessarily indicative of future performance.
Comparison
of Five Year Cumulative Total Return among Helix, S&P
500,
OSX and Peer Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2001
|
|
|
2002
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
Helix
|
|
$
|
100.0
|
|
|
$
|
95.2
|
|
|
$
|
97.7
|
|
|
$
|
165.1
|
|
|
$
|
290.8
|
|
|
$
|
254.2
|
|
Peer Group Index
|
|
$
|
100.0
|
|
|
$
|
82.9
|
|
|
$
|
111.5
|
|
|
$
|
182.2
|
|
|
$
|
285.1
|
|
|
$
|
347.4
|
|
Oil Service Index
|
|
$
|
100.0
|
|
|
$
|
100.5
|
|
|
$
|
109.5
|
|
|
$
|
144.1
|
|
|
$
|
210.9
|
|
|
$
|
232.2
|
|
S&P 500
|
|
$
|
100.0
|
|
|
$
|
78.8
|
|
|
$
|
99.6
|
|
|
$
|
109.8
|
|
|
$
|
114.7
|
|
|
$
|
131.1
|
|
Source: Bloomberg
Issuer
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Maximum
|
|
|
|
(a)
|
|
|
(b)
|
|
|
Purchased as
|
|
|
Value of Shares
|
|
|
|
Total
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
That May Yet Be
|
|
|
|
Number
|
|
|
Price Paid
|
|
|
Announced
|
|
|
Purchased Under
|
|
Period
|
|
of Shares
|
|
|
per Share
|
|
|
Program
|
|
|
the Program
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) (2)
|
|
|
October 1 to October 31,
2006
|
|
|
1,072,800
|
|
|
$
|
29.22
|
|
|
|
1,072,800
|
|
|
$
|
18,649
|
|
November 1 to
November 30, 2006
|
|
|
601,880
|
|
|
$
|
30.98
|
|
|
|
601,880
|
|
|
|
|
|
December 1 to
December 31, 2006 (1)
|
|
|
4,273
|
|
|
$
|
34.14
|
|
|
|
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,678,953
|
|
|
$
|
29.87
|
|
|
|
1,674,680
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents shares delivered to the Company by employees in
satisfaction of withholding taxes and upon forfeiture of
restricted shares. |
39
|
|
|
(2) |
|
In January 2007, we issued 109,754 shares of our common
stock to our employees under our 1998 Employee Stock Purchase
Plan to satisfy the employee purchase period from July 1,
2006 to December 31, 2006. We subsequently repurchased
the same number of shares of our common stock in the open market
at $29.94 per share. |
|
|
Item 6.
|
Selected
Financial Data.
|
The financial data presented below for each of the five years
ended December 31, 2006, should be read in conjunction with
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and
Item 8. Financial Statements and Supplementary Data
included elsewhere in this
Form 10-K.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006 (1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues
|
|
$
|
1,366,924
|
|
|
$
|
799,472
|
|
|
$
|
543,392
|
|
|
$
|
396,269
|
|
|
$
|
302,705
|
|
Gross profit
|
|
|
515,408
|
|
|
|
283,072
|
|
|
|
171,912
|
|
|
|
92,083
|
|
|
|
53,792
|
|
Equity in earnings (losses) of
investments
|
|
|
18,130
|
|
|
|
13,459
|
|
|
|
7,927
|
|
|
|
(87
|
)
|
|
|
|
|
Net income before change in
accounting principle
|
|
|
347,394
|
|
|
|
152,568
|
|
|
|
82,659
|
|
|
|
33,678
|
|
|
|
12,377
|
|
Cumulative effect of change in
accounting principle, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
530
|
|
|
|
|
|
Net income
|
|
|
347,394
|
|
|
|
152,568
|
|
|
|
82,659
|
|
|
|
34,208
|
|
|
|
12,377
|
|
Preferred stock dividends and
accretion
|
|
|
3,358
|
|
|
|
2,454
|
|
|
|
2,743
|
|
|
|
1,437
|
|
|
|
|
|
Net income applicable to common
shareholders
|
|
|
344,036
|
|
|
|
150,114
|
|
|
|
79,916
|
|
|
|
32,771
|
|
|
|
12,377
|
|
Earnings per common
share Basic (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share before change
in accounting principle
|
|
|
4.07
|
|
|
|
1.94
|
|
|
|
1.05
|
|
|
|
0.43
|
|
|
|
0.17
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
Basic
|
|
|
4.07
|
|
|
|
1.94
|
|
|
|
1.05
|
|
|
|
0.44
|
|
|
|
0.17
|
|
Earnings per common
share Diluted (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share before change
in accounting principle
|
|
|
3.87
|
|
|
|
1.86
|
|
|
|
1.03
|
|
|
|
0.43
|
|
|
|
0.17
|
|
Cumulative effect of change in
accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
Diluted
|
|
|
3.87
|
|
|
|
1.86
|
|
|
|
1.03
|
|
|
|
0.44
|
|
|
|
0.17
|
|
|
|
|
(1) |
|
Includes effect of the Remington acquisition since July 1,
2006. See Item 8. Financial Statements and Supplementary
Data Note 4 Acquisition
of Remington Oil and Gas Corporation for additional
information. |
|
(2) |
|
All earnings per share information reflects a
two-for-one
stock split effective as of the close of business on
December 8, 2005. |
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2006 (1)
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands)
|
|
|
Total assets
|
|
$
|
4,290,187
|
|
|
$
|
1,660,864
|
|
|
$
|
1,038,758
|
|
|
$
|
882,842
|
|
|
$
|
840,010
|
|
Long-term debt (including current
maturities)
|
|
|
1,480,356
|
|
|
|
447,171
|
|
|
|
148,560
|
|
|
|
222,831
|
|
|
|
227,777
|
|
Minority interest
|
|
|
59,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
24,538
|
|
|
|
|
|
Shareholders equity
|
|
|
1,525,948
|
|
|
|
629,300
|
|
|
|
485,292
|
|
|
|
381,141
|
|
|
|
337,517
|
|
|
|
|
(1) |
|
Includes effect of the Remington acquisition in July 2006. See
Item 8. Financial Statements and Supplementary Data
Note 4 Acquisition of
Remington Oil and Gas Corporation for additional
information. |
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation
|
The following management discussion and analysis should be
read in conjunction with our historical consolidated financial
statements and their notes included elsewhere in this report.
This discussion 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 Risk
Factors and elsewhere in this report.
Executive
Summary
Our
Business
We are an international offshore energy company that provides
development solutions and other key services to the open energy
market as well as to our own oil and gas properties. Our oil and
gas business is a prospect generation, exploration, development
and production company. Employing our own key services and
methodologies we seek to lower finding and development (F&D)
costs, relative to industry norms.
Industry
Overview and Major Influences
The offshore oil and gas industry originated in the early 1950s
as producers began to explore and develop the new frontier of
offshore fields. The industry has grown significantly since the
1970s with service providers taking on greater roles on behalf
of the producers. Industry standards were established during
this period largely in response to the emergence of the North
Sea as a major province leading the way into a new hostile
frontier. The methodology of these standards was driven by the
requirement of mitigating the risk of developing relatively
large reservoirs in a then challenging environment. These
standards are still largely adhered to today for all
developments even if they are small and the frontier is more
understood. There are factors we believe will influence the
industry in the coming years: (1) Increasing world demand
for oil and natural gas; (2) global production rates
peaking; (3) globalization of the natural gas market;
(4) increasing number of mature and small reservoirs;
(5) increasing ratio of contribution to global production
from marginal fields; (6) increasing offshore activity; and
(7) increasing number of subsea developments.
Our business is substantially dependent upon the condition of
the oil and natural gas industry and, in particular, the
willingness of oil and natural gas companies to make capital
expenditures for offshore exploration, drilling and production
operations. The level of capital expenditure generally depends
on the prevailing views of future oil and natural gas prices,
which are influenced by numerous factors, including but not
limited to:
|
|
|
|
|
worldwide economic activity;
|
|
|
|
demand for oil and natural gas, especially in the United States,
China and India;
|
|
|
|
economic and political conditions in the Middle East and other
oil-producing regions;
|
|
|
|
actions taken by the Organization of Petroleum Exporting
Countries (OPEC);
|
41
|
|
|
|
|
the availability and discovery rate of new oil and natural gas
reserves in offshore areas;
|
|
|
|
the cost of offshore exploration for and production and
transportation of oil and gas;
|
|
|
|
the ability of oil and natural gas companies to generate funds
or otherwise obtain external capital for exploration,
development and production operations;
|
|
|
|
the sale and expiration dates of offshore leases in the United
States and overseas;
|
|
|
|
the discovery rate of new oil and gas reserves in offshore areas;
|
|
|
|
technological advances affecting energy exploration production
transportation and consumption;
|
|
|
|
weather conditions;
|
|
|
|
environmental and other governmental regulations; and
|
|
|
|
tax policies.
|
Activity
Summary
Over the last few years we continued to evolve the Helix model
by completing a variety of transactions and events which have
had, and we believe will continue to have, significant impacts
on our results of operations and financial condition. In 2005,
we substantially increased the size of our Shelf Contracting
fleet and Deepwater pipelay fleet through the acquisition of
assets from Torch and Acergy for a combined purchase price of
$210.2 million. We also acquired a significant mature
property package on the Gulf of Mexico OCS from Murphy Oil
Corporation for $163.5 million cash and assumption of
abandonment liability of $32 million. Finally, we
established our Reservoir and Well Tech Services group through
the acquisition of Helix Energy Limited (Helix RDS)
for $32.7 million. In 2006, we acquired Remington, an
exploration, development and production company, for
approximately $1.4 billion in cash and stock and the
assumption of $349.6 million of liabilities. We changed our
name from Cal Dive International, Inc. to Helix Energy Solutions
Group, Inc., leaving the Cal Dive name in our
diving subsidiary, and in December 2006 completed a carve-out
IPO of that company selling a 26.5% stake receiving pre-tax net
proceeds of $264.4 million from CDI and a pre-tax dividend
of $200 million from CDIs revolver. We acquired the
Caesar, a 485 foot cable lay vessel which we intend to
convert into a Deepwater pipelay asset (total acquisition plus
estimated conversion cost is $137.5 million). We also
acquired a 100% interest in the Phoenix field (formerly
known as Typhoon) where we expect to deploy a minimal
floating production system in mid-2008. We also expanded our
subsea well intervention services in Australia through the
acquisition of 58% of Seatrac. Finally, we moved our stock
listing from Nasdaq (HELX) to the New York Stock Exchange (HLX)
in July 2006.
In February 2007, we announced an update on drilling activity at
our 100% owned Noonan prospect on Garden Banks
Block 506 in 2,700 feet of water. Since operations
commenced in October 2006, we have completed the drilling of an
exploratory well and two appraisal sidetracks. Formation
evaluation from wireline logs, pressure analysis and sidewall
cores have successfully delineated our reservoir for completion
of the well.
Results
of Operations
Our operations are conducted through the following lines of
businesses: contracting services operations and oil and gas
operations. We have disaggregated our contracting services
operations into three reportable segments in accordance with
SFAS 131. As a result, our reportable segments consist of
the following: Contracting Services (formerly known as Deepwater
Contracting), Shelf Contracting, Oil and Gas (formerly known as
Oil and Gas Production) and Production Facilities. Contracting
Services operations include services such as deepwater pipelay,
well operations, robotics and reservoir and well tech services.
Shelf Contracting operations consist of assets deployed
primarily for diving-related activities and shallow water
construction. See Item 8. Financial Statements and
Supplementary Data Note 3
Initial Public Offering of Cal Dive International,
Inc. for discussion of
42
initial public offering of CDI common stock (represented by the
Shelf Contracting segment). All material intercompany
transactions between the segments have been eliminated in our
consolidated results of operations.
Comparison
of Years Ended 2006 and 2005
The following table details various financial and operational
highlights for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Revenues (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
485,246
|
|
|
$
|
328,315
|
|
|
$
|
156,931
|
|
Shelf Contracting
|
|
|
509,917
|
|
|
|
223,211
|
|
|
|
286,706
|
|
Oil and Gas
|
|
|
429,607
|
|
|
|
275,813
|
|
|
|
153,794
|
|
Intercompany elimination
|
|
|
(57,846
|
)
|
|
|
(27,867
|
)
|
|
|
(29,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,366,924
|
|
|
$
|
799,472
|
|
|
$
|
567,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
138,516
|
|
|
$
|
69,381
|
|
|
$
|
69,135
|
|
Shelf Contracting
|
|
|
222,530
|
|
|
|
71,215
|
|
|
|
151,315
|
|
Oil and Gas
|
|
|
162,386
|
|
|
|
142,476
|
|
|
|
19,910
|
|
Intercompany elimination
|
|
|
(8,024
|
)
|
|
|
|
|
|
|
(8,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
515,408
|
|
|
$
|
283,072
|
|
|
$
|
232,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
|
29
|
%
|
|
|
21
|
%
|
|
|
8 pts
|
|
Shelf Contracting
|
|
|
44
|
%
|
|
|
32
|
%
|
|
|
12 pts
|
|
Oil and Gas
|
|
|
38
|
%
|
|
|
52
|
%
|
|
|
(14) pts
|
|
Total company
|
|
|
38
|
%
|
|
|
35
|
%
|
|
|
3 pts
|
|
Number of vessels (1)/
Utilization (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelay
|
|
|
3/86
|
%
|
|
|
2/86
|
%
|
|
|
|
|
Well operations
|
|
|
2/81
|
%
|
|
|
2/84
|
%
|
|
|
|
|
ROVs
|
|
|
32/71
|
%
|
|
|
30/69
|
%
|
|
|
|
|
Shelf Contracting
|
|
|
25/84
|
%
|
|
|
23/65
|
%
|
|
|
|
|
|
|
|
(1) |
|
Represents number of vessels as of the end the period excluding
acquired vessels prior to their in-service dates, vessels taken
out of service prior to their disposition and vessels jointly
owned with a third party. |
|
(2) |
|
Average vessel utilization rate is calculated by dividing the
total number of days the vessels in this category generated
revenues by the total number of calendar days in the applicable
period. |
Intercompany segment revenues during the years ended
December 31, 2006 and 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Contracting Services
|
|
$
|
42,585
|
|
|
$
|
26,431
|
|
|
$
|
16,154
|
|
Shelf Contracting
|
|
|
15,261
|
|
|
|
1,436
|
|
|
|
13,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,846
|
|
|
$
|
27,867
|
|
|
$
|
29,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
Intercompany segment profit (which only relates to intercompany
capital projects) during the years ended December 31, 2006
and 2005 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
Contracting Services
|
|
$
|
2,460
|
|
|
$
|
|
|
|
$
|
2,460
|
|
Shelf Contracting
|
|
|
5,564
|
|
|
|
|
|
|
|
5,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,024
|
|
|
$
|
|
|
|
$
|
8,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details various financial and operational
highlights related to our oil and gas operations for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2006
|
|
|
2005
|
|
|
Decrease
|
|
|
Oil and Gas information
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil production volume (MBbls)
|
|
|
3,400
|
|
|
|
2,473
|
|
|
|
927
|
|
Oil sales revenue (in thousands)
|
|
$
|
205,415
|
|
|
$
|
121,510
|
|
|
$
|
83,905
|
|
Average oil sales price per Bbl
(excluding hedges)
|
|
$
|
61.08
|
|
|
$
|
51.87
|
|
|
$
|
9.21
|
|
Average realized oil price per Bbl
(including hedges)
|
|
$
|
60.41
|
|
|
$
|
49.15
|
|
|
$
|
11.26
|
|
Increase in oil sales revenue due
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in prices (in thousands)
|
|
$
|
27,840
|
|
|
|
|
|
|
|
|
|
Change in production volume (in
thousands)
|
|
|
56,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in oil sales
revenue (in thousands)
|
|
$
|
83,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas production volume (MMcf)
|
|
|
27,949
|
|
|
|
18,137
|
|
|
|
9,812
|
|
Gas sales revenue (in thousands)
|
|
$
|
219,674
|
|
|
$
|
146,591
|
|
|
$
|
73,083
|
|
Average gas sales price per mcf
(excluding hedges)
|
|
$
|
7.46
|
|
|
$
|
8.48
|
|
|
$
|
(1.02
|
)
|
Average realized gas price per mcf
(including hedges)
|
|
$
|
7.86
|
|
|
$
|
8.08
|
|
|
$
|
(0.22
|
)
|
Increase (decrease) in gas sales
revenue due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in prices (in thousands)
|
|
$
|
(4,018
|
)
|
|
|
|
|
|
|
|
|
Change in production volume (in
thousands)
|
|
|
77,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in gas sales
revenue (in thousands)
|
|
$
|
73,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production (MMcfe)
|
|
|
48,349
|
|
|
|
32,975
|
|
|
|
15,374
|
|
Price per Mcfe
|
|
$
|
8.79
|
|
|
$
|
8.13
|
|
|
$
|
0.66
|
|
Presenting the expenses of our Oil and Gas segment on a cost per
Mcfe of production basis normalizes for the impact of production
gains/losses and provides a measure of expense control
efficiencies. The following table
44
highlights certain relevant expense items in total (in
thousands) and on this basis with barrels of oil converted to
Mcfe at a ratio of one barrel to six Mcf:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Total
|
|
|
Per Mcfe
|
|
|
Total
|
|
|
Per Mcfe
|
|
|
Oil and gas operating
expenses (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
$
|
50,930
|
|
|
$
|
1.05
|
|
|
$
|
26,997
|
|
|
$
|
0.82
|
|
Workover
|
|
|
11,462
|
|
|
|
0.24
|
|
|
|
9,668
|
|
|
|
0.29
|
|
Transportation
|
|
|
3,174
|
|
|
|
0.07
|
|
|
|
3,814
|
|
|
|
0.12
|
|
Repairs and maintenance
|
|
|
13,081
|
|
|
|
0.27
|
|
|
|
6,030
|
|
|
|
0.18
|
|
Overhead and company labor
|
|
|
10,492
|
|
|
|
0.22
|
|
|
|
9,726
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
89,139
|
|
|
$
|
1.85
|
|
|
$
|
56,235
|
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and amortization
|
|
$
|
134,967
|
|
|
$
|
2.79
|
|
|
$
|
70,637
|
|
|
$
|
2.14
|
|
|
|
|
(1) |
|
Excludes exploration expense of $43.1 million and
$6.5 million for the years ended December 31, 2006 and
2005, respectively. Exploration expense is not a component of
lease operating expense. |
Revenues. During the year ended
December 31, 2006, our revenues increased by 71% as
compared to 2005. Contracting Services revenues increased
primarily due to improved market demand (resulting in improved
contract pricing for the Pipelay, Well Operations and ROV
divisions), and the addition of the Express acquired from
Torch in 2005 and Helix Energy Limited acquired in 2005. Shelf
Contracting revenue increased due to the additional vessels
acquired from Acergy and Torch during 2005 and improved market
demand, much of which was the result of damages sustained in the
2005 hurricanes in the Gulf of Mexico. This resulted in
significantly improved utilization rates and an overall increase
in pricing for our Shelf Contracting services.
Oil and Gas revenue increased 56%, during 2006 compared with the
prior year. The increase was primarily due to increases in oil
and natural gas production. The production volume increase of
47% over 2005 was mainly attributable to the full second half
impact of the Remington acquisition, partially offset by
continued pipeline shut-ins on certain fields. Oil and Gas
revenue also increased due to higher oil prices realized in 2006
as compared to 2005, offset slightly by a $0.22 decline in
average realized gas prices.
Gross Profit. Gross profit in 2006 increased
82% as compared to the same period in 2005. The Contracting
Services gross profit increase was primarily attributable to
improved contract pricing for the Pipelay, Well Operations and
ROV divisions, and the addition of the
Express. The gross profit increase within
Shelf Contracting was primarily attributable to additional gross
profit derived from the Torch and Acergy acquisitions, improved
utilization rates and increased contract pricing as discussed
above.
Oil and Gas gross profit increased 14% in 2006 compared to 2005.
Gross profit was negatively impacted by $43.1 million of
exploration costs incurred during 2006 compared with
$6.5 million incurred in 2005. The increase in exploration
costs was primarily due to dry hole costs of $21.7 million
related to the Tulane prospect as a result of mechanical
difficulties experienced in the drilling of this well. The well
was subsequently plugged and abandoned in the first quarter of
2006. In addition, we incurred dry hole costs totaling
approximately $15.9 million in the third quarter of 2006
associated with two deep shelf wells commenced by Remington
prior to the acquisition. We expensed inspection and repair
costs of approximately $16.8 million as a result of
Hurricanes Katrina and Rita, partially offset by
$9.7 million in insurance recoveries in 2006 compared to
$7.1 million of hurricane inspection and repair costs in
2005. In addition, depletion and amortization per Mcfe increased
30% in 2006 compared to 2005 due primarily to the acquisition
costs associated with the Remington properties acquired in July
2006. These decreases were offset by higher oil prices realized
and higher oil and gas production as discussed above. In
addition, in 2005 we recorded $2.7 million of losses
associated with hedge instrument ineffectiveness as a result of
production shut-ins caused by the aforementioned hurricanes. No
hedge ineffectiveness was recorded in 2006.
Selling and Administrative Expenses. Selling
and administrative expenses of $119.6 million were
$56.8 million higher than the $62.8 million incurred
in 2005. The increase was due primarily to higher overhead to
support
45
our growth. Selling and administrative expenses increased
slightly to 9% of revenues in 2006 compared to 8% in 2005.
Equity in Earnings of Investments. Equity in
earnings of our 50% investment in Deepwater Gateway, L.L.C.
increased to $18.4 million in 2006 compared with
$10.6 million in 2005 due to increased throughput at the
Marco Polo TLP. Further, equity losses in our 40%
minority ownership interest in OTSL for 2006 totaled
approximately $487,000 compared with equity earnings of
$2.8 million in 2005.
Gain on Subsidiary Equity Transaction. Gain on
subsidiary equity transaction of $223.1 million is related
to the CDI initial public offering of 22,173,000 shares of
its common stock in December 2006, together with shares issued
to CDI employees immediately after the offering, our ownership
reduced to 73.0%. CDI received net proceeds of
$264.4 million from its initial public offering. Together
with CDIs drawdown of its revolving credit facility, CDI
paid pre-tax dividends of $464.4 million to us in December
2006. The gain is as a result of these transactions.
Net Interest Expense and Other. We reported
interest and other expense of $34.6 million in 2006
compared to $7.6 million in the prior year. Gross interest
expense of $51.9 million during 2006 was higher than the
$15.0 million incurred in 2005. Approximately
$31.4 million of the increase was related to our Term Loan
which closed in July 2006 and $2.4 million of the increase
was related to our $300 million Convertible Senior Notes
which closed in March 2005. Offsetting the increase in interest
expense was $10.6 million of capitalized interest in 2006,
compared with capitalized interest of $2.0 million in the
prior year.
Provision for Income Taxes. Income taxes
increased to $257.2 million in 2006 compared to
$75.0 million in the prior year. $126.6 million of the
income tax expense increase was related to the CDI dividends to
us. The remaining increase was primarily due to increased
profitability. The effective tax rate of 42.5% for 2006 was
higher than the 33.0% effective tax rate for same period in 2005
due primarily to the CDI dividends of $464.4 million
received in December 2006.
46
Comparison
of Years Ended 2005 and 2004
The following table details various financial and operational
highlights for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2005
|
|
|
2004
|
|
|
(Decrease)
|
|
|
Revenues (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
328,315
|
|
|
$
|
197,688
|
|
|
$
|
130,627
|
|
Shelf Contracting
|
|
|
223,211
|
|
|
|
126,546
|
|
|
|
96,665
|
|
Oil and Gas
|
|
|
275,813
|
|
|
|
243,310
|
|
|
|
32,503
|
|
Intercompany elimination
|
|
|
(27,867
|
)
|
|
|
(24,152
|
)
|
|
|
(3,715
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
799,472
|
|
|
$
|
543,392
|
|
|
$
|
256,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
69,381
|
|
|
$
|
11,142
|
|
|
$
|
58,239
|
|
Shelf Contracting
|
|
|
71,215
|
|
|
|
25,516
|
|
|
|
45,699
|
|
Oil and Gas
|
|
|
142,476
|
|
|
|
135,427
|
|
|
|
7,049
|
|
Intercompany elimination
|
|
|
|
|
|
|
(173
|
)
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,072
|
|
|
$
|
171,912
|
|
|
$
|
111,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
|
21
|
%
|
|
|
6
|
%
|
|
|
15 pts
|
|
Shelf Contracting
|
|
|
32
|
%
|
|
|
20
|
%
|
|
|
12 pts
|
|
Oil and Gas
|
|
|
52
|
%
|
|
|
56
|
%
|
|
|
(4) pts
|
|
Total company
|
|
|
35
|
%
|
|
|
32
|
%
|
|
|
3 pts
|
|
Number of vessels (1)/
Utilization (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pipelay
|
|
|
2/86
|
%
|
|
|
1/72
|
%
|
|
|
|
|
Well operations
|
|
|
2/84
|
%
|
|
|
2/80
|
%
|
|
|
|
|
ROVs
|
|
|
30/69
|
%
|
|
|
22/51
|
%
|
|
|
|
|
Shelf Contracting
|
|
|
23/65
|
%
|
|
|
17/52
|
%
|
|
|
|
|
|
|
|
(1) |
|
Represents number of vessels as of the end the period excluding
acquired vessels prior to their in-service dates, vessels taken
out of service prior to their disposition and vessels jointly
owned with a third party. |
|
(2) |
|
Average vessel utilization rate is calculated by dividing the
total number of days the vessels in this category generated
revenues by the total number of calendar days in the applicable
period. |
Intercompany segment revenues during the years ended
December 31, 2005 and 2004 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2005
|
|
|
2004
|
|
|
(Decrease)
|
|
|
Contracting Services
|
|
$
|
26,431
|
|
|
$
|
22,246
|
|
|
$
|
4,185
|
|
Shelf Contracting
|
|
|
1,436
|
|
|
|
1,906
|
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,867
|
|
|
$
|
24,152
|
|
|
$
|
3,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
Intercompany segment profit (which only relates to intercompany
capital projects) during the years ended December 31, 2005
and 2004 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2005
|
|
|
2004
|
|
|
(Decrease)
|
|
|
Contracting Services
|
|
$
|
|
|
|
$
|
91
|
|
|
$
|
(91
|
)
|
Shelf Contracting
|
|
|
|
|
|
|
82
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
173
|
|
|
$
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table details various financial and operational
highlights related to our oil and gas operations for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2005
|
|
|
2004
|
|
|
(Decrease)
|
|
|
Oil and Gas information
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil production volume (MBbls)
|
|
|
2,473
|
|
|
|
2,593
|
|
|
|
(120
|
)
|
Oil sales revenue (in thousands)
|
|
$
|
121,510
|
|
|
$
|
87,951
|
|
|
$
|
33,559
|
|
Average oil sales price per Bbl
(excluding hedges)
|
|
$
|
51.87
|
|
|
$
|
38.05
|
|
|
$
|
13.82
|
|
Average realized oil price per Bbl
(including hedges)
|
|
$
|
49.15
|
|
|
$
|
33.92
|
|
|
$
|
15.23
|
|
Increase (decrease) in oil sales
revenue due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in prices (in thousands)
|
|
$
|
37,664
|
|
|
|
|
|
|
|
|
|
Change in production volume (in
thousands)
|
|
|
(4,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in oil sales
revenue (in thousands)
|
|
$
|
33,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gas production volume (MMcf)
|
|
|
18,137
|
|
|
|
25,957
|
|
|
|
(7,820
|
)
|
Gas sales revenue (in thousands)
|
|
$
|
146,591
|
|
|
$
|
149,395
|
|
|
$
|
(2,804
|
)
|
Average gas sales price per mcf
(excluding hedges)
|
|
$
|
8.48
|
|
|
$
|
5.77
|
|
|
$
|
2.71
|
|
Average realized gas price per mcf
(including hedges)
|
|
$
|
8.08
|
|
|
$
|
5.76
|
|
|
$
|
2.32
|
|
Increase (decrease) in gas sales
revenue due to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in prices (in thousands)
|
|
$
|
42,078
|
|
|
|
|
|
|
|
|
|
Change in production volume (in
thousands)
|
|
|
(44,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total decrease in gas sales
revenue (in thousands)
|
|
$
|
(2,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production (MMcfe)
|
|
|
32,975
|
|
|
|
41,515
|
|
|
|
(8,540
|
)
|
Price per Mcfe
|
|
$
|
8.13
|
|
|
$
|
5.72
|
|
|
$
|
2.41
|
|
Presenting the expenses of our Oil and Gas segment on a cost per
Mcfe of production basis normalizes for the impact of production
gains/losses and provides a measure of expense control
efficiencies. The following table
48
highlights certain relevant expense items in total (in
thousands) and on this basis with barrels of oil converted to
Mcfe at a ratio of one barrel to six Mcf:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Total
|
|
|
Per Mcfe
|
|
|
Total
|
|
|
Per Mcfe
|
|
|
Oil and gas operating
expenses (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses
|
|
$
|
26,997
|
|
|
$
|
0.82
|
|
|
$
|
19,030
|
|
|
$
|
0.46
|
|
Workover
|
|
|
9,668
|
|
|
|
0.29
|
|
|
|
3,111
|
|
|
|
0.07
|
|
Transportation
|
|
|
3,814
|
|
|
|
0.12
|
|
|
|
3,898
|
|
|
|
0.09
|
|
Repairs and maintenance
|
|
|
6,030
|
|
|
|
0.18
|
|
|
|
5,173
|
|
|
|
0.12
|
|
Overhead and company labor
|
|
|
9,726
|
|
|
|
0.30
|
|
|
|
8,198
|
|
|
|
0.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,235
|
|
|
$
|
1.71
|
|
|
$
|
39,410
|
|
|
$
|
0.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and amortization
|
|
$
|
70,637
|
|
|
$
|
2.14
|
|
|
$
|
69,046
|
|
|
$
|
1.66
|
|
|
|
|
(1) |
|
Excludes exploration expense of $6.5 million for the year
ended December 31, 2005. We had no exploration expenses in
2004. Exploration expense is not a component of lease operating
expense. |
Revenues. During the year ended
December 31, 2005, our revenues increased 47% as compared
to the same period in 2004. Our Contracting Services revenues
increase was due primarily to improved market demand resulting
in significantly improved utilization rates and contracting
pricing for all divisions within the segment (deepwater, well
operations and ROVs). The Shelf Contracting revenues increase
was also due to improved market demand, much of which was the
result of damages sustained in Hurricanes Katrina and
Rita. This resulted in significantly improved utilization
rates and contract pricing for all divisions within the segment
(shallow water pipelay, diving and portable SAT systems).
Further, Shelf Contractings revenues increased in 2005
compared with 2004 directly as a result of the acquisition of
the Torch and Acergy vessels in the third and fourth quarter of
2005, with much of the impact attributable to the fourth quarter.
The increase in our Oil and Gas revenue for the year ended
December 31, 2005 was primarily due to increase in average
price realized. These increases were partially offset by lower
production primarily as a result of production shut-ins due to
Hurricanes Katrina and Rita in the third and
fourth quarters of 2005.
Gross Profit. Gross profit in 2005 increased
65% as compared to 2004. The Contracting Services gross profit
increase was primarily attributable to improved utilization
rates and contract pricing for all divisions within the segment.
Gross profit for the Shelf Contracting segment also increased as
a result of improved utilization rates and contract pricing for
all divisions within the segment. In addition, our Shelf
Contracting segment recorded asset impairments on certain
vessels totaling $790,000 in 2005 as compared to
$3.9 million in 2004 for conditions meeting our asset
impairment criteria.
Our Oil and Gas gross profit increase was due to the
aforementioned higher commodity price increases, offset by
decreased production levels. Further, in 2005, gross profit for
the Oil and Gas segment was also negatively impacted by
impairment analysis on certain properties and expensed well work
which resulted in $4.8 million of impairments, inspection
and repair costs of approximately $7.1 million as a result
of Hurricanes Katrina and Rita (no insurance
recoveries were recorded as of December 31, 2005), and
$5.7 million of expensed seismic data purchased for our
offshore property acquisitions.
Selling & Administrative
Expenses. Selling and administrative expenses of
$62.8 million for the year ended December 31, 2005
were $13.9 million higher than the $48.9 million
incurred in 2004 due primarily to increased incentive
compensation as a result of increased profitability. Selling and
administrative expenses at 8% of revenues for 2005 was slightly
lower than the 9% of revenues in 2004.
Equity in Earnings of Investments. Equity in
earnings of our 50% investment in Deepwater Gateway increased to
$10.6 million in 2005 compared with $7.9 million in
2004. The increase was attributable to the demand fees which
commenced following the March 2004 mechanical completion of the
Marco Polo tension leg platform, owned by Deepwater
Gateway, as well as production tariff charges which commenced in
the third quarter of 2004 as
49
Marco Polo began producing. Further, equity in earnings
from our 40% minority ownership interest in OTSL in 2005 totaled
approximately $2.8 million. We acquired our interest in
OTSL in July 2005.
Other (Income) Expense. We reported other
expense of $7.6 million for the year ended
December 31, 2005 compared to other expense of
$5.3 million for the year ended December 31, 2004. Net
interest expense of $7.0 million in 2005 was higher than
the $5.6 million incurred in 2004 due primarily to higher
levels of debt associated with our $300 million Convertible
Senior Notes which closed in March 2005. Offsetting the increase
in interest expense was $2.0 million of capitalized
interest in 2005, compared with $243,000 in 2004, which related
to our investment in Gunnison and Independence Hub, and
interest income of $5.5 million in 2005 compared to
$439,000 in 2004.
Income Taxes. Income taxes increased to
$75.0 million for the year ended December 31, 2005
compared to $43.0 million in 2004, primarily due to
increased profitability. The effective tax rate of 33% in 2005
was lower than the 34% effective tax rate for 2004 due to our
ability to realize foreign tax credits and oil and gas
percentage depletion due to improved profitability both
domestically and in foreign jurisdictions, and implementation of
the Internal Revenue Code section 199 manufacturing
deduction as it primarily related to oil and gas production. In
2004, we recognized a benefit for our research and development
credits in the first quarter of 2004 as a result of the
conclusion of the Internal Revenue Service (IRS)
examination of our income tax returns for 2001 and 2002, and the
tax cost or benefit of U.S. and U.K. branch operations.
Liquidity
and Capital Resources
Overview
The following tables present certain information useful in the
analysis of our financial condition and liquidity for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Net working capital
|
|
$
|
310,524
|
|
|
$
|
120,388
|
|
Long-term debt (1)
|
|
|
1,454,469
|
|
|
|
440,703
|
|
|
|
|
(1) |
|
Long-term debt does not include current maturities portion of
the long-term debt as amount is included in net working capital. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
514,036
|
|
|
$
|
242,432
|
|
|
$
|
226,807
|
|
Investing activities
|
|
$
|
(1,379,930
|
)
|
|
$
|
(499,925
|
)
|
|
$
|
(132,562
|
)
|
Financing activities
|
|
$
|
978,260
|
|
|
$
|
288,066
|
|
|
$
|
(40,037
|
)
|
Our primary cash needs are to fund capital expenditures to allow
the growth of our current lines of business and to repay
outstanding borrowings and make related interest payments.
Historically, we have funded our capital program, including
acquisitions, with cash flows from operations, borrowings under
credit facilities and use of project financing along with other
debt and equity alternatives. Some of the significant
financings, and corresponding uses, during 2006 were as follows:
|
|
|
|
|
In July 2006, we borrowed $835 million in a term loan
(Term Loan) and entered into a new $300 million
revolving credit facility. The proceeds of the Term Loan were
used to fund the cash portion of the acquisition of Remington.
We also issued 13,032,528 shares of our common stock to the
Remington shareholders. See Note 10
Long-Term Debt in Item 8. Financial Statements and
Supplementary Data for additional information.
|
|
|
|
In December 2006, we completed an IPO of our Shelf Contracting
business segment (Cal Dive International, Inc.), selling
26.5% of that company and receiving pre-tax net proceeds of
$264.4 million. We may sell additional shares of CDI common
stock in the future. Proceeds from the offering were used for
general corporate purposes, including the repayment of
$71.0 million of our revolving credit facility. See
Note 3
|
50
|
|
|
|
|
Initial Public Offering of Cal Dive, International,
Inc. in Item 8. Financial Statements and
Supplementary Data for additional information.
|
|
|
|
|
|
In connection with the IPO, CDI Vessel Holdings LLC (CDI
Vessel), a subsidiary of CDI, entered into a secured
credit facility for up to $250 million in revolving loans
under a five-year revolving credit facility. During December
2006, CDI Vessel borrowed $201 million under the revolving
credit facility and distributed $200 million of those
proceeds to us as a dividend. CDI expects to use the remaining
availability under the revolving credit facility for working
capital and other general corporate purposes (see
Note 10 Long-term Debt in
Item 8. Financial Statements and Supplementary Data
for a detailed discussion of CDIs credit facilities).
We do not have access to the unused portion of CDIs
revolving credit facility.
|
|
|
|
In October 2006, we invested $15 million for a 50% interest
in Kommandor, a Delaware limited liability company, to convert a
ferry vessel into a dynamically-positioned minimal floating
production system. We have consolidated the results of Kommandor
in accordance with FIN 46. For additional information, see
Item 8. Financial Statements and Supplementary Data
Note 9 Consolidated
Variable Interest Entities. We have named the vessel
Helix Producer I.
|
|
|
|
Also in October 2006, we acquired a 58% interest in Seatrac for
total consideration of approximately $12.7 million
(including $180,000 of transaction costs), with approximately
$9.1 million paid to existing shareholders and
$3.4 million for subscription of new Seatrac shares (see
Note 6 Other Acquisitions in
Item 8. Financial Statements and Supplementary Data
for a detailed discussion of Seatrac). We changed the name
of the entity to Well Ops SEA Pty Ltd.
|
|
|
|
In 2006, our Board of Directors also authorized us to
discretionarily purchase up to $50 million of our common
stock in the open market. In October and November 2006, we
purchased approximately 1.7 million shares under this
program for a weighted average price of $29.86 per share,
or $50.0 million.
|
Some of the significant financings and corresponding uses during
2005 and 2004 were as follows:
|
|
|
|
|
In March 2005, we issued $300 million of
3.25% Convertible Senior Notes due 2025 (Convertible
Senior Notes). Proceeds from the offering were used for
general corporate purposes including a capital contribution of
$72 million (made in March 2005) to Deepwater Gateway to
enable it to repay its term loan and to fund the acquisitions
described below. For additional information on the terms of the
Convertible Senior Notes, see Note 10
Long- term Debt in Item 8. Financial Statements
and Supplementary Data.
|
|
|
|
In June 2005, we were the high bidder for seven vessels in a
bankruptcy auction, including the Express, and a portable
saturation system for approximately $85.9 million,
including certain costs incurred related to the transaction.
|
|
|
|
In November 2005, we closed the transaction to purchase the
diving assets of Acergy that operate in the Gulf of Mexico for
approximately $46.1 million. In addition, we purchased the
DLB 801 and Kestrel for approximately
$78.2 million were closed in the first quarter of 2006 when
these assets completed their work campaigns in Trinidadian
waters.
|
|
|
|
In June 2005, we acquired a mature property package on the Gulf
of Mexico shelf from Murphy Oil Corporation
(Murphy). The acquisition cost included both cash
($163.5 million) and the assumption of the abandonment
liability from Murphy of approximately $32.0 million (a
non-cash investing activity).
|
|
|
|
In June 2004, the preferred stockholder of our cumulative
convertible preferred stock exercised its right and purchased an
additional $30 million of cumulative convertible preferred
stock. As a result, total convertible preferred stock
outstanding increased to $55 million. Proceeds from this
sale were used for general corporate purposes. For additional
information on our preferred stock, see
Note 12 Convertible Preferred Stock
in Item 8. Financial Statements and Supplementary
Data.
|
|
|
|
In August 2004, we entered into a four-year, $150 million
revolving credit facility. We cancelled this credit facility on
June 30, 2006 and replaced it with the aforementioned
$300 million revolving credit facility.
|
In accordance with the our Senior Credit Facilities, the
Convertible Senior Notes, the MARAD debt and
Cal Dives credit facilities, we are required to
comply with certain covenants and restrictions, including the
51
maintenance of minimum net worth, working capital and
debt-to-equity
requirements. As of December 31, 2006, we were in
compliance with these covenants. The Senior Credit Facilities
contain provisions that limit our ability to incur certain types
of additional indebtedness. These provisions effectively
prohibit us from incurring any additional secured indebtedness
or indebtedness guaranteed by the Company. The Senior Credit
Facilities do however permit us to incur unsecured indebtedness,
and also provide for our subsidiaries to incur project financing
indebtedness (such as our MARAD loans) secured by the underlying
asset, provided that the indebtedness is not guaranteed by us.
In 2007, we expect to make $77 million of interest
payments, excluding the effect of interest rate swaps. In
addition, we expect to make preferred dividend payments totaling
approximately $3.8 million in 2007. As of December 31,
2006, we had $300 million of available borrowing capacity
under our credit facilities, and CDI had $49 million of
available borrowing under its revolving credit facility. See
Note 10 Long-term Debt in
Item 8. Financial Statements and Supplementary Data
for additional information related to our long-term debts,
including our obligations under capital commitments.
Working
Capital
Cash flow from operating activities increased
$271.6 million in 2006 as compared to 2005. This increase
was primarily due to higher net income and positive working
capital changes. Of the $194.8 million increase in net
income in 2006, compared with 2005, approximately
$96.5 million, net of $126.6 million of taxes, was
related to the gain on the CDI initial public offering and
related debt push down to CDI. Further, the net income increased
due to higher oil and gas production and oil price realized in
2006, and as a result of net income contribution from the
Remington, Acergy and Torch acquisitions. Working capital was
more favorable in 2006 as compared to 2005 due to higher income
tax payable, which we expect to pay in the first quarter of 2007
and as a result of more favorable accounts receivable turnover.
Cash flow from operating activities increased $15.6 million
in 2005 as compared to 2004. This increase was primarily due to
higher profitability of $69.9 million as a result of
significantly higher oil and gas prices realized and improved
utilization in 2005 as compared to 2004. These increases were
partially offset by negative working capital changes.
52
Investing
Activities
Capital expenditures have consisted principally of strategic
asset acquisitions related to the purchase or construction of DP
vessels, acquisition of select businesses, improvements to
existing vessels, acquisition of oil and gas properties and
investments in our Production Facilities. Significant sources
(uses) of cash associated with investing activities for the
years ended December 31, 2006, 2005 and 2004 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting services
|
|
$
|
(130,938
|
)
|
|
$
|
(90,037
|
)
|
|
$
|
(21,016
|
)
|
Shelf contracting
|
|
|
(38,086
|
)
|
|
|
(32,383
|
)
|
|
|
(1,792
|
)
|
Oil and gas (1)
|
|
|
(282,318
|
)
|
|
|
(238,698
|
)
|
|
|
(27,315
|
)
|
Production facilities
|
|
|
(17,749
|
)
|
|
|
(369
|
)
|
|
|
|
|
Acquisition of businesses, net of
cash acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Remington Oil and Gas
Corporation (2)
|
|
|
(772,244
|
)
|
|
|
|
|
|
|
|
|
Acergy US. Inc. (3)
|
|
|
(78,174
|
)
|
|
|
(66,586
|
)
|
|
|
|
|
Fraser Diving International
Ltd. (3)
|
|
|
(21,954
|
)
|
|
|
|
|
|
|
|
|
Seatrac (3)
|
|
|
(10,571
|
)
|
|
|
|
|
|
|
|
|
Kommandor LLC
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
(Purchases) sale of short-term
investments
|
|
|
(285,395
|
)
|
|
|
30,000
|
|
|
|
(30,000
|
)
|
Investments in production
facilities
|
|
|
(27,578
|
)
|
|
|
(111,060
|
)
|
|
|
(32,206
|
)
|
Distributions from equity
investments, net (4)
|
|
|
|
|
|
|
10,492
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(6,666
|
)
|
|
|
(4,431
|
)
|
|
|
(20,133
|
)
|
Affiliate loan to OTSL
|
|
|
|
|
|
|
(1,500
|
)
|
|
|
|
|
Proceeds from sale of subsidiary
stock
|
|
|
264,401
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of properties
|
|
|
32,342
|
|
|
|
5,617
|
|
|
|
(100
|
)
|
Other, net
|
|
|
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
$
|
(1,379,930
|
)
|
|
$
|
(499,925
|
)
|
|
$
|
(132,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes approximately $38.3 million of capital
expenditures related to exploratory dry holes in 2006. For
additional information, see Item 8. Financial Statements
and Supplementary Data Note 5. |
|
(2) |
|
For additional information related to the Remington acquisition,
see Item 8. Financial Statements and Supplementary
Data Note 4. |
|
(3) |
|
For additional information related to the Acergy, Fraser and
Seatrac acquisitions, see Item 8. Financial Statements
and Supplementary Data Note 6. |
|
(4) |
|
Distributions from equity investments is net of undistributed
equity earnings from our investments. Gross distributions from
our equity investments are detailed below. |
Short-term
Investments
As of December 31, 2006, we held approximately
$285.4 million in municipal auction rate securities. We did
not hold these types of securities at December 31, 2005.
These instruments are long-term variable rate bonds tied to
short-term interest rates that are reset through a Dutch
Auction process which occurs every 7 to 35 days and
have been classified as
available-for-sale
securities. Although these instruments do not meet the
definition of cash and cash equivalents, we expect to use these
instruments to fund our working capital as needed due to the
liquid nature of these securities.
53
Restricted
Cash
As of December 31, 2006, we had $33.7 million of
restricted cash, included in other assets, net, in the
accompanying condensed consolidated balance sheet, all of which
related to the escrow funds for decommissioning liabilities
associated with the South Marsh Island 130
(SMI 130) acquisition in 2002 by our Oil and
Gas segment. Under the purchase agreement for the acquisition,
we were obligated to escrow 50% of production up to the first
$20 million and 37.5% of production on the remaining
balance up to $33 million in total escrow. We have fully
escrowed the requirement as of December 31, 2006. We may
use the restricted cash for decommissioning the related field.
Outlook
We anticipate capital expenditures in 2007 will range from
$850 million to $1.1 billion. We may increase or
decrease these plans based on various economic factors. We
believe internally generated cash flow, the cash generated from
the Cal Dive initial public offering and borrowings under
our existing credit facilities will provide the necessary
capital to fund our 2007 initiatives.
Contractual
Obligations and Commercial Commitments
The following table summarizes our contractual cash obligations
as of December 31, 2006 and the scheduled years in which
the obligation are contractually due (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total (1)
|
|
|
1 year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Convertible Senior Notes (2)
|
|
$
|
300,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
300,000
|
|
Term Loan
|
|
|
832,900
|
|
|
|
8,400
|
|
|
|
16,800
|
|
|
|
16,800
|
|
|
|
790,900
|
|
MARAD debt
|
|
|
131,286
|
|
|
|
3,823
|
|
|
|
8,228
|
|
|
|
9,069
|
|
|
|
110,166
|
|
CDI Revolving Credit Facility
|
|
|
201,000
|
|
|
|
|
|
|
|
|
|
|
|
201,000
|
|
|
|
|
|
Loan notes
|
|
|
11,146
|
|
|
|
11,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases
|
|
|
4,024
|
|
|
|
2,519
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
Investments in Independence Hub,
LLC (3)
|
|
|
4,268
|
|
|
|
4,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drilling and development costs
|
|
|
138,900
|
|
|
|
130,100
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
Property and equipment (4)
|
|
|
172,504
|
|
|
|
172,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
62,958
|
|
|
|
32,205
|
|
|
|
20,652
|
|
|
|
5,421
|
|
|
|
4,680
|
|
Other (6)
|
|
|
9,624
|
|
|
|
6,859
|
|
|
|
2,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash obligations
|
|
$
|
1,868,610
|
|
|
$
|
371,824
|
|
|
$
|
58,750
|
|
|
$
|
232,290
|
|
|
$
|
1,205,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes unsecured letters of credit outstanding at
December 31, 2006 totaling $5.3 million. These letters
of credit primarily guarantee various contract bidding,
insurance activities and shipyard commitments. |
|
(2) |
|
Maturity 2025. Can be converted prior to stated maturity if
closing sale price of Helixs 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
120% of the closing price on that 30th trading day (i.e.
$38.56 per share) and under certain triggering events as
specified in the indenture governing the Convertible Senior
Notes. To the extent we do not have alternative long-term
financing secured to cover the conversion, the Convertible
Senior Notes would be classified as a current liability in the
accompanying balance sheet. As of December 31, 2006, no
conversion triggers were met. |
|
(3) |
|
Excludes guaranty of performance related to the construction of
the Independence Hub platform under Independence Hub, LLC
(estimated to be immaterial at December 31, 2006). Under
the guaranty agreement with Enterprise, we and Enterprise
guarantee performance under the Independence Hub Agreement
between Independence Hub and the producers group of exploration
and production companies up to $426 million, plus |
54
|
|
|
|
|
applicable attorneys fees and related expenses. See
Item 8. Financial Statements and Supplementary Data
Note 8 for additional
information. |
|
(4) |
|
Costs incurred as of December 31, 2006 and additional
property and equipment commitments at December 31, 2006
consisted of the following (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Costs
|
|
|
Total
|
|
|
|
Incurred
|
|
|
Committed
|
|
|
Project Cost
|
|
|
Caesar
conversion
|
|
$
|
15,014
|
|
|
$
|
52,157
|
|
|
$
|
110,000
|
|
Q4000
upgrade
|
|
|
15,300
|
|
|
|
18,966
|
|
|
|
40,000
|
|
Well Enhancer
construction
|
|
|
19,443
|
|
|
|
87,343
|
|
|
|
160,000
|
|
Helix Producer I
conversion
|
|
|
16,789
|
|
|
|
14,038
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,546
|
|
|
$
|
172,504
|
|
|
$
|
470,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
Operating leases included facility leases and vessel charter
leases. Vessel charter lease commitments at December 31,
2006 were approximately $40.2 million. |
|
(6) |
|
Other consisted of scheduled payments pursuant to
3-D seismic
license agreements. |
Contingencies
In December 2005 and in May 2006, our Oil and Gas segment
received notice from the MMS that the price threshold was
exceeded for 2004 oil and gas production and for 2003 gas
production, respectively, and that royalties are due on such
production notwithstanding the provisions of the DWRRA. As of
December 31, 2006, we have approximately $42.6 million
accrued for the related royalties and interest. See Item 8.
Financial Statements and Supplementary Data
Note 17 for a detailed
discussion of this contingency.
Critical
Accounting Estimates and Policies
Our results of operations and financial condition, as reflected
in the accompanying financial statements and related footnotes,
are prepared in conformity with accounting principles generally
accepted in the United States. 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 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. For a
detailed discussion on the application of our accounting
policies, see Item 8. Financial Statements and
Supplementary Data Notes to Consolidated
Financial Statements Note 2
Revenue
Recognition
Revenues from Contracting Services and Shelf Contracting are
derived from contracts that are typically of short duration.
These contracts contain either lump-sum turnkey provisions or
provisions for specific time, material and equipment charges,
which are billed in accordance with the terms of such contracts.
We recognize revenue as it is earned at estimated collectible
amounts.
Revenues generated from specific time, materials and equipment
contracts are generally earned on a dayrate basis and recognized
as amounts are earned in accordance with contract terms. In
connection with these contracts, we may receive revenues for
mobilization of equipment and personnel. In connection with new
contracts, revenues related to mobilization are deferred and
recognized over the period in which contracted services are
performed using the straight-line method. Incremental costs
incurred directly for mobilization of equipment and personnel to
the contracted site, which typically consist of materials,
supplies and transit costs, are also deferred and recognized
over the period in which contracted services are performed using
the straight-line method. Our policy to amortize the revenues
and costs related to mobilization on a straight-line basis over
the estimated contract service period is
55
consistent with the general pace of activity, level of services
being provided and dayrates being earned over the service period
of the contract. Mobilization costs to move vessels when a
contract does not exist are expensed as incurred.
Revenue on significant turnkey contracts is recognized on the
percentage-of-completion
method based on the ratio of costs incurred to total estimated
costs at completion. In determining whether a contract should be
accounted for using the
percentage-of-completion
method, we consider whether:
|
|
|
|
|
the customer provides specifications for the construction of
facilities or for the provision of related services;
|
|
|
|
we can reasonably estimate our progress towards completion and
our costs;
|
|
|
|
the contract includes provisions as to the enforceable rights
regarding the goods or services to be provided, consideration to
be received and the manner and terms of payment;
|
|
|
|
the customer can be expected to satisfy its obligations under
the contract; and
|
|
|
|
we can be expected to perform our contractual obligations.
|
Under the
percentage-of-completion
method, we recognize estimated contract revenue based on costs
incurred to date as a percentage of total estimated costs.
Changes in the expected cost of materials and labor,
productivity, scheduling and other factors affect the total
estimated costs. Additionally, external factors, including
weather or other factors outside of our control, may also affect
the progress and estimated cost of a projects completion
and, therefore, the timing of income and revenue recognition. We
routinely review estimates related to our contracts and reflect
revisions to profitability in earnings on a current basis. If a
current estimate of total contract cost indicates an ultimate
loss on a contract, we recognize the projected loss in full when
it is first determined. We recognize additional contract revenue
related to claims when the claim is probable and legally
enforceable.
Unbilled revenue represents revenue attributable to work
completed prior to period end that has not yet been invoiced.
All amounts included in unbilled revenue at December 31,
2006 and 2005 are expected to be billed and collected within one
year.
We record revenues from the sales of crude oil and natural gas
when delivery to the customer has occurred and title has
transferred. This occurs when production has been delivered to a
pipeline or a barge lifting has occurred. We may have an
interest with other producers in certain properties. In this
case, we use the entitlements method to account for sales of
production. Under the entitlements method, we may receive more
or less than our entitled share of production. If we receive
more than our entitled share of production, the imbalance is
treated as a liability. If we receive less than our entitled
share, the imbalance is recorded as an asset. As of
December 31, 2006, the net imbalance was a $200,000 asset
and was included in Other Current Assets ($4.7 million) and
Accrued Liabilities ($4.5 million) in the accompanying
consolidated balance sheet.
Purchase
Price Allocation
In connection with a purchase business combination, the
acquiring company must allocate the cost of the acquisition to
assets acquired and liabilities assumed based on fair values as
of the acquisition date. Deferred taxes must be recorded for any
differences between the assigned values and tax bases of assets
and liabilities. Any excess of purchase price over amounts
assigned to assets and liabilities is recorded as goodwill. The
amount of goodwill recorded in any particular business
combination can vary significantly depending upon the value
attributed to assets acquired and liabilities assumed.
In July 2006, we acquired the assets and assumed the liabilities
of Remington in a transaction accounted for as a business
combination. In estimating the fair values of Remingtons
assets and liabilities, we made various assumptions. The most
significant assumptions related to the estimated fair values
assigned to proved and unproved crude oil and natural gas
properties. To estimate the fair values of these properties, we
prepared estimates of crude oil and natural gas reserves. We
estimated future prices to apply to the estimated reserve
quantities acquired, and estimated future operating and
development costs, to arrive at estimates of future net
revenues. For estimated proved reserves, the future net revenues
were discounted using a market-based weighted average cost of
capital rate determined appropriate at the time of the merger.
The market-based weighted average cost of capital rate was
56
subjected to additional project-specific risking factors. To
compensate for the inherent risk of estimating and valuing
unproved reserves, the estimated probable and possible reserves
were reduced by additional risk-weighting factors.
Estimated deferred taxes were based on available information
concerning the tax basis of Remingtons assets and
liabilities and loss carryforwards at the merger date, although
such estimates may change in the future as additional
information becomes known.
While the estimates of fair value for the assets acquired and
liabilities assumed have no effect on our cash flows, they can
have an effect on the future results of operations. Generally,
higher fair values assigned to crude oil and natural gas
properties result in higher future depreciation, depletion and
amortization expense, which results in a decrease in future net
earnings. Also, a higher fair value assigned to crude oil and
natural gas properties, based on higher future estimates of
crude oil and natural gas prices, could increase the likelihood
of an impairment in the event of lower commodity prices or
higher operating costs than those originally used to determine
fair value. An impairment would have no effect on cash flows but
would result in a decrease in net income for the period in which
the impairment is recorded.
Certain data necessary to complete our final purchase price
allocation is not yet available, and includes, but is not
limited to, final tax returns that provide the underlying tax
bases of Remingtons assets and liabilities at July 1,
2006, valuation of certain proved and unproved oil and gas
properties and identification and valuation of potential
intangible assets. We expect to complete our valuation of assets
and liabilities (including deferred taxes) for the purpose of
allocation of the total purchase price amount to assets acquired
and liabilities assumed during the twelve-month period following
the acquisition date. Any future change in the value of net
assets up until the one year period has expired will be offset
by a corresponding increase or decrease in goodwill.
In 2006, we also completed the acquisition of Acergy, FDI and
Seatrac. These acquisitions were accounted for as business
combinations as well. We finalized the purchase price allocation
for Acergy in the second quarter of 2006. The allocation of
purchase price for FDI was based on preliminary valuations.
Estimates and assumptions are subject to change upon the receipt
and managements review of the final valuations. The
primary areas of the purchase price allocation that are not yet
finalized relate to post closing purchase price adjustments. The
allocation of purchase price for Seatrac was based on
preliminary valuations. Estimates and assumptions are subject to
change upon the receipt and managements review of the
final valuations. The primary areas of the purchase price
allocation that are not yet finalized relate to the
identification and valuation of potential intangible assets and
valuation of certain equipment.
Goodwill
and Other Intangible Assets
We test for the impairment of goodwill and other
indefinite-lived intangible assets on at least an annual basis.
We test for the impairment of other intangible assets when
impairment indicators such as the nature of the assets, the
future economic benefit of the assets, any historical or future
profitability measurements and other external market conditions
are present. Our goodwill impairment test involves a comparison
of the fair value of each of our reporting units with its
carrying amount. The fair value is determined using discounted
cash flows and other market-related valuation models, such as
earnings multiples and comparable asset market values. We
completed our annual goodwill impairment test as of
November 1, 2006. Goodwill of $707.6 million was
related to our Oil and Gas segment as of December 31, 2006.
The goodwill was attributable to the Remington acquisition.
Goodwill of $88.3 million and $73.9 million was
related to our Contracting Services segment as of
December 31, 2006 and 2005, respectively. Goodwill of
$26.7 million and $27.8 million was related to our
Shelf Contracting segment as of December 31, 2006 and 2005,
respectively. None of our goodwill was impaired based on the
impairment test performed as of November 1, 2006. See
Item 8. Financial Statements and Supplementary Data
Note 2 Summary of
Significant Accounting Policies for goodwill and
intangible assets related to the acquisitions. We will continue
to test our goodwill and other indefinite-lived intangible
assets annually on a consistent measurement date unless events
occur or circumstances change between annual tests that would
more likely than not reduce the fair value of a reporting unit
below its carrying amount.
57
Income
Taxes
Deferred income taxes are based on the difference between
financial reporting and tax bases of assets and liabilities. We
utilize the liability method of computing deferred income taxes.
The liability method is based on the amount of current and
future taxes payable using tax rates and laws in effect at the
balance sheet date. Income taxes have been provided based upon
the tax laws and rates in the countries in which operations are
conducted and income is earned. 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 asset will
not be realized. We consider the undistributed earnings of our
principal
non-U.S. subsidiaries
to be permanently reinvested. At December 31, 2006, our
principal
non-U.S. subsidiaries
had accumulated earnings and profits of approximately
$20.3 million. We have not provided deferred
U.S. income tax on the accumulated earnings and profits.
See Note 11 Income
Taxes in Item 8. Financial Statements and
Supplementary Data included herein for discussion of net
operating loss carry forwards and deferred income taxes.
Accounting
for Oil and Gas Properties
Acquisitions of producing offshore properties are recorded at
the fair value exchanged at closing together with an estimate of
their proportionate share of the decommissioning liability
assumed in the purchase (based upon their working interest
ownership percentage). In estimating the decommissioning
liability assumed in offshore property acquisitions, we perform
detailed estimating procedures, including engineering studies
and then reflect the liability at fair value on a discounted
basis as discussed below.
We follow the successful efforts method of accounting for our
interests in oil and gas properties. Under the successful
efforts method, the costs of successful wells and leases
containing productive reserves are capitalized. Costs incurred
to drill and equip development wells, including unsuccessful
development wells, are capitalized. Capitalized costs of
producing oil and gas properties are depleted to operations by
the
unit-of-production
method based on proved developed oil and gas reserves on a
field-by-field
basis as determined by our engineers. Costs incurred relating to
unsuccessful exploratory wells are expensed in the period the
drilling is determined to be unsuccessful (see
Exploratory Drilling Costs below).
We evaluate the impairment of our proved oil and gas properties
on a
field-by-field
basis at least annually or whenever events or changes in
circumstances indicate an assets carrying amount may not
be recoverable. Unamortized capital costs are reduced to fair
value (based upon discounted cash flows) if the expected
undiscounted future cash flows are less than the assets
net book value. Cash flows are determined based upon proved
reserves using prices and costs consistent with those used for
internal decision making. Although prices used are likely to
approximate market, they do not necessarily represent current
market prices.
We also periodically assess unproved properties for impairment
based on exploration and drilling efforts to date on the
individual prospects and lease expiration dates.
Managements assessment of the results of exploration
activities, availability of funds for future activities and the
current and projected political climate in areas in which we
operate also impact the amounts and timing of impairment
provisions. During 2006, no impairments on unproved oil and gas
properties occurred.
Exploratory
Drilling Costs
In accordance with the successful efforts method of accounting,
the costs of drilling an exploratory well are capitalized as
uncompleted, or suspended, wells temporarily pending
the determination of whether the well has found proved reserves.
If proved reserves are not found, these capitalized costs are
charged to expense. A determination that proved reserves have
been found results in the continued capitalization of the
drilling costs of the well and its reclassification as a well
containing proved reserves.
At times, it may be determined that an exploratory well may have
found hydrocarbons at the time drilling is completed, but it may
not be possible to classify the reserves at that time. In this
case, we may continue to capitalize the drilling costs as an
uncompleted well beyond one year when the well has found a
sufficient quantity of reserves to justify its completion as a
producing well and the company is making sufficient progress
assessing the reserves and the economic and operating viability
of the project, or the reserves are deemed to be proved. If
reserves are not
58
ultimately deemed proved or economically viable, the well is
considered impaired and its costs, net of any salvage value, are
charged to expense.
Occasionally, we may choose to salvage a portion of an
unsuccessful exploratory well in order to continue exploratory
drilling in an effort to reach the target geological
structure/formation. In such cases, we charge only the unusable
portion of the well bore to dry hole expense, and we continue to
capitalize the costs associated with the salvageable portion of
the well bore and add the costs to the new exploratory well. In
certain situations, the well bore may be carried for more than
one year beyond the date drilling in the original well bore was
suspended. This may be due to the need to obtain,
and/or
analyze the availability of equipment or crews or other
activities necessary to pursue the targeted reserves or evaluate
new or reprocessed seismic and geographic data. If, after we
analyze the new information and conclude that we will not reuse
the well bore or if the new exploratory well is determined to be
unsuccessful after we complete drilling, we will charge the
capitalized costs to dry hole expense.
Estimated
Proved Oil and Gas Reserves
The evaluation of our oil and gas reserves is critical to the
management of our oil and gas operations. Decisions such as
whether development of a property should proceed and what
technical methods are available for development are based on an
evaluation of reserves. These oil and gas reserve quantities are
also used as the basis for calculating the
unit-of-production
rates for depreciation, depletion and amortization, evaluating
impairment and estimating the life of our producing oil and gas
properties in our decommissioning liabilities. Our proved
reserves are classified as either proved developed or proved
undeveloped. Proved developed reserves are those reserves which
can be expected to be recovered through existing wells with
existing equipment and operating methods. Proved undeveloped
reserves include reserves expected to be recovered from new
wells from undrilled proven reservoirs or from existing wells
where a significant major expenditure is required for completion
and production. We prepare, and independent petroleum engineers
(Huddleston & Co.) audit, the estimates of our oil and
gas reserves presented in this report (U.S. reserves only)
based on guidelines promulgated under generally accepted
accounting principles in the United States. The audit of our
reserves by the independent petroleum engineers involves their
rigorous examination of our technical evaluation and
extrapolations of well information such as flow rates and
reservoir pressure declines as well as other technical
information and measurements. Our internal reservoir engineers
interpret this data to determine the nature of the reservoir and
ultimately the quantity of proved oil and gas reserves
attributable to a specific property. Our proved reserves in this
Annual Report include only quantities that we expect to recover
commercially using current prices, costs, existing regulatory
practices and technology. While we are reasonably certain that
the proved reserves will be produced, the timing and ultimate
recovery can be affected by a number of factors including
completion of development projects, reservoir performance,
regulatory approvals and changes in projections of long-term oil
and gas prices. Revisions can include upward or downward changes
in the previously estimated volumes of proved reserves for
existing fields due to evaluation of (1) already available
geologic, reservoir or production data or (2) new geologic
or reservoir data obtained from wells. Revisions can also
include changes associated with significant changes in
development strategy, oil and gas prices, or production
equipment/facility capacity.
Accounting
for Decommissioning Liabilities
Our decommissioning liabilities consist of estimated costs of
dismantlement, removal, site reclamation and similar activities
associated with our oil and gas properties. Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations (SFAS 143)
requires oil and gas companies to reflect decommissioning
liabilities on the face of the balance sheet at fair value on a
discounted basis. Prior to the Remington acquisition, we have
historically purchased producing offshore oil and gas properties
that are in the later stages of production. In conjunction with
acquiring these properties, we assume an obligation associated
with decommissioning the property in accordance with regulations
set by government agencies. The abandonment liability related to
the acquisitions of these properties is determined through a
series of management estimates.
Prior to an acquisition and as part of evaluating the economics
of an acquisition, we will estimate the plug and abandonment
liability. Our Oil and Gas operations personnel prepare detailed
cost estimates to plug and abandon wells and remove necessary
equipment in accordance with regulatory guidelines. We currently
calculate the discounted value of the abandonment liability
(based on an estimate of the year the abandonment will occur) in
59
accordance with SFAS No. 143 and capitalize that
portion as part of the basis acquired and record the related
abandonment liability at fair value. The recognition of a
decommissioning liability requires that management make numerous
estimates, assumptions and judgments regarding such factors as
the existence of a legal obligation for liability; estimated
probabilities, amounts and timing of settlements; the
credit-adjusted risk-free rate to be used; and inflation rates.
Decommissioning liabilities were $167.7 million and
$121.4 million at December 31, 2006 and 2005,
respectively.
On an ongoing basis, our oil and gas operations personnel
monitor the status of wells, and as fields deplete and no longer
produce, our personnel will monitor the timing requirements set
forth by the MMS for plugging and abandoning the wells and
commence abandonment operations, when applicable. On an annual
basis, management personnel reviews and updates the abandonment
estimates and assumptions for changes, among other things, in
market conditions, interest rates and historical experience.
Derivative
Instruments and Hedging Activities
Our price risk management activities involve the use of
derivative financial instruments to hedge the impact of market
price risk exposures primarily related to our oil and gas
production, variable interest rate exposure and foreign currency
exposure. To reduce the impact of these risks on earnings and
increase the predictability of our cash flows, from time to
time, we have entered into certain derivative contracts,
primarily collars for a portion of our oil and gas production,
interest rate swaps and foreign currency forward contracts. Our
oil and gas costless collars, interest rate swaps and foreign
currency forward exchange contracts qualify for hedge accounting
and are reflected in our balance sheet at fair value. Hedge
accounting does not apply to our oil and gas forward sales
contracts.
We engage primarily in cash flow hedges. Changes in the
derivative fair values that are designated as cash flow hedges
are deferred to the extent that they are effective and are
recorded as a component of accumulated other comprehensive
income until the hedged transactions occur and are recognized in
earnings. The ineffective portion of a cash flow hedges
change in value is recognized immediately in earnings.
We formally document all relationships between hedging
instruments (oil and gas costless collars, interest rate swaps
and foreign currency forward exchange contracts) and hedged
items, as well as our risk management objectives, strategies for
undertaking various hedge transactions and our methods for
assessing and testing correlation and hedge ineffectiveness. All
hedging instruments are linked to the hedged asset, liability,
firm commitment or forecasted transaction. We also assess, both
at the inception of the hedge and on an on-going basis, whether
the derivatives that are used in our hedging transactions are
highly effective in offsetting changes in cash flows of the
hedged items. Changes in the assumptions used could impact
whether the fair value change in the hedged instrument is
charged to earnings or accumulated other comprehensive income.
The fair value of our oil and gas costless collars reflects our
best estimate and is based upon exchange or
over-the-counter
quotations whenever they are available. Quoted valuations may
not be available due to location differences or terms that
extend beyond the period for which quotations are available.
Where quotes are not available, we utilize other valuation
techniques or models to estimate market values. These modeling
techniques require us to make estimates of future prices, price
correlation and market volatility and liquidity. Our actual
results may differ from our estimates, and these differences can
be positive or negative.
Property
and Equipment
Property and equipment (excluding oil and gas properties and
equipment), both owned and under capital leases, are recorded at
cost. Depreciation is provided primarily on the straight-line
method over the estimated useful lives of the assets described
in Note 2 Summary of Significant
Accounting Policies in Item 8. Financial
Statements and Supplementary Data.
For long-lived assets to be held and used, excluding goodwill,
we base our evaluation of recoverability on impairment
indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors
that may be present. If such impairment indicators are present
or other factors exist that indicate that the carrying amount of
the asset may not be recoverable, we determine whether an
impairment has occurred through the use of an undiscounted cash
flows
60
analysis of the asset at the lowest level for which identifiable
cash flows exist. Our marine vessels are assessed on a vessel by
vessel basis, while our ROVs are grouped and assessed by asset
class. If an impairment has occurred, we recognize a loss for
the difference between the carrying amount and the fair value of
the asset. The fair value of the asset is measured using quoted
market prices or, in the absence of quoted market prices, is
based on managements estimate of discounted cash flows.
Assets are classified as held for sale when we have a plan for
disposal of certain assets and those assets meet the held for
sale criteria. Assets held for sale are reviewed for potential
loss on sale when the company commits to a plan to sell and
thereafter while the asset is held for sale. Losses are measured
as the difference between the fair value less costs to sell and
the assets carrying value. Estimates of anticipated sales
prices are judgmental and subject to revisions in future
periods, although initial estimates are typically based on sales
prices for similar assets and other valuation data.
Recertification
Costs and Deferred Drydock Charges
Our Contracting Services and Shelf Contracting vessels are
required by regulation to be recertified after certain periods
of time. These recertification costs are incurred while the
vessel is in drydock. In addition, routine repairs and
maintenance are performed and, at times, major replacements and
improvements are performed. We expense routine repairs and
maintenance as they are incurred. We defer and amortize drydock
and related recertification costs over the length of time for
which we expect to receive benefits from the drydock and related
recertification, which is generally 30 months. Vessels are
typically available to earn revenue for the
30-month
period between drydock and related recertification processes. A
drydock and related recertification process typically lasts one
to two months, a period during which the vessel is not available
to earn revenue. Major replacements and improvements, which
extend the vessels economic useful life or functional
operating capability, are capitalized and depreciated over the
vessels remaining economic useful life. Inherent in this
process are estimates we make regarding the specific cost
incurred and the period that the incurred cost will benefit.
As of December 31, 2006 and 2005, capitalized deferred
drydock charges (described in Note 7
Detail of Certain Accounts in Item 8. Financial
Statements and Supplementary Data) totaled
$26.4 million and $18.3 million, respectively. During
the years ended December 31, 2006, 2005 and 2004, drydock
amortization expense was $12 million, $8.9 million and
$4.9 million, respectively. We expect drydock amortization
expense to increase in future periods since there was only
limited amortization expense associated with the vessels we
acquired in the Torch and Acergy acquisitions during the year
ended December 31, 2006.
Equity
Investments
We periodically review our investments in Deepwater Gateway,
Independence Hub and OTSL for impairment. Under the equity
method of accounting, an impairment loss would be recorded
whenever a decline in value of an equity investment below its
carrying amount is determined to be other than temporary. In
judging other than temporary, we would consider the
length of time and extent to which the fair value of the
investment has been less than the carrying amount of the equity
investment, the near-term and longer-term operating and
financial prospects of the equity company and our longer-term
intent of retaining the investment in the entity. OTSL generated
a net operating loss during 2006 which is an impairment
indicator. As a result, we evaluated this investment to
determine whether a permanent loss in value had occurred. We
believe the current trend is temporary and have determined that
the fair value of this investment, based on an estimate of its
discounted cash flows, exceeds its carrying amount, and as a
result there is no impairment at December 31, 2006.
Workers
Compensation Claims
Our onshore employees are covered by Workers Compensation.
Offshore employees, including divers, tenders and marine crews,
are covered by our Maritime Employers Liability insurance policy
which covers Jones Act exposures. We incur workers
compensation claims in the normal course of business, which
management believes are substantially covered by insurance. Our
insurers and legal counsel and we analyze each claim for
potential exposure and estimate the ultimate liability of each
claim.
61
Recently
Issued Accounting Principles
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB
Statement No. 109, Accounting for Income Taxes
(SFAS No. 109). FIN 48 clarifies
the application of SFAS No. 109 by defining criteria
that an individual tax position must meet for any part of the
benefit of that position to be recognized in the financial
statements. Additionally, FIN 48 provides guidance on the
measurement, derecognition, classification and disclosure of tax
positions, along with accounting for the related interest and
penalties. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. We adopted the
provisions of FIN 48. The impact of the adoption of
FIN 48 was immaterial on our financial position, results of
operations and cash flows.
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting
principles and expands disclosures about fair value
measurements. The provisions of SFAS No. 157 are
effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact, if any, of this
statement.
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Item 7A.
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Quantitative
and Qualitative Disclosures About Market Risk.
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We are currently exposed to market risk in three major areas:
interest rates, commodity prices and foreign currency exchange
rates.
Interest Rate Risk. As of December 31,
2006, not considering the effects of interest rate swaps,
approximately 71% of our outstanding debt was based on floating
rates. As a result, we are subject to interest rate risk. In
September 2006, we entered into various cash flow hedging
interest rate swaps to stabilize cash flows relating to interest
payments on $200 million of our Term Loan. Excluding the
portion of our debt for which we have interest rate swaps in
place, the interest rate applicable to our remaining variable
rate debt may rise, increasing our interest expense. The impact
of market risk is estimated using a hypothetical increase in
interest rates by 100 basis points for our variable rate
long-term debt that is not hedged. Based on this hypothetical
assumption, we would have incurred an additional
$4.4 million in interest expense for the year ended
December 31, 2006. Interest rate risk was immaterial in
2005 as none of our outstanding debt at December 31, 2005
was based on floating rates.
Commodity Price Risk. We have utilized
derivative financial instruments with respect to a portion of
2006 and 2005 oil and gas production to achieve a more
predictable cash flow by reducing our exposure to price
fluctuations. We do not enter into derivative or other financial
instruments for trading purposes.
As of December 31, 2006, we have the following volumes
under derivative contracts related to our oil and gas producing
activities totaling 1,170 MBbl of oil and 9,500 MMbtu
of natural gas:
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Average
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Weighted Average
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Production Period
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Instrument Type
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Monthly Volumes
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Price
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Crude Oil:
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|
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January 2007 December
2007
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Collar
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98 MBbl
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$49.74 $66.96
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Natural Gas:
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January 2007 June 2007
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Collar
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650,000 MMBtu
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$ 7.85 $12.90
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July 2007 December 2007
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Collar
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933,333 MMBtu
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$ 7.50 $10.13
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Changes in NYMEX oil and gas strip prices would, assuming all
other things being equal, cause the fair value of these
instruments to increase or decrease inversely to the change in
NYMEX prices.
As of December 31, 2006, we had oil forward sales contracts
for the period from January 2007 through June 2007. The
contracts cover an average of 40 MBbl per month at a
weighted average price of $70.83. In addition, we had natural
gas forward sales contracts for the period from January 2007
through June 2007. The contracts cover an average of
750,833 MMbtu per month at a weighted average price of
$9.49. Hedge accounting does not apply to these contracts.
62
Subsequent to December 31, 2006, we entered into two
additional natural gas costless collars. The first collar
contract covers 300,000 MMBtu per month at a price of $7.50
to $9.92 for the period from October to December 2007. The
second collar is for the period of January through March 2008.
The collar covers 600,000 MMBtu per month at a price of
$7.50 to $12.55. We also entered into an oil costless collar for
60 MBbl per month for the period from January 2008 to June
2008 at a weighted average price of $55.00 to $73.58.
Foreign Currency Exchange Risk. Because we
operate in various regions in the world, we conduct a portion of
our business in currencies other than the U.S. dollar
(primarily with respect to Well Ops (U.K.) Limited and Helix RDS
and Seatrac). The functional currency for Well Ops (U.K.)
Limited and Helix RDS is the applicable local currency (British
Pound). The functional currency for Seatrac is the applicable
currency (Australian Dollar). Although the revenues are
denominated in the local currency, the effects of foreign
currency fluctuations are partly mitigated because local
expenses of such foreign operations also generally are
denominated in the same currency. The impact of exchange rate
fluctuations during each of the years ended December 31,
2006, 2005 and 2004, respectively, were not material to our
results of operations or cash flows.
Assets and liabilities of Wells Ops (U.K.) Limited and Helix RDS
are translated using the exchange rates in effect at the balance
sheet date, resulting in translation adjustments that are
reflected in accumulated other comprehensive income in the
shareholders equity section of our balance sheet.
Approximately 7% of our assets are impacted by changes in
foreign currencies in relation to the U.S. dollar at
December 31, 2006. We recorded unrealized gains (losses) of
$17.6 million, $(11.4) million and $10.8 million
to our equity account for the year ended December 31, 2006,
2005 and 2004, respectively. Deferred taxes have not been
provided on foreign currency translation adjustments since we
consider our undistributed earnings (when applicable) of our
non-U.S. subsidiaries
to be permanently reinvested.
Canyon Offshore, our ROV subsidiary, has operations in the
United Kingdom and Asia Pacific. Further, FDI has operations in
Southeast Asia. Canyon and FDI conduct the majority of their
operations in these regions in U.S. dollars which they
consider the functional currency. When currencies other than the
U.S. dollar are to be paid or received, the resulting
transaction gain or loss is recognized in the statements of
operations. These amounts for the year ended December 31,
2006, 2005 and 2004, respectively, were not material to our
results of operations or cash flows.
In December 2006, we entered into various foreign exchange
forwards to stabilize expected cash outflows relating to a
shipyard contract where the contractual payments are denominated
in euros. These forward contracts qualify for hedge accounting.
We have hedged payments totaling 18.0 million to be
settled in June and December 2007 at exchange rates of 1.3255
and 1.3326, respectively. The aggregate fair value of the hedge
instruments was a net liability of $184,000 as of
December 31, 2006. For the year ended December 31,
2006, we recorded unrealized losses of approximately $184,000,
net of tax benefit of $99,000 in accumulated other comprehensive
income, a component of shareholders equity, as these
hedges were highly effective.
63
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Item 8.
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Financial
Statements and Supplementary Data.
|
INDEX TO
FINANCIAL STATEMENTS
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Page
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Managements Report on
Internal Control Over Financial Reporting
|
|
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65
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Report of Independent Registered
Public Accounting Firm
|
|
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66
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Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial
Reporting
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|
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67
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|
Consolidated Balance Sheets as of
December 31, 2006 and 2005
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|
|
68
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Consolidated Statements of
Operations for the Years Ended December 31, 2006, 2005 and
2004
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69
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Consolidated Statements of
Shareholders Equity for the Years Ended December 31,
2006, 2005 and 2004
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70
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Consolidated Statements of Cash
Flows for the Years Ended December 31, 2006, 2005 and 2004
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|
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71
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Notes to the Consolidated
Financial Statements
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72
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64
Managements
Report on Internal Control Over Financial Reporting
Management of Helix Energy Solutions Group, Inc., together with
its consolidated subsidiaries (the Company), is
responsible for establishing and maintaining adequate internal
control over financial reporting. The Companys internal
control over financial reporting is a process designed under the
supervision of the Companys principal executive and
principal financial officers to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of the Companys financial statements for
external reporting purposes in accordance with
U.S. generally accepted accounting principles.
As of the end of the Companys 2006 fiscal year, management
conducted an assessment of the effectiveness of the
Companys internal control over financial reporting using
the criteria set forth in the framework established in Internal
Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on
this assessment, management has determined that the
Companys internal control over financial reporting as of
December 31, 2006 was effective.
Our internal control over financial reporting includes policies
and procedures that pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect transactions
and dispositions of assets of the Company; provide reasonable
assurances that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company;
and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on our
financial statements.
Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2006 has been audited by Ernst &
Young LLP, an independent registered public accounting firm, as
stated in their report appearing on page 67, which
expresses an unqualified opinion on managements assessment
and on the effectiveness of Companys internal control over
financial reporting as of December 31, 2006.
65
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Helix Energy Solutions Group, Inc.
We have audited the accompanying consolidated balance sheets of
Helix Energy Solutions Group, Inc. and subsidiaries as of
December 31, 2006 and 2005, and the related consolidated
statements of operations, shareholders equity and cash
flows for each of the three years in the period ended
December 31, 2006. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Helix Energy Solutions Group, Inc. and
subsidiaries at December 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Helix Energy Solutions Group, Inc.s
internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2007 expressed an unqualified
opinion thereon.
As discussed in Note 13 to the consolidated financial
statements, effective January 1, 2006, the Company adopted
Statement of Financial Accounting Standards No. 123
(Revised 2004), Share-Based Payment.
Houston, Texas
February 28, 2007
66
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Helix Energy Solutions Group, Inc.
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Helix Energy Solutions Group, Inc.
maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Helix Energy Solutions Group, Inc.s
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that Helix Energy
Solutions Group, Inc. maintained effective internal control over
financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on the COSO criteria.
Also, in our opinion, Helix Energy Solutions Group, Inc.
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2006, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Helix Energy Solutions Group,
Inc. and subsidiaries as of December 31, 2006 and 2005, and
the related consolidated statements of operations,
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2006 and our report
dated February 28, 2007 expressed an unqualified opinion
thereon.
Houston, Texas
February 28, 2007
67
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
206,264
|
|
|
$
|
91,080
|
|
Short-term investments
|
|
|
285,395
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Trade, net of allowance for
uncollectible accounts of $982 and $585
|
|
|
287,875
|
|
|
|
197,046
|
|
Unbilled revenue
|
|
|
82,834
|
|
|
|
31,012
|
|
Other current assets
|
|
|
61,532
|
|
|
|
52,915
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
923,900
|
|
|
|
372,053
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
2,721,362
|
|
|
|
1,259,014
|
|
Less Accumulated
depreciation
|
|
|
(508,904
|
)
|
|
|
(342,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,212,458
|
|
|
|
916,362
|
|
Other assets:
|
|
|
|
|
|
|
|
|
Equity investments
|
|
|
213,362
|
|
|
|
179,844
|
|
Goodwill, net
|
|
|
822,556
|
|
|
|
101,731
|
|
Other assets, net
|
|
|
117,911
|
|
|
|
90,874
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,290,187
|
|
|
$
|
1,660,864
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
240,067
|
|
|
$
|
99,445
|
|
Accrued liabilities
|
|
|
199,650
|
|
|
|
138,464
|
|
Income taxes payable
|
|
|
147,772
|
|
|
|
7,288
|
|
Current maturities of long-term
debt
|
|
|
25,887
|
|
|
|
6,468
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
613,376
|
|
|
|
251,665
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
1,454,469
|
|
|
|
440,703
|
|
Deferred income taxes
|
|
|
436,544
|
|
|
|
167,295
|
|
Decommissioning liabilities
|
|
|
138,905
|
|
|
|
106,317
|
|
Other long-term liabilities
|
|
|
6,143
|
|
|
|
10,584
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,649,437
|
|
|
|
976,564
|
|
Minority interests
|
|
|
59,802
|
|
|
|
|
|
Convertible preferred stock
|
|
|
55,000
|
|
|
|
55,000
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, no par,
240,000 shares authorized, 90,628 and 77,694 shares
issued
|
|
|
745,928
|
|
|
|
229,796
|
|
Retained earnings
|
|
|
752,784
|
|
|
|
408,748
|
|
Unearned compensation
|
|
|
|
|
|
|
(7,515
|
)
|
Accumulated other comprehensive
income (loss)
|
|
|
27,236
|
|
|
|
(1,729
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
1,525,948
|
|
|
|
629,300
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,290,187
|
|
|
$
|
1,660,864
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting services
|
|
$
|
937,317
|
|
|
$
|
523,659
|
|
|
$
|
300,082
|
|
Oil and gas
|
|
|
429,607
|
|
|
|
275,813
|
|
|
|
243,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,366,924
|
|
|
|
799,472
|
|
|
|
543,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting services
|
|
|
584,295
|
|
|
|
383,063
|
|
|
|
263,597
|
|
Oil and gas
|
|
|
267,221
|
|
|
|
133,337
|
|
|
|
107,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
851,516
|
|
|
|
516,400
|
|
|
|
371,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
515,408
|
|
|
|
283,072
|
|
|
|
171,912
|
|
Gain on sale of assets
|
|
|
2,817
|
|
|
|
1,405
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
119,580
|
|
|
|
62,790
|
|
|
|
48,881
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
398,645
|
|
|
|
221,687
|
|
|
|
123,031
|
|
Equity in earnings of investments
|
|
|
18,130
|
|
|
|
13,459
|
|
|
|
7,927
|
|
Gain on subsidiary equity
transaction
|
|
|
223,134
|
|
|
|
|
|
|
|
|
|
Net interest expense and other
|
|
|
34,634
|
|
|
|
7,559
|
|
|
|
5,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
605,275
|
|
|
|
227,587
|
|
|
|
125,693
|
|
Provision for income taxes
|
|
|
257,156
|
|
|
|
75,019
|
|
|
|
43,034
|
|
Minority interest
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
347,394
|
|
|
|
152,568
|
|
|
|
82,659
|
|
Preferred stock dividends
|
|
|
3,358
|
|
|
|
2,454
|
|
|
|
2,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common
shareholders
|
|
$
|
344,036
|
|
|
$
|
150,114
|
|
|
$
|
79,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
4.07
|
|
|
$
|
1.94
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
3.87
|
|
|
$
|
1.86
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
84,613
|
|
|
|
77,444
|
|
|
|
76,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
89,874
|
|
|
|
82,205
|
|
|
|
79,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
(In thousands)
|
|
|
Balance, December 31,
2003
|
|
|
75,716
|
|
|
$
|
196,258
|
|
|
$
|
178,718
|
|
|
$
|
|
|
|
$
|
6,165
|
|
|
$
|
381,141
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
82,659
|
|
|
|
|
|
|
|
|
|
|
|
82,659
|
|
Foreign currency translations
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,780
|
|
|
|
10,780
|
|
Unrealized gain on hedges, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
846
|
|
|
|
846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
(1,620
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,620
|
)
|
Accretion of preferred stock costs
|
|
|
|
|
|
|
|
|
|
|
(1,123
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,123
|
)
|
Activity in company stock plans, net
|
|
|
1,120
|
|
|
|
10,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,481
|
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
|
76,836
|
|
|
|
208,867
|
|
|
|
258,634
|
|
|
|
|
|
|
|
17,791
|
|
|
|
485,292
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
152,568
|
|
|
|
|
|
|
|
|
|
|
|
152,568
|
|
Foreign currency translations
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,393
|
)
|
|
|
(11,393
|
)
|
Unrealized loss on hedges, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,127
|
)
|
|
|
(8,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
(2,454
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,454
|
)
|
Activity in company stock plans, net
|
|
|
858
|
|
|
|
16,527
|
|
|
|
|
|
|
|
(7,515
|
)
|
|
|
|
|
|
|
9,012
|
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
4,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
|
77,694
|
|
|
|
229,796
|
|
|
|
408,748
|
|
|
|
(7,515
|
)
|
|
|
(1,729
|
)
|
|
|
629,300
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
347,394
|
|
|
|
|
|
|
|
|
|
|
|
347,394
|
|
Foreign currency translations
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,601
|
|
|
|
17,601
|
|
Unrealized gain on hedges, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,364
|
|
|
|
11,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
376,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
dividends
|
|
|
|
|
|
|
|
|
|
|
(3,358
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,358
|
)
|
Stock compensation expense
|
|
|
|
|
|
|
9,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,364
|
|
Adoption of SFAS 123R
|
|
|
|
|
|
|
(7,515
|
)
|
|
|
|
|
|
|
7,515
|
|
|
|
|
|
|
|
|
|
Stock issuance
|
|
|
13,033
|
|
|
|
553,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
553,570
|
|
Stock repurchase
|
|
|
(1,682
|
)
|
|
|
(50,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,266
|
)
|
Activity in company stock plans, net
|
|
|
1,583
|
|
|
|
8,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,319
|
|
Tax benefit from exercise of stock
options
|
|
|
|
|
|
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
90,628
|
|
|
$
|
745,928
|
|
|
$
|
752,784
|
|
|
$
|
|
|
|
$
|
27,236
|
|
|
$
|
1,525,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
70
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
347,394
|
|
|
$
|
152,568
|
|
|
$
|
82,659
|
|
Adjustments to reconcile net income
to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
193,647
|
|
|
|
110,683
|
|
|
|
104,405
|
|
Asset impairment charge
|
|
|
|
|
|
|
790
|
|
|
|
3,900
|
|
Dry hole expense
|
|
|
38,335
|
|
|
|
|
|
|
|
|
|
Equity in earnings of investments,
net of distributions
|
|
|
(1,879
|
)
|
|
|
(2,851
|
)
|
|
|
(469
|
)
|
Amortization of deferred financing
costs
|
|
|
2,277
|
|
|
|
1,126
|
|
|
|
1,344
|
|
Stock compensation expense
|
|
|
9,364
|
|
|
|
1,406
|
|
|
|
|
|
Deferred income taxes
|
|
|
57,235
|
|
|
|
42,728
|
|
|
|
42,046
|
|
Excess tax benefit from stock-based
compensation
|
|
|
(2,660
|
)
|
|
|
4,402
|
|
|
|
2,128
|
|
Gain on subsidiary equity
transaction
|
|
|
(223,134
|
)
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of assets
|
|
|
(2,817
|
)
|
|
|
(1,405
|
)
|
|
|
100
|
|
Minority interest
|
|
|
725
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(67,211
|
)
|
|
|
(107,163
|
)
|
|
|
(17,397
|
)
|
Other current assets
|
|
|
9,969
|
|
|
|
(6,997
|
)
|
|
|
(23,294
|
)
|
Income tax payable
|
|
|
142,949
|
|
|
|
5,384
|
|
|
|
771
|
|
Accounts payable and accrued
liabilities
|
|
|
39,551
|
|
|
|
59,241
|
|
|
|
42,521
|
|
Other noncurrent, net
|
|
|
(29,709
|
)
|
|
|
(17,480
|
)
|
|
|
(11,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
514,036
|
|
|
|
242,432
|
|
|
|
226,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(469,091
|
)
|
|
|
(361,487
|
)
|
|
|
(50,123
|
)
|
Acquisition of businesses, net of
cash acquired
|
|
|
(887,943
|
)
|
|
|
(66,586
|
)
|
|
|
|
|
(Purchases) sale of short-term
investments
|
|
|
(285,395
|
)
|
|
|
30,000
|
|
|
|
(30,000
|
)
|
Investments in equity investments
|
|
|
(27,578
|
)
|
|
|
(111,060
|
)
|
|
|
(32,206
|
)
|
Distributions from equity
investments, net
|
|
|
|
|
|
|
10,492
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(6,666
|
)
|
|
|
(4,431
|
)
|
|
|
(20,133
|
)
|
Proceeds from sale of subsidiary
stock
|
|
|
264,401
|
|
|
|
|
|
|
|
|
|
Proceeds from (payments on) sales
of property
|
|
|
32,342
|
|
|
|
5,617
|
|
|
|
(100
|
)
|
Other, net
|
|
|
|
|
|
|
(2,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
activities
|
|
|
(1,379,930
|
)
|
|
|
(499,925
|
)
|
|
|
(132,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under credit facilities
|
|
|
1,036,000
|
|
|
|
|
|
|
|
|
|
Repayment of credit facilities
|
|
|
(2,100
|
)
|
|
|
|
|
|
|
|
|
Borrowings on Convertible Senior
Notes
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
Sale of convertible preferred
stock, net of transaction costs
|
|
|
|
|
|
|
|
|
|
|
29,339
|
|
Borrowings under MARAD loan facility
|
|
|
|
|
|
|
2,836
|
|
|
|
|
|
Repayment of MARAD borrowings
|
|
|
(3,641
|
)
|
|
|
(4,321
|
)
|
|
|
(2,946
|
)
|
Borrowing under loan notes
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
Repayment on line of credit
|
|
|
|
|
|
|
|
|
|
|
(30,189
|
)
|
Deferred financing costs
|
|
|
(11,839
|
)
|
|
|
(11,678
|
)
|
|
|
(4,550
|
)
|
Repayments of term loan borrowings
|
|
|
|
|
|
|
|
|
|
|
(35,000
|
)
|
Capital lease payments
|
|
|
(2,827
|
)
|
|
|
(2,859
|
)
|
|
|
(3,647
|
)
|
Preferred stock dividends paid
|
|
|
(3,613
|
)
|
|
|
(2,200
|
)
|
|
|
(1,620
|
)
|
Redemption of stock in subsidiary
|
|
|
|
|
|
|
(2,438
|
)
|
|
|
(2,462
|
)
|
Repurchase of common stock
|
|
|
(50,266
|
)
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock-based
compensation
|
|
|
2,660
|
|
|
|
|
|
|
|
|
|
Exercise of stock options, net
|
|
|
8,886
|
|
|
|
8,726
|
|
|
|
11,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
financing activities
|
|
|
978,260
|
|
|
|
288,066
|
|
|
|
(40,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on
cash and cash equivalents
|
|
|
2,818
|
|
|
|
(635
|
)
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash
equivalents
|
|
|
115,184
|
|
|
|
29,938
|
|
|
|
54,764
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
91,080
|
|
|
|
61,142
|
|
|
|
6,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
206,264
|
|
|
$
|
91,080
|
|
|
$
|
61,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
71
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 1
Organization
Effective March 6, 2006, Cal Dive International, Inc.
changed its name to Helix Energy Solutions Group, Inc.
(Helix or the Company). Unless the
context indicates otherwise, the terms we,
us and our in this report refer
collectively to Helix and its subsidiaries. We are an
international offshore energy company that provides development
solutions and other key services (contracting services
operations) to the open market as well as to our own reservoirs
(oil and gas operations). Our oil and gas business is a prospect
generating, exploration, development and production company.
Contracting
Services Operations
We seek to provide services and methodologies which we believe
are critical to finding and developing offshore reservoirs and
maximizing the economics from marginal fields. Those life
of field services are organized in five disciplines:
reservoir and well tech services, drilling, production
facilities, construction and well operations. We have
disaggregated our contracting services operations into three
reportable segments in accordance with SFAS 131:
Contracting Services (which currently includes deepwater
construction, well ops and reservoir and well tech services);
Shelf Contracting and Production Facilities. Within our
contracting services operations, we operate primarily in the
Gulf of Mexico, the North Sea and Asia/Pacific regions, with
services that cover the lifecycle of an offshore oil or gas
field. The assets of our Shelf Contracting segment, including
the 40% interest in Offshore Technology Solutions Limited
(OTSL), are the assets of Cal Dive
International, Inc. (Cal Dive or
CDI). In December 2006, Cal Dive completed an
initial public offering of 22,173,000 shares of its stock.
As a result of Cal Dives initial public offering,
together with shares issued to CDI employees immediately after
the offering, our ownership in CDI was 73.0% as of
December 31, 2006.
Oil and
Gas Operations
In 1992 we began our oil and gas operations to provide a more
efficient solution to offshore abandonment, to expand our
off-season asset utilization and to achieve better returns than
are likely through pure service contracting. Over the last
15 years we have evolved this business model to include not
only mature oil and gas properties but also proved reserves yet
to be developed, and most recently with the acquisition of
Remington, an exploration, development and production company.
This has led to the assembly of services that allows us to
create value at key points in the life of a reservoir from
exploration through development, life of field management and
operating through abandonment.
Note 2
Summary of Significant Accounting Policies
Principles
of Consolidation
Our consolidated financial statements include the accounts of
majority-owned subsidiaries and variable interest entities in
which we are the primary beneficiary. The equity method is used
to account for investments in affiliates in which we do not have
majority ownership, but have the ability to exert significant
influence. We account for our investments in Deepwater Gateway,
Independence Hub and OTSL under the equity method of accounting.
Minority interests represent minority shareholders
proportionate share of the equity in CDI, Seatrac and Kommandor.
All material intercompany accounts and transactions have been
eliminated.
Certain reclassifications were made to previously reported
amounts in the consolidated financial statements and notes
thereto to make them consistent with the current presentation
format. Reclassifications of prior year information to current
year presentation related primarily to the following:
|
|
|
|
|
reporting dry hole cost as a component of our exploration costs
instead of as a component of depreciation, depletion and
amortization costs on the statement of cash flows due to the
significance of our oil and gas exploration activities as a
result of our recent acquisition of Remington (see
Note 5 Oil and Gas
Properties);
|
72
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
reporting the purchase and sale of municipal auction rate
securities from net cash provided by operating activities to net
cash provided by (used in) investing activities for 2006, 2005
and 2004; and
|
|
|
|
reporting treasury stock outstanding as a component of common
stock as of December 31, 2006, 2005 and 2004 as treasury
stock is not legally recognized in Minnesota, our state of
incorporation.
|
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.
Cash
and Cash Equivalents
Cash and cash equivalents are highly liquid financial
instruments with original maturities of three months or less.
They are carried at cost plus accrued interest, which
approximates fair value.
Statement
of Cash Flow Information
As of December 31, 2006 and 2005, we had $33.7 million
and $27.0 million, respectively, of restricted cash (see
Note 7 Detail of Certain
Accounts) all of which was related to the escrow funds for
decommissioning liabilities associated with the SMI 130
acquisition in 2002 by our Oil and Gas segment. Under the
purchase agreement for those acquisitions, we were obligated to
escrow 50% of production up to the first $20 million of
escrow and 37.5% of production on the remaining balance up to
$33 million in total escrow. We had fully escrowed the
requirement as of December 31, 2006. We may use the
restricted cash for decommissioning the related field.
The following table provides supplemental cash flow information
for the periods stated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Interest paid (net of capitalized
interest)
|
|
$
|
26,105
|
|
|
$
|
9,990
|
|
|
$
|
3,224
|
|
Income taxes paid
|
|
$
|
56,972
|
|
|
$
|
22,495
|
|
|
$
|
252
|
|
Non-cash investing activities for the years ended
December 31, 2006, 2005 and 2004 included
$39.0 million, $28.5 million and $8.9 million,
respectively, related to accruals of capital expenditures. The
accruals have been reflected in the consolidated balance sheet
as an increase in property and equipment and accounts payable.
Short-term
Investments
Short-term investments are available-for-sale instruments that
we expect to realize in cash within one year. These investments
are stated at cost, which approximates market value. Any
unrealized holding gains or losses are reported in comprehensive
income until realized. All of our short-term investments at
December 31, 2006 were municipal auction rate securities.
We did not hold these types of securities at December 31,
2005. These instruments are long-term variable rate bonds tied
to short-term interest rates that are reset through a
Dutch Auction process which occurs every 7 to
35 days and have been classified as available-for-sale
securities. The stated maturities of these securities range from
November 2015 to November 2045. Although these instruments do
not meet the definition of cash and cash equivalents, we expect
to use these instruments to fund our working capital as needed
due to the liquid nature of these securities. As a result, they
are classified as short-term investments.
73
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accounts
Receivable and Allowance for Uncollectible
Accounts
Accounts receivable are stated at the historical carrying amount
net of write-offs and allowance for uncollectible accounts. We
establish an allowance for uncollectible accounts receivable
based on historical experience and any specific customer
collection issues that we have identified. Uncollectible
accounts receivable are written off when a settlement is reached
for an amount that is less than the outstanding historical
balance or when we have determined that the balance will not be
collected.
Property
and Equipment
Overview. Property and equipment, both owned
and under capital leases, are recorded at cost. The following is
a summary of the components of property and equipment (dollars
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
Useful Life
|
|
2006
|
|
|
2005
|
|
|
Vessels
|
|
10 to 30 years
|
|
$
|
883,635
|
|
|
$
|
609,558
|
|
Offshore oil and gas leases and
related equipment
|
|
Units-of-Production
|
|
|
1,746,896
|
|
|
|
601,866
|
|
Machinery, equipment buildings and
leasehold improvements
|
|
5 to 30 years
|
|
|
90,831
|
|
|
|
47,590
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
|
$
|
2,721,362
|
|
|
$
|
1,259,014
|
|
|
|
|
|
|
|
|
|
|
|
|
The cost of repairs and maintenance is charged to operations as
incurred, while the cost of improvements is capitalized. Total
repair and maintenance charges were $51.0 million,
$24.0 million and $17.0 million for the years ended
December 31, 2006, 2005 and 2004, respectively.
For long-lived assets to be held and used, excluding goodwill,
we base our evaluation of recoverability on impairment
indicators such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability
measurements and other external market conditions or factors
that may be present. If such impairment indicators are present
or other factors exist that indicate the carrying amount of the
asset may not be recoverable, we determine whether an impairment
has occurred through the use of an undiscounted cash flows
analysis of the asset at the lowest level for which identifiable
cash flows exist. Our marine vessels are assessed on a vessel by
vessel basis, while our ROVs are grouped and assessed by asset
class. If an impairment has occurred, we recognize a loss for
the difference between the carrying amount and the fair value of
the asset. Impairment expenses are included as a component of
cost of sales. The fair value of the asset is measured using
quoted market prices or, in the absence of quoted market prices,
is based on an estimate of discounted cash flows. During 2005
and 2004, we recorded impairment charges of $790,000 and
$3.9 million, respectively, on certain vessels that met the
impairment criteria. Such charges are included in cost of sales
in the accompanying Consolidated Statements of Operations. These
assets were subsequently sold in 2005 and 2006, for an aggregate
gain on the disposals of approximately $322,000. There were no
such impairments during 2006.
Assets are classified as held for sale when we have a plan for
disposal of certain assets and those assets meet the held for
sale criteria. At December 31, 2006 and 2005, we had
classified certain assets intended to be disposed of within a
12-month
period as assets held for sale totaling approximately $700,000
and $7.9 million, respectively. Assets classified as held
for sale are included in other current assets (see
Note 7 Detail of Certain
Accounts). Remaining assets held for sale were disposed of
in January 2007.
In March 2005, we completed the sale of certain Contracting
Services property and equipment for $4.5 million that was
previously included in assets held for sale. Proceeds from the
sale consisted of $100,000 cash and a $4.4 million
promissory note bearing interest at 6% per annum due in
semi-annual installments beginning September 30, 2005
through March 31, 2010. In addition to the asset sale, we
entered into a five-year services agreement with the purchaser
whereby we have committed to provide the purchaser with a
specified amount of services for its Gulf of Mexico fleet on an
annual basis ($8 million per year). The measurement period
related to the
74
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
services agreement began with the twelve months ending
June 30, 2006 and continues every six months until the
contract ends on March 31, 2010. Further, the promissory
note stipulates that should we not meet our annual services
commitment, the purchaser can defer its semi-annual principal
and interest payment for six months. We determined that the
estimated gain on the sale of approximately $2.5 million
should be deferred and recognized as the principal and interest
payments are received from the purchaser over the term of the
promissory note. As of December 31, 2006 and 2005, the
balance of the outstanding receivable was $3.6 million and
$4.0 million, respectively, and for the years ended
December 31, 2006 and 2005, we recognized $216,000 and
$210,000, respectively, of partial gain on this sale.
Depreciation and Depletion. Depletion for our
oil and gas properties is calculated on a unit-of-production
basis. The calculation is based on the estimated remaining oil
and gas reserves. Depreciation for all other property and
equipment is provided on a straight-line basis over the
estimated useful lives of the assets.
Oil and Gas Properties. The majority of our
interests in oil and gas properties are located offshore in
United States waters. We follow the successful efforts method of
accounting for our interests in oil and gas properties. Under
this method, the costs of successful wells and leases containing
productive reserves are capitalized. Costs incurred to drill and
equip development wells, including unsuccessful development
wells, are capitalized. Costs incurred relating to unsuccessful
exploratory wells are expensed in the period when the drilling
is determined to be unsuccessful. See
Exploratory Costs below. Properties are
periodically assessed for impairment in value, with any
impairment charged to expense.
Unproved Properties. We also periodically
assess unproved properties for impairment based on exploration
and drilling efforts to date on the individual prospects and
lease expiration dates. Managements assessment of the
results of exploration activities, availability of funds for
future activities and the current and projected political
climate in areas in which we operate also impact the amounts and
timing of impairment provisions. During 2006, no impairment of
unproved oil and gas properties was recorded.
Exploratory Costs. The costs of drilling an
exploratory well are capitalized as uncompleted, or
suspended, wells temporarily pending the
determination of whether the well has found proved reserves. If
proved reserves are not found, these capitalized costs are
charged to expense. A determination that proved reserves have
been found results in the continued capitalization of the
drilling costs of the well and its reclassification as a well
containing proved reserves. At times, it may be determined that
an exploratory well may have found hydrocarbons at the time
drilling is completed, but it may not be possible to classify
the reserves at that time. In this case, we may continue to
capitalize the drilling costs as an uncompleted, or
suspended, well beyond one year if we can justify
its completion as a producing well and we are making sufficient
progress assessing the reserves and the economic and operating
viability of the project. If reserves are not ultimately deemed
proved or economically viable, the well is considered impaired
and its costs, net of any salvage value, are charged to expense.
Occasionally, we may choose to salvage a portion of an
unsuccessful exploratory well in order to continue exploratory
drilling in an effort to reach the target geological
structure/formation. In such cases, we charge only the unusable
portion of the well bore to dry hole expense, and we continue to
capitalize the costs associated with the salvageable portion of
the well bore and add the costs to the new exploratory well. In
certain situations, the well bore may be carried for more than
one year beyond the date drilling in the original well bore was
suspended. This may be due to the need to obtain,
and/or
analyze the availability of, equipment or crews or other
activities necessary to pursue the targeted reserves or evaluate
new or reprocessed seismic and geographic data. If, after we
analyze the new information and conclude that we will not reuse
the well bore or if the new exploratory well is determined to be
unsuccessful after we complete drilling, we will charge the
capitalized costs to dry hole expense. See
Note 5 Oil and Gas
Properties for detailed discussion of our exploratory
activities.
Property Acquisition Costs. Acquisitions of
producing properties are recorded at the value exchanged at
closing together with an estimate of our proportionate share of
the discounted decommissioning liability assumed in the purchase
based upon the working interest ownership percentage.
75
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Properties Acquired from Business
Combinations. Properties acquired through
business combinations are recorded at their fair value. In
determining the fair value of the proved and unproved
properties, we prepare estimates of oil and gas reserves. We
estimate future prices to apply to the estimated reserve
quantities acquired and the estimated future operating and
development costs to arrive at our estimates of future net
revenues. For the fair value assigned to proved reserves, the
future net revenues are discounted using a market-based weighted
average cost of capital rate determined appropriate at the time
of the acquisition. To compensate for inherent risks of
estimating and valuing unproved reserves, probable and possible
reserves are reduced by additional risk weighting factors. See
Note 4 for a detailed discussion of
our acquisition of Remington.
Capitalized Interest. Interest from external
borrowings is capitalized on major projects. Capitalized
interest is added to the cost of the underlying asset and is
amortized over the useful lives of the assets in the same manner
as the underlying assets.
Equity
Investments
We periodically review our investments in Deepwater Gateway,
Independence Hub and OTSL for impairment. Under the equity
method of accounting, an impairment loss would be recorded
whenever a decline in value of an equity investment below its
carrying amount is determined to be other than temporary. In
judging other than temporary, we would consider the
length of time and extent to which the fair value of the
investment has been less than the carrying amount of the equity
investment, the near-term and longer-term operating and
financial prospects of the equity company and our longer-term
intent of retaining the investment in the entity. OTSL has
generated a net operating loss during 2006 which is an
impairment indicator. As a result, we evaluated this investment
to determine whether a permanent loss in value had occurred.
Based on this evaluation, OTSL currently has the ability to
sustain an earnings capacity which would justify the carrying
amount of the investment, and as a result there is no impairment
at December 31, 2006.
Goodwill
and Other Intangible Assets
We test for the impairment of goodwill on at least an annual
basis. Intangible assets with finite useful lives are amortized
using the straight-line method over their useful lives.
Intangible assets that have indefinite useful lives are not
amortized, but are tested for impairment annually and when
impairment indicators such as the nature of the assets, the
future economic benefit of the assets, any historical or future
profitability measurements and other external market conditions
are present. Our goodwill impairment test involves a comparison
of the fair value of each of our reporting units with its
carrying amount. The fair value is determined using discounted
cash flows and other market-related valuation models, such as
earnings multiples and comparable asset market values. We
completed our annual goodwill impairment test as of
November 1, 2006. The changes in the carrying amount of
goodwill by the applicable segments are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting
|
|
|
Shelf
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
Contracting
|
|
|
Oil and Gas
|
|
|
Total
|
|
|
Balance at December 31, 2004
|
|
$
|
69,220
|
|
|
$
|
14,973
|
|
|
$
|
|
|
|
$
|
84,193
|
|
Acergy acquisition
|
|
|
|
|
|
|
12,841
|
|
|
|
|
|
|
|
12,841
|
|
Helix RDS acquisition
|
|
|
6,915
|
|
|
|
|
|
|
|
|
|
|
|
6,915
|
|
Tax and other adjustments
|
|
|
(2,218
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
73,917
|
|
|
|
27,814
|
|
|
|
|
|
|
|
101,731
|
|
Remington acquisition
|
|
|
|
|
|
|
|
|
|
|
707,596
|
|
|
|
707,596
|
|
Seatrac acquisition
|
|
|
7,415
|
|
|
|
|
|
|
|
|
|
|
|
7,415
|
|
Acergy acquisition adjustment
|
|
|
|
|
|
|
(1,148
|
)
|
|
|
|
|
|
|
(1,148
|
)
|
Helix RDS acquisition adjustment
|
|
|
2,634
|
|
|
|
|
|
|
|
|
|
|
|
2,634
|
|
Tax and other adjustments
|
|
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
4,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
88,294
|
|
|
$
|
26,666
|
|
|
$
|
707,596
|
|
|
$
|
822,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Of our total goodwill at December 31, 2006 and 2005,
approximately $41.0 million and $39.1 million,
respectively, was expected to be deducted for tax purposes. None
of our goodwill was impaired based on the impairment test
performed as of November 1, 2006. We will continue to test
our goodwill and other indefinite-lived intangible assets
annually on a consistent measurement date unless events occur or
circumstances change between annual tests that would more likely
than not reduce the fair value of a reporting unit below its
carrying amount.
Recertification
Costs and Deferred Drydock Charges
Our Contracting Services and Shelf Contracting vessels are
required by regulation to be recertified after certain periods
of time. These recertification costs are incurred while the
vessel is in drydock. In addition, routine repairs and
maintenance are performed and, at times, major replacements and
improvements are performed. We expense routine repairs and
maintenance as they are incurred. We defer and amortize drydock
and related recertification costs over the length of time for
which we expect to receive benefits from the drydock and related
recertification, which is generally 30 months. Vessels are
typically available to earn revenue for the
30-month
period between drydock and related recertification processes. A
drydock and related recertification process typically lasts one
to two months, a period during which the vessel is not available
to earn revenue. Major replacements and improvements, which
extend the vessels economic useful life or functional
operating capability, are capitalized and depreciated over the
vessels remaining economic useful life. Inherent in this
process are estimates we make regarding the specific cost
incurred and the period that the incurred cost will benefit.
As of December 31, 2006 and 2005, capitalized deferred
drydock charges (included in Other Assets, Net, see
Note 7 Detail of Certain
Accounts) totaled $26.4 million and
$18.3 million, respectively. During the years ended
December 31, 2006, 2005 and 2004, drydock amortization
expense was $12.0 million, $8.9 million and
$4.9 million, respectively.
Accounting
for Decommissioning Liabilities
We account for our decommissioning liabilities in accordance
with Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset
Retirement Obligations. This statement requires that the
fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred. The associated
asset retirement costs are capitalized as part of the carrying
cost of the asset. Our asset retirement obligations consist of
estimated costs for dismantlement, removal, site reclamation and
similar activities associated with our oil and gas properties.
An asset retirement obligation and the related asset retirement
cost are recorded when an asset is first constructed or
purchased. The asset retirement cost is determined and
discounted to present value using a credit-adjusted risk-free
rate. After the initial recording the liability is increased for
the passage of time, with the increase being reflected as
accretion expense in the statement of operations. Subsequent
adjustments in the cost estimate are reflected in the liability
and the amounts continue to be amortized over the useful life of
the related long-lived asset.
SFAS No. 143 calls for measurements of asset retirement
obligations to include, as a component of expected costs, an
estimate of the price that a third party would demand, and could
expect to receive, for bearing the uncertainties and
unforeseeable circumstances inherent in the obligations,
sometimes referred to as a market-risk premium. To date, the oil
and gas industry has no examples of credit-worthy third parties
who are willing to assume this type of risk, for a determinable
price, on major oil and gas production facilities and pipelines.
Therefore, because determining such a market-risk premium would
be an arbitrary process, we excluded it from our SFAS
No. 143 estimates.
77
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table describes the changes in our asset
retirement obligations for the year ended 2006 and 2005 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Asset retirement obligation at
January 1,
|
|
$
|
121,352
|
|
|
$
|
82,030
|
|
Liability incurred during the
period
|
|
|
40,442
|
|
|
|
36,119
|
|
Liability settled during the period
|
|
|
(6,669
|
)
|
|
|
(1,913
|
)
|
Revision in estimated cash flows
|
|
|
3,929
|
|
|
|
(583
|
)
|
Accretion expense (included in
depreciation and amortization)
|
|
|
8,617
|
|
|
|
5,699
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations at
December 31,
|
|
$
|
167,671
|
|
|
$
|
121,352
|
|
|
|
|
|
|
|
|
|
|
Revenue
Recognition
Revenues from Contracting Services and Shelf Contracting are
derived from contracts that are typically of short duration.
These contracts contain either lump-sum turnkey provisions or
provisions for specific time, material and equipment charges,
which are billed in accordance with the terms of such contracts.
We recognize revenue as it is earned at estimated collectible
amounts.
Revenues generated from specific time, materials and equipment
contracts are generally earned on a dayrate basis and recognized
as amounts are earned in accordance with contract terms. In
connection with these contracts, we may receive revenues for
mobilization of equipment and personnel. In connection with new
contracts, revenues related to mobilization are deferred and
recognized over the period in which contracted services are
performed using the straight-line method. Incremental costs
incurred directly for mobilization of equipment and personnel to
the contracted site, which typically consist of materials,
supplies and transit costs, are also deferred and recognized
over the period in which contracted services are performed using
the straight-line method. Our policy to amortize the revenues
and costs related to mobilization on a straight-line basis over
the estimated contract service period is consistent with the
general pace of activity, level of services being provided and
dayrates being earned over the service period of the contract.
Mobilization costs to move vessels when a contract does not
exist are expensed as incurred.
Revenue on significant turnkey contracts is recognized on the
percentage-of-completion method based on the ratio of costs
incurred to total estimated costs at completion. In determining
whether a contract should be accounted for using the
percentage-of-completion method, we consider whether:
|
|
|
|
|
the customer provides specifications for the construction of
facilities or for the provision of related services;
|
|
|
|
we can reasonably estimate our progress towards completion and
our costs;
|
|
|
|
the contract includes provisions as to the enforceable rights
regarding the goods or services to be provided, consideration to
be received and the manner and terms of payment;
|
|
|
|
the customer can be expected to satisfy its obligations under
the contract; and
|
|
|
|
we can be expected to perform our contractual obligations.
|
Under the percentage-of-completion method, we recognize
estimated contract revenue based on costs incurred to date as a
percentage of total estimated costs. Changes in the expected
cost of materials and labor, productivity, scheduling and other
factors affect the total estimated costs. Additionally, external
factors, including weather and other factors outside of our
control, may also affect the progress and estimated cost of a
projects completion and, therefore, the timing of income
and revenue recognition. We routinely review estimates related
to our contracts and reflect revisions to profitability in
earnings on a current basis. If a current estimate of total
contract cost indicates an ultimate loss on a contract, we
recognize the projected loss in full when it is first
determined. We recognize additional contract revenue related to
claims when the claim is probable and legally enforceable.
78
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Unbilled revenue represents revenue attributable to work
completed prior to period end that has not yet been invoiced.
All amounts included in unbilled revenue at December 31,
2006 and 2005 are expected to be billed and collected within one
year.
We record revenues from the sales of crude oil and natural gas
when delivery to the customer has occurred and title has
transferred. This occurs when production has been delivered to a
pipeline or a barge lifting has occurred. We may have an
interest with other producers in certain properties. In this
case, we use the entitlements method to account for sales of
production. Under the entitlements method, we may receive more
or less than our entitled share of production. If we receive
more than our entitled share of production, the imbalance is
treated as a liability. If we receive less than our entitled
share, the imbalance is recorded as an asset. As of
December 31, 2006, the net imbalance was a $200,000 asset
and was included in Other Current Assets ($4.7 million) and
Accrued Liabilities ($4.5 million) in the accompanying
consolidated balance sheet.
Income
Taxes
Deferred income taxes are based on the differences between
financial reporting and tax bases of assets and liabilities. We
utilize the liability method of computing deferred income taxes.
The liability method is based on the amount of current and
future taxes payable using tax rates and laws in effect at the
balance sheet date. Income taxes have been provided based upon
the tax laws and rates in the countries in which operations are
conducted and income is earned. 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 asset will
not be realized. We consider the undistributed earnings of our
principal
non-U.S. subsidiaries
to be permanently reinvested.
Foreign
Currency
The functional currency for our foreign subsidiaries, Well Ops
(U.K.) Limited and Helix RDS, is the applicable local currency
(British Pound), and the functional currency of Seatrac is its
applicable local currency (Australian Dollar). Results of
operations for these subsidiaries are translated into
U.S. dollars using average exchange rates during the
period. Assets and liabilities of these foreign subsidiaries are
translated into U.S. dollars using the exchange rate in
effect at December 31, 2006 and 2005 and the resulting
translation adjustment, which was an unrealized gain (loss) of
$17.6 million and $(11.4) million, respectively, is
included in accumulated other comprehensive income (loss), a
component of shareholders equity. Beginning in 2004,
deferred taxes were not provided on foreign currency translation
adjustments for operations where we consider our undistributed
earnings of our principal
non-U.S. subsidiaries
to be permanently reinvested. As a result, cumulative deferred
taxes on translation adjustments totaling approximately
$6.5 million were reclassified from noncurrent deferred
income taxes and accumulated other comprehensive income. All
foreign currency transaction gains and losses are recognized
currently in the statements of operations. These amounts for the
years ended December 31, 2006 and 2005 were not material to
our results of operations or cash flows.
Canyon Offshore, our ROV subsidiary, has operations in the
United Kingdom and Asia Pacific. Further, FDI has operations in
Southeast Asia. Canyon and FDI conduct the majority of their
operations in these regions in U.S. dollars which is
considered to be their functional currency. When currencies
other than the U.S. dollar are to be paid or received, the
resulting transaction gain or loss is recognized in the
statements of operations. These amounts for the year ended
December 31, 2006, 2005 and 2004, respectively, were not
material to our results of operations or cash flows.
Derivative
Instruments and Hedging Activities
We are currently exposed to market risk in three major areas:
commodity prices, interest rates and foreign currency exchange
risks. Our price risk management activities involve the use of
derivative financial instruments to hedge the impact of market
price risk exposures primarily related to our oil and gas
production, variable interest rate
79
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exposure and foreign exchange currency risks. All derivatives
are reflected in our balance sheet at fair value, unless
otherwise noted.
We engage primarily in cash flow hedges. Hedges of cash flow
exposure are entered into to hedge a forecasted transaction or
the variability of cash flows to be received or paid related to
a recognized asset or liability. Changes in the derivative fair
values that are designated as cash flow hedges are deferred to
the extent that they are effective and are recorded as a
component of accumulated other comprehensive income until the
hedged transactions occur and are recognized in earnings. The
ineffective portion of a cash flow hedges change in value
is recognized immediately in earnings.
We formally document all relationships between hedging
instruments and hedged items, as well as our risk management
objectives, strategies for undertaking various hedge
transactions and the methods for assessing and testing
correlation and hedge ineffectiveness. All hedging instruments
are linked to the hedged asset, liability, firm commitment or
forecasted transaction. We also assess, both at the inception of
the hedge and on an on-going basis, whether the derivatives that
are used in the hedging transactions are highly effective in
offsetting changes in cash flows of its hedged items. We
discontinue hedge accounting if we determine that a derivative
is no longer highly effective as a hedge, or it is probable that
a hedged transaction will not occur. If hedge accounting is
discontinued, deferred gains or losses on the hedging
instruments are recognized in earnings immediately.
Commodity
Hedges
The fair value of hedging instruments reflects our best estimate
and is based upon exchange or over-the-counter quotations
whenever they are available. Quoted valuations may not be
available due to location differences or terms that extend
beyond the period for which quotations are available. Where
quotes are not available, we utilize other valuation techniques
or models to estimate market values. These modeling techniques
require us to make estimations of future prices, price
correlation and market volatility and liquidity. Our actual
results may differ from its estimates, and these differences can
be positive or negative.
During 2006 and 2005, we entered into various cash flow hedging
costless collar contracts to stabilize cash flows relating to a
portion of our expected oil and gas production. All of these
qualified for hedge accounting. The aggregate fair value of the
hedge instruments was a net asset (liability) of
$5.2 million and $(13.4) million as of
December 31, 2006 and 2005, respectively. For the years
ended December 31, 2006, 2005 and 2004, we recorded
unrealized gains (losses) of approximately $12.1 million,
$(8.1) million and $846,000, net of taxes of $6.5 million,
$4.4 million and $456,000, respectively, in accumulated
other comprehensive income (loss), a component of
shareholders equity, as these hedges were highly
effective. The balance in the cash flow hedge adjustments
account is recognized in earnings when the related hedged item
is sold. During 2006, 2005 and 2004, we reclassified
approximately $9.0 million, $(14.1) million and
$(11.1) million, respectively, of gains (losses) from other
comprehensive income to Oil and Gas revenues upon the sale of
the related oil and gas production.
Hedge ineffectiveness related to cash flow hedges was a loss of
$1.8 million, net of taxes of $951,000 in 2005 as reported
in that periods earnings as a reduction of oil and gas
productive revenues. Hedge ineffectiveness resulted from our
inability to deliver contractual oil and gas production in 2005
due primarily to the effects of Hurricanes Katrina and
Rita. No hedge ineffectiveness related to our commodity
hedges was recognized in 2006 and 2004.
80
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of December 31, 2006, we had the following volumes under
derivative contracts related to our oil and gas producing
activities totaling 1,170 MBbl of oil and 9,500 MMbtu
of natural gas:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Monthly
|
|
Weighted Average
|
Production Period
|
|
Instrument Type
|
|
Volumes
|
|
Price
|
|
Crude Oil:
|
|
|
|
|
|
|
|
|
January 2007 December
2007
|
|
Collar
|
|
|
98 MBbl
|
|
|
$49.74 $66.96
|
Natural Gas:
|
|
|
|
|
|
|
|
|
January 2007 June 2007
|
|
Collar
|
|
|
650,000 MMBtu
|
|
|
$ 7.85 $12.90
|
July 2007 December 2007
|
|
Collar
|
|
|
933,333 MMBtu
|
|
|
$ 7.50 $10.13
|
Changes in NYMEX oil and gas strip prices would, assuming all
other things being equal, cause the fair value of these
instruments to increase or decrease inversely to the change in
NYMEX prices.
As of December 31, 2006, we had oil forward sales contracts
for the period from January 2007 through June 2007. The
contracts cover an average of 40 MBbl per month at a
weighted average price of $70.83. In addition, we had natural
gas forward sales contracts for the period from January 2007
through June 2007. The contracts cover an average of
750,833 MMbtu per month at a weighted average price of
$9.49. Hedge accounting does not apply to these contracts.
Subsequent to December 31, 2006, we entered into two
additional natural gas costless collars. The first collar covers
300,000 MMBtu per month at a price of $7.50 to $9.92 for
the period from October through December 2007. The second collar
is for the period of January through March 2008. The collar
covers 600,000 MMBtu per month at a price of $7.50 to
$12.55. We also entered into an oil costless collar for
60 MBbl per month for the period from January 2008 to June
2008 at a weighted average price of $55.00 to $73.58.
Interest
Rate Hedge
As the rates for our Term Loan are subject to market influences
and will vary over the term of the credit agreement, we entered
into various cash flow hedging interest rate swaps to stabilize
cash flows relating to a portion of our interest payments for
our Term Loan. The interest rate swaps were effective
October 3, 2006. These interest rate swaps qualify for
hedge accounting. See Note 10
Long-Term Debt below for a detailed discussion of our Term
Loan. The aggregate fair value of the hedge instruments was a
net liability of $531,000 as of December 31, 2006. For the
year ended December 31, 2006, these hedges were highly
effective.
Foreign
Currency Hedge
In December 2006, we entered into various foreign exchange
forwards to stabilize expected cash outflows relating to a
shipyard contract where the contractual payments are denominated
in euros. These forward contracts qualify for hedge accounting.
Under the forward contracts, we have hedged payments totaling
18.0 million to be settled in June and December 2007
at exchange rates of 1.3255 and 1.3326, respectively. The
aggregate fair value of the hedge instruments was a net
liability of $184,000 as of December 31, 2006. For the year
ended December 31, 2006, these hedges were highly effective.
81
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Earnings
per Share
Basic earnings per share (EPS) is computed by
dividing the net income available to common shareholders by the
weighted-average shares of outstanding common stock. The
calculation of diluted EPS is similar to basic EPS, except the
denominator includes dilutive common stock equivalents and the
income included in the numerator excludes the effects of the
impact of dilutive common stock equivalents, if any. The
computation of basic and diluted per share amounts for the years
ended December 31, 2006, 2005 and 2004 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
Income
|
|
|
Shares
|
|
|
Income
|
|
|
Shares
|
|
|
Income
|
|
|
Shares
|
|
|
Earnings applicable per common
share Basic
|
|
$
|
344,036
|
|
|
|
84,613
|
|
|
$
|
150,114
|
|
|
|
77,444
|
|
|
$
|
79,916
|
|
|
|
76,409
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
449
|
|
|
|
|
|
|
|
772
|
|
|
|
|
|
|
|
609
|
|
Restricted shares
|
|
|
|
|
|
|
160
|
|
|
|
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
Employee stock purchase plan
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes
|
|
|
|
|
|
|
1,009
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
3,358
|
|
|
|
3,631
|
|
|
|
2,454
|
|
|
|
3,631
|
|
|
|
2,743
|
|
|
|
2,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings applicable per common
share Diluted
|
|
$
|
347,394
|
|
|
|
89,874
|
|
|
$
|
152,568
|
|
|
|
82,205
|
|
|
$
|
82,659
|
|
|
|
79,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no antidilutive stock options in the years ended
December 31, 2006, 2005 and 2004, respectively. In
addition, approximately 1,020,000 shares attributable to
the convertible preferred stock were excluded in the year ended
December 31, 2004, calculation of diluted EPS, as the
effect was antidilutive. Net income for the diluted earnings per
share calculation for the years ended December 31, 2006,
2005 and 2004 were adjusted to add back the preferred stock
dividends and accretion on the 3.6 million shares,
3.6 million shares and 2.0 million shares,
respectively.
Stock
Based Compensation Plans
Prior to January 1, 2006, we used the intrinsic value
method of accounting for our stock-based compensation.
Accordingly, no compensation expense was recognized when the
exercise price of an employee stock option was equal to the
common share market price on the grant date and all other terms
were fixed. In addition, under the intrinsic value method, on
the date of grant for restricted shares, we recorded unearned
compensation (a component of shareholders equity) that
equaled the product of the number of shares granted and the
closing price of our common stock on the business day prior to
the grant date, and expense was recognized over the vesting
period of each grant on a straight-line basis.
82
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reflects our pro forma results if the fair
value method had been used for the accounting for these plans
for the years ended December 31, 2005 and 2004 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
Net income applicable to common
shareholders:
|
|
|
|
|
|
|
|
|
As Reported
|
|
$
|
150,114
|
|
|
$
|
79,916
|
|
Add back: Stock-based compensation
cost included in reported net income, net of taxes
|
|
|
914
|
|
|
|
|
|
Deduct: Total stock-based
compensation cost determined under the fair value method, net of
tax
|
|
|
(2,566
|
)
|
|
|
(2,368
|
)
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
$
|
148,462
|
|
|
$
|
77,548
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.94
|
|
|
$
|
1.05
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.92
|
|
|
$
|
1.02
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.86
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
$
|
1.84
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
For the purposes of pro forma disclosures, the fair value of
each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted
average assumptions used in 2004: expected dividend yields of
0%; expected lives of ten years, risk-free interest rate assumed
to be 4.0%, and expected volatility to be 56%. There were no
stock option grants in 2006 and 2005. The fair value of shares
issued under the Employee Stock Purchase Plan was based on the
15% discount received by the employees. The weighted average per
share fair value of the options granted in 2004 was $8.80. No
stock options were granted in 2005. The estimated fair value of
the options is amortized to pro forma expense over the vesting
period. See Note 13 Employee
Benefit Plans for discussion of our stock compensation.
Accounting
for Sales of Stock by Subsidiary
We recognize a gain or loss upon the direct sale of equity by
our subsidiaries if the sales price differs from our carrying
amount, provided that the sale of such equity is not part of a
broader corporate reorganization. See
Note 3 for discussion of CDIs
initial public offering.
Consolidation
of Variable Interest Entities
Effective December 31, 2003, we adopted and applied the
provisions of FIN 46 for all variable interest entities.
FIN 46 requires the consolidation of variable interest
entities in which an enterprise absorbs a majority of the
entitys expected losses, receives a majority of the
entitys expected residual returns, or both, as a result of
ownership, contractual or other financial, interests in the
entity. See Note 9 related to our
consolidated variable interest entities.
83
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable
and our long-term debts. The carrying amount of cash and cash
equivalents, short-term investments, accounts receivable and
accounts payable approximate fair value due to the highly liquid
nature of these short-term instruments. The carrying amount and
estimated fair value of our debt instruments, including current
maturities as of December 31, 2006 and 2005 were as follows
(amount in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Term Loan (1)
|
|
$
|
832,900
|
|
|
$
|
834,462
|
|
|
$
|
|
|
|
$
|
|
|
Cal Dive Revolving Credit
Facility (2)
|
|
|
201,000
|
|
|
|
201,000
|
|
|
|
|
|
|
|
|
|
Convertible Senior Notes (1)
|
|
|
300,000
|
|
|
|
378,780
|
|
|
|
300,000
|
|
|
|
433,695
|
|
MARAD Debt (3)
|
|
|
131,286
|
|
|
|
126,691
|
|
|
|
134,926
|
|
|
|
132,565
|
|
Loan Notes (4)
|
|
|
11,146
|
|
|
|
11,146
|
|
|
|
5,393
|
|
|
|
5,393
|
|
|
|
|
(1) |
|
The fair values of these instruments were based on quoted market
prices as of December 31, 2006 and 2005, if applicable. |
|
(2) |
|
The carrying value of the Cal Dive revolving credit
facility approximates fair value as of December 31, 2006. |
|
(3) |
|
The fair value of the MARAD debt was determined by a third-party
evaluation of the remaining average life and outstanding
principal balance of the MARAD indebtedness as compared to other
government guaranteed obligations in the market place with
similar terms. |
|
(4) |
|
The carrying value of the loan notes approximates fair value as
the maturity dates of these securities are less than one year. |
Major
Customers and Concentration of Credit Risk
The market for our products and services is primarily the
offshore oil and gas industry. Oil and gas companies make
capital expenditures on exploration, drilling and production
operations offshore, the level of which is generally dependent
on the prevailing view of the future oil and gas prices, which
have been characterized by significant volatility. Our customers
consist primarily of major, well-established oil and pipeline
companies and independent oil and gas producers and suppliers.
We perform ongoing credit evaluations of our customers and
provide allowances for probable credit losses when necessary.
The percent of consolidated revenue of major customers was as
follows: 2006 Louis Dreyfus Energy Services (10%)
and Shell Offshore, Inc. (10%); 2005 Louis Dreyfus
Energy Services (10%) and Shell Trading (US) Company (10%); and
2004 Louis Dreyfus Energy Services (11%) and Shell
Trading (US) Company (10%). All of these customers were
purchasers of our oil and gas production.
Recently
Issued Accounting Principles
In June 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
Interpretation of FASB Statement No. 109
(FIN 48), which clarifies the accounting for
uncertainty in income taxes recognized in accordance with FASB
Statement No. 109, Accounting for Income Taxes
(SFAS No. 109). FIN 48 clarifies
the application of SFAS No. 109 by defining criteria
that an individual tax position must meet for any part of the
benefit of that position to be recognized in the financial
statements. Additionally, FIN 48 provides guidance on the
measurement, derecognition, classification and disclosure of tax
positions, along with accounting for the related interest and
penalties. The provisions of FIN 48 are effective for
fiscal years beginning after December 15, 2006, with the
cumulative effect of the change in accounting principle recorded
as an adjustment to opening retained earnings. On
January 1, 2007, we adopted the provisions of FIN 48
and the impact of the adoption was immaterial on our financial
position, results of operations and cash flows.
84
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In September 2006, the FASB issued Statement No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting
principles and expands disclosures about fair value
measurements. The provisions of SFAS No. 157 are
effective for fiscal years beginning after November 15,
2007. We are currently evaluating the impact, if any, of this
statement.
Note 3
Initial Public Offering of Cal Dive International,
Inc.
In December 2006, we contributed the assets of our Shelf
Contracting segment into Cal Dive International, Inc., our
then wholly owned subsidiary. Cal Dive subsequently sold
22,173,000 shares of its common stock in an initial public
offering and distributed the net proceeds of $264.4 million
to us as a dividend. In connection with the offering, CDI also
entered into a $250 million revolving credit facility. In
December 2006, Cal Dive borrowed $201 million under
the facility and distributed $200 million of the proceeds
to us as a dividend. For additional information related to the
Cal Dive credit facilities, see
Note 10 Long-term Debt
below. We recognized an after-tax gain of $96.5 million,
net of taxes of $126.6 million as a result of these
transactions. We plan to use the proceeds for general corporate
purposes.
In connection with the offering, together with shares issued to
CDI employees immediately after the offering, our ownership of
CDI decreased to approximately 73.0%. Subject to market
conditions, we may sell additional shares of Cal Dive
common stock in the future.
Further, in conjunction with the offering, the tax basis of
certain CDIs tangible and intangible assets was increased
to fair value. The increased tax basis should result in
additional tax deductions available to CDI over a period of two
to five years. Under the Tax Matters Agreement with CDI, to the
extent CDI generates taxable income sufficient to realize the
additional tax deductions, it will be required to pay us 90% of
the amount of tax savings actually realized from the
step-up of
the assets. As of December 31, 2006, we have a long-term
receivable from CDI of approximately $11.3 million related
to the Tax Matters Agreement. For additional information related
to the Tax Matters Agreement, see
Note 11 Income Taxes.
Note 4
Acquisition of Remington Oil and Gas Corporation
On July 1, 2006, we acquired 100% of Remington, an
independent oil and gas exploration and production company
headquartered in Dallas, Texas, with operations concentrated in
the onshore and offshore regions of the Gulf Coast, for
approximately $1.4 billion in cash and stock and the
assumption of $349.6 million of liabilities. The merger
consideration was 0.436 of a share of our common stock and
$27.00 in cash for each share of Remington common stock. On
July 1, 2006, we issued 13,032,528 shares of our
common stock to Remington stockholders and funded the cash
portion of the Remington acquisition (approximately
$806.8 million) and transaction costs (approximately
$18.5 million) through a credit agreement (see
Note 10 Long-Term Debt
below).
85
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Remington acquisition was accounted for as a business
combination with the acquisition price allocated to the assets
acquired and liabilities assumed based upon their estimated fair
values, with excess being recorded in goodwill. The following
table summarizes the estimated preliminary fair values of the
assets acquired and liabilities assumed at the date of
acquisition (in thousands):
|
|
|
|
|
Current assets
|
|
$
|
154,336
|
|
Property and equipment
|
|
|
859,722
|
|
Goodwill
|
|
|
707,596
|
|
Other intangible assets (1)
|
|
|
6,800
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
1,728,454
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
125,662
|
|
Deferred income taxes
|
|
|
201,317
|
|
Decommissioning liabilities
(including current portion)
|
|
|
20,832
|
|
Other non-current liabilities
|
|
|
1,800
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
349,611
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
1,378,843
|
|
|
|
|
|
|
|
|
|
(1) |
|
The intangible asset is related to a favorable drilling rig
contract and several non-compete agreements between the Company
and certain members of senior management. The preliminary fair
value of the drilling rig contract was $5.0 million and
that amount will be reclassified into property and equipment if
drilling of certain exploratory wells is successful. If drilling
is unsuccessful, the intangible asset will be expensed in the
period drilling is determined to be unsuccessful. The
preliminary fair value of the non-compete agreements was
$1.8 million, which will be amortized over the term of the
agreements (three years) on a straight-line basis. |
Certain data necessary to complete our final purchase price
allocation is not yet available, and includes, but is not
limited to, final tax returns that provide the underlying tax
basis of Remingtons assets and liabilities at July 1,
2006, valuation of certain proved and unproved oil and gas
properties and identification and valuation of potential
intangible assets. We expect to complete our valuation of assets
and liabilities (including deferred taxes) for the purpose of
allocation of the total purchase price amount to assets acquired
and liabilities assumed during the twelve-month period following
the acquisition date. Any future change in the value of net
assets up until the one year period has expired will be offset
by a corresponding increase or decrease in goodwill.
The results of the Remington acquisition are included in the
accompanying statements of operations since the date of purchase
in our Oil and Gas segment. See pro forma combined operating
results of the Company and the Remington acquisition for the
years ended December 31, 2006 and 2005 in
Note 6 Other
Acquisitions below.
Note 5
Oil and Gas Properties
We follow the successful efforts method of accounting for our
interests in oil and gas properties. Under the successful
efforts method, the costs of successful wells and leases
containing productive reserves are capitalized. Costs incurred
to drill and equip development wells, including unsuccessful
development wells, are capitalized. Costs incurred relating to
unsuccessful exploratory wells are expensed in the period the
drilling is determined to be unsuccessful.
At December 31, 2006, we had capitalized approximately
$50 million of exploratory drilling costs associated with
ongoing exploration
and/or
appraisal activities. Such capitalized costs may be charged
against earnings in future periods if management determines that
commercial quantities of hydrocarbons have not been discovered
or
86
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
that future appraisal drilling or development activities are not
likely to occur. The following table provides a detail of our
capitalized exploratory project costs at December 31, 2006
and 2005 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Huey
|
|
$
|
11,378
|
|
|
$
|
|
|
Noonan
|
|
|
27,824
|
|
|
|
|
|
Castleton (part of Gunnison)
|
|
|
7,070
|
|
|
|
5,844
|
|
Tulane
|
|
|
|
|
|
|
6,170
|
|
Other
|
|
|
3,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,983
|
|
|
$
|
12,014
|
|
|
|
|
|
|
|
|
|
|
The following table reflects net changes in suspended
exploratory well costs during the year ended December 31,
2006, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Beginning balance at
January 1,
|
|
$
|
12,014
|
|
|
$
|
1,052
|
|
|
$
|
|
|
Additions pending the
determination of proved reserves
|
|
|
138,679
|
|
|
|
10,962
|
|
|
|
1,052
|
|
Reclassifications to proved
properties
|
|
|
(62,375
|
)
|
|
|
|
|
|
|
|
|
Charged to dry hole expense
|
|
|
(38,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at December 31,
|
|
$
|
49,983
|
|
|
$
|
12,014
|
|
|
$
|
1,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006, all of these exploratory well
costs had been capitalized for a period of one year or less,
except for Castleton. We are not the operator of
Castleton.
Further, the following table details the components of
exploration expense for the years ended December 31, 2006,
2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Delay rental and geological and
geophysical costs
|
|
$
|
4,780
|
|
|
$
|
6,465
|
|
|
$
|
|
|
Dry hole expense
|
|
|
38,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total exploration expense
|
|
$
|
43,115
|
|
|
$
|
6,465
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, in 2006, we expensed inspection and repair costs
related to damages sustained by Hurricanes Katrina and
Rita for our oil and gas properties totaling
approximately $16.8 million, partially offset by
$9.7 million of insurance recoveries received. In 2005, we
expensed approximately $7.1 million of inspection and
repair costs as a result damages caused by these hurricanes. No
insurance recoveries were received in 2005.
We agreed to participate in the drilling of an exploratory well
(Tulane prospect) that was drilled in the first quarter of 2006.
This prospect targeted reserves in deeper sands, within the same
trapping fault system, of a currently producing well. In March
2006, mechanical difficulties were experienced in the drilling
of this well, and after further review, the well was plugged and
abandoned. The total estimated cost to us of approximately
$21.7 million was charged to earnings during the year ended
December 31, 2006. We continue to evaluate various options
with the operator for recovering the potential resources.
Further, in the third quarter of 2006, we expensed approximately
$15.9 million of exploratory drilling costs related to two
deep shelf properties (acquired in the Remington acquisition
which were in process prior to July 1, 2006) in which
we determined commercial quantities of hydrocarbons were not
discovered.
In August 2006, we acquired a 100% working interest in the
Typhoon oil field (Green Canyon Blocks 236/237), the
Boris oil field (Green Canyon Block 282) and the
Little Burn oil field (Green Canyon Block 238) for
assumption
87
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of certain decommissioning liabilities. We have received SOP
approval from the MMS. We will also have farm-in rights on five
near-by blocks where three prospects have been identified in the
Typhoon mini-basin. Following the acquisition of the Typhoon
field and MMS approval, we renamed the field Phoenix.
We expect to deploy a minimal floating production system in
mid-2008 in the Phoenix field.
In December 2006, we acquired a 100% working interest in the
Camelot oil field in the U. K. North Sea for assumption
of certain decommissioning liabilities totaling approximately
$7.6 million. We have commenced existing field rejuvenation
and expect first production in 2007.
In March 2005, we acquired a 30% working interest in a proved
undeveloped field in Atwater Block 63 (Telemark) of the
Deepwater Gulf of Mexico for cash and assumption of certain
decommissioning liabilities. In December 2005, we were advised
by Norsk Hydro USA Oil and Gas, Inc. (Norsk Hydro)
that Norsk Hydro would not pursue its development plan for the
deepwater discovery. As a result, we acquired a 100% working
interest and operatorship in April 2006 following a non-consent
to our plan of development by Norsk Hydro. Our interest in this
property and surrounding fields was sold in July 2006 for
$15 million in cash and we also retained a reservation of
an overriding royalty interest in the Telemark development. We
recorded a gain of $2.2 million in the third quarter of
2006 related to this sale.
In June 2005, we acquired a mature property package on the Gulf
of Mexico shelf from Murphy Oil Corporation
(Murphy). The acquisition cost included both cash
($163.5 million) and the assumption of the estimated
abandonment liability from Murphy of approximately
$32.0 million (a non-cash investing activity). The
acquisition represented essentially all of Murphys Gulf of
Mexico Shelf properties consisting of eight operated and eleven
non-operated fields. We estimated proved reserves of the
acquisition to be approximately 75 Bcfe. The results of the
acquisition are included in the accompanying statements of
operations since the date of purchase. See pro forma combined
operating results of the Company and the Murphy acquisition for
the years ended December 31, 2006 and 2005 in
Note 6 Other
Acquisitions below.
Our oil and gas activities in the United States are regulated by
the federal government and require significant third-party
involvement, such as refinery processing and pipeline
transportation. We record revenue from our offshore properties
net of royalties paid to the MMS. Royalty fees paid totaled
approximately $41.0 million, $34.0 million and
$26.7 million for the years ended December 31, 2006,
2005 and 2004, respectively. In accordance with federal
regulations that require operators in the Gulf of Mexico to post
an area wide bond of $3 million, the MMS has allowed us to
fulfill such bonding requirements through an insurance policy.
Note 6
Other Acquisitions
2006
Fraser
Diving International Ltd.
In July 2006, we acquired the business of Singapore-based Fraser
Diving International Ltd for an aggregate purchase price of
approximately $29.3 million, subject to post-closing
adjustments, and the assumption of $2.2 million of
liabilities. FDI owns six portable saturation diving systems and
15 surface diving systems that operate primarily in Southeast
Asia, the Middle East, Australia and the Mediterranean. Included
in the purchase price is a payment of $2.5 million made in
December 2005 to FDI for the purchase of one of the portable
saturation diving systems. The acquisition was accounted for as
a business combination with the acquisition price allocated to
the assets acquired and liabilities assumed based upon their
estimated fair values. The following table summarizes
88
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the estimated preliminary fair values of the assets acquired and
liabilities assumed at the date of acquisition (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,332
|
|
Accounts receivable
|
|
|
1,817
|
|
Prepaid expenses and deposits
|
|
|
691
|
|
Portable saturation diving systems
and surface diving systems
|
|
|
23,685
|
|
Diving support equipment, support
facilities and other equipment
|
|
|
3,004
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
31,529
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
2,243
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
29,286
|
|
|
|
|
|
|
The allocation of the purchase price was based upon preliminary
valuations. Estimates and assumptions are subject to change upon
the receipt and managements review of the final
valuations. The primary areas of the purchase price allocation
that are not yet finalized relate to post closing purchase price
adjustments. The final valuation of net assets is expected to be
completed no later than one year from the acquisition date. The
results of FDI are included in the accompanying consolidated
statements of operations in our Shelf Contracting segment since
the date of purchase. Pro forma combined operating results for
the years ended December 31, 2006 and 2005 (adjusted to
reflect the results of operations of FDI prior to its
acquisition) are not provided because the pre-acquisition
results related to FDI were not material to the historical
results of the Company.
Seatrac
Pty, Ltd.
In October 2006, we acquired a 58% interest in Seatrac for total
consideration of approximately $12.7 million (including
$180,000 of transaction costs), with approximately
$9.1 million paid to existing shareholders and
$3.4 million for subscription of new Seatrac shares. We
have changed the name of this entity to Well Ops SEA Pty Ltd.
The proceeds from the newly issued shares were used by the
entity to pay down existing indebtedness of approximately
$1.9 million and to provide funding for capital
expenditures of $1.5 million. Seatrac is a subsea well
intervention and engineering services company located in Perth,
Australia. Under the terms of the purchase agreement, we will be
obligated to purchase the remaining 42% of the shares
outstanding from the existing shareholders for $9.1 million
upon Seatracs successfully obtaining a significant
commercial contract. In the event that the conditions required
for the additional purchase are not met, we will be under no
obligation to purchase the remaining 42% of Seatrac. The option
period to acquire the remaining 42% expires on June 30,
2007. In addition, the agreement with the existing shareholders
provides for an earnout period of five years from the closing
date for the purchase of the remaining 42% of Seatrac. If during
this five-year period Seatrac achieves certain financial
performance objectives, the shareholders will be entitled to
additional consideration of approximately $4.6 million.
89
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The acquisition was accounted for as a business combination with
the acquisition price allocated to the assets acquired and
liabilities assumed based upon their estimated fair values. The
following table summarizes our portion of the estimated
preliminary fair values of the assets acquired and liabilities
assumed at the date of acquisition (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,215
|
|
Other current assets
|
|
|
1,906
|
|
Property and equipment
|
|
|
4,218
|
|
Goodwill
|
|
|
7,136
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
14,475
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
1,810
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
12,665
|
|
|
|
|
|
|
The allocation of the purchase price was based upon preliminary
valuations. Estimates and assumptions are subject to change upon
the receipt and managements review of the final
valuations. The primary areas of the purchase price allocation
that are not yet finalized relate to the identification and
valuation of potential intangible assets and valuation of
certain equipment. The final valuation of net assets is expected
to be completed no later than one year from the acquisition
date. The results of Seatrac are included in the accompanying
consolidated statements of operations in our Contracting
Services segment since the date of purchase. Pro forma combined
operating results for the year ended December 31, 2006 and
2005 (adjusted to reflect the results of operations of Seatrac
prior to its acquisition) are not provided because the
pre-acquisition results related to Seatrac were not material to
the historical results of the Company.
Caesar
In January 2006, our wholly owned subsidiary, Vulcan Marine
Technology LLC (Vulcan), acquired the Caesar
(formerly known as the Baron), a four year old
mono-hull vessel originally built for the cable lay market, for
approximately $27.5 million in cash. The vessel was under
charter to a third-party until mid January 2007. After the
completion of the charter, the vessel was in transit to a
shipyard in China where we plan to convert the vessel into a
deepwater pipelay asset. The vessel is 485 feet long and
already has a
state-of-the-art,
class 2, dynamic positioning system. The conversion program
will primarily involve the installation of a conventional
S lay pipelay system together with a main crane and
a significant upgrade to the accommodation capability. A
conversion team has already been assembled with a base at
Rotterdam, the Netherlands, and the vessel is likely to enter
service during the second half of 2007. The estimated cost to
acquire and convert the vessel will be approximately
$137.5 million. We have entered into an agreement with the
third party that leased the vessel, whereby the third party has
an option to purchase up to 49% of Vulcan for consideration
totaling the proportionate share of the cost of the vessel plus
the actual cost of conversion (conversion cost is estimated to
be $110 million). The third party must make all
contributions to Vulcan on or before March 31, 2007.
2005
Torch
Offshore, Inc.
In a bankruptcy auction held in June 2005, we were the high
bidder for seven vessels, including the Express, and a
portable saturation system for approximately $85.9 million,
subject to the terms of an amended and restated asset purchase
agreement, executed in May 2005, with Torch. This transaction
received regulatory approval, including completion of a review
pursuant to a Second Request from the U.S. Department of
Justice, in August 2005 and subsequently closed. The total
purchase price for the Torch vessels was approximately
$85.9 million, including certain costs incurred related to
the transaction. The acquisition was an asset purchase with the
acquisition price allocated to the assets acquired based upon
their estimated fair values. All of the assets acquired, except
for the
90
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Express (Contracting Services segment) are included in
the Shelf Contracting segment. The results of the acquired
vessels are included in the accompanying consolidated statements
of operations since the date of the purchase, August 31,
2005.
Acergy US
Inc.
In April 2005, we agreed to acquire the diving and shallow water
pipelay assets of Acergy that operate in the waters of the Gulf
of Mexico and Trinidad. The transaction included: seven diving
support vessels; two diving and pipelay vessels (the Kestrel
and the DLB 801); a portable saturation diving
system; various general diving equipment and Louisiana operating
bases at the Port of Iberia and Fourchon. All of the assets are
included in the Shelf Contracting segment. The transaction
required regulatory approval, including the completion of a
review pursuant to a Second Request from the
U.S. Department of Justice. On October 18, 2005, we
received clearance from the U.S. Department of Justice to
close the purchase from Acergy. Under the terms of the
clearance, we were required to divest two diving support vessels
and a portable saturation diving system from the combined asset
package acquired through this transaction and the Torch
transaction which closed in August 2005. We have since disposed
of one diving support vessel and a portable saturation diving
system prior to December 31, 2006, and disposed of the
remaining diving support vessel in January 2007. These assets
were included in assets held for sale totaling approximately
$700,000 and $7.8 million as of December 31, 2006 and
2005, respectively. On November 1, 2005, we closed the
transaction to purchase the Acergy diving assets operating in
the Gulf of Mexico. We acquired the DLB 801 in January
2006 for approximately $38.0 million and the Kestrel
for approximately $39.9 million in March 2006.
The Acergy acquisition was accounted for as a business
combination with the acquisition price allocated to the assets
acquired and liabilities assumed based upon their fair values,
with the excess being recorded as goodwill. The final valuation
of net assets was completed in the second quarter of 2006. The
total transaction value for all of the assets was approximately
$124.3 million. The allocation of the Acergy purchase
prices was as follows (in thousands):
|
|
|
|
|
Vessels
|
|
$
|
94,484
|
|
Goodwill
|
|
|
11,693
|
|
Portable saturation system and
diving equipment
|
|
|
9,494
|
|
Facilities, land and leasehold
improvements
|
|
|
4,314
|
|
Customer relationships intangible
asset (1)
|
|
|
3,698
|
|
Materials and supplies
|
|
|
631
|
|
|
|
|
|
|
Total
|
|
$
|
124,314
|
|
|
|
|
|
|
|
|
|
(1) |
|
The customer relationship intangible asset is amortized over
eight years on a straight-line basis, or approximately
$463,000 per year. |
The results of the acquired assets are included in the
accompanying consolidated statements of operations in our Shelf
Contracting segment since the date of the purchase. Pro forma
combined operating results adjusted to reflect the results of
operations of the DLB 801 and the Kestrel prior to
their acquisition from Acergy in January and March 2006,
respectively, are not provided because the 2006 pre-acquisition
results related to these vessels were immaterial to our
historical results. See pro forma combined operating results of
the Company and the Acergy acquisition for the years ended
December 31, 2006 and 2005 below.
Subsequent to our purchase of the DLB 801, we sold a 50%
interest in the vessel in January 2006 for approximately
$19.0 million. We received $6.5 million in cash in
2005 and a $12.5 million interest-bearing promissory note
in 2006. The balance of the promissory note as of
December 31, 2006 was $1.5 million. We expect to
collect the remaining balance. Subsequent to the sale of the 50%
interest, we entered into a
10-year
charter lease agreement with the purchaser, in which the lessee
has an option to purchase the remaining 50% interest in the
vessel
91
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
beginning in January 2009. This lease was accounted for as an
operating lease. Included in our lease accounting analysis was
an assessment of the likelihood of the lessee performing under
the full term of the lease. The carrying amount of the DLB
801 at December 31, 2006, was approximately
$17.3 million. In addition, if the lessee exercises the
purchase option under the lease agreement, the lessee is able to
credit $2.35 million of its lease payments per year against
purchase price for the remaining 50% interest in the DLB 801
not already owned. If the lessee elects not to exercise its
option to purchase the remaining 50% interest in the vessel,
minimum future rentals to be received on this lease are
$66.2 million.
Helix
Energy Limited
On November 3, 2005, we acquired Helix Energy Limited for
approximately $32.7 million (approximately
$27.1 million in cash, including transaction costs, and
$5.6 million, at time of acquisition, in two year, variable
rate notes payable to certain former owners), offset by
$3.4 million of cash acquired. Helix Energy Limited is an
Aberdeen, UK based provider of reservoir and well technology
services to the upstream oil and gas industry with offices in
London, Kuala Lumpur (Malaysia) and Perth (Australia). The
acquisition was accounted for as a business purchase with the
acquisition price allocated to the assets acquired and
liabilities assumed as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,417
|
|
Other current assets
|
|
|
9,786
|
|
Property and equipment, net
|
|
|
632
|
|
Intangibles with definite useful
lives (1)
|
|
|
10,459
|
|
Trade name intangible (2)
|
|
|
6,309
|
|
Goodwill
|
|
|
9,549
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
40,152
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
|
$
|
4,920
|
|
Deferred tax liability
|
|
|
2,532
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
32,700
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intangibles with definite useful lives include the following: |
|
|
|
|
|
$1.1 million of patented technology, which is amortized
over 20 years on a straight-line basis, or approximately
$56,800 per year;
|
|
|
|
$6.9 million of customer relationship, which is amortized
over 12 years on a straight-line basis, or approximately
$578,000 per year; and
|
|
|
|
$2.4 million of non-compete intangible asset, which is
amortized over 3.5 years on a straight-line basis, or
approximately $683,000 per year.
|
|
|
|
(2) |
|
The trade name intangible has an indefinite useful life. It is
not amortized, but is tested for impairment at least annually or
when impairment indicators are present. |
Resulting amounts are included in the Contracting Services
segment. The final valuation of net assets was completed in
2006. The results of Helix Energy Limited are included in the
accompanying statements of operations since the date of the
purchase.
92
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Pro forma combined operating results of the Company and the
Remington, Murphy and Acergy acquisitions for the years ended
December 31, 2006 and 2005 were presented as if the
acquisitions had been completed as of January 1, 2005. The
unaudited pro forma combined results were as follows (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006 (1)
|
|
|
2005
|
|
|
Net revenues
|
|
$
|
1,509,539
|
|
|
$
|
1,337,648
|
|
Income before income taxes (2)
|
|
|
591,455
|
|
|
|
252,543
|
|
Net income (2)
|
|
|
337,885
|
|
|
|
168,316
|
|
Net income applicable to common
shareholders (2)
|
|
|
334,527
|
|
|
|
165,862
|
|
Earnings per common share (2):
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.67
|
|
|
$
|
1.83
|
|
Diluted
|
|
$
|
3.51
|
|
|
$
|
1.77
|
|
|
|
|
(1) |
|
Includes approximately $11.5 million of severance and
incentive compensation expense, and approximately
$20.6 million of non-cash stock compensation expense for
vesting of stock options and restricted shares incurred by
Remington in June 30, 2006. |
|
(2) |
|
Includes pre-tax gain of approximately $223.1 million
related to CDIs initial public offering. The taxes
associated with this gain was approximately $126.6 million. |
Note 7
Details of Certain Accounts (in thousands)
Other current assets consisted of the following as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Other receivables
|
|
$
|
3,882
|
|
|
$
|
1,386
|
|
Prepaid insurance
|
|
|
17,320
|
|
|
|
8,791
|
|
Other prepaids
|
|
|
9,174
|
|
|
|
4,391
|
|
Spare parts inventory
|
|
|
3,660
|
|
|
|
3,628
|
|
Current deferred tax assets
|
|
|
3,706
|
|
|
|
8,861
|
|
Hedging assets
|
|
|
5,202
|
|
|
|
|
|
Gas imbalance
|
|
|
4,739
|
|
|
|
3,888
|
|
Current notes receivable
|
|
|
1,500
|
|
|
|
1,500
|
|
Assets held for sale
|
|
|
698
|
|
|
|
7,936
|
|
Other
|
|
|
11,651
|
|
|
|
12,534
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61,532
|
|
|
$
|
52,915
|
|
|
|
|
|
|
|
|
|
|
93
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other assets, net, consisted of the following as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Restricted cash
|
|
$
|
33,676
|
|
|
$
|
27,010
|
|
Deposits
|
|
|
524
|
|
|
|
4,594
|
|
Deferred drydock expenses, net
|
|
|
26,405
|
|
|
|
18,285
|
|
Deferred financing costs
|
|
|
28,257
|
|
|
|
18,714
|
|
Intangible assets with definite
lives
|
|
|
20,783
|
|
|
|
14,707
|
|
Intangible asset with indefinite
life
|
|
|
6,922
|
|
|
|
6,074
|
|
Other
|
|
|
1,344
|
|
|
|
1,490
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
117,911
|
|
|
$
|
90,874
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities consisted of the following as of
December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued payroll and related
benefits
|
|
$
|
42,381
|
|
|
$
|
27,982
|
|
Royalties payable
|
|
|
67,822
|
|
|
|
46,555
|
|
Current decommissioning liability
|
|
|
28,766
|
|
|
|
15,035
|
|
Hedging liability
|
|
|
184
|
|
|
|
8,814
|
|
Deposits
|
|
|
|
|
|
|
10,000
|
|
Accrued interest
|
|
|
15,579
|
|
|
|
2,610
|
|
Other
|
|
|
44,918
|
|
|
|
27,468
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
199,650
|
|
|
$
|
138,464
|
|
|
|
|
|
|
|
|
|
|
Note 8
Equity Investments
In June 2002, we formed Deepwater Gateway, L.L.C. with
Enterprise, in which we each own a 50% interest, to design,
construct, install, own and operate a tension leg platform
(TLP) production hub primarily for Anadarko
Petroleum Corporations Marco Polo field discovery
in the Deepwater Gulf of Mexico. Our share of the construction
costs was approximately $120 million. Our investment in
Deepwater Gateway totaled $119.3 million and
$117.2 million as of December 31, 2006 and 2005,
respectively. Included in the investment account was capitalized
interest and insurance paid by us totaling approximately $1.7
and $1.7 million, respectively. In August 2002, Enterprise
and we completed a limited recourse project financing for this
venture. In accordance with terms of the term loan, Deepwater
Gateway had the right to repay the principal amount plus any
accrued interest due under its term loan at any time without
penalty. Deepwater Gateway repaid the term loan in full in March
2005.
In December 2004, we acquired a 20% interest in Independence
Hub, an affiliate of Enterprise. Independence Hub will own the
Independence Hub platform to be located in
Mississippi Canyon block 920 in a water depth of
8,000 feet. We account for our investment in Independence
Hub under the equity method of accounting. Our investment was
$82.7 million and $50.8 million as of
December 31, 2006 and 2005, respectively. Our total
investment is expected to be approximately $87 million.
Further, we are party to a guaranty agreement with Enterprise to
the extent of our ownership in Independence Hub. The agreement
states, among other things, that we and Enterprise guarantee
performance under the Independence Hub Agreement between
Independence Hub and the producers group of exploration and
production companies up to $426 million, plus applicable
attorneys fees and related expenses. We have estimated the
fair value of our share of the guaranty obligation to be
immaterial at December 31, 2006 and 2005 based upon the
remote possibility of payments being made under the performance
guarantee.
94
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In July 2005, we acquired a 40% minority ownership interest in
OTSL in exchange for our DP DSV, Witch Queen. Our
investment in OTSL totaled $10.9 million and
$11.5 million at December 31, 2006 and 2005,
respectively, and is part of our Shelf Contracting segment. OTSL
provides marine construction services to the oil and gas
industry in and around Trinidad and Tobago, as well as the
U.S. Gulf of Mexico. OTSL qualified as a variable interest
entity (VIE) under FIN 46. We have determined
that we were not the primary beneficiary of OTSL and, thus, have
not consolidated the financial results of OTSL. We account for
our investment in OTSL under the equity method of accounting.
Further, in conjunction with our investment in OTSL, we entered
into a one year, unsecured $1.5 million working capital
loan, initially bearing interest at 6% per annum, with
OTSL. Interest is due quarterly beginning September 30,
2005 with a lump sum principal payment originally due to us on
June 30, 2006. We agreed to extend the lump sum principal
payment due date and increased the interest rate to three-month
LIBOR plus 4.0%. The note was repaid in January 2007.
In the third and fourth quarters of 2005 and first quarter of
2006, OTSL contracted the Witch Queen to us for certain
services performed in the U.S. Gulf of Mexico. We incurred
costs associated with the contract with OTSL totaling
approximately $7.7 million and $11.1 million in 2006
and 2005, respectively. The charter ended in March 2006.
Under the equity method of accounting, an impairment loss would
be recorded whenever a decline in value of an equity investment
below its carrying amount was determined to be other than
temporary. In judging other than temporary, we would
consider the length of time and extent to which the fair value
of the investment has been less than the carrying amount of the
equity investment, the near-term and longer-term operating and
financial prospects of the equity company and our longer-term
intent of retaining the investment in the entity. We have
reported a net loss of $487,000 for the year ended
December 31, 2006 related to our investment in OTSL. This
net loss was an impairment indicator. However, we believe the
current trend is temporary and have determined that the fair
value of this investment, based on an estimate of its discounted
cash flows, exceeds its carrying amount. As a result, there was
no impairment at December 31, 2006.
We made the following contributions to our equity investments
during the years ended December 31, 2006, 2005 and 2004 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Deepwater Gateway, L.L.C. (1)
|
|
$
|
|
|
|
$
|
72,000
|
|
|
$
|
20,615
|
|
Independence Hub, LLC
|
|
|
25,578
|
|
|
|
39,060
|
|
|
|
10,585
|
|
OTSL (2)
|
|
|
|
|
|
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,578
|
|
|
$
|
119,460
|
|
|
$
|
31,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Contribution made in the year ended December 31, 2005
related to Deepwater Gateway was for the repayment of our
portion of the term loan for Deepwater Gateway. Upon repayment
of the loan, our $7.5 million restricted cash in 2005 was
released from escrow and the escrow agreement was terminated. |
|
(2) |
|
Includes non-cash contribution of the Witch Queen in 2005
of $6.7 million (net of $296,000 of transaction costs). |
95
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We received the following distributions from our equity
investments during the years ended December 31, 2006, 2005
and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Deepwater Gateway, L.L.C.
|
|
$
|
16,250
|
|
|
$
|
21,100
|
|
|
$
|
7,500
|
|
Independence Hub, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
OTSL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,250
|
|
|
$
|
21,100
|
|
|
$
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
Consolidated Variable Interest Entities
In October 2006, we, along with Kommandor RØMØ, a
Danish corporation, formed Kommandor, a Delaware limited
liability company, to initially convert a ferry vessel into a
dynamically-positioned construction services vessel. Upon
completion of the initial conversion, this vessel will be leased
under a bareboat charter to us for further conversion and
subsequent use as a floating production system in the Deepwater
Gulf of Mexico, initially for the Phoenix field. Our
initial investment for our 50% interest in Kommandor was
$15 million. Further, we have agreed to provide a loan
facility of up to $40 million and Kommandor RØMØ
has agreed to loan $5 million to the newly formed entity
for purposes of completing the initial conversion. Kommandor has
received a commitment letter from a financial institution for
term financing for $60 million of the initial conversion
upon delivery of the vessel under the bareboat charter. Proceeds
from this financing will be used to repay amounts loaned to
Kommandor by us and Kommandor RØMØ. Conversion of the
vessel is expected to be completed in two phases. The first
phase is expected to be completed by the end of 2007. The second
phase of the conversion is expected to be completed by mid 2008.
Estimated cost of conversion for the second phase is
approximately $100 million, in which we expect to
participate 100%.
In addition, per the operating agreement, for a period of two
months immediately following the fifth anniversary of the
completion of the initial conversion, we may purchase Kommandor
RØMØs membership interest at a value specified
in the agreement (Helix Option Period). In addition,
for a period of two months starting from 30 days after the
Helix Option Period, Kommandor RØMØ can require us to
purchase its share of the company at a value specified in the
operating agreement. We estimate the cash outlay to Kommandor
RØMØ for its interest in Kommandor at the time the put
or call is exercised to be approximately $23.8 million.
Kommandor qualified as a VIE under FIN 46. We determined
that we were the primary beneficiary of Kommandor and, thus,
have consolidated the financial results of Kommandor as of
December 31, 2006. The results of Kommandor are included in
our Production Facilities segment. Kommandor is a development
stage enterprise since its formation in October 2006.
Note 10
Long-Term Debt
Senior
Credit Facilities
On July 3, 2006, we entered into a Credit Agreement (the
Credit Agreement) with Bank of America, N.A., as
administrative agent and as lender, together with the other
lenders (collectively, the Lenders). Under the
Credit Agreement, we borrowed $835 million in a term loan
(the Term Loan) and may borrow revolving loans (the
Revolving Loans) under a revolving credit facility
up to an outstanding amount of $300 million (the
Revolving Credit Facility). In addition, the
Revolving Credit Facility may be used for issuances of letters
of credit up to an outstanding amount of $50 million. The
proceeds from the Term Loan were used to fund the cash portion
of the Remington acquisition.
The Term Loan and the Revolving Loans (together, the
Loans) will, at our election, bear interest either
in relation to Bank of Americas base rate or to LIBOR. The
Term Loan or portions thereof bear interest at one, three or
96
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
six month LIBOR at our election plus a margin of 2.00%. Our
current election is to bear interest based on LIBOR. Our
interest rate for year ended December 31, 2006 was
approximately 7.4% (including the effects of our interest rate
swaps). The Revolving Loans or portions thereof bearing interest
at LIBOR will bear interest based on one, three or six month
LIBOR at our election plus a margin ranging from 1.00% to 2.25%.
Margins on the Revolving Loans will fluctuate in relation to the
consolidated leverage ratio as provided in the Credit Agreement.
The Term Loan matures on July 1, 2013 and is subject to
scheduled principal payments of $2.1 million quarterly. The
Revolving Loans mature on July 1, 2011. We may elect to
prepay amounts outstanding under the Term Loan without
prepayment penalty, but may not reborrow any amounts prepaid. We
may prepay amounts outstanding under the Revolving Loans without
prepayment penalty, and may reborrow amounts prepaid prior to
maturity. We did not have any amount outstanding under the
Revolving Loans at December 31, 2006. In addition, upon the
occurrence of certain dispositions or the issuance or incurrence
of certain types of indebtedness, we may be required to prepay a
portion of the Term Loan equal to the amount of proceeds
received from such occurrences. Such prepayments will be applied
first to the Term Loan, and any excess will be applied to the
Revolving Loans, if any.
The Credit Agreement and the other documents entered into in
connection with the Credit Agreement (together, the Loan
Documents) include terms, conditions and covenants that we
consider customary for this type of transaction. The covenants
include restrictions on the Companys and our
subsidiaries ability to grant liens, incur indebtedness,
make investments, merge or consolidate, sell or transfer assets
and pay dividends. The credit facility also places certain
annual and aggregate limits on expenditures for acquisitions,
investments in joint ventures and capital expenditures. The
Credit Agreement requires us to meet minimum financial ratios
for interest coverage, consolidated leverage and, until we
achieve investment grade ratings from S&P and Moodys,
collateral coverage.
If we or any of our subsidiaries do not pay any amounts owed to
the Lenders under the Loan Documents when due, breach any other
covenant to the Lenders or fail to pay other debt above a stated
threshold, in each case, subject to applicable cure periods,
then the Lenders have the right to stop making advances to us
and to declare the Loans immediately due. The Credit Agreement
includes other events of default that are customary for this
type of transaction. As of December 31, 2006, we were in
compliance with these covenants.
The Loans and our other obligations to the Lenders under the
Loan Documents are guaranteed by all of our
U.S. subsidiaries other than Cal Dive, and are secured
by a lien on substantially all of our assets and properties and
all of the assets and properties of our U.S. subsidiaries,
other than those of Cal Dive. In addition, we have pledged
a portion of the shares of our significant foreign subsidiaries
to the lenders as additional security. The Senior Credit
Facilities also contain provisions that limit our ability to
incur certain types of additional indebtedness. These provisions
effectively prohibit us from incurring any additional secured
indebtedness or indebtedness guaranteed by the Company. The
Senior Credit Facilities do however permit us to incur unsecured
indebtedness, and also provide for our subsidiaries to incur
project financing indebtedness (such as our MARAD loans) secured
by the underlying asset, provided that the indebtedness is not
guaranteed by us.
As the rates for the Term Loan are subject to market influences
and will vary over the term of the agreement, we entered into
various interest rate swaps for $200 million of notional
value effective as of October 3, 2006. These hedges are
designated as cash flow hedges and qualify for hedge accounting.
Under the swaps we receive interest based on three-month LIBOR
and pay interest quarterly at an average annual fixed rate of
5.131% which began in October 2006. The objective of the hedge
is to eliminate the variability of cash flows in the interest
payments for up to $200 million of our Term Loan. Changes
in the cash flows of the interest rate swap are expected to
exactly offset the changes in cash flows (i.e., changes in
interest rate payments) attributable to fluctuations in LIBOR on
up to $200 million of our Term Loan.
Cal Dive
International, Inc. Revolving Credit Facility
In November 2006, CDI entered into a five-year $250 million
revolving credit facility with certain financial institutions.
The loans mature in November 2011. Loans under this facility are
non-recourse to Helix. Loans under
97
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the revolving credit facility may consist of loans bearing
interest in relation to the Federal Funds Rate or to the
lenders base rate, known as Base Rate Loans, and loans
bearing interest in relation to a LIBOR rate, known as LIBOR
Rate Loans. Assuming there is no event of default, Base Rate
Loans will bear interest at a per annum rate equal to the base
rate plus a margin ranging from 0% to 0.5%, while LIBOR Rate
Loans will bear interest at the LIBOR rate plus a margin ranging
from 0.625% to 1.75%.
The credit agreement and the other documents entered into in
connection with the credit agreement include terms and
conditions, including covenants. The covenants include
restrictions on CDIs ability to grant liens, incur
indebtedness, make investments, merge or consolidate, sell or
transfer assets and pay dividends. In addition, the credit
agreement obligates CDI to meet minimum financial requirements
specified in the agreement. At December 31, 2006, CDI was
in compliance with all debt covenants. The credit facility is
secured by vessel mortgages on five of CDIs vessels, a
pledge of all of the stock of all of CDIs domestic
subsidiaries and 65% of the stock of one of CDIs foreign
subsidiaries, and a security interest in, among other things,
all of CDIs equipment, inventory, accounts and general
tangible assets.
During December 2006, CDI borrowed $201 million under the
revolving credit facility and distributed $200 million of
those proceeds to us as a dividend. At December 31, 2006,
CDI had outstanding debt of $201 million under this credit
facility. CDI expects to use the remaining availability under
the revolving credit facility for working capital and other
general corporate purposes. We do not have access to any unused
portion of CDIs revolving credit facility.
Convertible
Senior Notes
On March 30, 2005, we issued $300 million of
3.25% Convertible Senior Notes due 2025 (Convertible
Senior Notes) at 100% of the principal amount to certain
qualified institutional buyers. The Convertible Senior Notes are
convertible into cash and, if applicable, shares of our common
stock based on the specified conversion rate, subject to
adjustment. As a result of our two for one stock split paid on
December 8, 2005, effective as of December 2, 2005,
the initial conversion rate of the Convertible Senior Notes of
15.56, which was equivalent to a conversion price of
approximately $64.27 per share of common stock, was changed
to 31.12 shares of common stock per $1,000 principal amount
of the Convertible Senior Notes, which is equivalent to a
conversion price of approximately $32.14 per share of
common stock. We may redeem the Convertible Senior Notes on or
after December 20, 2012. Beginning with the period
commencing on December 20, 2012 to June 14, 2013 and
for each six-month period thereafter, in addition to the stated
interest rate of 3.25% per annum, we will pay contingent
interest of 0.25% of the market value of the Convertible Senior
Notes if, during specified testing periods, the average trading
price of the Convertible Senior Notes exceeds 120% or more of
the principal value. In addition, holders of the Convertible
Senior Notes may require us to repurchase the notes at 100% of
the principal amount on each of December 15, 2012, 2015,
and 2020, and upon certain events.
The Convertible Senior Notes can be converted prior to the
stated maturity under the following circumstances:
|
|
|
|
|
during any fiscal quarter (beginning with the quarter ended
March 31, 2005) if the closing sale price of our
common stock for at least 20 trading days in the period of 30
consecutive trading days ending on the last trading day of the
preceding fiscal quarter exceeds 120% of the conversion price on
that 30th trading day (i.e., $38.56 per share);
|
|
|
|
upon the occurrence of specified corporate transactions; or
|
|
|
|
if we have called the Convertible Senior Notes for redemption
and the redemption has not yet occurred.
|
To the extent we do not have alternative long-term financing
secured to cover such conversion notice, the Convertible Senior
Notes would be classified as a current liability in the
accompanying balance sheet.
98
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with any conversion, we will satisfy our
obligation to convert the Convertible Senior Notes by delivering
to holders in respect of each $1,000 aggregate principal amount
of notes being converted a settlement amount
consisting of:
|
|
|
|
|
cash equal to the lesser of $1,000 and the conversion value, and
|
|
|
|
to the extent the conversion value exceeds $1,000, a number of
shares equal to the quotient of (A) the conversion value
less $1,000, divided by (B) the last reported sale price of
our common stock for such day.
|
The conversion value means the product of (1) the
conversion rate in effect (plus any applicable additional shares
resulting from an adjustment to the conversion rate) or, if the
Convertible Senior Notes are converted during a registration
default, 103% of such conversion rate (and any such additional
shares), and (2) the average of the last reported sale
prices of our common stock for the trading days during the cash
settlement period. During 2006 and 2005, no conversion triggers
were met.
Approximately 1.0 million and 118,000 shares
underlying the Convertible Senior Notes were included in the
calculation of diluted earnings per share for the year ended
December 31, 2006 and 2005, respectively, because our
weighted average share price for each period was above the
conversion price of approximately $32.14 per share. As a
result, there would be a premium over the principal amount,
which is paid in cash, and the shares would be issued on
conversion. The maximum number of shares of common stock which
may be issued upon conversion of the Convertible Senior Notes is
13,303,770. In addition to the 13,303,770 shares of common
stock registered, we registered an indeterminate number of
shares of common stock issuable upon conversion of the
Convertible Senior Notes by means of an antidilution adjustment
of the conversion price pursuant to the terms of the Convertible
Senior Notes. Proceeds from the offering were used for general
corporate purposes including a capital contribution of
$72 million, made in March 2005, to Deepwater Gateway to
enable it to repay its term loan, and strategic acquisitions in
2005 (Torch and Acergy vessels and Murphy oil and gas
properties).
MARAD
Debt
At December 31, 2006 and 2005, $131.3 million and
$134.9 million, respectively, was outstanding on our
long-term financing for construction of the Q4000. This
U.S. Government guaranteed financing is pursuant to
Title XI of the Merchant Marine Act of 1936 which is
administered by the Maritime Administration (MARAD
Debt). The MARAD Debt is payable in equal semi-annual
installments which began in August 2002 and matures
25 years from such date. The MARAD Debt is collateralized
by the Q4000, with us guaranteeing 50% of the debt, and
initially bore interest at a floating rate which approximated
AAA Commercial Paper yields plus 20 basis points. As
provided for in the existing MARAD Debt agreements, in September
2005, we fixed the interest rate on the debt through the
issuance of a 4.93% fixed-rate note with the same maturity date
(February 2027). In accordance with the MARAD Debt agreements,
we are required to comply with certain covenants and
restrictions, including the maintenance of minimum net worth,
working capital and
debt-to-equity
requirements. As of December 31, 2006 and 2005, we were in
compliance with these covenants.
In September 2005, we entered into an interest rate swap
agreement with a bank. The swap was designated as a cash flow
hedge of a forecasted transaction in anticipation of the
refinancing of the MARAD Debt from floating rate debt to
fixed-rate debt that closed on September 30, 2005. The
interest rate swap agreement totaled an aggregate notional
amount of $134.9 million with a fixed interest rate of
4.695%. On September 30, 2005, we terminated the interest
rate swap and received cash proceeds of approximately
$1.5 million representing a gain on the interest rate
differential. This gain was deferred and is being amortized over
the remaining life of the MARAD Debt as an adjustment to
interest expense.
Other
In connection with the acquisition of Helix Energy Limited, we
entered into a two-year note payable to the former owners
totaling approximately 3.1 million British Pounds, or
approximately $5.6 million, on November 3,
99
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005 (approximately $6.2 million and $5.4 million at
December 31, 2006 and 2005, respectively). The notes bear
interest at a LIBOR based floating rate with interest payments
due quarterly beginning January 1, 2006. Principal amounts
are due in November 2007.
In August 2003, Canyon Offshore, Ltd. (a U.K.
subsidiary COL) (with a parent guaranty
from Helix) completed a capital lease with a bank refinancing
the construction costs of certain assets. COL received proceeds
of $12 million for the assets and agreed to pay the bank
sixty monthly installment payments of $217,174 (resulting in an
implicit interest rate of 3.29%) and has an option to purchase
the assets at the end of the lease term for $1. No gain or loss
resulted from this transaction. The proceeds were used to reduce
our revolving credit facility, which had initially funded the
construction costs of the assets. This transaction was accounted
for as a capital lease.
In connection with borrowings under our long-term debt
financings described above, we paid deferred financing cost of
$11.8 million and $8.8 million during the years ended
December 31, 2006 and 2005, respectively. Deferred
financing costs of $28.3 million and $18.7 million are
included in Other Assets, Net (see
Note 7 Detail of Certain
Accounts) as of December 31, 2006 and 2005,
respectively, and are being amortized over the life of the
respective agreement.
Scheduled maturities of long-term debt and capital lease
obligations outstanding as of December 31, 2006 were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
|
|
|
Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term
|
|
|
Credit
|
|
|
Senior
|
|
|
MARAD
|
|
|
Loan
|
|
|
Capital
|
|
|
|
|
|
|
Loan
|
|
|
Facility
|
|
|
Notes
|
|
|
Debt
|
|
|
Notes (1)
|
|
|
Leases
|
|
|
Total
|
|
|
Less than one year
|
|
$
|
8,400
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,823
|
|
|
$
|
11,146
|
|
|
$
|
2,519
|
|
|
$
|
25,888
|
|
One to two years
|
|
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
4,014
|
|
|
|
|
|
|
|
1,505
|
|
|
|
13,919
|
|
Two to three years
|
|
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
4,214
|
|
|
|
|
|
|
|
|
|
|
|
12,614
|
|
Three to four years
|
|
|
8,400
|
|
|
|
|
|
|
|
|
|
|
|
4,424
|
|
|
|
|
|
|
|
|
|
|
|
12,824
|
|
Four to five years
|
|
|
8,400
|
|
|
|
201,000
|
|
|
|
|
|
|
|
4,645
|
|
|
|
|
|
|
|
|
|
|
|
214,045
|
|
Over five years
|
|
|
790,900
|
|
|
|
|
|
|
|
300,000
|
|
|
|
110,166
|
|
|
|
|
|
|
|
|
|
|
|
1,201,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
832,900
|
|
|
|
201,000
|
|
|
|
300,000
|
|
|
|
131,286
|
|
|
|
11,146
|
|
|
|
4,024
|
|
|
|
1,480,356
|
|
Current maturities
|
|
|
(8,400
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,823
|
)
|
|
|
(11,146
|
)
|
|
|
(2,519
|
)
|
|
|
(25,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current
maturities
|
|
$
|
824,500
|
|
|
$
|
201,000
|
|
|
$
|
300,000
|
|
|
$
|
127,463
|
|
|
$
|
|
|
|
$
|
1,505
|
|
|
$
|
1,454,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes the $5 million loan provided by Kommandor
RØMØ to Kommandor as of December 31, 2006. The
loan is expected to be repaid at the completion of the initial
conversion, which is forecasted to be the end of 2007. As such,
the entire loan amount is classified as current. |
We had unsecured letters of credit outstanding at
December 31, 2006 totaling approximately $5.3 million.
These letters of credit primarily guarantee various contract
bidding and insurance activities. The following table details
our interest expense and capitalized interest for the years
ended December 31, 2006, 2005 and 2004 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Interest expense
|
|
$
|
51,913
|
|
|
$
|
14,970
|
|
|
$
|
6,282
|
|
Interest income
|
|
|
(6,259
|
)
|
|
|
(5,917
|
)
|
|
|
(439
|
)
|
Capitalized interest
|
|
|
(10,609
|
)
|
|
|
(2,025
|
)
|
|
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
$
|
35,045
|
|
|
$
|
7,028
|
|
|
$
|
5,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 11
Income Taxes
We and our subsidiaries, including acquired companies from their
respective dates of acquisition, file a consolidated
U.S. federal income tax return. At December 13, 2006,
CDI was separated from our tax consolidated group as a result of
its initial public offering. As a result, we are required to
accrue income tax expense on our share of CDIs net income
after the initial public offering in all periods where we
consolidate their operations. The deconsolidation of CDIs
net income after its initial public offering did not have a
material impact on our consolidated results of operations. We
conduct our international operations in a number of locations
that have varying laws and regulations with regard to taxes.
Management believes that adequate provisions have been made for
all taxes that will ultimately be payable. Income taxes have
been provided based on the US statutory rate of 35% adjusted for
items which are allowed as deductions for federal income tax
reporting purposes, but not for book purposes. The primary
differences between the statutory rate and our effective rate
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Gain on subsidiary equity
transaction
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
Foreign provision
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
0.9
|
|
Percentage depletion in excess of
basis
|
|
|
(0.1
|
)
|
|
|
(0.7
|
)
|
|
|
|
|
Research and development tax
credits
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
IRC Section 199 deduction
|
|
|
(0.2
|
)
|
|
|
(0.5
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
(0.8
|
)
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective rate
|
|
|
42.5
|
%
|
|
|
33.0
|
%
|
|
|
34.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of the provision for income taxes reflected in the
statements of operations consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current
|
|
$
|
199,921
|
|
|
$
|
32,291
|
|
|
$
|
988
|
|
Deferred
|
|
|
57,235
|
|
|
|
42,728
|
|
|
|
42,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,156
|
|
|
$
|
75,019
|
|
|
$
|
43,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Domestic
|
|
$
|
247,588
|
|
|
$
|
68,957
|
|
|
$
|
41,260
|
|
Foreign
|
|
|
9,568
|
|
|
|
6,062
|
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
257,156
|
|
|
$
|
75,019
|
|
|
$
|
43,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2006 and 2005, our oil and gas activities and certain
construction activities qualified for a tax deduction under
Internal Revenue Code (IRC) Section 199. In
addition, due to our taxable income position at
December 31, 2006 and 2005, the IRC allowed a deduction for
percentage depletion in excess of basis on our oil and gas
activities.
As a result of the Remington acquisition on July 1, 2006, a
deferred tax asset was recorded as a part of the purchase price
allocation to reflect the availability of approximately
$65.2 million of net operating loss carryforward as of the
acquisition date. As a result of our taxable income position
during 2006, we were able to utilize $61.0 million of the
net operating loss carryforward at December 31, 2006. A
valuation reserve was determined not to be necessary.
101
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Deferred income taxes result from the effect of transactions
that are recognized in different periods for financial and tax
reporting purposes. The nature of these differences and the
income tax effect of each as of December 31, 2006 and 2005
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
416,762
|
|
|
$
|
159,360
|
|
Equity investments in production
facilities
|
|
|
30,723
|
|
|
|
28,264
|
|
Prepaid and other
|
|
|
31,383
|
|
|
|
10,693
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
478,868
|
|
|
$
|
198,317
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforward
|
|
$
|
(3,888
|
)
|
|
$
|
(2,079
|
)
|
Decommissioning liabilities
|
|
|
(33,367
|
)
|
|
|
(26,915
|
)
|
Reserves, accrued liabilities and
other
|
|
|
(8,775
|
)
|
|
|
(10,537
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
(46,030
|
)
|
|
$
|
(39,531
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
432,838
|
|
|
$
|
158,786
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006 and 2005, we had $4.9 million and
$6.9 million of net operating losses, respectively that
were incurred in the United Kingdom. The utilization of these
net operating losses is restricted to the entity generating the
loss. The U.K. losses have an indefinite carryforward period.
We consider the undistributed earnings of our principal
non-U.S. subsidiaries
to be permanently reinvested. At December 31, 2006 and
2005, our principal
non-U.S. subsidiaries
had accumulated earnings and profits of approximately
$20.3 million and a $4.3 million deficit,
respectively. We have not provided deferred U.S. income tax
on the accumulated earnings and profits.
In December 2006, we entered into the Tax Matters Agreement with
CDI in connection with the CDI initial public offering. The
following is a summary of the material terms of the Tax Matters
Agreement:
|
|
|
|
|
Liability for Taxes. Each party has agreed to
indemnify the other in respect of all taxes for which it is
responsible under the Tax Matters Agreement. We are generally
responsible for all federal, state, local and foreign income
taxes that are imposed on or are attributable to CDI or any of
its subsidiaries for all tax periods (or portions thereof)
ending on or before CDIs initial public offering. CDI is
generally responsible for all federal, state, local and foreign
income taxes that are imposed on or are attributable to CDI or
any of its subsidiaries for all tax periods (or portions
thereof) beginning after its initial public offering. CDI is
also responsible for all taxes other than income taxes imposed
on or attributable to CDI or any of its subsidiaries for all tax
periods.
|
|
|
|
Tax Benefit Payments. As a result of certain
taxable income recognition by us in conjunction with the CDI
initial public offering, CDI will become entitled to certain tax
benefits that are expected to be realized by CDI in the ordinary
course of its business and otherwise would not have been
available to CDI. These benefits are generally attributable to
increased tax deductions for amortization of tangible and
intangible assets and to increased tax basis in nonamortizable
assets. Under the Tax Matters Agreement, for the next ten years,
CDI will be required to make annual payments to us equal to 90%
of the amount of taxes which CDI saves for each tax period as a
result of these increased tax benefits. The timing of CDIs
payments to us under the Tax Matters Agreement will be
determined with reference to when CDI actually realizes the
projected tax savings. This timing will depend upon, among other
things, the amount of their taxable income and the timing at
which certain assets are sold or disposed.
|
102
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Preparation and Filing of Tax Returns. We will
prepare and file all income tax returns that include CDI or any
of its subsidiaries if we are responsible for any portion of the
taxes reported on such tax returns. The Tax Matters Agreement
also provides that we will have the sole authority to respond to
and conduct all tax proceedings (including tax audits) relating
to such income tax returns.
|
For the year ended December 31, 2006, this agreement did
not have a material impact on our consolidated results of
operations.
Note 12
Convertible Preferred Stock
On January 8, 2003, we completed the private placement of
$25 million of a newly designated class of cumulative
convertible preferred stock
(Series A-1
Cumulative Convertible Preferred Stock, par value $0.01 per
share) that is convertible into 1,666,668 shares of our
common stock at $15 per share. The preferred stock was
issued to a private investment firm. Subsequently in June 2004,
the preferred stockholder exercised its existing right and
purchased $30 million in additional cumulative convertible
preferred stock
(Series A-2
Cumulative Convertible Preferred Stock, par value $0.01 per
share). In accordance with the January 8, 2003 agreement,
the $30 million in additional preferred stock is
convertible into 1,964,058 shares of our common stock at
$15.27 per share. In the event the holder of the
convertible preferred stock elects to redeem into our common
stock and our common stock price is below the conversion prices,
unless we have elected to settle in cash, the holder would
receive additional shares above the 1,666,668 common shares
(Series A-1
tranche) and 1,964,058 common shares
(Series A-2
tranche). The incremental shares would be treated as a dividend
and reduce net income applicable to common shareholders.
The preferred stock has a minimum annual dividend rate of 4%,
subject to adjustment, payable quarterly in cash or common
shares at our option. The dividend rate for the years ended
December 31, 2006, 2005 and 2004 was 6.9%, 5.9% and 4.0%,
respectively. We paid these dividends in 2006, 2005 and 2004 in
cash. The holder may redeem the value of its original and
additional investment in the preferred shares to be settled in
common stock at the then prevailing market price or cash at our
discretion. In the event we are unable to deliver registered
common shares, we could be required to redeem in cash.
The proceeds received from the sales of this stock, net of
transaction costs, have been classified outside of
shareholders equity on the balance sheet below total
liabilities. Prior to the conversion, common shares issuable
will be assessed for inclusion in the weighted average shares
outstanding for our diluted earnings per share using the if
converted method based on the lower of our share price at the
beginning of the applicable period or the applicable conversion
price ($15.00 and $15.27).
|
|
Note 13
|
Employee
Benefit Plans
|
Defined
Contribution Plan
We sponsor a defined contribution 401(k) retirement plan
covering substantially all of our employees. Our contributions
are in the form of cash and are determined annually as
50 percent of each employees contribution up to
5 percent of the employees salary. Our costs related
to this plan totaled $2.3 million, $963,000 and $691,000
for the years ended December 31, 2006, 2005 and 2004,
respectively.
Stock-Based
Compensation Plans
We have three stock-based compensation plans: the 1995 Long-Term
Incentive Plan, as amended (the 1995 Incentive
Plan), the 2005 Long-Term Incentive Plan (the 2005
Incentive Plan) and the 1998 Employee Stock Purchase Plan
(the ESPP). Under the 1995 Incentive Plan, a maximum
of 10% of the total shares of common stock issued and
outstanding may be granted to key executives and selected
employees and non-employee members of the Board of Directors.
Following the approval by shareholders of the 2005 Incentive
Plan on May 10, 2005, no further grants have been or will
be made under the 1995 Plan. The aggregate number of shares that
may be granted under the 2005 Incentive Plan is
6,000,000 shares (after adjustment for the December 8,
2005
two-for-one
stock
103
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
split) of which 4,000,000 shares may be granted in the form
of restricted stock or restricted stock units and
2,000,000 shares may be granted in the form of stock
options. The 1995 and 2005 Incentive Plans and the ESPP are
administered by the Compensation Committee of the Board of
Directors, which in the case of the 1995 and 2005 Incentive
Plans, determines the type of award to be made to each
participant, and as set forth in the related award agreement,
the terms, conditions and limitations applicable to each award.
The committee may grant stock options, stock and cash awards.
Awards granted to employees under the 1995 and 2005 Incentive
Plan typically vest 20% per year for a five-year period (or
in the case of certain stock option awards under the 1995
Incentive Plan, 33% per year for a three-year period); if
in the form of stock options, have a maximum exercise life of
ten years; and, subject to certain exceptions, are not
transferable.
Prior to January 1, 2006, we used the intrinsic value
method of accounting for our stock-based compensation.
Accordingly, no compensation expense was recognized when the
exercise price of an employee stock option was equal to the
common share market price on the grant date and all other terms
were fixed. In addition, under the intrinsic value method, on
the date of grant for restricted shares, we recorded unearned
compensation (a component of shareholders equity) that
equaled the product of the number of shares granted and the
closing price of our common stock on the business day prior to
the grant date, and expense was recognized over the vesting
period of each grant on a straight-line basis.
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (Revised
2004) Share-Based Payments
(SFAS 123R) and began accounting for our
stock-based compensation plans under the fair value method. We
continue to use the Black-Scholes option pricing model for
valuing share-based payments relating to stock options and
recognize compensation cost on a straight-line basis over the
respective vesting period. No forfeitures were estimated for
outstanding unvested options and restricted shares as historical
forfeitures have been immaterial. We have selected the
modified-prospective method of adoption. Under that transition
method, compensation cost recognized in 2006 included:
a) compensation cost for all share-based payments granted
prior to, but not yet vested as of January 1, 2006, based
on the grant-date fair value, and (b) compensation cost for
all share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value. In addition to the
compensation cost recognition requirements, tax deduction
benefits for an award in excess of recognized compensation cost
is reported as a financing cash flow rather than as an operating
cash flow. The adoption did not have a material impact on our
consolidated results of operations, earnings per share and cash
flows. There were no stock option grants in 2006 or 2005.
Stock
Options
The options outstanding at December 31, 2006, have exercise
prices as follows: 163,000 shares at $8.57;
67,510 shares at $9.32; 110,680 shares at $10.92;
73,000 shares at $10.94; 64,800 shares at $11.00;
181,280 shares at $12.18; 70,400 shares at $13.91; and
152,400 shares ranging from $8.14 to $12.00, and a weighted
average remaining contractual life of 5.75 years.
104
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options outstanding are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Options outstanding at beginning
of year
|
|
|
1,717,904
|
|
|
$
|
10.91
|
|
|
|
2,599,894
|
|
|
$
|
10.65
|
|
|
|
3,446,204
|
|
|
$
|
10.19
|
|
Granted
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
337,000
|
|
|
$
|
12.63
|
|
Exercised
|
|
|
(792,394
|
)
|
|
$
|
11.21
|
|
|
|
(858,070
|
)
|
|
$
|
10.17
|
|
|
|
(1,119,818
|
)
|
|
$
|
9.85
|
|
Terminated
|
|
|
(42,440
|
)
|
|
$
|
10.96
|
|
|
|
(23,920
|
)
|
|
$
|
10.82
|
|
|
|
(63,492
|
)
|
|
$
|
10.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
883,070
|
|
|
$
|
10.86
|
|
|
|
1,717,904
|
|
|
$
|
10.91
|
|
|
|
2,599,894
|
|
|
$
|
10.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable end of year
|
|
|
515,318
|
|
|
$
|
10.34
|
|
|
|
1,066,316
|
|
|
$
|
10.94
|
|
|
|
1,428,348
|
|
|
$
|
10.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006, $1.4 million was
recognized as compensation expense related to stock options. No
expense related to stock options was recognized in 2005 and 2004
under the intrinsic value method. The aggregate intrinsic value
of the stock options exercised in 2006, 2005 and 2004 was
approximately $21.3 million, $12.6 million and
$5.3 million, respectively. Future compensation cost
associated with unvested options at December 31, 2006
totaled approximately $1.8 million. The aggregate intrinsic
value of options exercisable at December 31, 2006 was
approximately $10.8 million. The weighted average vesting
period related to nonvested stock options at December 31,
2006 was approximately 1.7 years.
Restricted
Shares
We grant restricted shares to members of our board of directors,
key executives and selected management employees. Compensation
cost for each award is the product of market value of each share
and the number of shares granted. The following table summarizes
information about our restricted shares during the years ended
December 31, 2006 and 2005 (no restricted shares were
granted prior to 2005):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value (1)
|
|
|
Shares
|
|
|
Fair Value (1)
|
|
|
Restricted shares outstanding at
beginning of year
|
|
|
384,902
|
|
|
$
|
25.59
|
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
497,450
|
|
|
$
|
37.07
|
|
|
|
388,350
|
|
|
$
|
25.56
|
|
Vested
|
|
|
(66,865
|
)
|
|
$
|
24.51
|
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
(86,275
|
)
|
|
$
|
36.04
|
|
|
|
(3,448
|
)
|
|
$
|
21.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares outstanding at
end of year,
|
|
|
729,212
|
|
|
$
|
32.29
|
|
|
|
384,902
|
|
|
$
|
25.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the average grant date market value, which is based
on the quoted market price of the common stock on the business
day prior to the date of grant. |
For the year ended December 31, 2005, the amounts granted
were recorded as unearned compensation, a component of
shareholders equity and charged to expense over the
respective vesting periods on a straight-line basis.
Amortization of unearned compensation totaled $1.4 million
for the year ended December 31, 2005. The balance in
unearned compensation at December 31, 2005 was
$7.5 million and was reversed in January 2006 upon adoption
of the fair value method. For the year ended December 31,
2006, $6.3 million was recognized as compensation expense
related to restricted shares. Future compensation cost
associated with unvested restricted stock awards at
December 31, 2006 totaled approximately $17.5 million.
The weighted average vesting period related to nonvested
restricted stock awards at December 31, 2006 was
approximately 3.8 years.
105
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In January and February 2007, we granted certain key executives
and select management employees 675,190 restricted shares under
the 2005 Long-Term Incentive Plan. The shares vest 20% per
year for a five-year period. The weighted average market value
of the restricted shares was $31.49 per share or
$21.3 million. We also granted our outside directors 2,092
restricted shares. The shares vest on January 1, 2009. The
market value of the restricted shares was $31.37 per share
or $66,000.
Employee
Stock Purchase Plan
Effective May 12, 1998, we adopted a qualified,
non-compensatory ESPP, which allows employees to acquire shares
of common stock through payroll deductions over a six month
period. The purchase price is equal to 85 percent of the
fair market value of the common stock on either the first or
last day of the subscription period, whichever is lower.
Purchases under the plan are limited to 10 percent of an
employees base salary. Under this plan 97,598, 79,878 and
93,580 shares of common stock were purchased in the open
market for our employees at a weighted-average share price of
$33.12, $23.11 and $13.58 during 2006, 2005 and 2004,
respectively. For the year ended December 31, 2006, we
recognized $1.6 million of compensation expense related to
stock purchased under the ESPP. No expenses related to the ESPP
were recognized in 2005 and 2004 under the intrinsic value
method.
In January 2007, we issued 109,754 shares of our common
stock to our employees under this plan to satisfy the employee
purchase period from July 1, 2006 to December 31,
2006, which increased our common stock outstanding. We
subsequently repurchased the same number of shares of our common
stock in the open market at $29.94 per share and reduced
the number of shares of our common stock outstanding.
Stock
Compensation Modifications
Under our 1995 Incentive Plan and our 2005 Long-Term Incentive
Plan, upon a stock recipients termination of employment,
which is defined as employment with us and any of our
majority-owned subsidiaries, any unvested restricted stock and
stock options are forfeited immediately and all unexercised
vested options are forfeited, as specified under the applicable
plan or agreement. Ordinarily, once our beneficial ownership of
CDI falls to 50% or below (the Trigger Date), the
options and unvested shares granted to CDI employees would be
forfeited at such date under our current plans. As part of the
Employee Matters Agreement between us and CDI, which was
executed in December 2006, with respect to any employee who is a
Cal Dive employee as of the date of the IPO, we have agreed
to extend the life of any vested and unexercised stock options
to the earlier of (1) the expiration of the general term of
the option or (2) the later of (i) December 31 of
the calendar year in which the Trigger Date occurs, or
(ii) the 15th day of the third month after the
expiration of the
60-day
period commencing on the Trigger Date (135 days). To the
extent that any such employee would forfeit options because they
have not vested as of such date, such options will be
accelerated and will vest at the Trigger Date. In addition,
under the Employee Matters Agreement, restricted stock awards
granted to employees of CDI as of the IPO closing date will
continue under their present terms and the terms of the plans
under which they were granted. The modification date for these
restricted stock and options occurred at the date the Employee
Matters Agreement was adopted. However, no accounting charge
will occur until the Trigger Date occurs and the impact of the
modification, if any, can be measured.
Note 14
Shareholders Equity
Our amended and restated Articles of Incorporation provide for
authorized Common Stock of 240,000,000 shares with no par
value per share and 5,000,000 shares of preferred stock,
$0.01 par value per share, in one or more series.
In November 2005, our Board of Directors declared a
two-for-one
split of our common stock in the form of a 100% stock
distribution on December 8, 2005 to all holders of record
at the close of business on December 1, 2005. All share and
per share data in these financial statements have been restated
to reflect the stock split.
106
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of accumulated other comprehensive income (loss)
as of December 31, 2006 and 2005 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Cumulative foreign currency
translation adjustment
|
|
$
|
24,580
|
|
|
$
|
6,979
|
|
Unrealized gain (loss) on hedges,
net
|
|
|
2,656
|
|
|
|
(8,708
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
income (loss)
|
|
$
|
27,236
|
|
|
$
|
(1,729
|
)
|
|
|
|
|
|
|
|
|
|
Note 15
Stock Buyback Program
On June 28, 2006, our Board of Directors authorized us to
discretionarily purchase up to $50 million of our common
stock in the open market. In October and November 2006, we
purchased approximately 1.7 million shares under this
program for a weighted average price of $29.86 per share,
or $50.0 million.
Note 16
Related Party Transactions
Cal Dive
International, Inc.
Before the IPO of Cal Dive, we provided to Cal Dive
certain management and administrative services including:
(i) accounting, treasury, payroll and other financial
services; (ii) legal, insurance and claims services;
(iii) information systems, network and communication
services; (iv) employee benefit services (including direct
third-party group insurance costs and 401(k) contribution
matching costs discussed below); and (v) corporate
facilities management services. Total allocated costs to
Cal Dive for such services were approximately
$16.5 million, $8.5 million and $7.3 million for
the years ended December 31, 2006, 2005 and 2004,
respectively.
Included in these costs are costs related to the participation
by CDIs employees in our employee benefit plans through
December 31, 2006, including employee medical insurance and
a defined contribution 401(k) retirement plan. These costs were
recorded as a component of operating expenses and were
approximately $5.8 million, $3.3 million and
$2.5 million for the years ended December 31, 2006,
2005 and 2004, respectively. Our defined contribution 401(k)
retirement plan is further disclosed in
Note 13.
In addition, Cal Dive provided to us operational and field
support services including: (i) training and quality
control services; (ii) marine administration services;
(iii) supply chain and base operation services;
(iv) environmental, health and safety services;
(v) operational facilities management services; and
(vi) human resources. Total allocated costs to us for such
services were approximately $5.6 million, $4.1 million
and $3.2 million for the years ended December 31,
2006, 2005 and 2004, respectively. These amounts are eliminated
in the accompanying consolidated financial statements.
In contemplation of the IPO of CDI, we entered into intercompany
agreements with CDI that address the rights and obligations of
each respective company, including a Master Agreement, a
Corporate Services Agreement, an Employee Matters Agreement and
a Tax Matters Agreement. The Master Agreement describes and
provides a framework for the separation of our business from
CDIs business, allocates liabilities (including those
potential liabilities related to litigation) between the
parties, allocates responsibilities and provides standards for
each of the parties conduct going forward (e.g.,
coordination regarding financial reporting), and sets forth the
indemnification obligations of each party. In addition, the
Master Agreement provides us with a preferential right to use a
specified number of CDIs vessels in accordance with the
terms of such agreement.
Pursuant to the Corporate Services Agreement, each party agrees
to provide specified services to the other party, including
administrative and support services for the time period
specified therein. Generally after we cease to own 50% or more
of the total voting power of CDI common stock, all services may
be terminated by either party upon 60 days notice, but a
longer notice period is applicable for selected services. Each
of the services shall be provided in exchange for a monthly
charge as calculated for each service (based on relative
revenues, number of users for a particular service, or other
specified measure). In general, under the Corporate Services
Agreement we
107
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provide CDI with services related to the tax, treasury, audit,
insurance (including claims) and information technology
functions; CDI provides us with services related to the human
resources, training and orientation functions, and certain
supply chain and environmental, health and safety services.
Pursuant to the Employee Matters Agreement, except as otherwise
provided, CDI generally accepts and assumes all employment
related obligations with respect to all individuals who are
employees of CDI as of the IPO closing date, including expenses
related to existing options and restricted stock. Those
employees are entitled to retain their Helix stock options and
restricted stock grants under their original terms except as
mandated by applicable law. The Employee Matters Agreement also
permits CDI employees to participate in our Employee Stock
Purchase Plan for the offering period that ends June 30,
2007, and CDI agrees to pay us at the end of the offering period
the fair market value of the shares of our stock purchased by
such employees.
Pursuant to the Tax Matters Agreement , we are generally
responsible for all federal, state, local and foreign income
taxes that are attributable to CDI for all tax periods ending on
the IPO; CDI is generally responsible for all such taxes
beginning after the IPO. In addition, the agreement provides
that for a period of up to ten years, CDI is required to make
annual payments to us equal to 90% of tax benefits derived by
CDI from tax basis adjustments resulting from the
Boot gain recognized by us as a result of the
distributions made to us as part of the IPO transaction. See
Note 11 Income Taxes
for more detailed disclosure of the Tax Matters Agreement.
Other
In April 2000, we acquired a 20% working interest in
Gunnison, a Deepwater Gulf of Mexico prospect of
Kerr-McGee Oil & Gas Corp. Financing for the
exploratory costs of approximately $20 million was provided
by an investment partnership (OKCD Investments, Ltd. or
OKCD), the investors of which include current and
former Helix senior management, in exchange for a revenue
interest that is an overriding royalty interest of 25% of
Helixs 20% working interest. Production began in December
2003. Payments to OKCD from us totaled $34.6 million,
$28.1 million and $20.3 million in the years ended
December 31, 2006, 2005 and 2004, respectively. Our
Principal Executive Officer, as a Class A limited partner
of OKCD, personally owns approximately 67% of the partnership.
Other executive officers of the Company own approximately 6%
combined of the partnership. In 2000, OKCD also awarded
Class B limited partnership interests to key Helix
employees.
In connection with the acquisition of Helix Energy Limited, we
entered into two-year notes payable to former owners totaling
approximately 3.1 million British Pounds, or approximately
$5.6 million, on November 3, 2005 (approximately
$6.2 million and $5.4 million at December 31,
2006 and 2005). The notes bear interest at a LIBOR based
floating rate with payments due quarterly beginning
January 31, 2006. Principal amounts are due in November
2007.
Note 17
Commitments and Contingencies
Lease
Commitments
We lease several facilities, ROVs and a vessel under
noncancelable operating leases. Future minimum rentals under
these leases are approximately $63.0 million at
December 31, 2006 with $32.2 million due in 2007,
$10.6 million in 2008, $10.1 million in 2009,
$3.0 million in 2010, $2.4 million in 2011 and
$4.7 million thereafter. Total rental expense under these
operating leases was approximately $25.3 million,
$23.4 million and $8.9 million for the years ended
December 31, 2006, 2005 and 2004, respectively.
Insurance
We carry Hull and Increased Value insurance which provides
coverage for physical damage to an agreed amount for each
vessel. The deductibles are based on the value of the vessel
with a maximum deductible of $1.0 million on the Q4000
and $500,000 on the Intrepid, Seawell, Express and
Kestrel. Other vessels carry deductibles between $250,000
and $350,000. We also carry Protection and Indemnity
(P&I) insurance which
108
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, including divers and tenders and marine crews, are
covered by Maritime Employers Liability insurance policy which
covers Jones Act exposures and includes a deductible of
$100,000 per occurrence plus a $1.0 million annual
aggregate. In addition to the liability policies named above, we
carry various layers of Umbrella Liability for total limits of
$300,000,000 excess of primary limits. Our self-insured
retention on our medical and health benefits program for
employees is $130,000 per participant.
We incur workers compensation and other insurance claims
in the normal course of business, which management believes are
covered by insurance. Our insurers, legal counsel and we analyze
each claim for potential exposure and estimate the ultimate
liability of each claim. Amounts accrued and receivable from
insurance companies, above the applicable deductible limits, are
reflected in Other Current Assets in the consolidated balance
sheet. Such amounts were $3.6 million and $6.1 million
as of December 31, 2006 and 2005, respectively. See related
accrued liabilities at Note 7
Detail of Certain Accounts. 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. A
successful liability claim for which we are underinsured or
uninsured could have a material adverse effect on our business.
Litigation
and Claims
We are involved in various legal proceedings, primarily
involving claims for personal injury under the General Maritime
Laws of the United States and the Jones Act as a result of
alleged negligence. In addition, we from time to time incur
other claims, such as contract disputes, in the normal course of
business. In that regard, in 1998, one of our subsidiaries,
Cal Dive Offshore Ltd (CDO), entered into a
subcontract with Seacore Marine Contractors Limited
(Seacore) to provide a vessel to Seacore for
Seacores use in performing a contract with Coflexip Stena
Offshore Newfoundland (Coflexip) in Canada. Due to
various difficulties, that contract was terminated and an
arbitration to recover damages was commenced. We were not a
party to that arbitration. A liability finding was made by the
arbitrator against Seacore and in favor of Coflexip. Seacore and
Coflexip settled this matter with Seacore paying Coflexip
CAD$6.95 million. Seacore then initiated an arbitration
proceeding against CDO seeking payment of that amount, and
subsequently commenced a lawsuit against us seeking the same
recovery. Recently we have settled this litigation and
arbitration with us making a payment to Seacore in the amount of
CAD$825,000 (or approximately $703,000) and the parties fully
and finally releasing each other from all claims pertaining to
the matter.
On December 2, 2005, we received an order from the MMS that
the price threshold for both oil and gas was exceeded for 2004
production and that royalties are due on such production
notwithstanding the provisions of the DWRRA, which was intended
to stimulate exploration and production of oil and natural gas
in the deepwater Gulf of Mexico by providing relief from the
obligation to pay royalty on certain federal leases. Our only
leases affected by this dispute are the Gunnison leases.
On May 2, 2006, the MMS issued an order that superseded and
replaced the December 2005 order, and claimed that royalties on
gas production are due for 2003 in addition to oil and gas
production in 2004. The May 2006 Order also seeks interest on
all royalties allegedly due. We filed a timely notice of appeal
with respect to both MMS orders. Other operators in the Deep
Water Gulf of Mexico who have received notices similar to ours
are seeking royalty relief under the DWRRA, including Kerr-McGee
Oil and Gas Corporation (Kerr-McGee), the operator
of Gunnison. In March of 2006, Kerr-McGee filed a lawsuit
in federal district court challenging the enforceability of
price thresholds in certain deepwater Gulf of Mexico Leases,
such as ours. We do not anticipate that the MMS director will
issue decisions in ours or the other companies
administrative
109
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
appeals until the Kerr-McGee litigation has been
resolved. As a result of this dispute, we have recorded reserves
for the disputed royalties (and any other royalties that may be
claimed) plus interest at 5% for our portion of the Gunnison
related MMS claim. The total reserved amount at
December 31, 2006 was approximately $42.6 million. At
this time, it is not anticipated that any penalties would be
assessed even if we are unsuccessful in its appeal.
Although the above discussed matters may have the potential for
additional liability and may have an impact on our consolidated
financial results for a particular reporting period, we believe
that the outcome of all such matters and proceedings will not
have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
Commitments
We plan to convert the Caesar (acquired in January 2006
for $27.5 million in cash) into a deepwater pipelay vessel.
Total conversion costs are estimated to be approximately
$110 million, of which approximately $15.0 million had
been incurred, with an additional $52.2 million committed
at December 31, 2006. In addition, we will upgrade the
Q4000 to include drilling via the addition of a
modular-based drilling system for approximately
$40 million, of which approximately $15.3 million had
been incurred, with an additional $19.0 million committed
at December 31, 2006.
In addition, in September 2006, we announced our plan to commit
to the construction of a $160 million multi-service
dynamically positioned dive support/well intervention vessel
(Well Enhancer) that will be capable of
working in the North Sea and West of Shetlands to support our
contract extension to provide light well intervention services
for Shell UK Ltd. We expect the Well Enhancer to join our
fleet in 2008. At December 31, 2006, we had incurred
approximately $19.4 million, with an additional
$87.3 million committed to this project.
Further, we, along with Kommandor RØMØ, have begun the
conversion of a ferry vessel into a dynamically-positioned
construction services vessel. Conversion of the vessel is
expected to be completed in two phases. The first phase of the
conversion is estimated to be approximately $60 million and
is expected to be completed by the end of 2007. As of
December 31, 2006, $16.8 million had been incurred
related to the conversion (our portion was $8.4 million),
with an additional $14.0 million committed. The second
phase of the conversion into a minimal floating production
system, Helix Producer I, is expected to be completed by
mid 2008. Estimated cost of conversion for the second phase is
approximately $100 million, in which we expect to
fund 100%. See
Note 9 Consolidated
Variable Interest Entities for a detailed discussion of
Kommandor.
As of December 31, 2006, we have also committed
approximately $138.9 million in additional capital
expenditures for exploration, development and drilling costs
related to our oil and gas properties.
Note 18
Business Segment Information
Our operations are conducted through the following lines of
businesses: contracting services operations and oil and gas
operations. We have disaggregated our contracting services
operations into three reportable segments in accordance with
SFAS 131: Contracting Services, Shelf Contracting and
Production Facilities. As a result, our reportable segments
consist of the following: Contracting Services (formerly known
as Deepwater Contracting), Shelf Contracting, Oil and Gas
(formerly known as Oil and Gas Production) and Production
Facilities. Contracting Services operations include deepwater
pipelay, well operations, robotics and reservoir and well tech
services. Shelf Contracting operations consist of assets
deployed primarily for diving-related activities and shallow
water construction. See Note 3 for
discussion of initial public offering of CDI common stock
(represented by the Shelf Contracting segment). All material
Intercompany transactions between the segments have been
eliminated.
We evaluate our performance based on income before income taxes
of each segment. Segment assets are comprised of all assets
attributable to the reportable segment. The majority of our
Production Facilities segment (Deepwater Gateway and
Independence Hub) are accounted for under the equity method of
accounting. Our
110
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
investment in Kommandor was consolidated in accordance with
FIN 46 and is included in our Production Facilities segment.
The following summarizes certain financial data by business
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
485,246
|
|
|
$
|
328,315
|
|
|
$
|
197,688
|
|
Shelf Contracting
|
|
|
509,917
|
|
|
|
223,211
|
|
|
|
126,546
|
|
Oil and Gas
|
|
|
429,607
|
|
|
|
275,813
|
|
|
|
243,310
|
|
Intercompany elimination
|
|
|
(57,846
|
)
|
|
|
(27,867
|
)
|
|
|
(24,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,366,924
|
|
|
$
|
799,472
|
|
|
$
|
543,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
90,454
|
|
|
$
|
42,333
|
|
|
$
|
(8,825
|
)
|
Shelf Contracting (1) (2)
|
|
|
184,879
|
|
|
|
60,078
|
|
|
|
14,692
|
|
Oil and Gas
|
|
|
132,104
|
|
|
|
123,104
|
|
|
|
117,682
|
|
Production Facilities (3)
|
|
|
(1,051
|
)
|
|
|
(977
|
)
|
|
|
(345
|
)
|
Intercompany elimination
|
|
|
(8,024
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
398,362
|
|
|
$
|
224,538
|
|
|
$
|
123,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense and
other
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services (5)
|
|
$
|
36,076
|
|
|
$
|
8,571
|
|
|
$
|
4,663
|
|
Shelf Contracting
|
|
|
(163
|
)
|
|
|
(45
|
)
|
|
|
|
|
Oil and Gas
|
|
|
(1,339
|
)
|
|
|
(1,117
|
)
|
|
|
602
|
|
Production Facilities
|
|
|
60
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,634
|
|
|
$
|
7,559
|
|
|
$
|
5,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of production
facilities investments
|
|
$
|
18,413
|
|
|
$
|
10,608
|
|
|
$
|
7,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services (4)
|
|
$
|
277,512
|
|
|
$
|
33,762
|
|
|
$
|
(13,488
|
)
|
Shelf Contracting (1) (2)
|
|
|
185,042
|
|
|
|
60,123
|
|
|
|
14,692
|
|
Oil and Gas
|
|
|
133,443
|
|
|
|
124,221
|
|
|
|
117,080
|
|
Production Facilities (3)
|
|
|
17,302
|
|
|
|
9,481
|
|
|
|
7,582
|
|
Intercompany elimination
|
|
|
(8,024
|
)
|
|
|
|
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
605,275
|
|
|
$
|
227,587
|
|
|
$
|
125,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
140,306
|
|
|
$
|
9,949
|
|
|
$
|
(7,574
|
)
|
Shelf Contracting
|
|
|
65,710
|
|
|
|
21,009
|
|
|
|
5,166
|
|
Oil and Gas
|
|
|
45,084
|
|
|
|
40,734
|
|
|
|
42,787
|
|
Production Facilities
|
|
|
6,056
|
|
|
|
3,327
|
|
|
|
2,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
257,156
|
|
|
$
|
75,019
|
|
|
$
|
43,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in thousands)
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
1,313,206
|
|
|
$
|
736,852
|
|
|
$
|
597,257
|
|
Shelf Contracting
|
|
|
452,153
|
|
|
|
277,446
|
|
|
|
145,226
|
|
Oil and Gas
|
|
|
2,282,715
|
|
|
|
478,522
|
|
|
|
229,083
|
|
Production Facilities
|
|
|
242,113
|
|
|
|
168,044
|
|
|
|
67,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,290,187
|
|
|
$
|
1,660,864
|
|
|
$
|
1,038,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
130,938
|
|
|
$
|
90,037
|
|
|
$
|
21,016
|
|
Shelf Contracting
|
|
|
38,086
|
|
|
|
32,383
|
|
|
|
1,792
|
|
Oil and Gas
|
|
|
282,318
|
|
|
|
238,698
|
|
|
|
27,315
|
|
Production Facilities
|
|
|
45,327
|
|
|
|
111,429
|
|
|
|
32,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
496,669
|
|
|
$
|
472,547
|
|
|
$
|
82,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracting Services
|
|
$
|
34,165
|
|
|
$
|
25,102
|
|
|
$
|
20,227
|
|
Shelf Contracting (1)
|
|
|
24,515
|
|
|
|
15,734
|
|
|
|
19,032
|
|
Oil and Gas
|
|
|
134,967
|
|
|
|
70,637
|
|
|
|
69,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
193,647
|
|
|
$
|
111,473
|
|
|
$
|
108,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included pre-tax $790,000 and $3.9 million of asset
impairment charges in 2005 and 2004, respectively. |
|
(2) |
|
Included $(487,000) and $2.8 million equity in (losses)
earnings from investment in OTSL in 2006 and 2005, respectively. |
|
(3) |
|
Represents selling and administrative expense of Production
Facilities incurred by us. See Equity in Earnings of Production
Facilities investments for earnings contribution. |
|
(4) |
|
Includes pre-tax gain of $223.1 million related to the
initial public offering of CDI common stock and transfer of debt
through dividend distributions from CDI. |
|
(5) |
|
Includes interest expense related to the Term Loan. The Proceeds
from the Tem Loan were used to fund the cash portion of the
Remington acquisition. |
Intercompany segment revenues during the years ended
December 31, 2006, 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Contracting Services
|
|
$
|
42,585
|
|
|
$
|
26,431
|
|
|
$
|
22,246
|
|
Shelf Contracting
|
|
|
15,261
|
|
|
|
1,436
|
|
|
|
1,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
57,846
|
|
|
$
|
27,867
|
|
|
$
|
24,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Intercompany segment profit (which only relates to intercompany
capital projects) during the years ended December 31, 2006,
2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Contracting Services
|
|
$
|
2,460
|
|
|
$
|
|
|
|
$
|
91
|
|
Shelf Contracting
|
|
|
5,564
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,024
|
|
|
$
|
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2006, 2005 and 2004, we
derived approximately $190.1 million, $83.2 million
and $77.1 million, respectively, of our revenues from the
U.K. sector utilizing approximately $238.5 million,
$168.4 million and $136.7 million, respectively, of
our total assets in this region. The majority of the remaining
revenues were generated in the U.S. Gulf of Mexico.
Note 19
Allowance for Uncollectible Accounts
The following table sets forth the activity in our Allowance for
Uncollectible Accounts for each of the three years in the period
ended December 31, 2006 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Beginning balance
|
|
$
|
585
|
|
|
$
|
7,768
|
|
|
$
|
7,462
|
|
Additions
|
|
|
3,598
|
|
|
|
2,577
|
|
|
|
2,745
|
|
Deductions
|
|
|
(3,201
|
)
|
|
|
(9,760
|
)
|
|
|
(2,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
982
|
|
|
$
|
585
|
|
|
$
|
7,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 2 Summary of
Significant Accounting Policies for a detailed discussion
regarding our accounting policy on Accounts Receivable and
Allowance for Uncollectible Accounts.
Note 20
Supplemental Oil and Gas Disclosures (Unaudited)
The following information regarding our oil and gas producing
activities is presented pursuant to SFAS No. 69,
Disclosures About Oil and Gas Producing Activities (in
thousands).
Capitalized
Costs
Aggregate amounts of capitalized costs relating to our oil and
gas activities and the aggregate amount of related accumulated
depletion, depreciation and amortization as of the dates
indicated are presented below:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Unproved oil and gas properties
|
|
$
|
101,845
|
|
|
$
|
|
|
Proved oil and gas properties
|
|
|
1,576,742
|
|
|
|
475,583
|
|
|
|
|
|
|
|
|
|
|
Total oil and gas properties
|
|
|
1,678,587
|
|
|
|
475,583
|
|
Accumulated depletion,
depreciation and amortization
|
|
|
(335,112
|
)
|
|
|
(160,651
|
)
|
|
|
|
|
|
|
|
|
|
Net capitalized costs
|
|
$
|
1,343,475
|
|
|
$
|
314,932
|
|
|
|
|
|
|
|
|
|
|
Included in capitalized costs of proved oil and gas properties
being amortized is an estimate of our proportionate share of
decommissioning liabilities assumed relating to these properties
which are also reflected as decommissioning liabilities in the
accompanying consolidated balance sheets at fair value on a
discounted basis. At December 31, 2006 and 2005, our oil
and gas operations decommissioning liabilities were
$167.7 million and $121.4 million, respectively.
113
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Costs
Incurred in Oil and Gas Producing Activities
The following table reflects the costs incurred in oil and gas
property acquisition and development activities, including
estimated decommissioning liabilities assumed, during the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
$
|
770,307
|
|
|
$
|
365
|
|
|
$
|
770,672
|
|
Unproved properties
|
|
|
105,519
|
|
|
|
|
|
|
|
105,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property acquisition costs
|
|
|
875,826
|
|
|
|
365
|
|
|
|
876,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
143,459
|
|
|
|
|
|
|
|
143,459
|
|
Development costs (1)
|
|
|
159,688
|
|
|
|
|
|
|
|
159,688
|
|
Asset retirement cost
|
|
|
32,863
|
|
|
|
7,579
|
|
|
|
40,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs incurred
|
|
$
|
1,211,836
|
|
|
$
|
7,944
|
|
|
$
|
1,219,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
$
|
183,837
|
|
|
$
|
|
|
|
$
|
183,837
|
|
Unproved properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property acquisition costs
|
|
|
183,837
|
|
|
|
|
|
|
|
183,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
5,728
|
|
|
|
|
|
|
|
5,728
|
|
Development costs (1)
|
|
|
67,193
|
|
|
|
|
|
|
|
67,193
|
|
Asset retirement cost
|
|
|
36,119
|
|
|
|
|
|
|
|
36,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs incurred
|
|
$
|
292,877
|
|
|
$
|
|
|
|
$
|
292,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Property acquisition costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved properties
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Unproved properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property acquisition costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Development costs (1)
|
|
|
38,171
|
|
|
|
|
|
|
|
38,171
|
|
Asset retirement cost
|
|
|
202
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs incurred
|
|
$
|
38,373
|
|
|
$
|
|
|
|
$
|
38,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Development costs include costs incurred to obtain access to
proved reserves to drill and equip development wells.
Development costs also include costs of developmental dry holes. |
114
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Results
of Operations for Oil and Gas Producing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
429,607
|
|
|
$
|
|
|
|
$
|
429,607
|
|
Production (lifting) costs
|
|
|
89,139
|
|
|
|
|
|
|
|
89,139
|
|
Exploration expenses (2)
|
|
|
43,115
|
|
|
|
|
|
|
|
43,115
|
|
Depreciation, depletion,
amortization and accretion
|
|
|
134,967
|
|
|
|
|
|
|
|
134,967
|
|
Gain on sale of oil and gas
properties
|
|
|
2,248
|
|
|
|
|
|
|
|
2,248
|
|
Selling and administrative
|
|
|
27,645
|
|
|
|
4,885
|
|
|
|
32,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss) from
producing activities
|
|
|
136,989
|
|
|
|
(4,885
|
)
|
|
|
132,104
|
|
Income tax expense (benefit)
|
|
|
47,527
|
|
|
|
(2,443
|
)
|
|
|
45,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of oil and gas
producing
activities (1)
|
|
$
|
89,462
|
|
|
$
|
(2,442
|
)
|
|
$
|
87,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
275,813
|
|
|
$
|
|
|
|
$
|
275,813
|
|
Production (lifting) costs
|
|
|
56,235
|
|
|
|
|
|
|
|
56,235
|
|
Exploration expenses (2)
|
|
|
6,465
|
|
|
|
|
|
|
|
6,465
|
|
Depreciation, depletion,
amortization and accretion
|
|
|
70,637
|
|
|
|
|
|
|
|
70,637
|
|
Selling and administrative
|
|
|
19,372
|
|
|
|
|
|
|
|
19,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from producing
activities
|
|
|
123,104
|
|
|
|
|
|
|
|
123,104
|
|
Income tax expense
|
|
|
40,734
|
|
|
|
|
|
|
|
40,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of oil and gas
producing
activities (1)
|
|
$
|
82,370
|
|
|
$
|
|
|
|
$
|
82,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
243,310
|
|
|
$
|
|
|
|
$
|
243,310
|
|
Production (lifting) costs
|
|
|
39,410
|
|
|
|
|
|
|
|
39,410
|
|
Depreciation, depletion,
amortization and accretion
|
|
|
69,046
|
|
|
|
|
|
|
|
69,046
|
|
Selling and administrative
|
|
|
17,789
|
|
|
|
|
|
|
|
17,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income from producing
activities
|
|
|
117,065
|
|
|
|
|
|
|
|
117,065
|
|
Income tax expense
|
|
|
42,787
|
|
|
|
|
|
|
|
42,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results of oil and gas
producing
activities (1)
|
|
$
|
74,278
|
|
|
$
|
|
|
|
$
|
74,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes net interest expense and other. |
(2) |
|
See Note 5 for additional information
related to the components of our exploration costs. |
Estimated
Quantities of Proved Oil and Gas Reserves
Proved oil and gas reserve quantities are based on estimates
prepared by our engineers in accordance with guidelines
established by the SEC. Our significant U.S. reserve
estimates at December 31, 2006, have been audited by
Huddleston & Co., independent petroleum engineers (83%
of our U.S. proved reserves on a discounted future net
revenue basis). Proved reserves cannot be measured exactly
because the estimation of reserves involves numerous judgmental
determinations. Accordingly, reserve estimates must be
continually revised as a result of new information obtained from
drilling and production history, new geological and geophysical
data and changes in economic conditions.
115
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The quantities of proved oil and gas reserves presented below
include only the amounts which we reasonably expect to recover
in the future from known oil and gas reservoirs under the
current economic and operating conditions. Proved reserves
include only quantities that we can commercially recover using
current prices, costs, existing regulatory practices and
technology. Therefore, any changes in future prices, costs,
regulations, technology or other unforeseen factors could
significantly increase or decrease proved reserve estimates. Our
proved undeveloped reserves are generally brought on line within
12 months. Alternatively, they are associated with long
life fields where economics dictate waiting for an existing
wellbore available for sidetrack, or waiting to mobilize a
platform rig for operations. Accordingly, proved undeveloped
reserves in major fields may be carried for many years. The
following table presents our net ownership interest in proved
oil reserves (MBbls):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Total proved reserves at
December 31, 2003
|
|
|
12,521
|
|
|
|
|
|
|
|
12,521
|
|
Revision of previous estimates
|
|
|
(1,412
|
)
|
|
|
|
|
|
|
(1,412
|
)
|
Production
|
|
|
(2,593
|
)
|
|
|
|
|
|
|
(2,593
|
)
|
Purchases of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of reserves in place
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Extensions and discoveries
|
|
|
2,002
|
|
|
|
|
|
|
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31, 2004
|
|
|
10,517
|
|
|
|
|
|
|
|
10,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revision of previous estimates
|
|
|
(403
|
)
|
|
|
|
|
|
|
(403
|
)
|
Production
|
|
|
(2,473
|
)
|
|
|
|
|
|
|
(2,473
|
)
|
Purchases of reserves in place
|
|
|
6,653
|
|
|
|
|
|
|
|
6,653
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
579
|
|
|
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31, 2005
|
|
|
14,873
|
|
|
|
|
|
|
|
14,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revision of previous estimates
|
|
|
(607
|
)
|
|
|
|
|
|
|
(607
|
)
|
Production
|
|
|
(3,400
|
)
|
|
|
|
|
|
|
(3,400
|
)
|
Purchases of reserves in place
|
|
|
24,820
|
|
|
|
|
|
|
|
24,820
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
651
|
|
|
|
|
|
|
|
651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31,
2006 (1)
|
|
|
36,337
|
|
|
|
|
|
|
|
36,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved developed reserves as
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
4,913
|
|
|
|
|
|
|
|
4,913
|
|
December 31, 2004
|
|
|
6,429
|
|
|
|
|
|
|
|
6,429
|
|
December 31, 2005
|
|
|
7,759
|
|
|
|
|
|
|
|
7,759
|
|
December 31, 2006
|
|
|
13,328
|
|
|
|
|
|
|
|
13,328
|
|
|
|
|
(1) |
|
Proved reserves at December 31, 2006 includes approximately
17,573 MBbls acquired from the Remington acquisition. |
116
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents our net ownership interest in
proved gas reserves, including natural gas liquids (MMcf):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Total proved reserves at
December 31, 2003
|
|
|
74,660
|
|
|
|
|
|
|
|
74,660
|
|
Revision of previous estimates
|
|
|
(2,184
|
)
|
|
|
|
|
|
|
(2,184
|
)
|
Production
|
|
|
(25,957
|
)
|
|
|
|
|
|
|
(25,957
|
)
|
Purchases of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of reserves in place
|
|
|
(697
|
)
|
|
|
|
|
|
|
(697
|
)
|
Extensions and discoveries
|
|
|
7,382
|
|
|
|
|
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31, 2004
|
|
|
53,204
|
|
|
|
|
|
|
|
53,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revision of previous estimates
|
|
|
(1,124
|
)
|
|
|
|
|
|
|
(1,124
|
)
|
Production
|
|
|
(18,137
|
)
|
|
|
|
|
|
|
(18,137
|
)
|
Purchases of reserves in place
|
|
|
91,089
|
|
|
|
|
|
|
|
91,089
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
11,041
|
|
|
|
|
|
|
|
11,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31, 2005
|
|
|
136,073
|
|
|
|
|
|
|
|
136,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revision of previous estimates
|
|
|
4,678
|
|
|
|
|
|
|
|
4,678
|
|
Production
|
|
|
(27,949
|
)
|
|
|
|
|
|
|
(27,949
|
)
|
Purchases of reserves in place
|
|
|
169,375
|
|
|
|
23,634
|
|
|
|
193,009
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
|
|
Extensions and discoveries
|
|
|
12,212
|
|
|
|
|
|
|
|
12,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved reserves at
December 31, 2006 (1)
|
|
|
294,389
|
|
|
|
23,634
|
|
|
|
318,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved developed reserves as
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
45,773
|
|
|
|
|
|
|
|
45,773
|
|
December 31, 2004
|
|
|
36,362
|
|
|
|
|
|
|
|
36,362
|
|
December 31, 2005
|
|
|
55,321
|
|
|
|
|
|
|
|
55,321
|
|
December 31, 2006
|
|
|
156,251
|
|
|
|
|
|
|
|
156,251
|
|
|
|
|
(2) |
|
Proved reserves at December 31, 2006 includes approximately
159,338 MMcf acquired from the Remington acquisition. |
117
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved
Oil and Gas Reserves
The following table reflects the standardized measure of
discounted future net cash flows relating to our interest in
proved oil and gas reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
As of December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
3,814,201
|
|
|
$
|
173,520
|
|
|
$
|
3,987,721
|
|
Future costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
(588,000
|
)
|
|
|
(8,521
|
)
|
|
|
(596,521
|
)
|
Development and abandonment
|
|
|
(707,398
|
)
|
|
|
(66,300
|
)
|
|
|
(773,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows before
income taxes
|
|
|
2,518,803
|
|
|
|
98,699
|
|
|
|
2,617,502
|
|
Future income tax expense
|
|
|
(776,120
|
)
|
|
|
(53,791
|
)
|
|
|
(829,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
1,742,683
|
|
|
|
44,908
|
|
|
|
1,787,591
|
|
Discount at 10% annual rate
|
|
|
(416,738
|
)
|
|
|
(9,910
|
)
|
|
|
(426,648
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of
discounted future net cash flows
|
|
$
|
1,325,945
|
|
|
$
|
34,998
|
|
|
$
|
1,360,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
2,131,985
|
|
|
$
|
|
|
|
$
|
2,131,985
|
|
Future costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
(311,163
|
)
|
|
|
|
|
|
|
(311,163
|
)
|
Development and abandonment
|
|
|
(450,558
|
)
|
|
|
|
|
|
|
(450,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows before
income taxes
|
|
|
1,370,264
|
|
|
|
|
|
|
|
1,370,264
|
|
Future income tax expense
|
|
|
(433,335
|
)
|
|
|
|
|
|
|
(433,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
936,929
|
|
|
|
|
|
|
|
936,929
|
|
Discount at 10% annual rate
|
|
|
(209,867
|
)
|
|
|
|
|
|
|
(209,867
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of
discounted future net cash flows
|
|
$
|
727,062
|
|
|
$
|
|
|
|
$
|
727,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
756,668
|
|
|
$
|
|
|
|
$
|
756,668
|
|
Future costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
(125,350
|
)
|
|
|
|
|
|
|
(125,350
|
)
|
Development and abandonment
|
|
|
(146,131
|
)
|
|
|
|
|
|
|
(146,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows before
income taxes
|
|
|
485,187
|
|
|
|
|
|
|
|
485,187
|
|
Future income tax expense
|
|
|
(144,263
|
)
|
|
|
|
|
|
|
(144,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
340,924
|
|
|
|
|
|
|
|
340,924
|
|
Discount at 10% annual rate
|
|
|
(54,185
|
)
|
|
|
|
|
|
|
(54,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of
discounted future net cash flows
|
|
$
|
286,739
|
|
|
$
|
|
|
|
$
|
286,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows are computed by applying year-end prices,
adjusted for location and quality differentials on a
property-by-property
basis, to year-end quantities of proved reserves, except in
those instances where fixed and determinable price changes are
provided by contractual arrangements at year-end. The discounted
future cash flow
118
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimates do not include the effects of our derivative
instruments. See the following table for base prices used in
determining the standardized measure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
United
|
|
|
|
|
|
|
States
|
|
|
Kingdom
|
|
|
Total
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Average oil price per Bbl
|
|
$
|
59.75
|
|
|
$
|
|
|
|
$
|
59.75
|
|
Average gas prices per Mcf
|
|
$
|
5.58
|
|
|
$
|
7.23
|
|
|
$
|
5.70
|
|
Year Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Average oil price per Bbl
|
|
$
|
59.82
|
|
|
$
|
|
|
|
$
|
59.82
|
|
Average gas prices per Mcf
|
|
$
|
9.13
|
|
|
$
|
|
|
|
$
|
9.13
|
|
Year Ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Average oil price per Bbl
|
|
$
|
38.91
|
|
|
$
|
|
|
|
$
|
38.91
|
|
Average gas prices per Mcf
|
|
$
|
6.53
|
|
|
$
|
|
|
|
$
|
6.53
|
|
The future income tax expense was computed by applying the
appropriate year-end statutory rates, with consideration of
future tax rates already legislated, to the future pretax net
cash flows less the tax basis of the associated properties.
Future net cash flows are discounted at the prescribed rate of
10%. We caution that actual future net cash flows may vary
considerably from these estimates. Although our estimates of
total proved reserves, development costs and production rates
were based on the best information available, the development
and production of oil and gas reserves may not occur in the
periods assumed. Actual prices realized, costs incurred and
production quantities may vary significantly from those used.
Therefore, such estimated future net cash flow computations
should not be considered to represent our estimate of the
expected revenues or the current value of existing proved
reserves.
Changes
in Standardized Measure of Discounted Future Net Cash
Flows
Principal changes in the standardized measure of discounted
future net cash flows attributable to our proved oil and gas
reserves are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Standardized measure, beginning of
year
|
|
$
|
727,062
|
|
|
$
|
286,739
|
|
|
$
|
309,438
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, net of production costs
|
|
|
(340,468
|
)
|
|
|
(213,113
|
)
|
|
|
(203,856
|
)
|
Net change in prices and
production costs
|
|
|
(328,149
|
)
|
|
|
194,965
|
|
|
|
92,395
|
|
Changes in future development costs
|
|
|
(49,357
|
)
|
|
|
(63,621
|
)
|
|
|
(17,474
|
)
|
Development costs incurred
|
|
|
159,616
|
|
|
|
67,193
|
|
|
|
38,373
|
|
Accretion of discount
|
|
|
106,333
|
|
|
|
40,808
|
|
|
|
43,048
|
|
Net change in income taxes
|
|
|
(254,770
|
)
|
|
|
(214,936
|
)
|
|
|
3,770
|
|
Purchases of reserves in place
|
|
|
1,245,847
|
|
|
|
575,320
|
|
|
|
|
|
Extensions and discoveries
|
|
|
82,730
|
|
|
|
80,720
|
|
|
|
55,743
|
|
Sales of reserves in place
|
|
|
|
|
|
|
|
|
|
|
(3,077
|
)
|
Net change due to revision in
quantity estimates
|
|
|
(6,067
|
)
|
|
|
(12,442
|
)
|
|
|
(32,025
|
)
|
Changes in production rates
(timing) and other
|
|
|
18,166
|
|
|
|
(14,571
|
)
|
|
|
404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
633,881
|
|
|
|
440,323
|
|
|
|
(22,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure, end of year
|
|
$
|
1,360,943
|
|
|
$
|
727,062
|
|
|
$
|
286,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 21
Quarterly Financial Information (Unaudited)
The offshore marine construction industry in the Gulf of Mexico
is highly seasonal as a result of weather conditions and the
timing of capital expenditures by the oil and gas companies.
Historically, a substantial portion of our services has been
performed during the summer and fall months. As a result,
historically a disproportionate portion of our revenues and net
income is earned during such period. The following is a summary
of consolidated quarterly financial information for 2006 and
2005 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
291,648
|
|
|
$
|
305,013
|
|
|
$
|
374,424
|
|
|
$
|
395,839
|
|
Gross profit
|
|
|
102,266
|
|
|
|
131,692
|
|
|
|
130,470
|
|
|
|
150,980
|
|
Net income
|
|
|
56,193
|
|
|
|
69,944
|
|
|
|
57,833
|
|
|
|
163,424
|
|
Net income applicable to common
shareholders
|
|
|
55,389
|
|
|
|
69,139
|
|
|
|
57,029
|
|
|
|
162,479
|
|
Basic earnings per common share
|
|
|
0.71
|
|
|
|
0.88
|
|
|
|
0.62
|
|
|
|
1.80
|
|
Diluted earnings per common share
|
|
|
0.67
|
|
|
|
0.83
|
|
|
|
0.60
|
|
|
|
1.73
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
159,575
|
|
|
$
|
166,531
|
|
|
$
|
209,338
|
|
|
$
|
264,028
|
|
Gross profit
|
|
|
51,873
|
|
|
|
52,419
|
|
|
|
82,928
|
|
|
|
95,852
|
|
Net income
|
|
|
25,961
|
|
|
|
26,577
|
|
|
|
43,221
|
|
|
|
56,810
|
|
Net income applicable to common
shareholders
|
|
|
25,411
|
|
|
|
26,027
|
|
|
|
42,671
|
|
|
|
56,006
|
|
Basic earnings per common share
|
|
|
0.33
|
|
|
|
0.34
|
|
|
|
0.55
|
|
|
|
0.72
|
|
Diluted earnings per common share
|
|
|
0.32
|
|
|
|
0.32
|
|
|
|
0.53
|
|
|
|
0.69
|
|
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
(a) Evaluation of disclosure controls and
procedures. Our management, with the
participation of our principal executive officer and principal
financial officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act) as of the end of the
fiscal year ended December 31, 2006. Based on this
evaluation, the principal executive officer and the principal
financial officer have concluded that our disclosure controls
and procedures were effective as of the end of the fiscal year
ended December 31, 2006 to ensure that information that is
required to be disclosed by us in the reports we file or submit
under the Exchange Act is (i) recorded, processed,
summarized and reported, within the time periods specified in
the SECs rules and forms and (ii) accumulated and
communicated to our management, as appropriate, to allow timely
decisions regarding required disclosure.
(b) Changes in internal control over financial
reporting. There have been no changes, with
exception of the items detailed below in our internal control
over financial reporting, as defined in
Rule 13a-15(f)
of the Securities Exchange Act, in the period covered by this
report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting. On July 1, 2006, we completed the acquisition of
Remington Oil and Gas Corporation. We continue to integrate
Remingtons historical internal controls over financial
reporting into our own internal controls over financial
reporting including the incorporation of new processes related
to exploration activities (rather than just development
activities) into our control structure. This
120
HELIX
ENERGY SOLUTIONS GROUP, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
ongoing integration may lead to our making additional changes in
our internal controls over financial reporting in future fiscal
periods.
Managements Report on Internal Control Over Financial
Reporting and the Report of Independent Registered Public
Accounting Firm on Internal Control Over Financial Reporting
thereon are set forth in Part II, Item 8 of this
report on
Form 10-K
on page 65 and page 67, respectively.
|
|
Item 9B.
|
Other
Information.
|
Effective as of February 28, 2007, Robert Murphy was
appointed by the board of directors as Executive Vice
President Oil & Gas. In conjunction with
Mr. Murphys appointment, he will assume chief
operating responsibilities and authority over our oil and gas
operations and will become a reporting officer under
Section 16 of the Securities Act.
Mr. Murphy joined Helix on July 1, 2006 when Helix
acquired Remington Oil & Gas Corporation, where
Mr. Murphy served as President, Chief Operating Officer and
was on the Board of Directors. On November 29, 2006,
Mr. Murphy was elected President and Chief Operating
Officer of Helix Oil & Gas, our wholly-owned
subsidiary. Prior to joining Remington, Mr. Murphy was Vice
President Exploration of Cairn Energy USA, Inc, of
which company Mr. Murphy also served on the Board of
Directors. Mr. Murphy received a Bachelor of Science degree
in Geology from The University of Texas at Austin, and has a
Master of Science in Geosciences from the University of Texas at
Dallas.
On December 21, 2006, we sent a letter to Mr. Murphy
in connection with his appointment to the position of President
and Chief Operating Officer of Helix Oil and Gas and confirming
terms of his employment. The letter provides for an annual base
salary of $425,000 for Mr. Murphy. In addition,
Mr. Murphy is entitled to an annual bonus with a target
amount equal to 100 percent of his base salary and a
maximum amount of 200 percent of his base salary, based on
criteria established by our Compensation Committee.
Mr. Murphy received restricted stock in connection with
joining Helix, but no additional shares were issued in
connection with, or are contemplated by, the letter.
Mr. Murphy will also receive a performance/retention bonus
in March of 2007 related to his services in 2006. In addition,
Mr. Murphy is eligible to participate in the Companys
benefits, plans and programs available to other executives.
If Mr. Murphys employment is involuntarily terminated
without cause, he is entitled to severance in an amount equal to
two times his annual base salary plus an amount equal to his
performance bonus for the previous complete year. In addition to
severance payment(s), Mr. Murphy may be entitled to
continue to participate in certain employee benefit plans for a
period of up to two years. The above description of the
employment arrangement does not purport to be a complete
statement of the rights and obligations thereunder. The above
statements are qualified in their entirety by reference to the
Employment Agreement, a copy of which is attached to this Annual
Report as Exhibit 10.9 and is incorporated herein by
reference. It is anticipated that the Helix and Mr. Murphy
will enter into a definitive employment agreement in the near
future setting forth all the terms and conditions of
Mr. Murphys employment.
121
PART III
|
|
Item 10.
|
Directors,
and Executive Officers and Corporate Governance.
|
Except as set forth below, the information required by this Item
is incorporated by reference to our definitive Proxy Statement
to be filed pursuant to Regulation 14A under the Securities
Act of 1934 in connection with our 2007 Annual Meeting of
Shareholders. See also Executive Officers of the
Registrant appearing in Part I of this Report.
Code
of Ethics
We have adopted a Code of Business Conduct and Ethics for
all directors, officers and employees as well as a Code of
Ethics for Chief Executive Officer and Senior Financial Officers
specific to those officers. Copies of these documents are
available at our Website www.helixesg.com under Corporate
Governance. Interested parties may also request a free copy
of these documents from:
Helix Energy Solutions Group, Inc.
ATTN: Corporate Secretary
400 N. Sam Houston Parkway E., Suite 400
Houston, Texas 77060
|
|
Item 11.
|
Executive
Compensation.
|
The information required by this Item is incorporated by
reference to our definitive Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Act of 1934 in
connection with our 2007 Annual Meeting of Shareholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this Item is incorporated by
reference to our definitive Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Act of 1934 in
connection with our 2007 Annual Meeting of Shareholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions.
|
The information required by this Item is incorporated by
reference to our definitive Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Act of 1934 in
connection with our 2007 Annual Meeting of Shareholders.
|
|
Item 14.
|
Principal
Accounting Fees and Services.
|
The information required by this Item is incorporated by
reference to our definitive Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Act of 1934 in
connection our 2007 Annual Meeting of Shareholders.
122
PART IV
Item 15. Exhibits
and Financial Statement Schedules.
(1) Financial Statements.
The following financial statements included on pages 64
through 120 in this Annual Report are for the fiscal year ended
December 31, 2006.
|
|
|
|
|
Managements Report on Internal Control Over Financial
Reporting
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
Report of Independent Registered Public Accounting Firm on
Internal Control Over Financial Reporting
|
|
|
|
Consolidated Balance Sheets as of December 31, 2006 and 2005
|
|
|
|
Consolidated Statements of Operations for the Years Ended
December 31, 2006, 2005 and 2004
|
|
|
|
Consolidated Statements of Shareholders Equity for the
Years Ended December 31, 2006, 2005 and 2004
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006, 2005 and 2004
|
|
|
|
Notes to Consolidated Financial Statements.
|
All financial statement schedules are omitted because the
information is not required or because the information required
is in the financial statements or notes thereto.
(2) Exhibits.
Pursuant to Item 601(b)(4)(iii), the Registrant agrees to
forward to the commission, upon request, a copy of any
instrument with respect to long-term debt not exceeding 10% of
the total assets of the Registrant and its consolidated
subsidiaries.
The following exhibits are filed as part of this Annual Report:
|
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated
January 22, 2006, among Cal Dive International, Inc.
and Remington Oil and Gas Corporation, incorporated by reference
to Exhibit 2.1 to the Current Report on
Form 8-K/A,
filed by the registrant with the Securities and Exchange
Commission on January 25, 2006 (the
Form 8-K/A).
|
|
2
|
.2
|
|
Amendment No. 1 to Agreement
and Plan of Merger dated January 24, 2006, by and among,
Cal Dive International, Inc., Cal Dive
Merger Delaware, Inc. and Remington Oil and Gas
Corporation, incorporated by reference to Exhibit 2.2 to
the
Form 8-K/A.
|
|
3
|
.1
|
|
2005 Amended and Restated Articles
of Incorporation, as amended, of registrant, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K
filed by registrant with the Securities and Exchange Commission
on March 1, 2006.
|
|
3
|
.2
|
|
Second Amended and Restated
By-Laws of Helix, as amended, incorporated by reference to
Exhibit 3.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on September 28, 2006.
|
|
3
|
.3
|
|
Certificate of Rights and
Preferences for
Series A-1
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K,
filed by registrant with the Securities and Exchange Commission
on January 22, 2003 (the 2003
Form 8-K).
|
|
3
|
.4
|
|
Certificate of Rights and
Preferences for
Series A-2
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K,
filed by registrant with the Securities and Exchange Commission
on June 28, 2004 (the 2004
Form 8-K).
|
|
4
|
.1
|
|
Credit Agreement dated
July 3, 2006 by and among Helix Energy Solutions Group,
Inc., and Bank of America, N.A., as administrative agent and as
lender, together with the other lender parties thereto,
incorporated by reference to Exhibit 4.1 to the
registrants Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on July 5, 2006.
|
|
4
|
.2
|
|
Participation Agreement among ERT,
Helix Energy Solutions Group, Inc., Cal Dive/Gunnison
Business
Trust No. 2001-1
and Bank One, N.A., et. al., dated as of November 8, 2001,
incorporated by reference to Exhibit 4.2 to
Form 10-K
for the fiscal year ended December 31, 2001, filed by the
registrant with the Securities and Exchange Commission on
March 28, 2002 (the 2001
Form 10-K).
|
|
4
|
.3
|
|
Form of Common Stock certificate,
incorporated by reference to Exhibit 4.7 to the
Form 8-A
filed by the Registrant with the Securities and Exchange
Commission on June 30, 2006.
|
123
|
|
|
|
|
|
4
|
.4
|
|
Credit Agreement among
Cal Dive I-Title XI, Inc., GOVCO Incorporated,
Citibank N.A. and Citibank International LLC dated as of
August 16, 2000, incorporated by reference to
Exhibit 4.4 to the 2001
Form 10-K.
|
|
4
|
.5
|
|
Amendment No. 1 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of January 25, 2002, incorporated by reference to
Exhibit 4.9 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
4
|
.6
|
|
Amendment No. 2 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of November 15, 2002, incorporated by reference to
Exhibit 4.4 to the
Form S-3
files with the Securities and Exchange Commission on
February 26, 2003.
|
|
4
|
.7
|
|
First Amended and Restated
Agreement dated January 17, 2003, but effective as of
December 31, 2002, by and between Helix Energy Solutions
Group, Inc. and Fletcher International, Ltd., incorporated by
reference to Exhibit 10.1 to the 2003
Form 8-K.
|
|
4
|
.8
|
|
Amended and Restated Credit
Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
July 26, 2002, incorporated by reference to
Exhibit 4.12 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
4
|
.9
|
|
First Amendment to Amended and
Restated Credit Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
January 7, 2003, incorporated by reference to
Exhibit 4.13 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
4
|
.10
|
|
Second Amendment to Amended and
Restated Credit Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
February 14, 2003, incorporated by reference to
Exhibit 4.14 to the 2002
Form 10-K/A.
|
|
4
|
.11
|
|
Lease with Purchase Option
Agreement between Banc of America Leasing & Capital,
LLC and Canyon Offshore Ltd. dated July 31, 2003
incorporated by reference to Exhibit 10.1 to the
Form 10-Q
for the fiscal quarter ended September 30, 2003, filed by
the registrant with the Securities and Exchange Commission on
November 13, 2003.
|
|
4
|
.12
|
|
Amendment No. 3 Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of July 31, 2003, incorporated by reference to
Exhibit 4.12 to Annual Report on
Form 10-K
for the year ended December 31, 2004, filed by the
registrant with the Securities Exchange Commission on
March 16, 2005 (the 2004
10-K).
|
|
4
|
.13
|
|
Amendment No. 4 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of December 15, 2004 , incorporated by reference to
Exhibit 4.13 to the 2004
10-K.
|
|
4
|
.14
|
|
Indenture relating to the
3.25% Convertible Senior Notes due 2025 dated as of
March 30, 2005, between Cal Dive International, Inc.
and JPMorgan Chase Bank, National Association, as Trustee.,
incorporated by reference to Exhibit 4.1 to the Current
Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on April 4, 2005 (the April 2005
8-K).
|
|
4
|
.15
|
|
Form of 3.25% Convertible
Senior Note due 2025 (filed as Exhibit A to
Exhibit 4.15).
|
|
4
|
.16
|
|
Registration Rights Agreement
dated as of March 30, 2005, between Cal Dive International,
Inc. and Banc of America Securities LLC, as representative of
the initial purchasers, incorporated by reference to
Exhibit 4.3 to the April 2005
8-K.
|
|
4
|
.17
|
|
Trust Indenture, dated as of
August 16, 2000, between Cal Dive I-Title XI,
Inc. and Wilmington Trust, as Indenture Trustee, incorporated by
reference to Exhibit 4.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on October 6, 2005 (the October 2005
8-K).
|
|
4
|
.18
|
|
Supplement No. 1 to Trust
Indenture, dated as of January 25, 2002, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.2
to the October 2005
8-K.
|
|
4
|
.19
|
|
Supplement No. 2 to Trust
Indenture, dated as of November 15, 2002, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.3
to the October
2005 8-K.
|
124
|
|
|
|
|
|
4
|
.20
|
|
Supplement No. 3 to Trust
Indenture, dated as of December 14, 2004, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.4
to the October
2005 8-K.
|
|
4
|
.21
|
|
Supplement No. 4 to Trust
Indenture, dated September 30, 2005, between Cal Dive
I-Title XI, Inc. and Wilmington Trust, as Indenture
Trustee, incorporated by reference to Exhibit 4.5 to the
October 2005
8-K.
|
|
4
|
.22
|
|
Form of United States Government
Guaranteed Ship Financing Bonds, Q4000 Series 4.93% Sinking
Fund Bonds Due February 1, 2027 (filed as
Exhibit A to Exhibit 4.21).
|
|
4
|
.23
|
|
Form of Third Amended and Restated
Promissory Note to United States of America, incorporated by
reference to Exhibit 4.6 to the October 2005
8-K.
|
|
10
|
.1
|
|
1995 Long Term Incentive Plan, as
amended, incorporated by reference to Exhibit 10.3 to the
Form S-1.
|
|
10
|
.2
|
|
Employment Agreement between Owen
Kratz and Company dated February 28, 1999, incorporated by
reference to Exhibit 10.5 to the registrants Annual
Report on
Form 10-K
for the fiscal year ended December 31, 1998, filed by the
registrant with the Securities and Exchange Commission on
March 31, 1999 (the 1998
Form 10-K).
|
|
10
|
.3
|
|
Employment Agreement between
Martin R. Ferron and Company dated February 28, 1999,
incorporated by reference to Exhibit 10.6 of the 1998
Form 10-K.
|
|
10
|
.4
|
|
Employment Agreement between A.
Wade Pursell and Company dated January 1, 2002,
incorporated by reference to Exhibit 10.7 of the 2001
Form 10-K.
|
|
10
|
.5
|
|
Helix 2005 Long Term Incentive
Plan, including the Form of Restricted Stock Award Agreement,
incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on May 12, 2005.
|
|
10
|
.6
|
|
Employment Agreement by and
between Helix and Bart H. Heijermans, effective as of
September 1, 2005, incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on September 1, 2005.
|
|
10
|
.7
|
|
Termination Agreement between
James Lewis Connor, III and Company dated August 31,
2006 incorporated by reference to Exhibit 10.1 to the
registrants Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2006, filed by
the registrant with the Securities and Exchange Commission on
November 7, 2006 (the 2006
Form 10-Q).
|
|
10
|
.8
|
|
Employment Agreement between Alisa
B. Johnson and Company dated September 18, 2006,
incorporated by reference to Exhibit 10.2 to the 2006
Form 10-Q.
|
|
10
|
.9*
|
|
Employment Letter from the Company
to Robert P. Murphy dated December 21, 2006.
|
|
10
|
.10*
|
|
Master Agreement between the
Company and Cal Dive International, Inc. dated
December 8, 2006.
|
|
10
|
.11*
|
|
Tax agreement between the Company
and Cal Dive International, Inc. dated December 14,
2006.
|
|
21
|
.1*
|
|
List of Subsidiaries of the
Company.
|
|
23
|
.1*
|
|
Consent of Ernst & Young
LLP.
|
|
23
|
.2*
|
|
Consent of Huddleston &
Co., Inc.
|
|
31
|
.1*
|
|
Certification Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934 by Owen Kratz,
Principal Executive Officer
|
|
31
|
.2*
|
|
Certification Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934 by A. Wade Pursell,
Principal Financial Officer
|
|
32
|
.1**
|
|
Section 1350 Certification by
Owen Kratz, Principal Executive Officer
|
|
32
|
.2**
|
|
Section 1350 Certification by
A. Wade Pursell, Principal Financial Officer
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
125
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HELIX ENERGY SOLUTIONS GROUP, INC.
Executive Vice President and
Chief Financial Officer
March 1, 2007
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ OWEN
KRATZ
Owen
Kratz
|
|
Executive Chairman and Director
(principal executive officer)
|
|
March 1, 2007
|
|
|
|
|
|
/s/ MARTIN
R. FERRON
Martin
R. Ferron
|
|
President, Chief Executive
Officer
and Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ A. WADE
PURSELL
A. Wade
Pursell
|
|
Executive Vice President and
Chief Financial Officer
(principal financial officer)
|
|
March 1, 2007
|
|
|
|
|
|
/s/ LLOYD
A. HAJDIK
Lloyd
A. Hajdik
|
|
Vice President
Corporate Controller
and Chief Accounting Officer
(principal accounting officer)
|
|
March 1, 2007
|
|
|
|
|
|
/s/ GORDON
F. AHALT
Gordon
F. Ahalt
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ BERNARD
J. DUROC-DANNER
Bernard
J. Duroc-Danner
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ JOHN
V. LOVOI
John
V. Lovoi
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ T.
WILLIAM PORTER
T.
William Porter
|
|
Director
|
|
March 1, 2007
|
126
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
/s/ WILLIAM
L. TRANSIER
William
L. Transier
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ ANTHONY
TRIPODO
Anthony
Tripodo
|
|
Director
|
|
March 1, 2007
|
|
|
|
|
|
/s/ JAMES
A. WATT
James
A. Watt
|
|
Director
|
|
March 1, 2007
|
127
INDEX TO
EXHIBITS
|
|
|
|
|
Exhibits
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger dated
January 22, 2006, among Cal Dive International, Inc.
and Remington Oil and Gas Corporation, incorporated by reference
to Exhibit 2.1 to the Current Report on
Form 8-K/A,
filed by the registrant with the Securities and Exchange
Commission on January 25, 2006 (the
Form 8-K/A).
|
|
2
|
.2
|
|
Amendment No. 1 to Agreement
and Plan of Merger dated January 24, 2006, by and among,
Cal Dive International, Inc., Cal Dive
Merger Delaware, Inc. and Remington Oil and Gas
Corporation, incorporated by reference to Exhibit 2.2 to
the
Form 8-K/A.
|
|
3
|
.1
|
|
2005 Amended and Restated Articles
of Incorporation, as amended, of registrant, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K
filed by registrant with the Securities and Exchange Commission
on March 1, 2006.
|
|
3
|
.2
|
|
Second Amended and Restated
By-Laws of Helix, as amended, incorporated by reference to
Exhibit 3.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on September 28, 2006.
|
|
3
|
.3
|
|
Certificate of Rights and
Preferences for
Series A-1
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K,
filed by registrant with the Securities and Exchange Commission
on January 22, 2003 (the 2003
Form 8-K).
|
|
3
|
.4
|
|
Certificate of Rights and
Preferences for
Series A-2
Cumulative Convertible Preferred Stock, incorporated by
reference to Exhibit 3.1 to the Current Report on
Form 8-K,
filed by registrant with the Securities and Exchange Commission
on June 28, 2004 (the 2004
Form 8-K).
|
|
4
|
.1
|
|
Credit Agreement dated
July 3, 2006 by and among Helix Energy Solutions Group,
Inc., and Bank of America, N.A., as administrative agent and as
lender, together with the other lender parties thereto,
incorporated by reference to Exhibit 4.1 to the
registrants Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on July 5, 2006.
|
|
4
|
.2
|
|
Participation Agreement among ERT,
Helix Energy Solutions Group, Inc., Cal Dive/Gunnison
Business
Trust No. 2001-1
and Bank One, N.A., et. al., dated as of November 8, 2001,
incorporated by reference to Exhibit 4.2 to
Form 10-K
for the fiscal year ended December 31, 2001, filed by the
registrant with the Securities and Exchange Commission on
March 28, 2002 (the 2001
Form 10-K).
|
|
4
|
.3
|
|
Form of Common Stock certificate,
incorporated by reference to Exhibit 4.7 to the
Form 8-A
filed by the Registrant with the Securities and Exchange
Commission on June 30, 2006.
|
|
4
|
.4
|
|
Credit Agreement among
Cal Dive I-Title XI, Inc., GOVCO Incorporated,
Citibank N.A. and Citibank International LLC dated as of
August 16, 2000, incorporated by reference to
Exhibit 4.4 to the 2001
Form 10-K.
|
|
4
|
.5
|
|
Amendment No. 1 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of January 25, 2002, incorporated by reference to
Exhibit 4.9 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
4
|
.6
|
|
Amendment No. 2 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of November 15, 2002, incorporated by reference to
Exhibit 4.4 to the
Form S-3
filed with the Securities and Exchange Commission on
February 26, 2003.
|
|
4
|
.7
|
|
First Amended and Restated
Agreement dated January 17, 2003, but effective as of
December 31, 2002, by and between Helix Energy Solutions
Group, Inc. and Fletcher International, Ltd., incorporated by
reference to Exhibit 10.1 to the 2003
Form 8-K.
|
|
4
|
.8
|
|
Amended and Restated Credit
Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
July 26, 2002, incorporated by reference to
Exhibit 4.12 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
4
|
.9
|
|
First Amendment to Amended and
Restated Credit Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
January 7, 2003, incorporated by reference to
Exhibit 4.13 to the
Form 10-K/A
filed with the Securities and Exchange Commission on
April 8, 2003.
|
|
|
|
|
|
Exhibits
|
|
|
|
|
4
|
.10
|
|
Second Amendment to Amended and
Restated Credit Agreement among Cal Dive/Gunnison Business
Trust No. 2001-1,
Energy Resource Technology, Inc., Helix Energy Solutions Group,
Inc., Wilmington Trust Company, a Delaware banking corporation,
the Lenders party thereto, and Bank One, NA, as Agent, dated
February 14, 2003, incorporated by reference to
Exhibit 4.14 to the 2002
Form 10-K/A.
|
|
4
|
.11
|
|
Lease with Purchase Option
Agreement between Banc of America Leasing & Capital,
LLC and Canyon Offshore Ltd. dated July 31, 2003
incorporated by reference to Exhibit 10.1 to the
Form 10-Q
for the fiscal quarter ended September 30, 2003, filed by
the registrant with the Securities and Exchange Commission on
November 13, 2003.
|
|
4
|
.12
|
|
Amendment No. 3 Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of July 31, 2003, incorporated by reference to
Exhibit 4.12 to Annual Report on
Form 10-K
for the year ended December 31, 2004, filed by the
registrant with the Securities Exchange Commission on
March 16, 2005 (the 2004
10-K).
|
|
4
|
.13
|
|
Amendment No. 4 to Credit
Agreement among Cal Dive I-Title XI, Inc., GOVCO
Incorporated, Citibank N.A. and Citibank International LLC dated
as of December 15, 2004 , incorporated by reference to
Exhibit 4.13 to the 2004
10-K.
|
|
4
|
.14
|
|
Indenture relating to the
3.25% Convertible Senior Notes due 2025 dated as of
March 30, 2005, between Cal Dive International, Inc.
and JPMorgan Chase Bank, National Association, as Trustee.,
incorporated by reference to Exhibit 4.1 to the Current
Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on April 4, 2005 (the April 2005
8-K).
|
|
4
|
.15
|
|
Form of 3.25% Convertible
Senior Note due 2025 (filed as Exhibit A to
Exhibit 4.15).
|
|
4
|
.16
|
|
Registration Rights Agreement
dated as of March 30, 2005, between Cal Dive International,
Inc. and Banc of America Securities LLC, as representative of
the initial purchasers, incorporated by reference to
Exhibit 4.3 to the April 2005
8-K.
|
|
4
|
.17
|
|
Trust Indenture, dated as of
August 16, 2000, between Cal Dive I-Title XI,
Inc. and Wilmington Trust, as Indenture Trustee, incorporated by
reference to Exhibit 4.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on October 6, 2005 (the October 2005
8-K).
|
|
4
|
.18
|
|
Supplement No. 1 to Trust
Indenture, dated as of January 25, 2002, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.2
to the October 2005
8-K.
|
|
4
|
.19
|
|
Supplement No. 2 to Trust
Indenture, dated as of November 15, 2002, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.3
to the October
2005 8-K.
|
|
4
|
.20
|
|
Supplement No. 3 to Trust
Indenture, dated as of December 14, 2004, between
Cal Dive I-Title XI, Inc. and Wilmington Trust, as
Indenture Trustee, incorporated by reference to Exhibit 4.4
to the October
2005 8-K.
|
|
4
|
.21
|
|
Supplement No. 4 to Trust
Indenture, dated September 30, 2005, between Cal Dive
I-Title XI, Inc. and Wilmington Trust, as Indenture
Trustee, incorporated by reference to Exhibit 4.5 to the
October 2005
8-K.
|
|
4
|
.22
|
|
Form of United States Government
Guaranteed Ship Financing Bonds, Q4000 Series 4.93% Sinking
Fund Bonds Due February 1, 2027 (filed as
Exhibit A to Exhibit 4.21).
|
|
4
|
.23
|
|
Form of Third Amended and Restated
Promissory Note to United States of America, incorporated by
reference to Exhibit 4.6 to the October 2005
8-K.
|
|
10
|
.1
|
|
1995 Long Term Incentive Plan, as
amended, incorporated by reference to Exhibit 10.3 to the
Form S-1.
|
|
10
|
.2
|
|
Employment Agreement between Owen
Kratz and Company dated February 28, 1999, incorporated by
reference to Exhibit 10.5 to the registrants Annual
Report on
Form 10-K
for the fiscal year ended December 31, 1998, filed by the
registrant with the Securities and Exchange Commission on
March 31, 1999 (the 1998
Form 10-K).
|
|
10
|
.3
|
|
Employment Agreement between
Martin R. Ferron and Company dated February 28, 1999,
incorporated by reference to Exhibit 10.6 of the 1998
Form 10-K.
|
|
10
|
.4
|
|
Employment Agreement between A.
Wade Pursell and Company dated January 1, 2002,
incorporated by reference to Exhibit 10.7 of the 2001
Form 10-K.
|
|
10
|
.5
|
|
Helix 2005 Long Term Incentive
Plan, including the Form of Restricted Stock Award Agreement,
incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on May 12, 2005.
|
|
|
|
|
|
Exhibits
|
|
|
|
|
10
|
.6
|
|
Employment Agreement by and
between Helix and Bart H. Heijermans, effective as of
September 1, 2005, incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K,
filed by the registrant with the Securities and Exchange
Commission on September 1, 2005.
|
|
10
|
.7
|
|
Termination Agreement between
James Lewis Connor, III and Company dated August 31,
2006 incorporated by reference to Exhibit 10.1 to the
registrants Quarterly Report on
Form 10-Q
for the fiscal quarter ended September 30, 2006, filed by
the registrant with the Securities and Exchange Commission on
November 7, 2006 (the 2006
Form 10-Q).
|
|
10
|
.8
|
|
Employment Agreement between Alisa
B. Johnson and Company dated September 18, 2006,
incorporated by reference to Exhibit 10.2 to the 2006
Form 10-Q.
|
|
10
|
.9*
|
|
Employment Letter from the Company
to Robert P. Murphy dated December 21, 2006.
|
|
10
|
.10*
|
|
Master Agreement between the
Company and Cal Dive International, Inc. dated
December 8, 2006.
|
|
10
|
.11*
|
|
Tax agreement between the Company
and Cal Dive International, Inc. dated December 14,
2006.
|
|
21
|
.1*
|
|
List of Subsidiaries of the
Company.
|
|
23
|
.1*
|
|
Consent of Ernst & Young
LLP.
|
|
23
|
.2*
|
|
Consent of Huddleston &
Co., Inc.
|
|
31
|
.1*
|
|
Certification Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934 by Owen Kratz,
Principal Executive Officer
|
|
31
|
.2*
|
|
Certification Pursuant to
Rule 13a-14(a)
under the Securities Exchange Act of 1934 by A. Wade Pursell,
Principal Financial Officer
|
|
32
|
.1**
|
|
Section 1350 Certification by
Owen Kratz, Principal Executive Officer
|
|
32
|
.2**
|
|
Section 1350 Certification by
A. Wade Pursell, Principal Financial Officer
|
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
exv10w9
Exhibit 10.9
Helix Energy Solutions
PERSONAL AND CONFIDENTIAL
December 21, 2006
Mr. Robert P. Murphy
3855 W. Bay Circle
Dallas, TX 75214
Dear Robert:
I am very pleased to offer you the position of President and Chief Operating Officer of Helix
Oil and Gas. The basic terms of this offer are as follows:
|
|
|
Title:
|
|
President and Chief Operating Officer of Helix Oil and Gas. |
|
|
|
Reporting Relationships:
|
|
Report to the President and Chief Executive Officer of Helix Energy Solutions Group, Inc. Interface
closely with other technical, professional, and administrative staff as necessary. |
|
|
|
Initial Compensation:
|
|
$425,000 base salary subject to annual review. Your first review will be December 2007 and additional
reviews to follow on an annual basis. Salary will be paid semi-monthly on the 15th of the
month and last day of the month, with the usual deductions for federal, state and local taxes. |
|
|
|
Annual Incentive Plan:
|
|
You will be eligible to participate in the annual bonus program with a target of 100% of base salary
with the potential maximum of 200%. This bonus program will become effective for the year 2007 and
beyond. The bonus program is based on annual growth in reserves, production volumes, financial
performance and individual goals. |
|
|
|
|
|
A 2006 performance/retention bonus of $850,000 will be paid in March
of 2007. You must be employed with the Company on March 15, 2007 in
order to receive this one time performance/retention award. |
|
|
|
Benefits:
|
|
4 weeks vacation
Medical/Dental/Vision Insurance
401K Contribution
Employee Stock Purchase Plan
Complete benefits package enclosed |
|
|
|
Termination:
|
|
Until a mutually agreeable employment agreement between you
and Helix Energy Services Group is executed, the provisions
with respect to termination on the attached form of
employment agreement to the signed offer of employment
between you and the Company dated January 22, 2006 will
apply. |
Helix Energy Solutions Group is committed to growing its asset base by means of exploration,
acquisitions and development.
Robert, I look forward to a long and productive relationship for both our shareholders and the
Company. I am available to discuss any questions that you may have about this offer at your
convenience.
|
|
|
|
|
|
Very truly yours,
Martin Ferron
President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400 N. Sam Houston Parkway E. Suite 400 Houston, Texas 77060 (281) 618-0400
www.caldive.com |
|
|
|
|
|
|
Corporate Fax: (281) 618-0500
|
|
Sales / Deepwater Fax: (281) 618-0501
|
|
Estimating Fax: (281) 618-0502 |
|
January 22, 2006
Mr. Robert P. Murphy
8201 Preston Road, Suite 600
Dallas, Texas 75225
Re: Offer of Employment
Dear Robert:
We are pleased to extend this offer of employment to you (the Agreement) for the position
of President and Chief Operating Officer with Remington Oil & Gas LLC, or a merger subsidiary with
such other name as may be determined (the Company), located in Dallas, Texas, effective
immediately following the closing of the merger (the Merger) of Remington Oil & Gas
Corp., a Delaware corporation (Remington), with and into the Company. The Company will
be a wholly owned subsidiary of Cal Dive International, Inc., a Minnesota corporation (Cal
Dive).
Change of Control Severance Benefits
Cal Dive and the Company agree that the Merger constitutes a Change of Control within the meaning
of the Remington Oil and Gas Corporation Executive Severance Plan (the Plan); that Good Reason
within the meaning of the Plan exists for you to terminate your employment upon such Merger; and
that the acceptance of this Agreement is not intended to and shall not adversely affect your rights
to severance under the Plan. Accordingly, Cal Dive and the Company agree to pay to you, within
fourteen (14) days after the Merger, the severance payments set forth in Section 2.1(3) of the
Plan.
Compensation
We intend to provide a total cash compensation package comprised of (a) base salary and cash bonus
potential equal to or greater than your base salary and cash bonus potential with Remington
immediately prior to the effective date of the Merger; and (b) an amount of cash equivalent to the
non-cash compensation (other than restricted stock or other equity awards) that is substantially
the same as that provided to you by Remington immediately prior to the effective date of the
Merger.
Complete details regarding your future compensation package will be communicated as soon as
possible following the effective date of the Merger, at which time we will present an
Mr. Robert P. Murphy
January 22, 2006
Page 2
employment agreement for your execution in a form substantially similar to the employment
agreements entered into by the senior executives of Cal Dive. Also, the form of employment
agreement for senior executives of Cal Dive is attached for your reference.
Restricted Stock
In addition to the compensation referenced above, you shall also receive restricted stock (valued
at $4,000,000 based on the closing price of Cal Dives stock on the day before the date of grant,
it being anticipated that such grant will be made on the effective date of the Merger or as soon
thereafter as is reasonably practicable). Vesting of the restricted stock shall be 60% on the third
anniversary of the grant and 20% on each of the two following anniversaries, unless your employment
is terminated without Cause (as that term is defined in the Cal Dive employment agreements for
senior executives) by the Company before the third anniversary of the grant, in which case the
stock shall be deemed to have vested 20% annually, beginning on the first anniversary of the grant.
Benefits
In addition, you will be eligible to participate in Cal Dives benefit programs under similar terms
and conditions that are or may be available to other senior executives of Cal Dive.
Non-Competition and Non-Solicitation
(a) Non-Competition. You acknowledge and agree with Cal Dive that your services to the Company
are unique in nature and that the Company would be irreparably damaged if you were to provide
similar services to any person or entity competing with the Company or engaged in a similar
business. You accordingly covenant and agree that for three (3) years from the date of execution of
this Agreement, you shall not, directly or indirectly, either for yourself or for any other
individual, corporation, partnership, joint venture or other entity, participate in any business
(including, without limitation, any division, group or franchise of a larger organization) that
engages or which proposes to engage in the oil and gas business in the United States or its
territorial waters in the Gulf of Mexico or any other business actively engaged in by the Company
on the date of termination of your employment in the geographical area or areas where the Company
is conducting such business; provided that, until such time as the Company waives in writing any
rights it may have to enforce the terms of this provision (the Waiver), during the period
commencing on the date of the termination of your employment with the Company and ending on the
date on which either the non-competition provisions contained in this section terminate or the
Waiver is delivered to Employee, whichever is earlier, the Company will pay to you an amount equal
to your annual salary as of the date your employment was terminated (which will be paid over time
in accordance with the salary payment schedule in effect from time to time for senior management
executives of the Company) and during such time period you shall be entitled to all insurance
benefits received by other senior management executives of the Company.
Mr. Robert P. Murphy
January 22, 2006
Page 3
(b) Non-Solicitation. You accordingly covenant and agree that for three (3) years from the
date of execution of this Agreement, you shall not, directly or indirectly, for yourself or for any
other individual, corporation, partnership, joint venture or other entity, (x) make any offer of
employment, solicit or hire any supervisor, employee of the Company or its affiliates or induce or
attempt to induce any employee of the Company or its affiliates to leave their employ or in any way
interfere with the relationship between the Company or its affiliates and any of their employees;
or (y) induce or attempt to induce any supplier, licensee, licensor, franchisee, or other business
relation of the Company or its affiliates to cease doing business with them or in any way interfere
with the relationship between the Company or its affiliates and any customer or business relation.
(c) Other Non-Competition Agreements. You represent and warrant to the Company that you have
disclosed any and all agreements to which you are a party that contain a non-competition provision
or other restriction with respect to (a) the nature of any services or business which you are
entitled to perform or conduct for the Company or (b) the disclosure or use of any information
which, directly or indirectly, relates to the nature of the business of the Company or the services
to be rendered by you to the Company.
(d) Duty to Inform. For the period of three (3) years from the date of execution of this
Agreement, you agree that, prior to accepting employment, you will inform each new employer engaged
in the oil and gas business in the United States or its territorial waters in the Gulf of Mexico or
any other business actively engaged in by the Company on the date of termination of your
employment, of the existence of this agreement and provide that employer with a copy of it. In
addition, you hereby authorize the Company to forward a copy of this agreement to any actual or
prospective new employer during the term of this Agreement.
Nondisclosure and Nonuse of Confidential Information
(a) Nondisclosure Period. During a period of three (3) years from the date of
execution of this Agreement, you covenant and agree with Cal Dive that you shall not disclose or
use any Confidential Information of which you are or become aware, whether or not such information
is developed by you, except to the extent that such disclosure or use is directly related to and
required by your performance of duties assigned to you by the Company. You shall take all
appropriate steps to safeguard Confidential Information and to protect it against disclosure,
misuse, espionage, loss and theft. If the Merger does not occur, your obligations under this
provision shall be limited to Confidential Information that you acquired or developed from
information you received, directly or indirectly from Cal Dive or one of its affiliates.
(b) Confidential Information. As used in this Agreement, the term Confidential
Information means information that is not generally known to the public and that is or has
been used, developed or obtained, either prior to, on or following the date of this Agreement, by
the Company in connection with its businesses, including but not limited to: (i) products or
services; (ii) fees, costs and pricing structures; (iii) designs; (iv) analysis; (v) drawings,
photographs and reports; (vi) computer software, including operating systems, applications and
program listings; (vii) flow charts, manuals and documentation; (viii) data bases; (ix) accounting
and business
Mr. Robert P. Murphy
January 22, 2006
Page 4
methods; (x) inventions, devices, new developments, methods and processes, whether patentable
or unpatentable and whether or not reduced to practice; (xi) customers and clients and customer or
client lists; (xii) other copyrightable works; (xiii) all technology and trade secrets; and (xiv)
all similar and related information in whatever form. Confidential Information shall not include
any information that has become generally available to the public through no fault or participation
of yourself prior to the date that you propose to disclose or use such information. Information
shall not be deemed to become generally available to the public because individual portions of the
information have become separately published, but only if all material features comprising such
information have become publicly available in combination.
General
If you accept this offer, your employment will commence with the Company on the effective date of
the Merger. If the Merger does not occur within one year of the date of this Agreement, then this
Agreement shall terminate unless extended by mutual agreement of the parties.
This letter sets forth our understanding with respect to your employment if you accept our offer,
but will be subject to and superseded by the terms and conditions of a definitive employment
agreement with the Company that you will enter into after completion of the Merger.
If you decide to accept this offer, for purposes of our employment records, it will be necessary
for you to sign and return a copy of this letter to me by acknowledging your acceptance of this
offer on or prior to January 22, 2006.
We look forward to a long and mutually beneficial relationship and will be very pleased to have you
become a part of our organization.
If you have any questions now or in the future, please do not hesitate to give me a call.
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Very truly yours,
CAL DIVE INTERNATIONAL, INC.
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By: |
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Name: |
Martin R. Ferron |
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Title: |
President |
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I hereby accept the offer of employment
with the Company in accordance with the
terms of the foregoing letter.
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Robert P. Murphy |
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EMPLOYMENT AGREEMENT
This Employment Agreement (the Agreement) is made, effective as of the day of
, 2006 (the Effective Date), between Cal Dive International, Inc., a Minnesota
corporation, (Company), and (Employee), an individual residing at .
WHEREAS, Employee has extensive executive management skills and experience in the oil-field
services industry, including valuable marketing, financial, technical and other experience,
knowledge and ability; and
WHEREAS,
the Company wishes to employ Employee as of the Company and
Employee is willing to accept such continued employment upon the terms and conditions set forth in
this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth
herein, the parties hereto agree as follows:
Section 1. Term of Employment and Employment Duties.
(a) Term of Employment. Employee agrees to be employed by the Company pursuant to the
terms and conditions contained herein, for a period commencing on the
date hereof
until
, 2007, and thereafter terminating twelve (12) months after delivery to Employee of a written
notice of termination by the Company (the Employment Term); provided, however, that the
occurrence of any event described in Sections 7(a), 7(b) or 7(c) prior to the end of the Employment
Term shall result in the immediate termination of Employees employment and the Employment Term,
subject to the terms of such applicable section. Employee shall devote Employees time, energy and
skill to the affairs of the Company and any of its affiliated business entities and to the
promotion of their interests. Any provision of this Agreement to the contrary notwithstanding,
Employee shall immediately resign from any offices held with the Company, or its affiliates (as
that term is defined in the regulations promulgated under the Securities Exchange Act of 1934, as
amended; hereinafter Affiliates) upon written request by the Company. Any resignation
made pursuant to a written request by the Company under this Section shall not affect Employees
rights under this Agreement for any compensation, benefits or payments.
(b) Duties of Employee. Employees duties shall include all the normal duties
associated with the above-described position with Company and all other responsibilities assigned
from time to time by the Chairman of the Board, Board of Directors and President of the Company.
During the Employment Term, (i) Employee services shall be rendered on a full time basis, (ii)
Employee shall have no other employment and no substantial outside business activities and (iii)
the headquarters for the performance of Employees services shall be the principal executive or
operating offices of the Company, subject to travel for such reasonable lengths of time as the
performance of Employees duties in the business of the Company may require.
Employment Agreement
(Senior Officer Form)
Section 2. Compensation.
(a) Salary. During the Employment Term, as compensation for Employees services and
covenants and agreements hereunder and subject to such changes therein as the Board may make from
time to time, the Company agrees to pay Employee an initial salary for the period from the date
hereof to December 31, 2005 at the annual rate of and No/100 Dollars
($ .00), payable in equal semi-monthly installments (as annualized being herein referred to
as Salary) in accordance with the Companys regular payroll practices for its senior
management executives, prorated for any partial year employment and subject to normal increases as
approved by the Board adjustments.
(b) Incentive Bonus. During the Employment Term, in addition to the Salary payable to
Employee pursuant to paragraph (a) above, Employee shall be entitled to an annual incentive bonus
(the Incentive Bonus) based on the achievement of personal, departmental and Company
performance objectives, prorated for any partial year employment and payable not later than three
months after the close of each fiscal year of the Company, commencing with the fiscal year ending
December 31, 2005, as established annually or from time to time by the Board of Directors.
(c) Reimbursement of Expenses. During the Employment Term, Employee will be reimbursed
by the Company for Employees reasonable business expenses incurred in connection with the
performance of Employees duties hereunder, including, without limitation, a home fax line, car
mileage, cell phone and business calls and other expenses consistent with Company policy from time
to time.
Section 3. Benefits.
(a) Employee Benefits. During the Employment Term, Employee shall be entitled to
participate in any medical/dental, life insurance, accidental death, long term disability insurance
plan and 401(k) or other insurance and retirement plans that have been or which may be adopted by
the Company (as long as such plan is not discontinued) for the general and overall benefit of
executive employees of the Company, according to the participation or eligibility requirements of
each such plan.
(b) Vacation and Holidays. During the Employment Term, Employee shall enjoy such
vacation, holiday and similar rights and privileges as are enjoyed generally by Companys senior
management executives.
Section 4. Nondisclosure and Nonuse of Confidential Information
(a) Nondisclosure Period. During the period commencing with the date of this Agreement
and ending on either: (i) the fifth anniversary of the date of the termination of Employees
employment with the Company if such termination arises as a result of: (x) the voluntary
termination or retirement by Employee; or (y) the termination of Employee by the Company for Cause;
or (ii) the date which is eighteen (18) months following the date of termination of Employees
employment with the Company if such termination arises for any reason other than as provided in
subparagraph 4 (a)(i) above, Employee covenants and agrees with the Company that
Employment Agreement
(Senior Officer Form)
2
Employee shall not disclose
or use any Confidential Information of which Employee is or becomes aware, whether or not such
information is developed by him, except to the extent that such disclosure or use is directly
related to and required by Employees performance of duties assigned to Employee by the Company.
Employee shall take all appropriate steps to safeguard Confidential Information and to protect it
against disclosure, misuse, espionage, loss and theft.
(b) Confidential Information. As used in this Agreement, the term Confidential
Information means information that is not generally known to the public and that is or has
been used, developed or obtained, either prior to, on or following the date of this Agreement, by
the Company in connection with its businesses, including but not limited to: (i) products or
services; (ii) fees, costs and pricing structures; (iii) designs; (iv) analysis; (v) drawings,
photographs and reports; (vi) computer software, including operating systems, applications and
program listings; (vii) flow charts, manuals and documentation; (viii) data bases; (ix) accounting
and business methods; (x) inventions, devices, new developments, methods and processes, whether
patentable or unpatentable and whether or not reduced to practice; (xi) customers and clients and
customer or client lists; (xii) other copyrightable works; (xiii) all technology and trade secrets;
and (xiv) all similar and related information in whatever form. Confidential Information shall not
include any information that has become generally available to the public through no fault or
participation of Employee prior to the date that Employee proposes to disclose or use such
information. Information shall not be deemed to become generally available to the public because
individual portions of the information have become separately published, but only if all material
features comprising such information have become publicly available in combination.
Section 5. Non-Competition and Non-Solicitation.
(a) Non-Competition. Employee acknowledges and agrees with the Company that Employees
services to the Company are unique in nature and that the Company would be irreparably damaged if
Employee were to provide similar services to any person or entity competing with the Company or
engaged in a similar business. Employee accordingly covenants and agrees with the Company that
during the period commencing with the date of this Agreement and ending on the later to occur of:
(i) January 31, 2010; and (ii) (A) the second anniversary of the date of the termination of
Employees employment with the Company if such termination arises as a result of voluntary
termination or retirement by Employee or termination by the Company for Cause, or (B) the first
anniversary of the date of termination of Employees employment with the Company if such
termination arises for any reason other than as provided in the preceding subparagraph 5(a)(ii)(A).
Employee shall not, directly or indirectly, either for Employee or for any other individual,
corporation, partnership, joint venture or other entity, participate in any business (including,
without limitation, any division, group or franchise of a larger organization) that engages or
which proposes to engage in the business of [providing diving services in the Gulf of Mexico] or
any other business actively engaged in by the Company on the date of termination of Employees
employment in the geographical area or areas where the Company is conducting such business;
provided that, until such time as the Company waives in writing any rights it may have to enforce
the terms of this Section 5 (the Waiver), during the period commencing on the date of the
termination of Employees employment with the Company and ending on the date on which either the
non-competition provisions contained in this Section 5 terminate or the Waiver is delivered to Employee,
whichever is earlier, the Company will pay to Employee either the amounts due under Section 7(d), if
Employment Agreement
(Senior Officer Form)
3
appropriate, or an amount equal to Employees Salary as of the date Employees employment was
terminated (which will be paid over time in accordance with the Salary payment schedule in effect
from time to time for senior management executives of the Company) and during such time period
Employee shall be entitled to all insurance benefits received by other senior management executives
of the Company. For purposes of this Agreement, the term participate in shall include,
without limitation, having any direct or indirect interest in any corporation, partnership, joint
venture or other entity, whether as a sole proprietor, owner, stockholder, partner, joint venturer,
creditor or otherwise, or rendering any direct or indirect service or assistance to any individual,
corporation, partnership, joint venture and other business entity (whether as a director, officer,
manager, supervisor, employee, agent, consultant or otherwise) but not ownership of 2% or less of
the capital stock of a public company.
(b) Non-Solicitation. Employee covenants and agrees with the Company that during the
period commencing with the date of this Agreement and ending on the later to occur of (i) January
31, 2008; and (ii) (A) the second anniversary of the date of termination of Employees employment
with the Company if such termination arises as a result of voluntary termination by the Company or
for Cause, or (B) the date which is eighteen (18) months following the termination of Employees
employment with the Company if such termination arises for any reason other than as provided in the
preceding subparagraph 5(b)(ii)(A) above, Employee shall not, directly or indirectly, for Employee
or for any other individual, corporation, partnership, joint venture or other entity, (x) make any
offer of employment, solicit or hire any supervisor, employee of the Company or its affiliates or
induce or attempt to induce any employee of the Company or its affiliates to leave their employ or
in any way interfere with the relationship between the Company or its affiliates and any of their
employees; or (y) induce or attempt to induce any supplier, licensee, licensor, franchisee, or
other business relation of the Company or its affiliates to cease doing business with them or in
any way interfere with the relationship between the Company or its affiliates and any customer or
business relation.
(c) Other Non-Competition Agreements. Employee represents and warrants to the Company
that Employee is not a party to any agreement containing a non-competition provision or other
restriction with respect to (a) the nature of any services or business which Employee is entitled
to perform or conduct for the Company or (b) the disclosure or use of any information which,
directly or indirectly, relates to the nature of the business of the Company or the services to be
rendered by the Employee to the Company.
(d) Duty to Inform. For the period of one (1) year immediately following the end of
Employees employment with the Company, Employee agrees to inform each new employer, prior to
accepting employment, of the existence of this agreement and provide that employer with a copy of
it. In addition, Employee hereby authorizes the Company to forward a copy of this Agreement to any
actual or prospective new employer.
Employment Agreement
(Senior Officer Form)
4
Section 6. Companys Ownership of Intellectual Property.
(a) Company Intellectual Property. In the event that Employee as part of Employees
activities on behalf of the Company generates, authors or contributes to any invention, design, new
development, device, product, method or process (whether or not patentable or reduced to practice
or comprising Confidential Information), any copyrightable work (whether or not comprising
Confidential Information) or any other form of Confidential Information relating directly or
indirectly to the Companys business as prior hereto, now or hereinafter conducted (collectively,
Intellectual Property), Employee acknowledges that such Intellectual Property is the
exclusive property of the Company and hereby assigns all right, title and interest in and to such
Intellectual Property to the Company. Any copyrightable work prepared in whole or in part by
Employee shall be deemed a work made for hire under Section 201(b) of the 1976 Copyright Act, and
the Company shall own all of the rights comprised in the copyright therein. Employee shall promptly
and fully disclose all Intellectual Property to the Company and shall cooperate with the Company to
protect the Companys interest in and rights to such Intellectual Property, including without
limitation providing reasonable assistance in securing patent protection and copyright
registrations and executing all documents as reasonably requested by the Company, whether such
requests occur prior to or after termination of Employees employment with the Company.
(b) Return of Confidential Information. As requested by the Company from time to time
and upon the termination of Employees employment with the Company for any reason, Employee shall
promptly deliver to the Company all copies and embodiments, in whatever form, of all Confidential
Information or Intellectual Property in Employees possession or within Employees control
(including, but not limited to, written records, notes, photographs, manuals, notebooks,
documentation, program listings, flow charts, magnetic media, disks, diskettes, tapes and all other
materials containing any Confidential Information or Intellectual Property) irrespective of the
location or form of such material and, if requested by the Company, shall provide the Company with
written confirmation that all such materials have been delivered to the Company.
Section 7. Termination of Agreement.
(a) Termination for Cause. This Agreement may be terminated by the Company at any time
during the Employment Term for Cause, in which event Employee shall have no further rights under
this Agreement (but the Companys rights shall survive as herein otherwise herein provided
including, without limitation, rights under Sections 4, 5 and 6). For purposes of the preceding
sentence, Cause shall mean: (i) any breach or threatened breach by Employee of any of Employees
agreements contained in Sections 4, 5 or 6; (ii) repeated or willful neglect by Employee in
performing any duty or carrying out any responsibility assigned or delegated to him pursuant to
Section 1(b) hereof, which neglect shall not have permanently ceased within ten (10) business days
after written notice to Employee thereof; or (iii) the commission by Employee of any criminal act
involving moral turpitude or a felony that results in an arrest or indictment, or the commission by
Employee, based on reasonable proof, of any act of fraud or embezzlement involving the Company or
its customers or suppliers. In the event that the Company elects to terminate this Agreement for
Cause, it will give Employee written notice of such termination.
Employment Agreement
(Senior Officer Form)
5
(b) Termination Upon Death. This Agreement shall terminate automatically upon the
death of Employee during the Employment Term. In such event, the Company shall be obligated to pay
to Employees estate, or to such person or persons as Employee may designate in writing to the
Company, (i) through the last day of the fiscal year in which Employees death shall have occurred,
the salary (payable in the same manner as described in Section 2(a) hereof) to which Employee would
have been entitled under Section 2(a) hereof had such death not occurred, and (ii) as soon as
reasonably practicable after Employees death, any accrued but, as of the date of such death,
unpaid Incentive Bonus (or, if such death shall have occurred after the first three (3) months of
the Companys fiscal year, any prorated portion thereof).
(c) Termination Upon Disability. This Agreement may be terminated by the Company at
any time during the Employment Term in the event that Employee shall have been unable, because of
Disability, to perform Employees principal duties for the Company for a cumulative period of six
(6) months within any eighteen (18) month period. Prior to Employees termination for Disability as
provided herein, Employee shall remain eligible to receive the compensation and benefits set forth
in Section 2 and Section 3 hereof. Upon such termination, Employee shall be entitled to receive as
soon as reasonably practicable thereafter, any accrued, but as of the date of such termination,
unpaid Incentive Bonus (or, if such termination shall have occurred after the first three (3)
months of the Companys fiscal year, any prorated portion thereof). For purposes of this Section
7(c), Disability shall mean any physical or mental condition of Employee which shall substantially
impair Employees ability to perform Employees principal duties hereunder. In the event that the
Company elects to terminate this Agreement by reason of Disability under this Section 7(c), it will
give written notice of such termination, and, at the Companys discretion, Employees employment
will terminate sixty (60) days thereafter.
(d) Termination by the Company Without Cause After Change in Control. If the Company
terminates this Agreement for any reason other than pursuant to the terms of Sections 7(a), 7(b),
or 7(c), and such termination occurs within six (6) months after the occurrence of a Change in
Control and a Material Change in Senior Management, then, in addition to any amounts otherwise due
under this Agreement, the Company shall: (1) pay to Employee an amount equal to two times Salary
together with an amount equal to the Incentive Bonus paid to Employee for Employees last complete
year of employment; (2) continue Employees participation in the Companys medical, dental,
accidental death, and life insurance plans, as provided in Section 3 of this Agreement, for two (2)
years, subject to COBRA required benefits thereafter; and (3) cause Employee to be fully vested in
any stock options or stock grants held by Employee. The Company shall make the payment due in one
lump sum within ten (10) days of the effective date of termination.
A Change in Control shall be deemed to have occurred at any time after the date of
this Agreement that any person (including those persons who own more than 10% of the
combined voting power of the Companys outstanding voting securities on the date hereof)
becomes the beneficial owner, directly or indirectly, of 45% or more of the combined voting
power of the Companys then outstanding voting securities.
A Material Change in Senior Management shall mean any one or both of the CEO and
COO cease their employment with the Company.
Employment Agreement
(Senior Officer Form)
6
(e) Termination by Employee with Good Cause after Change in Control. If Employee
terminates this Agreement for Good Cause and such termination occurs within two (2) years of the
occurrence of a Change in Control, then, in addition to any amounts otherwise due under this
Agreement, the Company shall: (1) pay to Employee an amount equal to two times Salary together with
an amount equal to the Incentive Bonus paid to Employee for Employees last complete year of
employment; (2) continue Employees participation in the Companys medical, dental, accidental
death, and life insurance plans, as provided in Section 3 of this Agreement, for two (2) years,
subject to COBRA required benefits thereafter, and (3) cause Employee to be fully vested in any
stock options or stock grants held by Employee. The Company shall make the payment due in one lump
sum within ten (10) days of the effective date of termination.
Good Cause shall mean the occurrence of both of the following events: (1) a
Material Change in Senior Management; together with (2) any of the following:
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(i) |
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the assignment by the Company to Employee of duties that are materially
inconsistent with Employees office with the Company at the time of such assignment, or
the removal by the Company from Employee of a material portion of those duties usually
appertaining to Employees office with the Company at the time of such removal; |
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(ii) |
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a material change by the Company, without Employees prior written consent, in
Employees responsibilities to the Company, as such responsibilities are ordinarily and
customarily required from time to time of a senior officer of a corporation engaged in
the Companys business; |
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(iii) |
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any removal of Employee from, or any failure to reelect or to reappoint
Employee to, the office stated in Section 1(b); |
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(iv) |
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The Companys direction that Employee discontinue service (or not seek
reelection or reappointment) as a director, officer or member of any corporation or
association of which Employee is a director, officer, or member at the date of this
Agreement; |
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(v) |
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a reduction by the Company in the amount of Employees salary in effect at the
time of the occurrence of a Change in Control or the failure of the Company to pay such
salary to Employee at the time and in the manner specified in this Agreement; |
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(vi) |
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the discontinuance (without comparable replacement) or material reduction by
the Company of Employees participation in any bonus or other employee benefit
arrangement (including, without limitation, any profit-sharing, thrift, life insurance,
medical, dental, hospitalization, stock option or retirement plan or arrangement) in
which Employee is a participant under the terms of this Agreement, as in effect on the
date hereof or as may be improved from time to time hereafter; |
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(vii) |
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the moving by the Company of Employees principal office space, related
facilities, or support personnel, from the Companys principal operating offices, or
the Companys requiring Employee to perform a majority of Employees duties outside |
Employment Agreement
(Senior Officer Form)
7
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the Companys principal operating offices for a period of more than 30 consecutive days; |
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(viii) |
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the relocation, without Employees prior written consent, of the Companys principal
Employee offices to a location outside the county in which such offices are located at
the time of the signing of this Agreement; |
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(ix) |
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in the event the Company requires Employee to reside at a location more than
twenty-five (25) miles from the Employees principal offices, except for occasional
travel in connection with the Company business to an extent and in a manner which is
substantially consistent with Employees current business travel obligations; |
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(x) |
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in the event Employee consents to a relocation of the Employees principal
offices, the failure of the Company to (A) pay or reimburse Employee on an after-tax
basis for all reasonable moving expenses incurred by Employee in connection with such
relocation or (B) indemnify Employee on an after-tax basis against any loss realized by
Employee on the sale of Employees principal residence in connection with such
relocation; |
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(xi) |
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the failure of the Company to continue to provide Employee with office space,
related facilities and support personnel (including, without limitation, administrative
and secretarial assistance) that are commensurate with Employees responsibilities to
and position with the Company, and no less than those prior to this Agreement; |
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(xii) |
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any significant change in Employees reporting relationships or changes in
senior management of the Company; or |
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(xiii) |
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the failure by the Company to promptly reimburse Employee for the reasonable business
expenses incurred by Employee in the performance of Employees duties for the Company,
in accordance with this Agreement. |
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(f) |
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Gross-Up Payments B Certain Additional Payments by the Company. |
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(i) |
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Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the Company, or any of its
Affiliates, under this Agreement to or for the benefit of Employee (any such payments
or distributions being individually referred to herein as a Payment, and any two or
more of such payments or distributions being referred to herein as Payments), would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the
Code; such excise tax, together with any interest thereon, any penalties,
additions to tax, or additional amounts with respect to such excise tax, and any
interest in respect of such penalties, additions to tax or additional amounts, being
collectively referred herein to as the Excise Tax), then Employee shall be
entitled to receive an additional payment or payments (individually, a Gross-Up
Payment with any two
or more of such additional payments being referred to Gross-Up Payments)
in an amount such that after payment by Employee of all Excise Taxes imposed upon
the |
Employment Agreement
(Senior Officer Form)
8
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Payment(s) and, if applicable, Gross-Up Payment(s), Employee retains a total
amount of Gross-Up Payments, whether one or more, equal to the Excise Tax imposed
upon the Payment(s) and, if applicable, Gross-Up Payment(s). |
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(ii) |
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Subject to the provisions of Section 7(f)(iii) through 7(f)(ix), any
determination (Determination) required to be made under this Section
7(f)(ii), including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall initially be made, at the Companys expense, by nationally
recognized tax counsel mutually acceptable to the Company and Employee (Tax
Counsel). Tax Counsel shall provide detailed supporting legal authorities,
calculations, and documentation both to the Company and Employee within fifteen (15)
business days of the termination of Employees employment, if applicable, or such other
time or times as is reasonably requested by the Company or Employee. If Tax Counsel
makes the initial Determination that no Excise Tax is payable by Employee with respect
to a Payment or Payments, it shall furnish Employee with an opinion reasonably
acceptable to Employee that no Excise Tax will be imposed with respect to any such
Payment or Payments. Employee shall have the right to dispute any Determination (a
Dispute) within fifteen (15) business days after delivery of Tax Counsels
opinion with respect to such Determination. The Gross-Up Payment, if any, as determined
pursuant to such Determination shall, at the Companys expense, be paid by the Company
to Employee within five (5) business days of Employees receipt of such Determination.
The existence of a Dispute shall not in any way affect Employees right to receive the
Gross-Up Payment in accordance with such Determination. If there is no Dispute, such
Determination shall be binding, final and conclusive upon the Company and Employee,
subject in all respects, however, to the provisions of Section 7(f)(iii) through
7(f)(ix) below. As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that Gross-Up Payments (or portions thereof) which
will not have been made by the Company should have been made (Underpayment),
and if upon any reasonable written request from Employee or the Company to Tax Counsel,
or upon Tax Counsels own initiative, Tax Counsel, at the Companys expense, thereafter
determines that Employee is required to make a payment of any Excise Tax or any
additional Excise Tax, as the case may be, Tax Counsel shall, at the Companys expense,
determine the amount of the Underpayment that has occurred and any such Underpayment
shall be promptly paid by the Company to Employee. |
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(iii) |
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the Company shall release, defend, indemnify and hold harmless Employee on a
fully grossed-up after-tax basis from and against any and all claims, losses,
liabilities, obligations, damages, impositions, assessments, demands, judgments,
settlements, costs and expenses (including reasonable attorneys, accountants, and
experts fees and expenses) with respect to any Tax liability of Employee resulting
from any Final Determination that any Payment is subject to the Excise Tax. |
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(iv) |
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If a party hereto receives any written or oral communication with respect to
any question, adjustment, assessment or pending or threatened audit, examination,
investigation or administrative, court or other proceeding which, if pursued |
Employment Agreement
(Senior Officer Form)
9
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successfully, could result in or give rise to a claim by Employee against the Company
under this Section 7(f) (Claim), including, but not limited to, a claim for
indemnification of Employee by the Company under Section 7(f)(iii), then such party
shall promptly notify the other party hereto in writing of such Claim (Tax Claim
Notice). |
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(v) |
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If a Claim is asserted against Employee (Employee Claim), Employee
shall take or cause to be taken such action in connection with contesting such Employee
Claim as the Company shall reasonably request in writing from time to time, including
the retention of counsel and experts as are reasonably designated by the Company (it
being understood and agreed by the parties hereto that the terms of any such retention
shall expressly provide that the Company shall be solely responsible for the payment of
any and all fees and disbursements of such counsel and any experts) and the execution
of powers of attorney, provided that: |
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(1) |
|
within thirty (30) calendar days after the Company receives or
delivers, as the case may be, the Tax Claim Notice relating to such Employee
Claim (or such earlier date that any payment of the Taxes claimed is due from
Employee, but in no event sooner than five (5) calendar days after the Company
receives or delivers such Tax Claim Notice), the Company shall have notified
Employee in writing (Election Notice) that the Company does not
dispute its obligations (including, but not limited to, its indemnity
obligations) under this Agreement and that the Company elects to contest, and
to control the defense or prosecution of, such Employee Claim at the Companys
sole risk and sole cost and expense; and |
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(2) |
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the Company shall have advanced to Employee on an interest-free
basis, the total amount of the Tax claimed in order for Employee, at the
Companys request, to pay or cause to be paid the Tax claimed, file a claim for
refund of such Tax and, subject to the provisions of the last sentence of
Section 7(f)(vii), sue for a refund of such Tax if such claim for refund is
disallowed by the appropriate taxing authority (it being understood and agreed
by the parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold Employee
harmless, on a fully grossed-up after-tax basis, from any Tax imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and |
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(3) |
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the Company shall reimburse Employee for any and all costs and
expenses resulting from any such request by the Company and shall indemnify and
hold Employee harmless, on fully grossed-up after-tax basis, from any Tax
imposed as a result of such reimbursement. |
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(vi) |
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Subject to the provisions of Section 7(f)(v) hereof, the Company shall have the
right to defend or prosecute, at the sole cost, expense and risk of the Company, such |
Employment Agreement
(Senior Officer Form)
10
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Employee Claim by all appropriate proceedings, which proceedings shall be defended or
prosecuted diligently by the Company to a Final Determination; provided, however, that
(i) the Company shall not, without Employees prior written consent, enter into any
compromise or settlement of such Employee Claim that would adversely affect Employee,
(ii) any request from the Company to Employee regarding any extension of the statute of
limitations relating to assessment, payment, or collection of Taxes for the taxable
year of Employee with respect to which the contested issues involved in, and amount of,
Employee Claim relate is limited solely to such contested issues and amount, and (iii)
the Companys control of any contest or proceeding shall be limited to issues with
respect to Employee Claim and Employee shall be entitled to settle or contest, in
Employees sole and absolute discretion, any other issue raised by the Internal Revenue
Service or any other taxing authority. So long as the Company is diligently defending
or prosecuting such Employee Claim, Employee shall provide or cause to be provided to
the Company any information reasonably requested by the Company that relates to such
Employee Claim, and shall otherwise cooperate with the Company and its representatives
in good faith in order to contest effectively such Employee Claim. the Company shall
keep Employee informed of all developments and events relating to any such Employee
Claim (including, without limitation, providing to Employee copies of all written
materials pertaining to any such Employee Claim), and Employee or Employees authorized
representatives shall be entitled, at Employees expense, to participate in all
conferences, meetings and proceedings relating to any such Employee Claim. |
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(vii) |
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If, after actual receipt by Employee of an amount of a Tax claimed (pursuant
to an Employee Claim) that has been advanced by the Company pursuant to Section
7(f)(v)(2) hereof, the extent of the liability of the Company hereunder with respect to
such Tax claimed has been established by a Final Determination, Employee shall promptly
pay or cause to be paid to the Company any refund actually received by, or actually
credited to, Employee with respect to such Tax (together with any interest paid or
credited thereon by the taxing authority and any recovery of legal fees from such
taxing authority related thereto), except to the extent that any amounts are then due
and payable by the Company to Employee, whether under the provisions of this Agreement
or otherwise. If, after the receipt by Employee of an amount advanced by the Company
pursuant to Section 7(f)(v)(2), a determination is made by the Internal Revenue Service
or other appropriate taxing authority that Employee shall not be entitled to any refund
with respect to such Tax claimed, and the Company does not notify Employee in writing
of its intent to contest such denial of refund prior to the expiration of thirty (30)
days after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of any Gross-Up Payments and other
payments required to be paid hereunder. |
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(viii) |
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With respect to any Employee Claim, if the Company fails to deliver an Election
Notice to Employee within the period provided in Section 7(f)(v)(1) hereof or, after
delivery of such Election Notice, the Company fails to comply with the provisions of |
Employment Agreement
(Senior Officer Form)
11
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Section 7(f)(v)(2) and (3) and 7(f)(vi) hereof, then Employee shall at any time
thereafter have the right (but not the obligation), at Employees election and in
Employees sole and absolute discretion, to defend or prosecute, at the sole cost,
expense and risk of the Company, such Employee Claim. Employee shall have full control
of such defense or prosecution and such proceedings, including any settlement or
compromise thereof. If requested by Employee, the Company shall cooperate, and shall
cause its Affiliates to cooperate, in good faith with Employee and Employees
authorized representatives in order to contest effectively such Employee Claim. the
Company may attend, but not participate in or control, any defense, prosecution,
settlement or compromise of any Employee Claim controlled by Employee pursuant to this
Section 7(f)(viii) and shall bear its own costs and expenses with respect thereto. In
the case of any Employee Claim that is defended or prosecuted by Employee, Employee
shall, from time to time, be entitled to current payment, on a fully grossed-up
after-tax basis, from the Company with respect to costs and expenses incurred by
Employee in connection with such defense or prosecution. |
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(ix) |
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In the case of any Employee Claim that is defended or prosecuted to a Final
Determination pursuant to the terms of this Section 7(f)(ix), the Company shall pay, on
a fully grossed-up after-tax basis, to Employee in immediately available funds the full
amount of any Taxes arising or resulting from or incurred in connection with such
Employee Claim that have not theretofore been paid by the Company to Employee, together
with the costs and expenses, on a fully grossed-up after-tax basis, incurred in
connection therewith that have not theretofore been paid by the Company to Employee,
within ten (10) calendar days after such Final Determination. In the case of any
Employee Claim not covered by the preceding sentence, the Company shall pay, on a fully
grossed-up after-tax basis, to Employee in immediately available funds the full amount
of any Taxes arising or resulting from or incurred in connection with such Employee
Claim at least ten calendar days before the date payment of such Taxes is due from
Employee, except where payment of such Taxes is sooner required under the provisions of
this Section 7(f)(ix), in which case payment of such Taxes (and payment, on a fully
grossed-up after-tax basis, of any costs and expenses required to be paid under this
Section 7(f)(ix)) shall be made within the time and in the manner otherwise provided in
this Section 7(f)(ix). |
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(x) |
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For purposes of this Agreement, the term Final Determination shall
mean (A) a decision, judgment, decree or other order by a court or other tribunal with
appropriate jurisdiction, which has become final and non-appealable; (B) a final and
binding settlement or compromise with an administrative agency with appropriate
jurisdiction, including, but not limited to, a closing agreement under Section 7121
of the Code; (C) any disallowance of a claim for refund or credit in respect to an
overpayment of Tax unless a suit is filed on a timely basis; or (D) any final
disposition by reason of the expiration of all applicable statutes of limitations. |
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(xi) |
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For purposes of this Agreement, the terms Tax and Taxes
mean any and all taxes of any kind whatsoever (including, but not limited to, any and
all Excise Taxes, |
Employment Agreement
(Senior Officer Form)
12
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income taxes, and employment taxes), together with any interest
thereon, any penalties, additions to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties, additions to tax, or additional
amounts. |
(g) Effect of Termination. In the event that the Employee is terminated pursuant to
any paragraph of this Section 7, Employee shall thereafter have no further rights under this
Agreement, except for those explicitly set forth in the particular paragraph of this Section 7
which served as the basis for such termination. Notwithstanding any such termination, the covenants
and agreements of Employee contained in Sections 4, 5(a) (so long as payments under Section 5(a)
are continued as therein described), 5(b) and 6 hereof shall survive and remain in full force and
effect.
Section 8. Notices.
(a) Notices. All notices, requests, demands and other communications hereunder must
be in writing and shall be deemed to have been duly given if delivered by hand, sent to the
recipient by reputable express courier service (charge prepaid), or mailed by first class,
registered mail, return receipt requested, postage and registry fees prepaid and addressed as
follows:
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If to Employee:
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At the address set forth on page 1 hereof. |
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If to the Company:
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Cal Dive International, Inc. |
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400 North Belt East, Suite 400
Houston, Texas 77060
Attention: General Counsel |
(b) Change of Address. Addresses may be changed by notice in writing signed by the
addressee.
Section 9. General Provisions.
(a) Company Subsidiaries. For purposes of this Agreement, the term Company shall
include all subsidiaries of the Company.
(b) Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provisions of any other jurisdiction, and this Agreement shall be reformed,
construed and enforced in such jurisdictions as if such invalid, illegal or unenforceable provision had never been
contained herein. The parties agree that a court of competent jurisdiction making a determination
of the invalidity or unenforceability of any term or provision of Sections 4, 5 and 6 of this
Agreement shall have the power to reduce the scope, duration or area of any such term or provision,
to delete specific words or phrases or to replace any invalid or unenforceable term or provision in
Sections 4, 5, 6 with a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified.
Employment Agreement
(Senior Officer Form)
13
(c) Complete Agreement. This Agreement, embodies the complete agreement and
understanding among the parties and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related to the subject
matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate counterparts, each of
which is deemed to be an original and all of which taken together constitute one and the same
agreement.
(e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall
bind and inure to the benefit of and be enforceable by the Company and Employee and their
respective successors and assigns; provided that the rights and obligations of Employee under this
Agreement shall not be assignable without the prior written consent of the Company.
(f) Governing Law. All questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto shall be governed by the internal law, and
not the law of conflicts, of the State of Texas.
(g) Remedies. Each of the parties to this Agreement shall be entitled to enforce its
rights under this Agreement specifically, to recover damages and costs (including reasonable
attorneys fees) caused by any breach of any provision of this Agreement and to exercise all other
rights existing in its favor. The parties hereto agree and acknowledge that Employees breach of
any term or provision of this Agreement shall materially and irreparably harm the Company, that
money damages shall accordingly not be an adequate remedy for any breach of the provisions of this
Agreement and that any party in its sole discretion and in addition to any other remedies it may
have at law or in equity may apply to any court of law or equity of competent jurisdiction (without
posting any bond or deposit) for specific performance and/or other injunctive relief in order to
enforce or prevent any violations of the provisions of this Agreement.
(h) Amendment and Waiver. The provisions of this Agreement may be amended and waived
only with the prior written consent of the Company and Employee.
Employment Agreement
(Senior Officer Form)
14
IN WITNESS, WHEREOF, the parties hereto have duly executed this Agreement as of the date first
above written.
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CAL DIVE INTERNATIONAL, INC. |
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EMPLOYEE |
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By: |
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Name: Martin R. Ferron
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[Name] |
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Title: President and Chief Operating Officer |
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Employment Agreement
(Senior Officer Form)
15
exv10w10
MASTER AGREEMENT
BETWEEN
HELIX ENERGY SOLUTIONS GROUP, INC.
AND
CAL DIVE INTERNATIONAL, INC.
Dated December 8, 2006
TABLE OF CONTENTS
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Page |
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ARTICLE I DEFINITIONS |
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2 |
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1.1 |
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Certain Definitions |
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2 |
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1.2 |
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Other Terms |
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8 |
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ARTICLE II THE SEPARATION |
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9 |
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2.1 |
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Transfer of Cal Dive Assets; Assumption of Cal Dive Liabilities |
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9 |
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2.2 |
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Cal Dive Assets |
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10 |
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2.3 |
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Cal Dive Liabilities |
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11 |
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2.4 |
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Termination of Agreements. |
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13 |
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2.5 |
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Governmental Approvals and Consents; Delayed Transfer Assets and Liabilities |
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14 |
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2.6 |
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Novation of Assumed Cal Dive Liabilities |
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15 |
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2.7 |
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Novation of Liabilities other than Cal Dive Liabilities |
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16 |
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2.8 |
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Transfers of Assets and Assumption of Liabilities |
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16 |
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2.9 |
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Transfer of Excluded Assets by Cal Dive; Assumption of Excluded Liabilities by Helix |
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17 |
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2.10 |
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DISCLAIMER OF REPRESENTATIONS AND WARRANTIES |
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18 |
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ARTICLE III INTERCOMPANY TRANSACTIONS AS OF THE CLOSING DATE |
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19 |
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3.1 |
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Time and Place of Closing |
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19 |
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3.2 |
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Closing Transactions |
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19 |
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3.3 |
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Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws |
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20 |
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3.4 |
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The Initial Public Offering |
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20 |
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3.5 |
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Proceeds of Initial Public Offering |
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20 |
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3.6 |
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Rescission |
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21 |
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3.7 |
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Proceeds of Credit Facility Drawdown |
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ARTICLE IV FINANCIAL AND OTHER INFORMATION |
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21 |
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4.1 |
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Financial and Other Information |
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21 |
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4.2 |
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Agreement for Exchange of Information; Archives |
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28 |
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4.3 |
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Ownership of Information |
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29 |
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4.4 |
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Compensation for Providing Information |
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29 |
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-i-
TABLE OF CONTENTS
(continued)
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Page |
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4.5 |
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Record Retention |
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30 |
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4.6 |
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Liability |
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30 |
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4.7 |
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Other Agreements Providing for Exchange of Information |
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30 |
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4.8 |
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Production of Witnesses; Records; Cooperation |
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30 |
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4.9 |
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Privilege |
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31 |
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ARTICLE V RELEASE; INDEMNIFICATION |
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32 |
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5.1 |
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Release of Pre-Closing Claims |
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32 |
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5.2 |
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General Indemnification by Cal Dive |
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34 |
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5.3 |
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General Indemnification by Helix |
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35 |
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5.4 |
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Registration Statement Indemnification |
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35 |
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5.5 |
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Contribution |
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36 |
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5.6 |
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Indemnification Obligations Net of Insurance Proceeds and Other Amounts on an After-Tax Basis |
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37 |
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5.7 |
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Procedures for Indemnification of Third Party Claims |
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37 |
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5.8 |
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Additional Matters |
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38 |
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5.9 |
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Remedies Cumulative; Limitations of Liability |
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39 |
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5.10 |
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Survival of Indemnities |
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40 |
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ARTICLE VI OTHER AGREEMENTS |
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40 |
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6.1 |
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Further Assurances |
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40 |
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6.2 |
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Confidentiality |
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41 |
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6.3 |
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Insurance Matters |
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43 |
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6.4 |
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Allocation of Costs and Expenses |
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44 |
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6.5 |
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Covenants Against Taking Certain Actions Affecting Helix |
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45 |
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6.6 |
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No Violations |
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47 |
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6.7 |
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Registration Statements |
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48 |
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6.8 |
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Compliance with Charter Provisions |
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48 |
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6.9 |
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Future Intercompany Transactions |
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48 |
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6.10 |
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[Intentionally Omitted] |
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48 |
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6.11 |
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Helix Policies |
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49 |
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6.12 |
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Operations |
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49 |
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-ii-
TABLE OF CONTENTS
(continued)
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Page |
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6.13 |
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[Intentionally Omitted] |
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49 |
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6.14 |
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Tax Matters |
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49 |
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6.15 |
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Litigation |
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50 |
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ARTICLE VII DISPUTE RESOLUTION |
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50 |
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7.1 |
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General Provisions |
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50 |
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ARTICLE VIII MISCELLANEOUS |
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51 |
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8.1 |
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Corporate Power; Fiduciary Duty |
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52 |
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8.2 |
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Governing Law |
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52 |
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8.3 |
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Survival of Covenants |
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52 |
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8.4 |
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Force Majeure |
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52 |
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8.5 |
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Notices |
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53 |
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8.6 |
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Severability |
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53 |
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8.7 |
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Entire Agreement |
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53 |
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8.8 |
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Assignment; No Third-Party Beneficiaries |
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54 |
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8.9 |
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Public Announcements |
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54 |
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8.10 |
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Amendment |
|
|
54 |
|
|
|
8.11 |
|
Rules of Construction |
|
|
54 |
|
|
|
8.12 |
|
Counterparts |
|
|
54 |
|
-iii-
EXHIBITS
|
|
|
A
|
|
Form of Corporate Services Agreement |
B
|
|
Form of Registration Rights Agreement |
C
|
|
Form of Tax Matters Agreement |
D
|
|
Form of Employee Matters Agreement |
E
|
|
Form of Amended and Restated Certificate of Incorporation |
F
|
|
Form of Amended and Restated Bylaws |
-iv-
SCHEDULES
|
|
|
Schedule 1.1
|
|
Vessels |
Schedule 2.2
|
|
Transferred Subsidiaries |
Schedule 2.4(b)(ii)
|
|
Continuing Agreements |
Schedule 6.15(a)
|
|
Assumed Actions |
Schedule 6.15(b)
|
|
Existing Actions |
-v-
MASTER AGREEMENT
This MASTER AGREEMENT, dated December 8, 2006 (this Agreement), is made between
Helix Energy Solutions Group, Inc., a Minnesota corporation (Helix) and Cal Dive
International, Inc., a Delaware corporation and as of the date hereof, an indirect, wholly-owned
subsidiary of Helix (Cal Dive). Certain capitalized terms used in this Agreement are
defined in Section 1.1 and the definitions of the other capitalized terms used in this
Agreement are cross-referenced in Section 1.2.
WITNESSETH:
WHEREAS, the board of directors of Helix has determined that it is appropriate and desirable
for Helix to separate the Cal Dive Group from Helix;
WHEREAS, in connection with the separation of the Cal Dive Group from Helix, Helix desires to
contribute, assign or otherwise transfer, and to cause certain of its Subsidiaries to contribute,
assign or otherwise transfer, to Cal Dive and certain of Cal Dives Subsidiaries, certain Assets
and Liabilities associated with the Cal Dive Business;
WHEREAS, Helix has agreed to transfer certain vessels constituting part of the Cal Dive Assets
(as defined below) to CDI Vessel Holdings LLC, a Delaware limited liability company (Vessel
Holdings) of which CDI Prometheus Holdings, Inc., a Delaware corporation (Holdings)
owns 100% of the membership interests;
WHEREAS, Helix owns 100% of the issued and outstanding stock of Holdings;
WHEREAS, Vessel Holdings has entered into a Credit Agreement dated as of November 20, 2006
with Bank of America, N.A., as Administrative Agent and the various lenders listed therein, and Cal
Dive, providing for a credit facility of up to USD 250,000,000 to be available to Vessel Holdings
(the Transfer Credit Facility);
WHEREAS, prior to the date hereof, Vessel Holdings has drawn the principal amount of USD
$100,000,000 under the Transfer Credit Facility;
WHEREAS, Helix has agreed to guaranty the obligations of Vessel Holdings under the Transfer
Credit Facility until the closing of the Initial Public Offering pursuant to the Guaranty dated as
of November 20, 2006 (the Guaranty);
WHEREAS, the remaining vessels and balance of the Assets will be transferred by Helix to
various subsidiaries of Holdings, and the stock of Holdings will be transferred by Helix to Cal
Dive to effect the Separation;
WHEREAS, Cal Dive has agreed to guaranty the indebtedness of Vessel Holdings under the
Transfer Credit Facility contemporaneously with the closing of the Initial Public Offering;
WHEREAS, the boards of directors of Helix and Cal Dive have further approved the initial
public offering by Cal Dive of shares of its Common Stock in a registered offering under the
Securities Act, substantially concurrently with the closing of the Separation;
WHEREAS, immediately following the consummation of the Initial Public Offering, Helix will own
approximately 61,506,691 shares of Cal Dive Common Stock;
WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions
required to effect the Separation and certain other agreements that will, following the
consummation of the Initial Public Offering, govern certain matters relating to the Separation, the
Initial Public Offering and the relationship of Helix, Cal Dive and their respective Groups; and
WHEREAS, the terms and conditions set forth herein have not resulted from arms length
negotiations between the parties because of the context of Helixs and Cal Dives parent
subsidiary relationship, and accordingly, such terms and conditions may be in some respects less
favorable to Cal Dive than those it could obtain from unaffiliated third parties.
NOW, THEREFORE, in consideration of the premises and the covenants and agreements contained
herein, and for other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties hereby agree as follows:
ARTICLE
I
DEFINITIONS
1.1 Certain Definitions.
For purposes of this Agreement, the following terms shall have the meanings specified in this
Section 1.1:
Action means any demand, action, claim, dispute, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state, local, foreign or
international Governmental Authority or any arbitration or mediation tribunal.
Affiliate (and, with a correlative meaning, affiliated) means, with
respect to any Person, any direct or indirect Subsidiary of such Person, and any other Person that
directly, or through one or more intermediaries, controls or is controlled by or is under common
control with such first Person; provided, however, that from and after the Closing
Date, no member of the Cal Dive Group shall be deemed an Affiliate of any member of the Helix Group
for purposes of this Agreement and the Transaction Documents and no member of the Helix Group shall
be deemed an Affiliate of any member of the Cal Dive Group for purposes of this Agreement and the
Transaction Documents. As used in this definition, control (including with correlative
meanings, controlled by and under common control with) means possession,
directly or indirectly, of power to direct or cause the direction of management or policies, or the
power to appoint and remove a majority of directors (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), of a Person.
Assets means, with respect to any Person, the assets, properties and rights
(including goodwill) of such Person, wherever located (including in the possession of vendors or
other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or
contingent, in each
-2-
case whether or not recorded or reflected or required to be recorded or reflected on the books
and records or financial statements of such Person, including the following:
(a) the vessels, including all appurtenances thereto, all equipment, including without
limitation all diving and pipelaying equipment, inventory, work-in-progress and spare parts;
(b) all computers and other electronic data processing equipment, fixtures, machinery,
furniture, office equipment, automobiles, trucks, motor vehicles and other transportation equipment
and other tangible personal property;
(c) all interests in real property of whatever nature, including easements, whether as owner,
mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee
or otherwise;
(d) all accounting and other books, records and files whether in paper, microfilm, microfiche,
computer tape or disc, magnetic tape or any other form;
(e) all license agreements, vessel charters, leases of personal property, open purchase orders
for supplies, parts or services and other contracts, agreements or commitments;
(f) all deposits, letters of credit and performance and surety bonds;
(g) all written technical information, data, specifications, research and development
information, engineering drawings, operating and maintenance manuals, and materials and analyses
prepared by consultants and other third parties;
(h) all domestic and foreign intangible personal property, patents, copyrights, trade names,
trademarks, service marks and registrations and applications for any of the foregoing, trade
secrets, inventions, designs, ideas, improvements, works of authorship, recordings, other
proprietary and confidential information and licenses from third Persons granting the right to use
any of the foregoing;
(i) all vessel logs and records of repair and maintenance for any vessel or equipment;
(j) all computer applications, programs and other software, including operating software,
network software firmware, middleware, design software, design tools, systems documentation and
instructions;
(k) all cost information, sales and pricing data, customer prospect lists, supplier records,
customer and supplier lists, customer and vendor data, correspondence and lists, product
literature, artwork, design, formulations and specifications, quality records and reports and other
books, records, studies, surveys, reports, plans and documents;
(l) all prepaid expenses, trade accounts and other accounts and notes receivables;
(m) all rights under contracts or agreements, all claims or rights against any Person arising
from the ownership of any Asset, all rights in connection with any bids or offers and all claims,
choses in action or similar rights, whether accrued or contingent;
-3-
(n) all rights under insurance policies and all rights in the nature of insurance,
indemnification or contribution including without limitation any policies held through a protection
and indemnity club;
(o) all licenses, permits, approvals and authorizations which have been issued by any
Governmental Authority;
(p) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and
(q) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar
agreements or arrangements.
Business Day means a day other than a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by Law to close. Any event the
scheduled occurrence of which would fall on a day that is not a Business Day shall be deferred
until the next succeeding Business Day.
Cal Dive Balance Sheet means Cal Dives unaudited condensed combined balance sheet
as of September 30, 2006 included in the IPO Registration Statement.
Cal Dive Business means the current businesses of the members of the Cal Dive Group,
including, without limitation, the world-wide manned diving, pipelaying, pipe burial and related
businesses described in the IPO Registration Statement.
Cal Dive Capital Stock means all classes or series of capital stock of Cal Dive,
including the Common Stock, and all options, warrants and other rights to acquire such capital
stock.
Cal Dive Common Stock means the common stock, $0.01 par value per share, of Cal
Dive.
Cal Dive Contracts means the following contracts and agreements to which Helix or
any of its Subsidiaries is a party or by which Helix or any of its Subsidiaries or any of their
respective Assets is bound, whether or not in writing, except for any such contract or agreement
that is contemplated to be retained by Helix or any member of the Helix Group pursuant to any
provision of this Agreement or any Transaction Document:
(a) any contract or agreement entered into in the name of, or expressly on behalf of, any
division, business unit or member of the Cal Dive Group;
(b) any contract or agreement, including any joint venture agreement, that is used exclusively
or held for use exclusively in the Cal Dive Business;
(c) any guarantee, indemnity, representation, warranty or other Liability of any member of the
Cal Dive Group or the Helix Group in respect of (i) any other Cal Dive Contract or Cal Dive Asset,
(ii) any Cal Dive Liability or (iii) the Cal Dive Business; and
-4-
(d) any contract or agreement that is otherwise expressly contemplated pursuant to this
Agreement or any of the Transaction Documents to be assigned to Cal Dive or any member of the Cal
Dive Group in connection with the Separation.
Cal Dive Group means Cal Dive, each Subsidiary of Cal Dive immediately after the
Closing and each other Person that is either controlled directly or indirectly by Cal Dive
immediately after the Closing; provided that, any Delayed Transfer Asset that is
transferred to Cal Dive at any time following the Closing shall, to the extent applicable, and from
and after the Closing Date, be considered part of the Cal Dive Group for all purposes of this
Agreement.
Cal Dive Indebtedness means the aggregate principal amount of total liabilities
(whether long-term or short-term) for borrowed money (including capitalized leases) of the Cal Dive
Group collectively, as determined for purposes of its financial statements prepared in accordance
with GAAP.
Code means the Internal Revenue Code of 1986, as amended.
Consents means any consent, waiver or approval from, or notification requirement to,
any third parties.
Delayed Transfer Assets means any Cal Dive Assets that are transferred to the Cal
Dive Group from the Helix Group after the Closing Date.
Delayed Transfer Liabilities means any Cal Dive Liabilities that are assumed by a
member of the Cal Dive Group from a member of the Helix Group after the Closing Date.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC thereunder, all as the same shall be in effect at the time that
reference is made thereto.
Firm Public Offering Shares means the Common Stock sold in the Initial Public
Offering, other than Common Stock sold as a result of exercise of the Over-Allotment Option by the
Underwriters.
Force Majeure means, with respect to a party, an event beyond the control of such
party (or any Person acting on its behalf), which by its nature could not have been foreseen by
such party (or such Person), or, if it could have been foreseen, was unavoidable, and includes,
without limitation, acts of God, storms, floods, riots, fires, sabotage, civil commotion or civil
unrest, interference by civil or military authorities, acts of war (declared or undeclared) or
armed hostilities or other national or international calamity or one or more acts of terrorism or
failure of energy sources or distribution facilities.
GAAP means United States generally accepted accounting principles.
Governmental Approvals means any notice, report or other filing to be made with, or
any consent, registration, approval, permit or authorization to be obtained from, any Governmental
Authority.
-5-
Governmental Authority means any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government, including any
governmental authority, agency, department, board, commission or instrumentality, whether federal,
state, local or foreign (or any political subdivision thereof), and any tribunal, court or
arbitrator(s) of competent jurisdiction.
Group means the Helix Group or the Cal Dive Group, as the context requires.
Helix Group means Helix and each Person (other than a member of the Cal Dive Group)
that is an Affiliate of Helix immediately following the Closing.
Holdings has the meaning given that term in the Preamble hereof.
Information means information, whether or not patentable or copyrightable, in
written, oral, electronic or other tangible or intangible form, stored in any medium, including
studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts,
know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes,
samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other
software, marketing plans, customer names, communications by or to attorneys (including
attorney-client privileged communications), memoranda and other materials prepared by attorneys or
under their direction (including attorney work product), and other technical, financial, employee
or business information or data.
Initial Public Offering means the initial public offering by Cal Dive of
approximately 22.1 million shares of Common Stock.
Insurance Policies means the insurance policies written by insurance carriers,
including those affiliated with Helix and any self-insurance arrangements, pursuant to which Cal
Dive or one or more of its Subsidiaries (or their respective officers or directors) will be insured
parties after the Closing Date, including without limitation any policies written by protection and
indemnity clubs with respect to the Vessels.
Insurance Proceeds means those monies: (a) received by an insured from an insurance
carrier or a protection and indemnity club; (b) paid by an insurance carrier or a protection and
indemnity club on behalf of the insured; or (c) received (including by way of setoff) from any
third party in the nature of insurance, contribution or indemnification in respect of any
Liability; in any such case net of any applicable premium adjustments or adjustments to club calls
(including reserves and retrospectively rated premium adjustments) and net of any costs or expenses
incurred in the collection thereof.
IPO Registration Statement means the registration statement on Form S-1 filed under
the Securities Act pursuant to which the Common Stock to be sold by Cal Dive in the Initial Public
Offering will be registered, and all amendments and supplements to such registration statement,
including post-effective amendments, all exhibits and all materials incorporated by reference in
such registration statement.
-6-
Law means any federal, state, local or foreign law (including common law), statute,
code, ordinance, rule, regulation or other requirement enacted, promulgated, issued or entered by a
Governmental Authority.
Liabilities means any debt, loss, damage, adverse claim, liability or obligation of
any Person (whether direct or indirect, known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, or due or to become due, and whether
in contract, tort, strict liability or otherwise), and including all costs and expenses relating
thereto.
Over-Allotment Option means the over-allotment option that may be exercised by the
underwriters of the Initial Public Offering pursuant to the Underwriting Agreement relating to the
Initial Public Offering.
Person means any individual, corporation, partnership, limited liability company,
firm, joint venture, association, joint-stock company, trust, unincorporated organization,
Governmental Authority or other entity.
Prospectus means the prospectus or prospectuses included in the IPO Registration
Statement, as amended or supplemented by prospectus supplement and by all other amendments and
supplements to any such prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus or prospectuses.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is
made thereto.
Security Interest means any mortgage, security interest, pledge, lien, charge,
claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition,
easement, encroachment, restriction on transfer (other than restrictions on transfer imposed by
federal or state securities laws), or other encumbrance of any nature whatsoever.
Separation means collectively, (a) the transfer of the Cal Dive Assets, to the
extent not already held by Cal Dive and the Cal Dive Group, and the assumption by Cal Dive and the
Cal Dive Group of the Cal Dive Liabilities, and (b) the transfer of certain Excluded Assets to
Helix and the Helix Group, and the assumption by Helix and the Helix Group of certain Excluded
Liabilities, all as more fully described in this Agreement and the Transaction Documents.
Subsidiary or subsidiary means, with respect to any Person, any
corporation, limited liability company, joint venture or partnership of which such Person (a)
beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total
combined voting power of all classes of voting securities of such entity, (ii) the total combined
equity interests, or (iii) the capital or profit interests, in the case of a partnership; or (b)
otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a
majority of the board of directors or similar governing body.
-7-
Tax means all federal, state, provincial, territorial, municipal, local or foreign
income, profits, franchise, gross receipts, tonnage, environmental (including taxes under Code
Section 59A), customs, duties, net worth, sales, use, goods and services, withholding, value added,
ad valorem, employment, social security, disability, occupation, pension, real property, personal
property (tangible and intangible), stamp, transfer, conveyance, severance, production, excise,
premium, retaliatory and other taxes, withholdings, duties, levies, imposts, guarantee fund
assessments and other similar charges and assessments (including any and all fines, penalties and
additions attributable to or otherwise imposed on or with respect to any such taxes, charges, fees,
levies or other assessments, and interest thereon) imposed by or on behalf of any Taxing Authority,
in each case whether such Tax arises by Law, contract, agreement or otherwise.
Taxing Authority means any Governmental Authority exercising any authority to
impose, regulate, levy, assess or administer the imposition of any Tax.
Transactions means, collectively, (a) the Separation, (b) the Initial Public
Offering and (c) all other transactions contemplated by this Agreement or any Transaction Document.
Trigger Date means the first date on which members of the Helix Group cease to
beneficially own more than fifty percent (50%) of the total voting power of Cal Dive Common Stock.
Underwriters means the managing underwriters for the Initial Public Offering.
Underwriting Agreement means the Underwriting Agreement to be entered into by and
among Helix, Cal Dive and the Underwriters in connection with the offering of Cal Dive Common Stock
in the Initial Public Offering.
Vessel Holdings has the meaning given that term in the Preamble hereof.
Vessels means, as of the Closing Date, the vessels listed on Schedule 1.1 hereto,
and all appurtenances thereto, and thereafter, the Vessels and any after-acquired vessels of Cal
Dive.
1.2 Other Terms. For purposes of this Agreement, the following terms have the
meanings set forth in the sections indicated.
|
|
|
Term |
|
Section |
After-Tax Basis |
|
5.6(c) |
Agreement |
|
Recitals |
Annual Financial Statements |
|
4.1(a)(v) |
Assumed Actions |
|
6.15(a) |
Bylaws |
|
3.3 |
Cal Dive |
|
Preamble |
Cal Dive Assets |
|
2.2(a) |
Cal Dive Auditors |
|
4.1(b)(i) |
Cal Dive Confidential Information |
|
6.2(a) |
Cal Dive Indemnified Parties |
|
5.3 |
Cal Dive Liabilities |
|
2.3(a) |
-8-
|
|
|
Term |
|
Section |
Cal Dive Public Documents |
|
4.1(a)(viii) |
Cal Dive Transfer Documents |
|
2.9(a)(iii) |
Charter |
|
3.3 |
Closing |
|
3.1 |
Closing Date |
|
3.1 |
Corporate Services Agreement |
|
3.2(b)(i) |
Dispute |
|
7.1 |
Drawdown |
|
3.7 |
Employee Matters Agreement |
|
3.2(b)(iv) |
Excluded Assets |
|
2.2(b) |
Excluded Liabilities |
|
2.3(b) |
Existing Actions |
|
6.15(b) |
Existing Helix Indebtedness |
|
3.5 |
Helix |
|
Preamble |
Helix Annual Statements |
|
4.1(b)(ii) |
Helix Auditors |
|
4.1(b)(ii) |
Helix Confidential Information |
|
6.2(b) |
Helix Indemnified Parties |
|
5.2 |
Helix Policies |
|
6.11 |
Helix Public Filings |
|
4.1(a)(xii) |
Helix Transfer Documents |
|
2.8 |
Indemnified Party |
|
5.6(a) |
Indemnifying Party |
|
5.6(a) |
Indemnity Payment |
|
5.6(a) |
Long-Term Contract |
|
6.12 |
Notification Period |
|
6.12 |
Privilege |
|
4.9 |
Quarterly Financial Statements |
|
4.1(a)(iv) |
Registration Rights Agreement |
|
3.2(b)(ii) |
Representatives |
|
6.2(a) |
Tax Matters Agreement |
|
3.2(b)(iii) |
Third Party Claim |
|
5.7(a) |
Transaction Documents |
|
3.2(b) |
Transfer Credit Facility |
|
Preamble |
Transfer Documents |
|
2.9(a)(iii) |
Transferred Subsidiaries |
|
2.2(a)(iii) |
Utilization Limit |
|
6.12 |
ARTICLE II
THE SEPARATION
2.1 Transfer of Cal Dive Assets; Assumption of Cal Dive Liabilities.
(a) The Separation shall be effected in accordance with the terms and conditions of this
Agreement and the other Transfer Documents. Subject to Section 3.6, immediately
-9-
following the execution and delivery of the Underwriting Agreement by each of the parties
thereto:
(i) Helix shall, and shall cause its applicable Subsidiaries to, contribute, assign, transfer,
convey and deliver to Cal Dive or certain of Cal Dives Subsidiaries designated by Cal Dive, and
Cal Dive or such applicable Subsidiaries shall accept from Helix and its applicable Subsidiaries,
all of Helixs and such Subsidiaries respective rights, titles and interests in and to all Cal
Dive Assets, with such contributions, assignments, transfers and conveyances being subject to the
terms and conditions of this Agreement and any applicable Transfer Documents; and
(ii) Cal Dive shall, and shall cause its domestic Subsidiaries to, accept, assume and agree,
on a several and not joint basis, to perform, discharge and fulfill all the Cal Dive Liabilities,
in accordance with their respective terms. Cal Dive and such Subsidiaries shall be responsible for
all Cal Dive Liabilities assumed by it, regardless of when or where such Cal Dive Liabilities arose
or arise, or whether the facts on which they are based occurred prior to or subsequent to the
Closing Date, regardless of where or against whom such Cal Dive Liabilities are asserted or
determined (including any Cal Dive Liabilities arising out of claims made by Helixs or Cal Dives
respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of
the Helix Group or the Cal Dive Group) or whether asserted or determined prior to the date hereof,
and, except as set forth in Section 2.3(b)(iii), regardless of whether arising from or
alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any
member of the Helix Group or the Cal Dive Group, or any of their past or present respective
directors, officers, employees, agents, Subsidiaries or Affiliates. Such assumption of Cal Dive
Liabilities shall be subject to the terms and conditions of this Agreement and any applicable
Transfer Documents.
(b) Each of the parties agrees that Delayed Transfer Assets, if any, will be contributed,
assigned, transferred, conveyed and delivered, and Delayed Transfer Liabilities, if any, will be
accepted and assumed, in accordance with the terms of the applicable Transaction Documents.
Notwithstanding the date on which any such Delayed Transfer Asset is actually contributed,
assigned, conveyed and delivered, or the date on which any such Delayed Transfer Liability is
actually accepted and assumed, such contribution, assignment, transfer, conveyance and delivery of
any Delayed Transfer Asset, or the acceptance and assumption of any Delayed Transfer Liability,
shall be deemed to have taken place on, and shall be effective as of, the Closing Date, and the
applicable Delayed Transfer Asset or Delayed Transfer Liability shall be treated for all purposes
of this Agreement and the Transaction Documents as a Cal Dive Asset or a Cal Dive Liability, as the
case may be, from and after the Closing Date.
(c) If at any time or from time to time (whether prior to or after the Closing Date) any party
hereto (or any member of such partys respective Group) shall receive or otherwise possess any
Asset that is allocated to any other Person pursuant to this Agreement or any Transaction Document,
such party shall promptly transfer, or cause to be transferred, such Asset to the Person so
entitled thereto. This Section 2.2(c) shall not apply to any Assets acquired by Helix or Cal Dive
more than one hundred eighty (180) days following the Closing Date.
-10-
(d) Cal Dive hereby waives compliance by each member of the Helix Group with the requirements
and provisions of the bulk-sale or bulk-transfer Laws of any jurisdiction that may otherwise be
applicable with respect to the transfer or sale of any or all of the Cal Dive Assets to any member
of the Cal Dive Group.
2.2 Cal Dive Assets.
(a) Subject to Section 2.2(b), for purposes of this Agreement, Cal Dive
Assets shall mean (without duplication):
(i) all Assets that are expressly provided by this Agreement or any Transaction
Document as Assets to be transferred by Helix and other members of the Helix Group to Cal
Dive or another designated member of the Cal Dive Group;
(ii) all Cal Dive Contracts;
(iii) the stock and limited liability company membership interests listed on Schedule
2.2 hereto of the corporations and limited liability companies described on Schedule
2.2 (the Transferred Subsidiaries);
(iv) the Vessels;
(v) subject to Section 6.3, any rights of any member of the Cal Dive Group under any
of the Insurance Policies, including any rights thereunder arising after the Closing Date in
respect of any Insurance Policies;
(vi) all Assets reflected as Assets of Cal Dive and its Subsidiaries in the Cal Dive Balance
Sheet, other than any dispositions of such Assets subsequent to the date of the Cal Dive Balance
Sheet; and
(vii) any and all Assets owned or held immediately prior to the Closing Date by Helix or any
of its Subsidiaries that are used exclusively in the Cal Dive Business. The intention of this
clause (vii) is only to rectify any inadvertent omission of transfer or conveyance of any
Asset that, had the parties given specific consideration to such Asset as of the date hereof, would
have otherwise been classified as a Cal Dive Asset.
(b) Notwithstanding the foregoing, the Cal Dive Assets shall not in any event include the
Excluded Assets. For purposes of this Agreement, Excluded Assets shall mean Assets not
used exclusively in the Cal Dive Business, including, without limitation any and all Assets that
are expressly contemplated by this Agreement or any Transaction Document as either Assets to be
retained by Helix or any other member of the Helix Group, other than assets of the Transferred
Subsidiaries, or Assets that are to be transferred by Cal Dive or any member of the Cal Dive Group
to Helix or a designated member of the Helix Group.
2.3 Cal Dive Liabilities.
(a) Subject to Section 2.3(b), for purposes of this Agreement, Cal Dive
Liabilities shall mean (without duplication):
-11-
(i) all Liabilities that are expressly provided by this Agreement or any Transaction Document
as Liabilities to be assumed by Cal Dive or any other member of the Cal Dive Group, and all
agreements, obligations and Liabilities of Cal Dive or any other member of the Cal Dive Group under
this Agreement or any of the Transaction Documents;
(ii) all Liabilities, including any environmental or employee-related Liabilities relating to,
arising out of or resulting from:
(A) the operation of the Cal Dive Business, as conducted at any time before, on or after the
Closing Date (including any Liability relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or representative (whether or not such act
or failure to act is or was within such Persons authority));
(B) the operation of any business conducted by any member of the Cal Dive Group at any time
after the Closing Date (including any Liability relating to, arising out of or resulting from any
act or failure to act by any director, officer, employee, agent or representative (whether or not
such act or failure to act is or was within such Persons authority));
(C) any Cal Dive Assets (including any Cal Dive Contracts and any real property and leasehold
interests), in any such case whether arising before, on or after the Closing Date; or
(D) the ownership and operation of the Vessels, whether arising before, on or after the
Closing Date.
(iii) all Liabilities reflected as liabilities or obligations of Cal Dive or its Subsidiaries
in the Cal Dive Balance Sheet;
(iv) all Liabilities related to Assumed Actions and Existing Actions, as further provided in
Section 6.15;
(v) all Liabilities related to any and all other Actions initiated on or after the Closing
Date that arise out of or relate in any material respect to the operation of the Cal Dive Business
or the ownership or use of the Cal Dive Assets, in any such case whether such Liability arises
before, on or after the Closing Date, including any such Action in which Helix or any member of the
Helix Group is named as a defendant or party subject to any claim or investigation;
(vi) all Liabilities for any payments to be made by any member of the Helix Group or any
member of the Cal Dive Group pursuant to the terms and conditions of purchase agreements relating
to the acquisition of Cal Dive Assets, including, without limitation, purchase price installment
payments based on the financial performance of the Cal Dive Asset subsequent to the acquisition;
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(vii) all Liabilities under or arising out of the Transfer Credit Facility, including, without
limitation, the obligations to repay the principal balance thereunder and accrued interest thereon,
fee and expenses of the lenders and the agent thereunder, and any obligations to protect and
indemnify the agent and the lenders thereunder;
(viii) all Liabilities arising out of claims made by Helixs or Cal Dives respective
directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Helix
Group or the Cal Dive Group with respect to the Cal Dive Business, whether arising before, on or
after the Closing Date;
(viii) subject to Section 6.3, all Liabilities for insurance premiums and club calls
relating to the Cal Dive Assets or the Vessels; and
(ix) Liabilities of the Transferred Subsidiaries.
(b) Notwithstanding the foregoing, the Cal Dive Liabilities shall not in any event include the
Excluded Liabilities. For purposes of this Agreement, Excluded Liabilities shall mean
(without duplication):
(i) any and all Liabilities that are expressly contemplated by this Agreement or any
Transaction Document as Liabilities to be retained or assumed by Helix or any other member of the
Helix Group, and all agreements and obligations of any member of the Helix Group under this
Agreement or any of the Transaction Documents;
(ii) any and all Liabilities of a member of the Helix Group relating solely to, arising solely
out of or resulting from any Excluded Assets; and
(iii) any and all liabilities arising from a knowing violation of Law, fraud or
misrepresentation by any member of the Helix Group or any of their respective directors, officers,
employees or agents (other than any individual who at the time of such act was acting in his or her
capacity as a director, officer, employee or agent of any member of the Cal Dive Group).
2.4 Termination of Agreements.
(a) Except as set forth in Section 2.4(b), Cal Dive and each member of the Cal Dive
Group, on the one hand, and Helix and each member of the Helix Group, on the other hand, hereby
terminate any and all agreements, arrangements, commitments or understandings, whether or not in
writing, between or among Cal Dive or any member of the Cal Dive Group, on the one hand, and Helix
or any member of the Helix Group, on the other hand, effective as of the Closing Date. No such
terminated agreement, arrangement, commitment or understanding (including any provision thereof
which purports to survive termination) shall be of any further force or effect after the Closing
Date. Each party shall, at the reasonable request of any other party, take, or cause to be taken,
such other actions as may be necessary to effect the foregoing.
(b) The provisions of Section 2.4(a) shall not apply to any of the following
agreements, arrangements, commitments or understandings (or to any of the provisions thereof):
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(i) this Agreement and the Transaction Documents (and each other agreement or instrument
expressly contemplated by this Agreement or any Transaction Document to be entered into or
continued by either of the parties or any of the members of their respective Groups);
(ii) except to the extent redundant with any provision of or service provided under this
Agreement or any of the Transaction Documents (including any exhibits or schedules thereto), the
agreements, arrangements, commitments and understandings listed or described on Schedule
2.4(b)(ii);
(iii) any agreements, arrangements, commitments or understandings to which any Person other
than the parties and their respective Affiliates is a party (it being understood that to the extent
that the rights and obligations of the parties and the members of their respective Groups under any
such agreements, arrangements, commitments or understandings constitute Cal Dive Assets or Cal Dive
Liabilities, they shall be assigned pursuant to Section 2.1);
(iv) any accounts or notes payable or accounts or notes receivable or allocations between a
member of the Helix Group, on the one hand, and a member of the Cal Dive Group, on the other hand,
accrued as of the Closing Date and reflected in the books and records of the parties or otherwise
documented in accordance with past practices;
(v) any agreements, arrangements, commitments or understandings to which any non-wholly owned
Subsidiary of Helix or Cal Dive, as the case may be, is a party; and
(vi) any other agreements, arrangements, commitments or understandings that this Agreement or
any Transaction Document expressly contemplates will survive the Closing Date.
2.5 Governmental Approvals and Consents; Delayed Transfer Assets and Liabilities.
(a) To the extent that the Separation requires any Governmental Approvals or Consents, the
parties will use their commercially reasonable efforts to obtain such Governmental Approvals and
Consents; provided, however, that neither Helix nor Cal Dive shall be obligated to contribute
capital in any form to any entity in order to obtain such Governmental Approvals and Consents.
(b) If and to the extent that the valid, complete and perfected contribution, transfer or
assignment to the Cal Dive Group of any Cal Dive Assets or the assumption by the Cal Dive Group of
any Cal Dive Liabilities would be a violation of applicable Law or require any Consent or
Governmental Approval in connection with the Separation or the Initial Public Offering, then,
unless the parties mutually shall otherwise determine, the transfer or assignment to the Cal Dive
Group of such Cal Dive Assets or the assumption by the Cal Dive Group of such Cal Dive Liabilities
shall be automatically deemed deferred and any such purported contribution, transfer, assignment or
assumption shall be null and void until such time as all legal impediments are
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removed or such Consents or Governmental Approvals have been obtained. If and when the
Consents and Governmental Approvals are obtained, the contribution, transfer or assignment of the
applicable Cal Dive Asset or Cal Dive Liability shall be effected in accordance with the terms of
this Agreement and/or the applicable Transfer Document. Any such Liability shall be deemed a
Delayed Transfer Liability. Any such Asset shall be deemed a Delayed Transfer Asset and
notwithstanding the foregoing, a Cal Dive Asset for purposes of determining whether any Liability
is a Cal Dive Liability.
(c) If any contribution, transfer or assignment of any Cal Dive Asset intended to be
contributed, transferred or assigned hereunder or any assumption of any Cal Dive Liability intended
to be assumed by the Cal Dive Group hereunder is not consummated on the Closing Date for any
reason, then, insofar as reasonably possible, (i) the member of the Helix Group retaining such Cal
Dive Asset shall thereafter hold such Cal Dive Asset for the use and benefit of the member of the
Cal Dive Group entitled thereto (at the expense of the member of the Cal Dive Group entitled
thereto) and (ii) Cal Dive shall, or shall cause the applicable member of the Cal Dive Group to,
pay or reimburse the member of the Helix Group retaining such Cal Dive Liability for all amounts
paid or incurred in connection with such Cal Dive Liability. In addition, the member of the Helix
Group retaining such Cal Dive Asset shall, insofar as reasonably possible and to the extent
permitted by applicable Law, treat such Asset in the ordinary course of business in accordance
with past practice and take such other actions as may be reasonably requested by the Cal Dive Group
member to whom such Cal Dive Asset is to be transferred in order to place such Cal Dive Group
member in the same position as if such Cal Dive Asset had been transferred as contemplated hereby
and so that all the benefits and burdens relating to such Cal Dive Asset, including possession,
use, risk of loss, potential for gain, and dominion, control and command over such Cal Dive Asset,
is to inure from and after the Closing Date to the Cal Dive Group.
(d) The Person retaining an Asset or Liability due to the deferral of the transfer of such
Asset or the deferral of the assumption of such Liability shall not be obligated, in connection
with the foregoing, to expend any money unless the necessary funds are advanced (or otherwise made
available) by the Person entitled to the Asset or the Person intended to be subject to the
Liability, other than reasonable out-of-pocket expenses, attorneys fees and recording or similar
fees, all of which shall be promptly reimbursed by the Person entitled to such Asset or the Person
intended to be subject to the Cal Dive Liability.
2.6 Novation of Assumed Cal Dive Liabilities.
(a) Each of Helix and Cal Dive, at the request of the other, shall use commercially reasonable
efforts to obtain, or to cause to be obtained, any Consent, substitution or amendment required to
novate or assign all obligations under agreements, leases, licenses and other obligations or
Liabilities of any nature whatsoever that constitute Cal Dive Liabilities, and in the case of an
assignment, to obtain in writing the unconditional release of all parties to such arrangements
(other than any member of the Cal Dive Group), so that, in any such case, Cal Dive and the other
members of the Cal Dive Group will be solely responsible for such Cal Dive Liabilities;
provided, however, that neither the Helix Group nor the Cal Dive Group shall be
obligated to pay any consideration or assume any additional obligation therefor to any third party
from whom any such Consent, substitution or amendment is requested.
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(b) If Helix or Cal Dive is unable to obtain, or to cause to be obtained, any such required
Consent, release, substitution or amendment, the applicable member of the Helix Group shall
continue to be bound by such agreement, lease, license or other obligation that constitutes a Cal
Dive Liability and, unless not permitted by Law or the terms thereof, as agent or subcontractor for
such member of the Helix Group, Cal Dive shall, or shall cause a member of the Cal Dive Group to,
pay, perform and discharge fully all the obligations or other Liabilities of members of the Helix
Group thereunder that constitute Cal Dive Liabilities from and after the Closing Date. Cal Dive
shall indemnify each Helix Indemnified Party, and hold each of them harmless against any
Liabilities arising in connection therewith; provided that, Cal Dive shall have no
obligation to indemnify any Helix Indemnified Party with respect to any matter to the extent that
such Helix Indemnified Party has engaged in any knowing violation of Law, fraud or
misrepresentation in connection therewith. Helix shall, without further consideration, promptly
pay and remit, or cause to be promptly paid or remitted, to Cal Dive, all money, rights and other
consideration received by it or any member of the Helix Group in respect of such performance by Cal
Dive or the Cal Dive Group (unless any such consideration is an Excluded Asset). If and when any
such Consent, release, substitution or amendment shall be obtained or such agreement, lease,
license or other rights or obligations shall otherwise become assignable or able to be novated,
Helix shall thereafter assign, or cause to be assigned, all rights and obligations of any member of
the Helix Group thereunder and any other Cal Dive Liabilities thereunder to Cal Dive or a
designated member of the Cal Dive Group, without payment of further consideration and Cal Dive, or
a designated member of the Cal Dive Group, shall, without the payment of any further consideration,
assume such Cal Dive Liabilities and rights.
2.7 Novation of Liabilities other than Cal Dive Liabilities.
(a) Each of Helix and Cal Dive, at the request of the other, shall use commercially reasonable
efforts to obtain, or to cause to be obtained, any Consent, substitution, or amendment required to
novate or assign all obligations under agreements, leases, licenses and other obligations or
Liabilities for which a member of the Helix Group and a member of the Cal Dive Group are jointly or
severally liable and that do not constitute Cal Dive Liabilities, and in the case of an assignment,
to obtain in writing the unconditional release of all parties to such arrangements other than any
member of the Helix Group, so that, in any such case, the members of the Helix Group will be solely
responsible for such Liabilities; provided, however, that neither the Helix Group
nor the Cal Dive Group shall be obligated to pay any consideration therefor to any third party from
whom any such Consent, substitution or amendment is requested.
(b) If Helix or Cal Dive is unable to obtain, or to cause to be obtained, any such required
Consent, release, substitution or amendment, the applicable member of the Cal Dive Group shall
continue to be bound by such agreement, lease, license or other obligation that does not constitute
a Cal Dive Liability and, unless not permitted by Law or the terms thereof, as agent or
subcontractor for such member of the Cal Dive Group, Helix shall, or shall cause a member of the
Helix Group to, pay, perform and discharge fully all the obligations or other Liabilities of such
member of the Cal Dive Group thereunder from and after the Closing Date. Helix shall indemnify
each Cal Dive Indemnified Party and hold each of them harmless against any Liabilities (other than
Cal Dive Liabilities) arising in connection therewith; provided that, Helix shall
have no obligation to indemnify any Cal Dive Indemnified Party with respect to any matter to the
extent that such Cal Dive Indemnified Party has engaged in any knowing violation
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of Law, fraud or misrepresentation in connection therewith. Cal Dive shall, without further
consideration, promptly pay and remit, or cause to be promptly paid or remitted, to Helix or to
another member of the Helix Group specified by Helix, all money, rights and other consideration
received by it or any member of the Cal Dive Group in respect of such performance by Helix or the
Helix Group (unless any such consideration is a Cal Dive Asset). If and when any such Consent,
release, substitution or amendment shall be obtained or such agreement, lease, license or other
rights or obligations shall otherwise become assignable or able to be novated, Cal Dive shall
promptly assign, or cause to be assigned, all rights, obligations and other Liabilities thereunder
of any member of the Cal Dive Group to Helix or to another member of the Helix Group specified by
Helix, without payment of any further consideration and Helix, or another member of the Helix
Group, without the payment of any further consideration shall assume such rights and Liabilities.
2.8 Transfers of Assets and Assumption of Liabilities.
In furtherance of the contribution, assignment, transfer and conveyance of Cal Dive Assets and
the assumption of Cal Dive Liabilities, on the Closing Date and thereafter, as applicable, (a)
Helix shall execute and deliver, and shall cause the other members of the Helix Group to execute
and deliver, such stock powers, merger certificates, bills of sale, certificates of title,
assignments of contracts and other instruments of contribution, transfer, conveyance and assignment
as and to the extent necessary to evidence the contribution, transfer, merger, conveyance and
assignment of all of the Helix Groups right, title and interest in and to the Cal Dive Assets to
the Cal Dive Group, and (b) Cal Dive shall execute and deliver, and shall cause the other members
of the Cal Dive Group to execute and deliver, such assumptions of contracts and other instruments
of assumption as and to the extent necessary to evidence the valid and effective assumption of the
Cal Dive Liabilities by the Cal Dive Group. All of the foregoing documents contemplated by this
Section 2.8 shall be referred to collectively herein as the Helix Transfer
Documents.
2.9 Transfer of Excluded Assets by Cal Dive; Assumption of Excluded Liabilities by
Helix.
(a) To the extent any Excluded Asset or Excluded Liability is transferred to a member of the
Cal Dive Group at the Closing or remains owned or held by a member of the Cal Dive Group after the
Closing, from and after the Closing:
(i) Cal Dive shall, and shall cause the members of the Cal Dive Group to, promptly contribute,
assign, transfer, convey and deliver to Helix or designated Helix Group members, and Helix or such
Helix Group members shall accept from Cal Dive and its applicable Group members, all of Cal Dives
and such Group members respective rights, titles and interests in and to such Excluded Assets.
(ii) Helix and certain Helix Group members designated by Helix, shall promptly accept, assume
and agree to perform, discharge and fulfill all such Excluded Liabilities in accordance with their
respective terms.
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(iii) In furtherance of the assignment, transfer and conveyance of Excluded Assets and the
assumption of Excluded Liabilities (A) Cal Dive shall execute and deliver, and shall cause its
Subsidiaries to execute and deliver, such bills of sale, stock powers, certificates of title,
assignments of contracts and other instruments of transfer, conveyance and assignment as and to the
extent necessary to evidence the transfer, conveyance and assignment of all of Cal Dives and its
Subsidiaries right, title and interest in and to the Excluded Assets to Helix and its
Subsidiaries, and (B) Helix shall execute and deliver such assumptions of contracts and other
instruments of assumption as and to the extent necessary to evidence the valid and effective
assumption of the Excluded Liabilities by Helix. All of the foregoing documents contemplated by
this Section 2.9(a)(iii) shall be referred to collectively herein as the Cal Dive
Transfer Documents and, together with the Helix Transfer Documents, the Transfer
Documents.
(iv) To the extent that the transfer of such Excluded Assets and the assumption of such
Excluded Liabilities requires any Governmental Approvals or Consents, the parties shall use
commercially reasonable efforts to obtain such Governmental Approvals and Consents;
provided, however, that neither Helix nor Cal Dive shall be obligated to contribute
capital in any form to any entity in order to obtain such Governmental Approvals and Consents.
(v) If and to the extent that the valid, complete and perfected transfer or assignment to the
Helix Group of any Excluded Assets or the assumption by the Helix Group of any Excluded Liabilities
would be a violation of applicable Law or require any Consent or Governmental Approval, then,
unless the parties mutually shall otherwise determine, the transfer or assignment to the Helix
Group of such Excluded Assets or the assumption by the Helix Group of such Excluded Liabilities
shall be automatically deemed deferred and any such purported transfer, assignment or assumption
shall be null and void until such time as all legal impediments are removed or such Consents or
Governmental Approvals have been obtained.
(b) If any transfer or assignment of any Excluded Asset intended to be transferred or assigned
hereunder or any assumption of any Excluded Liability intended to be assumed by Helix hereunder is
not consummated on the Closing Date, whether as a result of the failure to obtain any required
Governmental Approvals or Consents or any other reason, then, insofar as reasonably possible, (i)
the member of the Cal Dive Group retaining such Excluded Asset shall thereafter hold such Excluded
Asset for the use and benefit of Helix (at Helixs expense) and (ii) Helix shall, or shall cause
its applicable Group member to, pay or reimburse the member of the Cal Dive Group retaining such
Excluded Liability for all amounts paid or incurred in connection with such Excluded Liability. In
addition, the member of the Cal Dive Group retaining such Excluded Asset shall, insofar as
reasonably possible and to the extent permitted by applicable Law, treat such Excluded Asset in the
ordinary course of business in accordance with past practice and take such other actions as may be
reasonably requested by Helix in order to place Helix in the same position as if such Excluded
Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating
to such Excluded Asset, including possession, use, risk of loss, potential for gain, and dominion,
control and command over such Excluded Asset, is to inure from and after the Closing Date to the
Helix Group.
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(c) If and when the Consents and Governmental Approvals, the absence of which caused the
deferral of transfer of any Excluded Asset or the deferral of assumption of any Excluded Liability,
are obtained, the transfer or assignment of the applicable Excluded Asset or Excluded Liability
shall be effected in accordance with the terms of this Agreement and/or the applicable Transfer
Document.
(d) Any member of the Cal Dive Group retaining an Excluded Asset or Excluded Liability due to
the deferral of the transfer of such Excluded Asset or the deferral of the assumption of such
Excluded Liability shall not be obligated, in connection with the foregoing, to expend any money
unless the necessary funds are advanced (or otherwise made available) by Helix or the member of the
Helix Group intended to be subject to the Excluded Liability, other than reasonable out-of-pocket
expenses, attorneys fees and recording or similar fees, all of which shall be promptly reimbursed
by Helix or the member of the Helix Group entitled to such Excluded Asset or intended to be subject
to such Excluded Liability.
2.10 DISCLAIMER OF REPRESENTATIONS AND WARRANTIES.
EACH OF HELIX (ON BEHALF OF ITSELF AND EACH MEMBER OF THE HELIX GROUP) AND CAL DIVE (ON BEHALF
OF ITSELF AND EACH MEMBER OF THE CAL DIVE GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY
SET FORTH HEREIN OR IN ANY TRANSACTION DOCUMENT, NO PARTY TO THIS AGREEMENT, ANY TRANSACTION
DOCUMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY TRANSACTION
DOCUMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR
LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY
CONSENTS OR APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM
ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE
ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM
OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY
CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE
TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT
AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY TRANSACTION DOCUMENT, ALL SUCH ASSETS ARE BEING
TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A
QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE
ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE
TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY CONSENTS OR
GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT
COMPLIED WITH.
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ARTICLE
III
INTERCOMPANY TRANSACTIONS AS OF THE CLOSING DATE
3.1 Time and Place of Closing.
Subject to the terms and conditions of this Agreement, all transactions contemplated by this
Agreement shall be consummated at a closing (the Closing) to be held at such place as
Helix and Cal Dive mutually agree and on the date on which (and after) the Underwriting Agreement
is executed and delivered by each of the parties thereto or at such other time as Helix and Cal
Dive may mutually agree (the day on which the Closing takes place being the Closing
Date).
3.2 Closing Transactions.
In each case subject to Section 3.6, after execution and delivery of the Underwriting
Agreement by all parties thereto, at the Closing:
(a) The Separation shall be effected in accordance with this Agreement and the applicable
Transfer Documents.
(b) The appropriate parties shall enter into, and (as necessary) shall cause the respective
members of their Group to enter into, the agreements set forth below (collectively with the
Transfer Documents, the Transaction Documents):
(i) the Corporate Services Agreement in the form attached as Exhibit A (the
Corporate Services Agreement);
(ii) the Registration Rights Agreement in the form attached as Exhibit B (the
Registration Rights Agreement);
(iii) the Tax Matters Agreement in the form attached as Exhibit C (the Tax
Matters Agreement); and
(iv) the Employee Matters Agreement in the form attached as Exhibit D (the
Employee Matters Agreement).
3.3 Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.
At or prior to the Closing, Helix and Cal Dive shall each take all necessary actions that may
be required to provide for the adoption by Cal Dive of the Amended and Restated Certificate of
Incorporation of Cal Dive in the form attached hereto as Exhibit E (the Charter),
and the Amended and Restated Bylaws of Cal Dive in the form attached hereto as Exhibit F
(the Bylaws). The Charter and Bylaws shall be in full force and effect as of the Closing
Date.
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3.4 The Initial Public Offering.
The Initial Public Offering will be a primary offering of Common Stock. Cal Dive shall (a)
consult with, and cooperate in all respects with, Helix in connection with the pricing of the
Common Stock to be offered in the Initial Public Offering; (b) at the direction of Helix, execute
and deliver the Underwriting Agreement in such form and substance as is reasonably satisfactory to
Helix; and (c) at the direction of Helix, promptly take any and all actions necessary or desirable
to consummate the Initial Public Offering as contemplated by the IPO Registration Statement and the
Underwriting Agreement.
3.5 Proceeds of Initial Public Offering.
Cal Dive agrees that it shall, on the date it receives the proceeds of the Initial Public
Offering, or on the next succeeding Business Day, apply such proceeds as follows:
(a) first, to pay any and all costs and expenses relating to the Initial Public Offering; and
(b) second, to transfer the remaining proceeds to Helix by way of dividend.
3.6 Rescission.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS AGREEMENT, IF DELIVERY OF THE FIRM
PUBLIC OFFERING SHARES TO THE UNDERWRITERS AGAINST PAYMENT THEREFOR IS NOT COMPLETE WITHIN TEN (10)
BUSINESS DAYS AFTER THE CLOSING DATE, ALL TRANSACTIONS THERETOFORE COMPLETED UNDER THIS AGREEMENT
OR ANY OF THE TRANSACTION DOCUMENTS SHALL IMMEDIATELY BE RESCINDED IN ALL RESPECTS AND THIS
AGREEMENT AND ALL OF THE TRANSACTION DOCUMENTS SHALL TERMINATE AND ALL ASSETS TRANSFERRED PURSUANT
TO THE TRANSACTION DOCUMENTS SHALL BE RETURNED TO THE ENTITIES THAT TRANSFERRED SUCH ASSETS, AND
ALL ASSUMPTIONS OF LIABILITIES HEREUNDER AND THEREUNDER SHALL BE RESCINDED AND NULLIFIED.
3.7 Proceeds of Credit Facility Drawdown.
Cal Dive agrees that it shall:
(a) on a date designated by Helix following the consummation of the Initial Public Offering,
cause Vessel Holdings, which will then be Cal Dives indirect wholly-owned subsidiary, to borrow
approximately $122 million under the Transfer Credit Facility (the Drawdown), and
(b) within one Business Day after the Drawdown, (i) cause Vessel Holdings to distribute the
proceeds of the Drawdown to its parent corporation, Holdings; (ii) cause Holdings to transfer such
proceeds to Cal Dive by way of dividend; and (iii) transfer such proceeds to Helix by way of
dividend.
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ARTICLE IV
FINANCIAL AND OTHER INFORMATION
4.1 Financial and Other Information.
(a) Financial Information. Cal Dive agrees that, for so long as Helix is required to
either consolidate the results of operations and financial position of Cal Dive and the other
members of the Cal Dive Group with the results of operations and financial position of Helix, or to
account for its investment in Cal Dive under the equity method of accounting (determined in
accordance with GAAP and consistent with SEC reporting requirements):
(i) Disclosure of Financial Controls. Cal Dive will, and will cause each other member
of the Cal Dive Group to, maintain, as of and after the Closing Date, disclosure controls and
procedures and internal control over financial reporting as defined in Exchange Act Rule 13a-15
promulgated under the Exchange Act; Cal Dive will cause each of its principal executive and
principal financial officers to sign and deliver certifications to Cal Dives periodic reports and
will include the certifications in Cal Dives periodic reports, as and when required pursuant to
Exchange Act Rule 13a-14 and Item 601 of Regulation S-K; Cal Dive will cause its management to
evaluate Cal Dives disclosure controls and procedures and internal control over financial
reporting (including any change in internal control over financial reporting) as and when required
pursuant to Exchange Act Rule 13a-15; Cal Dive will disclose in its periodic reports filed with the
SEC information concerning Cal Dive managements responsibilities for and evaluation of Cal Dives
disclosure controls and procedures and internal control over financial reporting (including,
without limitation, the annual management report and attestation report of Cal Dives independent
auditors relating to internal control over financial reporting) as and when required under Items
307 and 308 of Regulation S-K and other applicable SEC rules; and, without limiting the general
application of the foregoing, Cal Dive will, and will cause each other member of the Cal Dive Group
to, maintain as of and after the Closing Date internal systems and procedures that will provide
reasonable assurance that (A) the Financial Statements are reliable and timely prepared in
accordance with GAAP and applicable law, (B) all transactions of members of the Cal Dive Group are
recorded as necessary to permit the preparation of the Financial Statements, (C) the receipts and
expenditures of members of the Cal Dive Group are authorized at the appropriate level within Cal
Dive, and (D) unauthorized use or disposition of the assets of any member of the Cal Dive Group
that could have material effect on the financial statements of the Cal Dive Group is prevented or
detected in a timely manner.
(ii) Fiscal Year. Cal Dive will, and will cause each member of the Cal Dive Group
organized in the United States to, maintain a fiscal year that commences and ends on the same
calendar day as Helixs fiscal year commences and ends, and to maintain monthly accounting periods
that commence and end on the same calendar days as Helixs monthly accounting periods commence and
end.
(iii) Monthly Financial Reports. No later than five (5) Business Days after the end
of each monthly accounting period of Cal Dive following the Closing Date
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(including the last monthly accounting period of Cal Dive of each fiscal year), Cal Dive will
deliver to Helix a consolidated income statement, balance sheet and statement of cash flow for Cal
Dive for such period and an income statement, balance sheet and statement of cash flow for each Cal
Dive Affiliate that is consolidated with Cal Dive, as the case may be, in such format and detail as
Helix may request.
(iv) Quarterly Financial Statements. As soon as practicable, and in any event no
later than the earlier of (x) ten (10) Business Days prior to the date on which Cal Dive is
required to file a Form 10-Q or other document containing Quarterly Financial Statements with the
SEC for each of the first three (3) fiscal quarters in each fiscal year of Cal Dive, and (y) five
(5) Business Days prior to the date on which Helix has notified Cal Dive that Helix intends to file
its Form 10-Q or other document containing quarterly financial statements with the SEC, Cal Dive
will deliver to Helix drafts of (A) the consolidated financial statements of the Cal Dive Group
(and notes thereto) for such periods and for the period from the beginning of the current fiscal
year to the end of such quarter, setting forth in each case in comparative form for each such
fiscal quarter of Cal Dive the consolidated figures (and notes thereto) for the corresponding
quarter and periods of the previous fiscal year and all in reasonable detail and prepared in
accordance with Article 10 of Regulation S-X and GAAP, and (B) a discussion and analysis by Cal
Dives management of the Cal Dive Groups financial condition and results of operations for such
fiscal period, including, without limitation, an explanation of any material period-to-period
change and any off-balance sheet transactions, all in reasonable detail and prepared in accordance
with Item 303(b) of Regulation S-K; provided, however, that Cal Dive will deliver
such information at such earlier time upon Helixs written request with thirty (30) days notice
resulting from Helixs determination to accelerate the timing of the filing of its financial
statements with the SEC. The information set forth in clauses (A) and (B) above is
referred to in this Agreement as the Quarterly Financial Statements. No later than the
earlier of (1) three (3) Business Days prior to the date Cal Dive publicly files the Quarterly
Financial Statements with the SEC or otherwise makes such Quarterly Financial Statements publicly
available, and (2) three (3) Business Days prior to the date on which Helix has notified Cal Dive
that Helix intends to file its quarterly financial statements with the SEC, Cal Dive will deliver
to Helix the final form of the Quarterly Financial Statements and certifications thereof by the
principal executive and financial officers of Cal Dive in the forms required under SEC rules for
periodic reports; provided, however, that Cal Dive may continue to revise such
Quarterly Financial Statements prior to the filing thereof in order to make corrections and
non-substantive changes which corrections and changes will be delivered by Cal Dive to Helix as
soon as practicable, and in any event within eight (8) hours thereafter; provided,
further, that Helixs and Cal Dives financial Representatives will actively consult with
each other regarding any changes (whether or not substantive) that Cal Dive may consider making to
the Quarterly Financial Statements and related disclosures during the two (2) Business Days
immediately prior to any anticipated filing with the SEC, with particular focus on any changes
which would have an effect upon Helixs financial statements or related disclosures. In addition to
the foregoing, no Quarterly Financial Statement or any other document which refers to, or contains
information not previously publicly disclosed with respect to, Helixs ownership interest in Cal
Dive or the Separation will be filed with the SEC or otherwise made public by any Cal Dive Group
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member without the prior written consent of Helix. Notwithstanding anything to the contrary in
this Section 4.1(a)(iv), Cal Dive will file the Quarterly Financial Statements with the SEC
on the same date and at substantially the same time that Helix files its quarterly financial
statements with the SEC unless otherwise required by applicable law.
(v) Annual Financial Statements. As soon as practicable, and in any event no later
than the earlier of (x) ten (10) Business Days prior to the date on which Cal Dive is required to
file a Form 10-K or other document containing its Annual Financial Statements with the SEC, and (y)
ten (10) Business Days prior to the date on which Helix has notified Cal Dive that Helix intends to
file its Form 10-K or other document containing annual financial statements with the SEC, Cal Dive
will deliver to Helix (A) drafts of the consolidated financial statements of the Cal Dive Group
(and notes thereto) for such year, setting forth in each case in comparative form the consolidated
figures (and notes thereto) for the previous fiscal year and all in reasonable detail and prepared
in accordance with Regulation S-X and GAAP, and (B) a discussion and analysis by Cal Dives
management of the Cal Dive Groups financial condition and results of operations for such year,
including, without limitation, an explanation of any material period-to-period change and any
off-balance sheet transactions, all in reasonable detail and prepared in accordance with Item
303(a) of Regulation S-K. The information set forth in clauses (A) and (B) above is
referred to in this Agreement as the Annual Financial Statements. Cal Dive will deliver
to Helix all revisions to such drafts as soon as any such revisions are prepared or made. No later
than the earlier of (1) five (5) Business Days prior to the date Cal Dive publicly files the Annual
Financial Statements with the SEC or otherwise makes such Annual Financial Statements publicly
available, and (2) five (5) Business Days prior to the date on which Helix has notified Cal Dive
that Helix intends to file its annual financial statements with the SEC, Cal Dive will deliver to
Helix the final form of the Cal Dive Annual Financial Statements and certifications thereof by the
principal executive and financial officers of Cal Dive in the forms required under SEC rules for
periodic reports; provided, however, that Cal Dive may continue to revise such
Annual Financial Statements prior to the filing thereof in order to make corrections and
non-substantive changes which corrections and changes will be delivered by Cal Dive to Helix as
soon as practicable, and in any event within eight (8) hours thereafter; provided,
further, that Helix and Cal Dive financial Representatives will actively consult with each
other regarding any changes (whether or not substantive) which Cal Dive may consider making to the
Annual Financial Statements and related disclosures during the three (3) Business Days immediately
prior to any anticipated filing with the SEC, with particular focus on any changes which would have
an effect upon Helixs financial statements or related disclosures. In addition to the foregoing,
no Annual Financial Statement or any other document which refers to, or contains information not
previously publicly disclosed with respect to, Helixs ownership interest in Cal Dive or the
Separation will be filed with the SEC or otherwise made public by any Cal Dive Group member without
the prior written consent of Helix, except to the extent required by applicable law. In any event,
Cal Dive will deliver to Helix, no later than three (3) Business Days prior to the date on which
Helix has notified Cal Dive that Helix intends to file its annual financial statements with the
SEC, the final form of the Annual Financial Statements accompanied by an opinion thereon by Cal
Dives independent certified public accountants. Notwithstanding anything to the contrary in this
Section 4.1(a)(v),
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Cal Dive will file the Annual Financial Statements with the SEC on the same date and at
substantially the same time that Helix files its annual financial statements with the SEC unless
otherwise required by applicable law.
(vi) Affiliate Financial Statements. Cal Dive will deliver to Helix all Quarterly
Financial Statements and Annual Financial Statements of each Cal Dive Affiliate which is itself
required to file financial statements with the SEC or otherwise make such financial statements
publicly available, with such financial statements to be provided in the same manner and detail and
on the same time schedule as those financial statements of Cal Dive required to be delivered to
Helix pursuant to this Section 4.1.
(vii) Conformance with Helix Financial Presentation. All information provided by any
Cal Dive Group member to Helix or filed with the SEC pursuant to Sections 4.1(a)(iii)
through (vi) inclusive will be consistent in terms of format and detail and otherwise with
Helixs policies with respect to the application of GAAP and practices in effect on the Closing
Date with respect to the provision of such financial information by such Cal Dive Group member to
Helix (and, where appropriate, as presently presented in financial reports to Helixs board of
directors), with such changes therein as may be requested by Helix from time to time consistent
with changes in such accounting principles and practices.
(viii) Cal Dive Reports Generally. Each Cal Dive Group member that files information
with the SEC will deliver to Helix: (A) substantially final drafts, as soon as the same are
prepared, of (x) all reports, notices and proxy and information statements to be sent or made
available by such Cal Dive Group member to its respective security holders, (y) all regular,
periodic and other reports to be filed or furnished under Sections 13, 14 and 15 of the Exchange
Act (including Reports on Forms 10-K, 10-Q and 8-K and Annual Reports to Shareholders), and (z) all
registration statements and prospectuses to be filed by such Cal Dive Group member with the SEC or
any securities exchange pursuant to the listed company manual (or similar requirements) of such
exchange (collectively, the documents identified in clauses (x), (y) and
(z) above are referred to as the Cal Dive Public Documents); and (B) as soon as
practicable, but in no event later than four (4) Business Days (other than with respect to Current
Reports on Form 8-K) prior to the earliest of the dates the same are printed, sent or filed,
current drafts of all such Cal Dive Public Documents and, with respect to Current Reports on Form
8-K, as soon as practicable, but in no event later than two (2) Business Days prior to the earliest
of the dates the same are printed, sent or filed in the case of planned Current Reports on Form 8-K
and as soon as practicable, but in no event less than two (2) hours in the case of unplanned
Current Reports on Form 8-K; provided, however, that Cal Dive may continue to
revise such Cal Dive Public Documents prior to the filing thereof in order to make corrections and
non-substantive changes which corrections and changes will be delivered by Cal Dive to Helix as
soon as practicable, and in any event within eight (8) hours thereafter; provided,
further, that Helix and Cal Dive financial Representatives will actively consult with each
other regarding any changes (whether or not substantive) which Cal Dive may consider making to any
of its Cal Dive Public Documents and related disclosures prior to any anticipated filing with the
SEC, with particular focus on any changes which would have an effect upon Helixs financial
statements or related
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disclosures. In addition to the foregoing, no Cal Dive Public Document or any other document
which refers to, or contains information not previously publicly disclosed with respect to, Helixs
ownership interest in Cal Dive or the Separation will be filed with the SEC or otherwise made
public by any Cal Dive Group member without the prior written consent of Helix, except as required
by applicable law.
(ix) Budgets and Financial Projections. Cal Dive will, as promptly as practicable,
deliver to Helix copies of all annual and other budgets and financial projections (consistent in
terms of format and detail and otherwise required by Helix) relating to the Cal Dive Group on a
consolidated basis and will provide Helix an opportunity to meet with management of Cal Dive to
discuss such budgets and projections.
(x) Other Information. With reasonable promptness, Cal Dive will deliver to Helix
such additional financial and other information and data with respect to the Cal Dive Group and
their business, properties, financial positions, results of operations and prospects as from time
to time may be reasonably requested by Helix.
(xi) Press Releases and Similar Information. Cal Dive and Helix will consult with
each other as to the timing of their annual and quarterly earnings releases and any financial
guidance for a current or future period and will give each other the opportunity to review the
information therein relating to the Cal Dive Group and to comment thereon. Cal Dive (i)
acknowledges that it is Helixs current practice to issue financial guidance on only an annual
basis, and (ii) agrees not to issue any financial guidance on other than an annual basis without
Helixs prior written approval, except as may be required by Law. Helix and Cal Dive will make
commercially reasonable efforts to issue their respective annual and quarterly earnings releases at
approximately the same time on the same date. No later than eight (8) hours prior to the time and
date that a party intends to publish its regular annual or quarterly earnings release or any
financial guidance for a current or future period, such party will deliver to the other party
copies of substantially final drafts of all press releases and other statements to be made
available by any member of that partys Group to employees of any member of that partys Group or
to the public concerning any matters that could be reasonably likely to have a material financial
impact on the earnings, results of operations, financial condition or prospects of any Cal Dive
Group member. In addition, prior to the issuance of any such press release or public statement that
meets the criteria set forth in the preceding two sentences, the issuing party will consult with
the other party regarding any changes (other than typographical or other similar minor changes) to
such substantially final drafts. Immediately following the issuance thereof, the issuing party will
deliver to the other party copies of final drafts of all press releases and other public
statements.
(xii) Cooperation on Helix Filings. Cal Dive will cooperate fully, and will cause Cal
Dive Auditors to cooperate fully, with Helix to the extent requested by Helix in the preparation of
Helixs public earnings or other press releases, Quarterly Reports on Form 10-Q, Annual Reports to
Shareholders, Annual Reports on Form 10-K, any Current Reports on Form 8-K and any other proxy,
information and registration statements, reports, notices, prospectuses and any other filings made
by Helix with the SEC, any
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national securities exchange or otherwise made publicly available (collectively, the
Helix Public Filings). Cal Dive agrees to provide to Helix all information that Helix
reasonably requests in connection with any Helix Public Filings or that, in the judgment of Helixs
legal department, is required to be disclosed or incorporated by reference therein under any law,
rule or regulation. Cal Dive will provide such information in a timely manner on the dates
requested by Helix (which may be earlier than the dates on which Cal Dive otherwise would be
required hereunder to have such information available) to enable Helix to prepare, print and
release all Helix Public Filings on such dates as Helix will determine but in no event later than
as required by applicable law. Cal Dive will use commercially reasonable efforts to cause Cal Dive
Auditors to consent to any reference to them as experts in any Helix Public Filings required under
any law, rule or regulation. If and to the extent requested by Helix, Cal Dive will diligently and
promptly review all drafts of such Helix Public Filings and prepare in a diligent and timely
fashion any portion of such Helix Public Filing pertaining to Cal Dive. Prior to any printing or
public release of any Helix Public Filing, an appropriate executive officer of Cal Dive will, if
requested by Helix, certify that the information relating to any Cal Dive Group member or the Cal
Dive Business in such Helix Public Filing is accurate, true, complete and correct in all material
respects. Unless required by law, rule or regulation, Cal Dive will not publicly release any
financial or other information which conflicts with the information with respect to any Cal Dive
Group member or the Cal Dive Business that is included in any Helix Public Filing without Helixs
prior written consent. Prior to the release or filing thereof, Helix will provide Cal Dive with a
draft of any portion of a Helix Public Filing containing information relating to the Cal Dive Group
and will give Cal Dive an opportunity to review such information and comment thereon;
provided that, Helix will determine in its sole and absolute discretion the final
form and content of all Helix Public Filings.
(b) Auditors and Audits; Annual Statements and Accounting. Cal Dive agrees that, for
so long as Helix is required to either consolidate the results of operations and financial position
of Cal Dive and any members of the Cal Dive Group, or to account for its investment in Cal Dive
under the equity method of accounting (in accordance with GAAP and consistent with SEC reporting
requirements):
(i) Selection of Cal Dive Auditors. Unless required by law, Cal Dive will not select
a different accounting firm than Ernst & Young LLP (or its affiliate accounting firms) (unless so
directed by Helix in accordance with a change by Helix in its accounting firm) to serve as its (and
the Cal Dive Groups) independent certified public accountants (Cal Dive Auditors),
without Helixs prior written consent (which will not be unreasonably withheld); provided,
however, that, to the extent any members of the Cal Dive Group are currently using a
different accounting firm to serve as their independent certified public accountants, such members
of the Cal Dive Group may continue to use such accounting firm provided such accounting firm is
reasonably satisfactory to Helix.
(ii) Audit Timing. Cal Dive will use commercially reasonable efforts to enable Cal
Dive Auditors to complete their audit such that they will be able to date their opinion on the
Annual Financial Statements on the same date that Helixs independent certified public accountants
(Helix Auditors) date their opinion on Helixs audited
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annual financial statements (the Helix Annual Statements), and to enable Helix to
meet its schedule for the printing, filing and public dissemination of the Helix Annual Statements,
all in accordance with Section 4.1(a) hereof and as required by applicable law.
(iii) Information Needed by Helix. Cal Dive will provide to Helix on a timely basis
all information that Helix reasonably requires to meet its schedule for the preparation, printing,
filing, and public dissemination of the Helix Annual Statements in accordance with Section
4.1(a) hereof and as required by applicable law. Without limiting the generality of the
foregoing, Cal Dive will provide all required financial information with respect to the Cal Dive
Group to Cal Dive Auditors in a sufficient and reasonable time and in sufficient detail to permit
Cal Dive Auditors to take all steps and perform all reviews necessary to provide sufficient
assistance to Helix Auditors with respect to information to be included or contained in the Helix
Annual Statements.
(iv) Access to Cal Dive Auditors. Cal Dive will authorize Cal Dive Auditors to make
available to Helix Auditors the personnel who performed, or are performing, the annual audit of Cal
Dive as well as the work papers related to the annual audit of Cal Dive, in all cases within a
reasonable time prior to the date of the Cal Dive Auditors opinion on the Annual Financial
Statements, so that Helix Auditors are able to perform the procedures they consider necessary to
take responsibility for the work of Cal Dive Auditors as it relates to Helix Auditors report on
the Helix Annual Statements, all within sufficient time to enable Helix to meet its schedule for
the preparation, printing, filing and public dissemination of the Helix Annual Statements.
(v) Access to Records. If Helix determines in good faith that there may be any
inaccuracy in a Cal Dive Group members financial statements or deficiency in a Cal Dive Group
members internal accounting controls or operations that could materially impact Helixs financial
statements, at Helixs request, Cal Dive will provide Helixs internal auditors with access to the
Cal Dive Groups books and records so that Helix may conduct reasonable audits relating to the
financial statements provided by Cal Dive under this Agreement as well as to the internal
accounting controls and operations of the Cal Dive Group.
(vi) Notice of Changes. Subject to Section 4.1(a)(vii), Cal Dive will give
Helix as much prior notice as reasonably practicable of any proposed determination of, or any
significant changes in, Cal Dives accounting estimates or accounting principles from those in
effect on the Closing Date. Cal Dive will consult with Helix and, if requested by Helix, Cal Dive
will consult with Helix Auditors with respect thereto. Cal Dive will not make any such
determination or changes without Helixs prior written consent if such a determination or a change
would be sufficiently material to be required to be disclosed in Cal Dives or Helixs financial
statements as filed with the SEC or otherwise publicly disclosed therein.
(vii) Accounting Changes Requested by Helix. Notwithstanding Section
4(a)(vi), Cal Dive will make any changes in its accounting estimates or
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accounting principles that are requested by Helix in order for Cal Dives accounting practices and
principles to be consistent with those of Helix.
(viii) Special Reports of Deficiencies or Violations. Cal Dive will report in
reasonable detail to Helix the following events or circumstances promptly after any executive
officer of Cal Dive or any member of the Cal Dive board of directors becomes aware of such matter:
(A) all significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect Cal Dives ability
to record, process, summarize and report financial information; (B) any fraud, whether or not
material, that involves management or other employees who have a significant role in Cal Dives
internal control over financial reporting; (C) any illegal act within the meaning of Section 10A(b)
and (f) of the Exchange Act; and (D) any report of a material violation of law that an attorney
representing any Cal Dive Group member has formally made to any officers or directors of Cal Dive
pursuant to the SECs attorney conduct rules (17 C.F.R. Part 205).
4.2 Agreement for Exchange of Information; Archives.
(a) Each of Helix and Cal Dive, on behalf of its respective Group, agrees to provide, or cause
to be provided, to the other Group, at any time before or after the Closing Date, as soon as
reasonably practicable after written request therefor, any Information in the possession or under
the control of such respective Group which the requesting party reasonably needs (i) to comply with
reporting, disclosure, filing or other requirements imposed on the requesting party (including
under applicable securities or tax Laws) by a Governmental Authority having jurisdiction over the
requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other
proceeding or in order to satisfy audit, accounting, claim, regulatory, litigation, tax or other
similar requirements, in each case other than claims or allegations that one party to this
Agreement has against the other, or (iii) subject to the foregoing clause (ii), to comply with its
obligations under this Agreement or any Transaction Document; provided, however,
that in the event that any party reasonably determines that any such provision of Information could
be commercially detrimental, violate any Law or agreement, or waive any attorney-client privilege,
the parties shall take all commercially reasonable measures to permit the compliance with such
obligations in a manner that avoids any such harm or consequence.
(b) After the Closing Date, Cal Dive shall have access during regular business hours (as in
effect from time to time) to the documents and objects of historic significance that relate to the
Cal Dive Business that are located in archives retained or maintained by any member of the Helix
Group. Cal Dive may obtain copies (but not originals unless it is a Cal Dive Asset) of documents
for bona fide business purposes and may obtain objects for exhibition purposes for commercially
reasonable periods of time if required for bona fide business purposes; provided
that, Cal Dive shall cause any such objects to be returned promptly in the same condition
in which they were delivered to Cal Dive, and Cal Dive shall comply with any rules, procedures or
other requirements, and shall be subject to any restrictions (including prohibitions on removal of
specified objects), that are then applicable to Helix. Nothing herein shall be deemed to restrict
the access of any member of the Helix Group to any such documents or objects or to impose any
liability on any member of the Helix Group if any such documents or objects are not maintained or
preserved by Helix.
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(c) After the Closing Date, Helix shall have access during regular business hours (as in
effect from time to time) to the documents and objects of historic significance that relate to the
businesses of any member of the Helix Group that are located in archives retained or maintained by
any member of the Cal Dive Group. Helix may obtain copies (but not originals unless it is not a
Cal Dive Asset) of documents for bona fide business purposes and may obtain objects for exhibition
purposes for commercially reasonable periods of time if required for bona fide business purposes;
provided that, Helix shall cause any such objects to be returned promptly in the
same condition in which they were delivered to Helix, and Helix shall comply with any rules,
procedures or other requirements, and shall be subject to any restrictions (including prohibitions
on removal of specified objects), that are then applicable to Cal Dive. Nothing herein shall be
deemed to restrict the access of any member of the Cal Dive Group to any such documents or objects
or to impose any liability on any member of the Cal Dive Group if any such documents or objects are
not maintained or preserved by Cal Dive.
(d) The obligations of the parties under this Section 4.2 shall terminate on the fifth
(5th) anniversary of the Trigger Date.
4.3 Ownership of Information.
Any Information owned by a member of a Group that is provided to a requesting party pursuant
to Section 4.2 shall be deemed to remain the property of the providing party. Unless
specifically set forth herein, nothing contained in this Agreement shall be construed as granting
or conferring rights of license or otherwise in any such Information.
4.4 Compensation for Providing Information.
The party requesting Information agrees to reimburse the party providing Information for the
reasonable out-of-pocket costs, if any, of creating, gathering and copying such Information, to the
extent that such costs are incurred for the benefit of the requesting party. Except as may be
otherwise specifically provided elsewhere in this Agreement, the Transaction Documents or in any
other agreement between the parties, such costs shall be computed in accordance with the providing
partys standard methodology and procedures.
4.5 Record Retention.
To facilitate the possible exchange of Information pursuant to this Article IV and other
provisions of this Agreement and the Transaction Documents, after the Closing Date, the parties
agree to use commercially reasonable efforts to retain all Information in their respective
possession or control in accordance with the policies of Helix as in effect on the Closing Date or
such other policies as may be reasonably adopted by the appropriate party after the Closing Date.
No party will destroy, or permit any of its Subsidiaries to destroy, any Information which the
other party may have the right to obtain pursuant to this Agreement prior to the fifth
(5th) anniversary of the Trigger Date without first notifying the other party of the
proposed destruction and giving the other party the opportunity to take possession of such
Information prior to such destruction; provided, however, that in the case of any Information
relating to Taxes or employee benefits, such period shall be extended to the expiration of the
applicable statute of limitations (giving effect to any extensions thereof); provided, further,
however, no party will destroy, or
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permit any of its Subsidiaries to destroy, any Information required to be retained by
applicable Law.
4.6 Liability.
No party shall have any liability to any other party in the event that any Information
exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is
based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by
the party providing such Information. No party shall have any liability to any other party if any
Information is destroyed after commercially reasonable efforts by such party to comply with the
provisions of Section 4.5.
4.7 Other Agreements Providing for Exchange of Information.
(a) The rights and obligations granted under this Article IV are subject to any
specific limitations, qualifications or additional provisions on the sharing, exchange, retention
or confidential treatment of Information set forth in any Transaction Document.
(b) When any Information provided by one Group to the other Group (other than Information
provided pursuant to Section 4.5) is no longer needed for the purposes contemplated by this
Agreement or any other Transaction Document or is no longer required to be retained by applicable
Law, the receiving party will promptly after request of the other party either return to the other
party all Information in a tangible form (including all copies thereof and all notes, extracts or
summaries based thereon) or certify to the other party that it has destroyed such Information (and
such copies thereof and such notes, extracts or summaries based thereon).
4.8 Production of Witnesses; Records; Cooperation.
(a) After the Closing Date, except in the case of an adversarial Action by one or more members
of one Group against one or more members of the other Group, each party hereto shall use
commercially reasonable efforts to make available to each other party, upon written request, the
former, current and future directors, officers, employees, other personnel and agents of the
members of its respective Group as witnesses and any books, records or other documents within its
control or which it otherwise has the ability to make available, to the extent that any such person
(giving consideration to business demands of such directors, officers, employees, other personnel
and agents) or books, records or other documents may reasonably be required in connection with any
Action in which the requesting party may from time to time be involved, regardless of whether such
Action is a matter with respect to which indemnification may be sought hereunder. The requesting
party shall bear all costs and expenses in connection therewith.
(b) If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third
Party Claim, the parties shall make available to such Indemnifying Party, upon written request, the
former, current and future directors, officers, employees, other personnel and agents of the
members of its respective Group as witnesses and any books, records or other documents within its
control or which it otherwise has the ability to make available, to the extent that any such person
(giving consideration to business demands of such directors, officers, employees, other personnel
and agents) or books, records or other documents may reasonably be required in
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connection with such defense, settlement or compromise, or the prosecution, evaluation or
pursuit thereof, as the case may be, and shall otherwise cooperate in such defense, settlement or
compromise, or such prosecution, evaluation or pursuit, as the case may be.
(c) Without limiting the foregoing, the parties shall cooperate and consult to the extent
reasonably necessary with respect to any Actions, except in the case of an adversarial Action by
one or more members of one Group against one or more members of the other Group.
(d) Without limiting any provision of this Section, each of the parties agrees to cooperate,
and to cause each member of its respective Group to cooperate, with each other in the defense of
any infringement or similar claim with respect to any intellectual property and shall not claim to
acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or
infringing use of any intellectual property of a third Person in a manner that would hamper or
undermine the defense of such infringement or similar claim except as required by Law.
(e) The obligation of the parties to provide witnesses pursuant to this Section 4.8 is
intended to be interpreted in a manner so as to facilitate cooperation and shall include the
obligation to provide as witnesses inventors and other officers without regard to whether the
witness or the employer of the witness could assert a possible business conflict (subject to the
exception set forth in the first sentence of Section 4.8(a)).
(f) In connection with any matter contemplated by this Section 4.8, the parties will
enter into a mutually acceptable joint defense agreement so as to maintain to the extent
practicable any applicable attorney-client privilege, work product immunity or other applicable
privileges or immunities of any member of any Group.
(g) The obligations of the parties under this Section 4.8 shall terminate on the fifth
(5th) anniversary of the Trigger Date.
4.9 Privilege.
The provision of any information pursuant to this Article IV shall not be deemed a
waiver of any privilege, including privileges arising under or related to the attorney-client
privilege or any other applicable privileges (a Privilege). Following the Closing Date,
neither Cal Dive or its Subsidiaries nor Helix or its Subsidiaries will be required to provide any
information pursuant to this Article IV if the provision of such information would serve as
a waiver of any Privilege afforded such information.
ARTICLE V
RELEASE; INDEMNIFICATION
5.1 Release of Pre-Closing Claims.
(a) Except (i) as provided in Section 5.1(c), (ii) as may provided in any Transaction
Document and (iii) for any matter for which a Cal Dive Indemnified Party is entitled to
indemnification or contribution pursuant to Section 5.3, 5.4 or 5.5,
effective as of the Closing Date, Cal Dive, for itself and each other member of the Cal Dive Group,
their respective
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Affiliates and all Persons who at any time prior to the Closing Date were directors, officers,
agents or employees of any member of the Cal Dive Group (in their respective capacities as such),
in each case, together with their respective heirs, executors, administrators, successors and
assigns, does hereby remise, release and forever discharge Helix and the other members of the Helix
Group, their respective Affiliates and all Persons who at any time prior to the Closing Date were
shareholders, directors, officers, agents or employees of any member of the Helix Group (in their
respective capacities as such), in each case, together with their respective heirs, executors,
administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or
in equity (including any right of contribution), whether arising under any contract or agreement,
by operation of Law or otherwise, existing or arising from any acts or events occurring or failing
to occur or alleged to have occurred or to have failed to occur or any conditions existing or
alleged to have existed on or before the Closing Date, including in connection with the
transactions and all other activities to implement the Separation, the Initial Public Offering and
any of the other transactions contemplated hereunder and under the Transaction Documents.
(b) Except (i) as provided in Section 5.1(c), (ii) as may be provided in any
Transaction Document and (iii) for any matter for which a Helix Indemnified Party is entitled to
indemnification or contribution pursuant to Section 5.2, 5.4 or 5.5,
effective as of the Closing Date, Helix, for itself and each other member of the Helix Group, their
respective Affiliates and all Persons who at any time prior to the Closing Date were directors,
officers, agents or employees of any member of the Helix Group (in their respective capacities as
such), in each case, together with their respective heirs, executors, administrators, successors
and assigns, does hereby remise, release and forever discharge Cal Dive and the other members of
the Cal Dive Group, their respective Affiliates and all Persons who at any time prior to the
Closing Date were shareholders, directors, officers, agents or employees of any member of the Cal
Dive Group (in their respective capacities as such), in each case, together with their respective
heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever,
whether at Law or in equity (including any right of contribution), whether arising under any
contract or agreement, by operation of Law or otherwise, existing or arising from any acts or
events occurring or failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the Closing Date, including in
connection with the transactions and all other activities to implement the Separation, the Initial
Public Offering and any of the other transactions contemplated hereunder and under the Transaction
Documents.
(c) Nothing contained in Section 5.1(a) or Section 5.1(b) shall impair any
right of any Person to enforce this Agreement, any Transaction Document or any agreements,
arrangements, commitments or understandings to continue in effect after the Closing Date in
accordance with Section 2.4(b), in each case in accordance with its terms. Nothing
contained in Section 5.1(a) or Section 5.1(b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement among any members of the Helix
Group or the Cal Dive Group that is to continue in effect after the Closing Date in accordance with
Section 2.4(b), or any other Liability specified in such Section 2.4(b) not to
terminate as of the Closing Date;
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(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to
the Group of which such Person is a member in accordance with, or any other Liability of any member
of such Group under, this Agreement or any Transaction Document;
(iii) any Liability for the sale, lease, construction or receipt of goods, property or
services purchased, obtained or used in the ordinary course of business by a member of one Group
from a member of the other Group prior to the Closing Date;
(iv) any Liability for unpaid amounts for products or services or refunds owing on products or
services due on a value-received basis for work done by a member of one Group at the request or on
behalf of a member of the other Group; or
(v) any Liability that the parties may have with respect to indemnification or contribution
pursuant to this Agreement or otherwise for claims brought against the parties by third Persons,
which Liability shall be governed by the provisions of this Article V and, if applicable,
the appropriate provisions of the Transaction Documents.
In addition, nothing contained in Section 5.1(a) shall release Helix from indemnifying
any director, officer or employee of Cal Dive who was a director, officer or employee of Helix or
any of its Affiliates on or prior to the Closing Date, to the extent such director, officer or
employee is or becomes a named defendant in any Action with respect to which he or she was entitled
to such indemnification pursuant to then existing obligations.
(d) Cal Dive shall not make, and shall not permit any member of the Cal Dive Group to make,
any claim or demand, or commence any Action asserting any claim or demand, including any claim of
contribution or any indemnification, against Helix or any member of the Helix Group, or any other
Person released pursuant to Section 5.1(a), with respect to any Liabilities released
pursuant to Section 5.1(a). Helix shall not, and shall not permit any member of the Helix
Group, to make any claim or demand, or commence any Action asserting any claim or demand, including
any claim of contribution or any indemnification against Cal Dive or any member of the Cal Dive
Group, or any other Person released pursuant to Section 5.1(b), with respect to any
Liabilities released pursuant to Section 5.1(b).
(e) It is the intent of each of Helix and Cal Dive, by virtue of the provisions of this
Section 5.1, to provide for a full and complete release and discharge of all Liabilities
existing or arising from all acts and events occurring or failing to occur or alleged to have
occurred or to have failed to occur and all conditions existing or alleged to have existed on or
before the Closing Date, whether known or unknown, between or among Cal Dive or any member of the
Cal Dive Group, on the one hand, and Helix or any member of the Helix Group, on the other hand
(including any contractual agreements or arrangements existing or alleged to exist between or among
any such members on or before the Closing Date), except as expressly set forth in Sections 5.1
(a), (b) and (c). At any time, at the request of any other party, each party shall
cause each member of its respective Group and each other Person on whose behalf it released
Liabilities pursuant to this Section 5.1 to execute and deliver releases reflecting the
provisions hereof.
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5.2 General Indemnification by Cal Dive.
Except as provided in Section 5.5, Cal Dive shall, and shall cause the other members
of the Cal Dive Group to, jointly and severally, indemnify, defend and hold harmless on an
After-Tax Basis each member of the Helix Group and each of their respective directors, officers and
employees, and each of the heirs, executors, successors and assigns of any of the foregoing
(collectively, the Helix Indemnified Parties), from and against any and all Liabilities
of the Helix Indemnified Parties relating to, arising out of or resulting from any of the following
items (without duplication):
(a) the failure of Cal Dive or any other member of the Cal Dive Group or any other Person to
pay, perform or otherwise promptly discharge any Cal Dive Liabilities or Cal Dive Contract in
accordance with its respective terms, whether prior to or after the Closing Date;
(b) any Cal Dive Liability or any Cal Dive Contract;
(c) except to the extent it relates to an Excluded Liability, any guarantee, indemnification
obligation, surety bond or other credit support agreement, arrangement, commitment or understanding
by any member of the Helix Group for the benefit of any member of the Cal Dive Group that survives
the Closing;
(d) any breach by any member of the Cal Dive Group of this Agreement or any of the Transaction
Documents or any action by Cal Dive in contravention of the Charter or Bylaws; and
(e) any untrue statement or alleged untrue statement of a material fact contained in any Helix
Public Filing or any other document filed with the SEC by any member of the Helix Group pursuant to
the Securities Act or the Exchange Act, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, in each case to the extent, but
only to the extent, that those Liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information that is either furnished to any member
of the Helix Group by any member of the Cal Dive Group or incorporated by reference by any member
of the Helix Group from any filings made by any member of the Cal Dive Group with the SEC pursuant
to the Securities Act or the Exchange Act, and then only if that statement or omission was made or
occurred after the Closing Date.
5.3 General Indemnification by Helix.
Except as provided in Section 5.5, Helix shall indemnify, defend and hold harmless on
an After-Tax Basis each member of the Cal Dive Group and each of their respective directors,
officers and employees, and each of the heirs, executors, successors and assigns of any of the
foregoing (collectively, the Cal Dive Indemnified Parties), from and against any and all
Liabilities of the Cal Dive Indemnified Parties relating to, arising out of or resulting from any
of the following items (without duplication):
(a) the failure of any member of the Helix Group or any other Person to pay, perform or
otherwise promptly discharge any Liabilities of the Helix Group other than the Cal Dive
Liabilities, whether prior to or after the Closing Date or the date hereof;
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(b) any Excluded Liability or any Liability of a member of the Helix Group other than the Cal
Dive Liabilities;
(c) any breach by any member of the Helix Group of this Agreement or any of the Transaction
Documents; and
(d) any untrue statement or alleged untrue statement of a material fact contained in any
document filed with the SEC by any member of the Cal Dive Group pursuant to the Securities Act or
the Exchange Act other than the IPO Registration Statement or Prospectus, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that those Liabilities are caused
by any such untrue statement or omission or alleged untrue statement or omission based upon
information that is either furnished to any member of the Cal Dive Group by any member of the Helix
Group or incorporated by reference by any member of the Cal Dive Group from any Helix Public
Filings or any other document filed with the SEC by any member of the Helix Group pursuant to the
Securities Act or the Exchange Act, and then only if that statement or omission was made or
occurred after the Closing Date.
5.4 Registration Statement Indemnification.
(a) Cal Dive agrees to indemnify and hold harmless on an After-Tax Basis the Helix Indemnified
Parties and each Person, if any, who controls any member of the Helix Group within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all
Liabilities arising out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in the IPO Registration Statement or Prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except to the extent such
Liabilities arise out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in reliance upon and in
conformity with information provided by a member of the Helix Group expressly for use in the IPO
Registration Statement or Prospectus or information relating to any underwriter furnished to Cal
Dive by or on behalf of such underwriter expressly for use in the IPO Registration Statement or
Prospectus.
(b) Helix agrees to indemnify and hold harmless on an After-Tax Basis Cal Dive and its
Subsidiaries and any of their respective directors or officers who sign the IPO Registration
Statement, and any person who controls Cal Dive within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, from and against any and all Liabilities arising out of or
based upon any untrue statement or alleged untrue statement of a material fact contained in the IPO
Registration Statement or Prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such Liabilities arise out of or are
based upon any untrue statement or omission or alleged untrue statement or omission with respect to
information provided by a Helix Group member expressly for use in the IPO Registration Statement or
Prospectus.
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5.5 Contribution.
(a) If the indemnification provided for in this Article V is unavailable to, or
insufficient to hold harmless on an After-Tax Basis, an Indemnified Party under Section
5.2(e), Section 5.3(d) or Section 5.4 in respect of any Liabilities referred to
therein, then each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Liabilities in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party and the Indemnified Party in connection with the
actions or omissions that resulted in Liabilities as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates to information
supplied by such Indemnifying Party or Indemnified Party, and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission.
(b) The parties agree that it would not be just and equitable if contribution pursuant to this
Section 5.5 were determined by a pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in Section 5.5(a).
The amount paid or payable by an Indemnified Party as a result of the Liabilities referred to in
Section 5.5(a) shall be deemed to include, subject to the limitations set forth above, any
legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with
investigating any claim or defending any Action. Notwithstanding the provisions of this
Section 5.5, Helix shall not be required to contribute any amount that, together with the
amount of any damages that Helix has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, exceeds the benefits received solely by
Helix from the Initial Public Offering (excluding benefits received by the Company and all other
parties). No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
5.6 Indemnification Obligations Net of Insurance Proceeds and Other Amounts on an
After-Tax Basis.
(a) Any Liability subject to indemnification or contribution pursuant to this Article
V will be net of Insurance Proceeds that actually reduce the amount of the Liability and will
be determined on an After-Tax Basis. Accordingly, the amount which any Person is required to pay
pursuant to this Article V (an Indemnifying Party) to any Person entitled to
indemnification or contribution pursuant to this Article V (an Indemnified Party)
will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the
Indemnified Party in respect of the related Liability. If an Indemnified Party receives a payment
required by this Agreement from an Indemnifying Party in respect of any Liability (an
Indemnity Payment) and subsequently receives Insurance Proceeds, then the Indemnified
Party will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment
received over the amount of the Indemnity Payment that would have been due if the Insurance
Proceeds had been received, realized or recovered before the Indemnity Payment was made.
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(b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification and contribution
provisions hereof, have any subrogation rights with respect thereto. The Indemnified Party shall
use commercially reasonable efforts to seek to collect or recover any third-party Insurance
Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to
reflect prior claims in excess of prior premiums) to which the Indemnified Party is entitled in
connection with any Liability for which the Indemnified Party seeks contribution or indemnification
pursuant to this Article V; provided that, the Indemnified Partys
inability to collect or recover any such Insurance Proceeds shall not limit the Indemnifying
Partys obligations hereunder.
(c) The term After-Tax Basis as used in this Article V means that, in
determining the amount of the payment necessary to indemnify any party against, or reimburse any
party for, Liabilities, the amount of such Liabilities will be determined net of any reduction in
Tax derived by the Indemnified Party as the result of sustaining or paying such Liabilities, and
the amount of such Indemnity Payment will be increased (i.e., grossed up) by the amount necessary
to satisfy any income or franchise Tax liabilities incurred by the Indemnified Party as a result of
its receipt of, or right to receive, such Indemnity Payment (as so increased), so that the
Indemnified Party is put in the same net after-Tax economic position as if it had not incurred such
Liabilities, in each case without taking into account any impact on the tax basis that an
Indemnified Party has in its assets.
5.7 Procedures for Indemnification of Third Party Claims.
(a) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a
Person (including any Governmental Authority) who is not a member of the Helix Group or the Cal
Dive Group of any claim or of the commencement by any such Person of any Action (collectively, a
Third Party Claim) with respect to which an Indemnifying Party may be obligated to
provide indemnification to such Indemnified Party pursuant to Section 5.2, Section
5.3 or Section 5.4, or any other Section of this Agreement or any Transaction Document,
such Indemnified Party shall give such Indemnifying Party written notice thereof within 20 days
after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party
Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnified Party or
other Person to give notice as provided in this Section 5.7(a) shall not relieve the
Indemnifying Party of its obligations under this Article V, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice.
(b) An Indemnifying Party may elect to defend (and to seek to settle or compromise), at such
Indemnifying Partys own expense and by such Indemnifying Partys own counsel, any Third Party
Claim. Within 30 days after receipt of notice from an Indemnified Party in accordance with
Section 5.7(a) (or sooner, if the nature of such Third Party Claim so requires), an
Indemnifying Party electing to defend a Third Party Claim shall notify the Indemnified Party of its
election to assume responsibility for defending such Third Party Claim and shall acknowledge and
agree in writing that if such Third Party Claim is adversely determined, such Indemnifying Party
will have the obligation to indemnify the Indemnified Party in respect of all liabilities relating
to, arising out of or resulting from such Third Party Claim and that such Indemnifying Party
irrevocably waives in full all defenses it may have to contest such
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obligation. After such notice and acknowledgment from an Indemnifying Party to an Indemnified Party of its
election to assume the defense of a Third Party Claim, such Indemnified Party shall have the right
to employ separate counsel and to participate in (but not control) the defense, compromise, or
settlement thereof, but the fees and expenses of such counsel shall be the expense of such
Indemnified Party.
(c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party
Claim, or fails to notify an Indemnified Party of its election as provided in Section
5.7(b), such Indemnified Party may defend such Third Party Claim at the cost and expense of the
Indemnifying Party.
(d) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in
accordance with the terms of this Agreement, no Indemnified Party may settle or compromise any
Third Party Claim without the consent of the Indemnifying Party. No Indemnifying Party shall
consent to entry of any judgment or enter into any settlement of any pending or threatened Third
Party Claim in respect of which any Indemnified Party is or could have been a party and indemnity
could have been sought hereunder by such Indemnified Party without the consent of the Indemnified
Party if (i) the effect thereof is to permit any injunction, declaratory judgment, other order or
other nonmonetary relief to be entered, directly or indirectly against such Indemnified Party and
(ii) such settlement does not include a full, complete and unconditional release of such
Indemnified Party from all liability on claims that are the subject matter of such Third Party
Claim.
5.8 Additional Matters.
(a) Indemnification or contribution payments in respect of any Liabilities for which an
Indemnified Party is entitled to indemnification or contribution under this Article V shall
be paid by the Indemnifying Party to the Indemnified Party as such Liabilities are incurred upon
demand by the Indemnified Party, including reasonably satisfactory documentation setting forth the
basis for the amount of such indemnification or contribution payment, including documentation with
respect to calculations made on an After-Tax Basis and consideration of any Insurance Proceeds that
actually reduce the amount of such Liabilities. The indemnity and contribution agreements
contained in this Article V shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Indemnified Party; (ii) the knowledge by the
Indemnified Party of Liabilities for which it might be entitled to indemnification or contribution
hereunder; and (iii) any termination of this Agreement.
(b) Any claim on account of a Liability which does not result from a Third Party Claim shall
be asserted by written notice given by the Indemnified Party to the applicable Indemnifying Party.
Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within
which to respond thereto. If such Indemnifying Party does not respond within such 30-day period,
such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment.
If such Indemnifying Party does not respond within such 30-day period or rejects such claim in
whole or in part, such Indemnified Party shall be free to pursue such remedies as may be available
to such party as contemplated by this Agreement and the Transaction Documents without prejudice to
its continuing rights to pursue indemnification or contribution hereunder.
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(c) If payment is made by or on behalf of any Indemnifying Party to any Indemnified Party in
connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnified Party as to any events or circumstances in respect of which
such Indemnified Party may have any right, defense or claim relating to such Third Party Claim
against any claimant or plaintiff asserting such Third Party Claim or against any other Person.
Such Indemnified Party shall cooperate with such Indemnifying Party in a reasonable manner, and at
the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or
claim.
(d) In an Action in which the Indemnifying Party is not a named defendant, if either the
Indemnified Party or Indemnifying Party shall so request, the parties shall endeavor to substitute
the Indemnifying Party for the named defendant if they conclude that substitution is desirable and
practical. If such substitution or addition cannot be achieved for any reason or is not requested,
the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this
Article V, and the Indemnifying Party shall fully indemnify the named defendant against all costs
of defending the Action (including court costs, sanctions imposed by a court, attorneys fees,
experts fees and all other external expenses), the costs of any judgment or settlement, and the
costs of any interest or penalties relating to any judgment or settlement.
5.9 Remedies Cumulative; Limitations of Liability.
The rights provided in this Article V shall be cumulative and, subject to the
provisions of Article VII, shall not preclude assertion by any Indemnified Party of any
other rights or the seeking of any and all other remedies against any Indemnifying Party.
NOTWITHSTANDING THE FOREGOING, NO INDEMNIFYING PARTY, SHALL BE LIABLE TO AN INDEMNIFIED PARTY FOR
ANY SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, CONSEQUENTIAL, EXEMPLARY, STATUTORILY-ENHANCED OR
SIMILAR DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (PROVIDED THAT ANY SUCH LIABILITY WITH RESPECT TO
A THIRD PARTY CLAIM SHALL BE CONSIDERED DIRECT DAMAGES) ARISING IN CONNECTION WITH THE
TRANSACTIONS.
5.10 Survival of Indemnities.
The rights and obligations of each of Helix and Cal Dive and their respective Indemnified
Parties under this Article V shall survive the sale or other transfer by any party of any
Assets or businesses or the assignment by it of any Liabilities.
ARTICLE VI
OTHER AGREEMENTS
6.1 Further Assurances.
(a) In addition to the actions specifically provided for elsewhere in this Agreement, each of
the parties will cooperate with each other and use (and will cause their respective Subsidiaries
and Affiliates to use) commercially reasonable efforts, prior to, on and after the Closing Date, to
take, or to cause to be taken, all actions, and to do, or to cause to be done, all things
reasonably necessary on its part under applicable Law or contractual obligations to
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consummate and make effective the transactions contemplated by this Agreement and the
Transaction Documents.
(b) Without limiting the foregoing, prior to, on and after the Closing Date, each party hereto
shall cooperate with the other parties, and without any further consideration, but at the expense
of the requesting party from and after the Closing Date, to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all instruments, including
instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any other Person under any
permit, license, agreement, indenture or other instrument (including any Consents or Governmental
Approvals), and to take all such other actions as such party may reasonably be requested to take by
any other party hereto from time to time, consistent with the terms of this Agreement and the
Transaction Documents, in order to effectuate the provisions and purposes of this Agreement and the
Transaction Documents and the transfers of the Cal Dive Assets and the assignment and assumption of
the Cal Dive Liabilities and the other transactions contemplated hereby and thereby. Without
limiting the foregoing, each party will, at the reasonable request, cost and expense of any other
party, take such other actions as may be reasonably necessary to vest in such other party good and
marketable title to the Assets allocated to such party under this Agreement or any of the
Transaction Documents, free and clear of any Security Interest, if and to the extent it is
practicable to do so.
(c) On or prior to the Closing Date, Helix and Cal Dive in their respective capacities as
direct and indirect shareholders of their respective Subsidiaries, shall each ratify any actions
that are reasonably necessary or desirable to be taken by Helix, Cal Dive or any other Subsidiary
of Helix or Cal Dive, as the case may be, to effectuate the transactions contemplated by this
Agreement.
(d) On or prior to the Closing Date, Helix and Cal Dive shall take all actions as may be
necessary to approve the stock-based employee benefit plans of Cal Dive in order to satisfy the
requirements of Rule 16b-3 under the Exchange Act and the applicable rules and regulations of the
New York Stock Exchange.
6.2 Confidentiality.
(a) From and after the Closing, subject to Section 6.2(c) and except as contemplated
by this Agreement, any Transaction Document or the Charter, Helix shall not, and shall cause the
other members of the Helix Group and all of such parties respective officers, directors,
employees, and other agents and representatives, including attorneys, agents, customers, suppliers,
contractors, consultants and other representatives of any Person providing financing (collectively,
Representatives), not to, directly or indirectly, disclose, reveal, divulge or
communicate to any Person (other than Representatives of such party or of its Affiliates who
reasonably need to know such information in providing services to any member of the Helix Group) or
use or otherwise exploit for its own benefit or for the benefit of any third party, any Cal Dive
Confidential Information. If any disclosures are made by a member of the Helix Group to its
Representatives in connection with such Representatives providing services to any member of the
Helix Group under this Agreement or any Transaction Document, then the Cal Dive Confidential
Information so disclosed shall be used only as required to perform the services.
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Helix shall, and shall cause the other members of the Helix Group to, use the same degree of
care to prevent and restrain the unauthorized use or disclosure of the Cal Dive Confidential
Information by any of their Representatives as they currently use for their own confidential
information of a like nature, but in no event less than a reasonable standard of care. Any
information, material or documents relating to the Cal Dive Business currently or formerly
conducted, or proposed to be conducted, by any member of the Cal Dive Group furnished to or in
possession of any member of the Helix Group, irrespective of the form of communication, and all
notes, analyses, compilations, forecasts, data, translations, studies, memoranda or other documents
prepared by or on behalf of any member of the Helix Group that contain or otherwise reflect such
information, material or documents is referred to herein as Cal Dive Confidential
Information. Cal Dive Confidential Information does not include, and there shall be no
obligation hereunder with respect to, information that (i) is or becomes generally available to the
public, other than as a result of a disclosure by any member of the Helix Group or any of their
Representatives not otherwise permissible hereunder, (ii) such member of the Helix Group can
demonstrate was or became available to such member of the Helix Group from a source other than Cal
Dive or its Affiliates, or (iii) is developed independently by such member of the Helix Group
without reference to the Cal Dive Confidential Information; provided, however,
that, in the case of clause (ii), the source of such information was not known by such
member of the Helix Group to be bound by a confidentiality agreement with, or other contractual,
legal or fiduciary obligation of confidentiality to, Cal Dive or any member of the Cal Dive Group
with respect to such information.
(b) From and after the Closing, subject to Section 6.2(c) and except as contemplated
by this Agreement or any Transaction Document, Cal Dive shall not, and shall cause the other
members of the Cal Dive Group and all of such parties respective Representatives not to, directly
or indirectly, disclose, reveal, divulge or communicate to any Person (other than Representatives
of such party or of its Affiliates who reasonably need to know such information in providing
services to any member of the Cal Dive Group), or use or otherwise exploit for its own benefit or
for the benefit of any third party, any Helix Confidential Information. If any disclosures are
made by a member of the Cal Dive Group to its Representatives in connection with such
Representatives providing services to any member of the Cal Dive Group under this Agreement or any
Transaction Document, then the Helix Confidential Information so disclosed shall be used only as
required to perform the services. Cal Dive shall, and shall cause other members of the Cal Dive
Group to, use the same degree of care to prevent and restrain the unauthorized use or disclosure of
the Helix Confidential Information by any of their Representatives as they currently use for their
own confidential information of a like nature, but in no event less than a reasonable standard of
care. Any information, material or documents relating to the businesses currently or formerly
conducted, or proposed to be conducted, by any member of the Helix Group furnished to or in
possession of any member of the Cal Dive Group, irrespective of the form of communication, and all
notes, analyses, compilations, forecasts, data, translations, studies, memoranda or other documents
prepared by or on behalf of any member of the Cal Dive Group that contain or otherwise reflect such
information, material or documents is referred to herein as Helix Confidential
Information. Helix Confidential Information does not include, and there shall be no
obligation hereunder with respect to, information that (i) is or becomes generally available to the
public, other than as a result of a disclosure by any member of the Cal Dive Group or any of their
Representatives not otherwise permissible hereunder, (ii) such member of the Cal Dive Group can
demonstrate was or became available to such member of the
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Cal Dive Group from a source other than Helix or its Affiliates, or (iii) is developed
independently by such member of the Cal Dive Group without reference to the Helix Confidential
Information; provided, however, that, in the case of clause (ii), the
source of such information was not known by such member of the Cal Dive Group to be bound by a
confidentiality agreement with, or other contractual, legal or fiduciary obligation of
confidentiality to, Helix or any other member of the Helix Group with respect to such information.
(c) If any member of the Helix Group or their respective Representatives, on the one hand, or
any member of the Cal Dive Group or their respective Representatives, on the other hand, are
requested or required (by oral question, interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) by any Governmental Authority or pursuant
to applicable Law to disclose or provide any Cal Dive Confidential Information or Helix
Confidential Information (other than with respect to any such information furnished pursuant to the
provisions of Article IV of this Agreement), as applicable, the entity or person receiving
such request or demand shall use all commercially reasonable efforts to provide the other party
with written notice of such request or demand as promptly as practicable under the circumstances so
that such other party shall have an opportunity to seek an appropriate protective order. The party
receiving such request or demand agrees to take, and cause its representatives to take, at the
requesting partys expense, all other commercially reasonable steps necessary to obtain
confidential treatment by the recipient. Subject to the foregoing, the party that received such
request or demand may thereafter disclose or provide any Cal Dive Confidential Information or Helix
Confidential Information, as the case may be, to the extent required by such Law (as so advised by
counsel) or by lawful process of such Governmental Authority.
6.3 Insurance Matters.
(a) Members of the Cal Dive Group will continue to have coverage under Helixs insurance
program until the Trigger Date. Members of the Cal Dive Group will be subject to retrospective
premium adjustments under each such Insurance Policy based on their loss experience, or with
respect to any other rating mechanism (such as a mechanism based on payroll or revenue), in such
proportion as is allocable to the Cal Dive Group, under the Insurance Policy and in accordance with
Helixs pricing methodologies. The members of the Cal Dive Group will have coverage under all
Insurance Policies with respect to periods prior to the Trigger Date in accordance with the terms
of each such Insurance Policy. Helix and Cal Dive agree to cooperate in good faith to provide for
an orderly transition of insurance coverage leading up to the Trigger Date, and for the treatment
of any Insurance Policies that will remain in effect following the Trigger Date on a mutually
agreeable basis. In no event shall Helix, any other member of the Helix Group or any Helix
Indemnified Party have liability or obligation whatsoever to any member of the Cal Dive Group if
any Insurance Policy or other contract or policy of insurance shall be terminated or otherwise
cease to be in effect or for any reason shall be unavailable or inadequate to cover any Liability
of any member of the Cal Dive Group for any reason whatsoever or shall not be renewed or extended
beyond the current expiration date. Helix shall provide notice to Cal Dive promptly upon its
becoming aware that any Insurance Policy has been terminated or is otherwise no longer in effect or
is reasonably likely to be terminated or otherwise cease to be in effect.
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(b) (i) Except as otherwise provided in any Transaction Document, the parties intend by this
Agreement that Cal Dive and each other member of the Cal Dive Group be successors-in-interest to
all rights that any member of the Cal Dive Group may have as of the Closing Date as a subsidiary,
affiliate, division or department of Helix prior to the Closing Date under any policy of insurance
issued to Helix by any insurance carrier or under any agreements related to such policies executed
and delivered prior to the Closing Date, including any rights such member of the Cal Dive Group may
have, as an insured or additional named insured, subsidiary, affiliate, division or department, to
avail itself of any such policy of insurance or any such agreements related to such policies as in
effect prior to the Closing Date. At the request of Cal Dive, Helix shall take all commercially
reasonable steps, including the execution and delivery of any instruments, to effect the foregoing;
provided, however, that Helix shall not be required to pay any amounts, waive any
rights or incur any Liabilities in connection therewith.
(i) Except as otherwise contemplated by any Transaction Document, after the Closing Date, none
of Helix or Cal Dive or any member of their respective Groups shall, without the consent of the
other, provide any such insurance carrier with a release, or amend, modify or waive any rights
under any such policy or agreement, if such release, amendment, modification or waiver would
adversely affect any rights or potential rights of any member of the other Group thereunder;
provided, however, that the foregoing shall not (A) preclude any member of any
Group from presenting any claim or from exhausting any policy limit, (B) require any member of any
Group to pay any premium or other amount or to incur any Liability, or (C) require any member of
any Group to renew, extend or continue any policy in force. Each of Cal Dive and Helix will share
such information as is reasonably necessary in order to permit the other to manage and conduct its
insurance matters in an orderly fashion.
(c) This Agreement shall not be considered as an attempted assignment of any policy of
insurance or as a contract of insurance and shall not be construed to waive any right or remedy of
any member of the Helix Group in respect of any Insurance Policy or any other contract or policy of
insurance.
(d) Cal Dive does hereby, for itself and each other member of the Cal Dive Group, agree that
no member of the Helix Group or any Helix Indemnified Party shall have any Liability whatsoever to
Cal Dive or any other member of the Cal Dive Group as a result of the insurance policies and
practices of Helix and its Affiliates as in effect at any time prior to the Closing Date, including
as a result of the level or scope of any such insurance, the creditworthiness of any insurance
carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any
insurance carrier with respect to any claim or potential claim or otherwise.
(e) Nothing in this Agreement shall be deemed to restrict any member of the Cal Dive Group
from acquiring at its own expense any other insurance policy in respect of any Liabilities or
covering any period; provided that, Cal Dive shall give Helix prompt written notice
of any such insurance policy acquired prior to the Trigger Date.
6.4 Allocation of Costs and Expenses.
(a) Helix shall pay (or, to the extent incurred by and paid for by any member of the Cal Dive
Group, will promptly reimburse such party for any and all amounts so paid) for all out-
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of-pocket fees, costs and expenses incurred by Helix or Cal Dive, or any member of their
respective Groups, on or prior to the Closing Date in connection with the Separation, including (i)
the preparation and negotiation of this Agreement, each Transfer Document (unless otherwise
expressly provided therein), and all other documentation related to the Separation, (ii) accounting
and legal costs incurred in association with all domestic and international internal restructuring
undertaken as part of the Separation, (iii) the preparation and execution or filing of any and all
other documents, certificates, deeds, titles, agreements, forms, applications or contracts
associated with the Separation, and (iv) the preparation and filing of Cal Dives and its
Subsidiaries organizational documents.
(b) Cal Dive shall pay (or, to the extent incurred by and paid or by any member of the Helix
Group, will promptly reimburse such party for any and all amounts so paid) for all out-of-pocket
fees, costs and expenses incurred by Helix or Cal Dive, or any member of their respective Groups,
in connection with the Initial Public Offering and the other Transactions, except as otherwise
provided in Section 6.4(a), including (i) the preparation, printing and filing of the IPO
Registration Statement, (ii) compliance with applicable federal, state or foreign securities Laws
and domestic or foreign securities exchange rules and regulations, together with fees and expenses
of counsel retained to effect such compliance, (iii) the preparation, printing and distribution of
the Prospectus, (iv) the initial listing of the Common Stock on the New York Stock Exchange, (v)
the fees and expenses of Ernst & Young LLP incurred in connection with the IPO Registration
Statement and the Initial Public Offering, and (vi) the preparation (including, but not limited to,
the printing of documents) and implementation of Cal Dives and its Subsidiaries employee benefit
plans, retirement plans and equity-based plans, and (vii) the preparation and implementation of Cal
Dives and its Subsidiaries corporate governance programs and policies, financial reporting and
internal controls and all other reporting requirements, programs, policies and functions required
to be implemented by the Cal Dive Group as a result of being a public company reporting to the SEC
with equity securities listed on a national stock exchange.
(c) Notwithstanding the foregoing, Helix and Cal Dive agree that all costs and expenses
described in Sections 6.4(a) and (b) may be paid from the proceeds of the Initial
Public Offering.
6.5 Covenants Against Taking Certain Actions Affecting Helix.
(a) Cal Dive hereby acknowledges and agrees that it shall not, without the prior written
consent of Helix (which it may withhold in its sole and absolute discretion), take, or cause to be
taken, directly or indirectly, any action, including making or failing to make any election under
the Law of any state, which has the effect, directly or indirectly, of restricting or limiting the
ability of Helix or any of its Affiliates to freely sell, transfer, assign, pledge or otherwise
dispose of Cal Dive Capital Stock. Without limiting the generality of the foregoing, Cal Dive
shall not, without the prior written consent of Helix (which it may withhold in its sole and
absolute discretion), take any action, or recommend to its stockholders any action, which would
among other things, limit the legal rights of, or deny any benefit to, Helix as a Cal Dive
stockholder in a manner not applicable to Cal Dive stockholders generally.
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(b) Prior to the Trigger Date, to the extent that any member of the Helix Group is a party to
any contract or agreement with a third party (i) that provides that certain actions of Helixs
Subsidiaries may result in Helix being in breach of or in default under such agreement and Helix
has advised Cal Dive, or Cal Dive is otherwise aware, of the existence of such contract or
agreement (or the relevant portions thereof), (ii) to which any member of the Cal Dive Group is a
party or (iii) under which any member of the Cal Dive Group has performed any obligations on or
before the date hereof, Cal Dive shall not take, and shall cause each other member of the Cal Dive
Group not to take, any actions that reasonably could result in any member of the Helix Group being
in breach of or in default under any such contract or agreement. Cal Dive hereby acknowledges and
agrees that Helix has made available to Cal Dive copies of each such contract or agreement (or the
relevant portion thereof) in effect on the date hereof. The parties acknowledge and agree that,
after the date hereof, Helix may in good faith (and not solely with the intention of imposing
restrictions on Cal Dive pursuant to this covenant) amend the referenced agreements or enter into
additional contracts or agreements that provide that certain actions of any member of the Cal Dive
Group may result in Helix being in breach of or in default under such agreements; provided
that, Helix shall notify and consult with Cal Dive prior to entering into any such
amendments or additional contracts or agreements to the extent that compliance therewith (x) could
reasonably be expected to have a material adverse effect on any member of the Cal Dive Group or (y)
would discriminate in an adverse way in the treatment of members of the Cal Dive Group as compared
with Helix and its other Affiliates, and shall make available to Cal Dive copies of such amendments
or additional contracts or agreements.
(c) Prior to the Trigger Date, without the prior written consent or affirmative vote of Helix
(either of which it may withhold in its sole and absolute discretion), Cal Dive shall not, and
shall cause the other members of the Cal Dive Group not to:
(i) take any actions that would result in the occurrence of a Default or Event of Default, as
those terms are defined in the under the Credit Agreement dated as of July 3, 2006, by and among
Helix Energy Solutions Group, Inc., as the Borrower, Bank of America, N.A., as Administrative
Agent, Swing Line Lender and L/C Issuer, and the other Lenders and Agents party thereto, or a
default or event of default under any credit facility that is an amendment, restatement, renewal,
supplement and/or refinancing of such Credit Agreement after the date hereof;
(ii) issue any shares of capital stock or any rights, warrants, options or other rights or
securities convertible into or exercisable for capital stock; except for (A) pursuant to the IPO,
and (B) the issuance of shares of Common Stock or options to purchase Common Stock pursuant to
employee benefit plans or dividend reinvestment plans approved by the Board of Directors of Cal
Dive;
(iii) consolidate or merge with or into any Person, except for (A) a consolidation or merger
of a wholly-owned Subsidiary of Cal Dive into Cal Dive or with or into another wholly-owned
Subsidiary of Cal Dive, or (B) in connection with an acquisition permitted by the Credit Agreement
referred to in Section 6.5(c)(i) above;
(iv) alter, amend, terminate or repeal, or adopt any provision inconsistent with, in each case
whether directly or indirectly, or by merger, consolidation or otherwise, the provisions of
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the Charter or Bylaws relating to any of (A) authorized capital stock, (B) rights granted to
the holders of the Common Stock, (C) amendments to the Bylaws, (D) shareholder action by written
consent, (E) shareholder proposals and meetings, (F) limitation of liability of and indemnification
of officers and directors, (G) corporate opportunities and conflicts of interest between the Cal
Dive Group and the Helix Group, and (H) the business combination statute set forth in Section 203
of the Delaware General Corporation Law;
(v) purchase, redeem or otherwise acquire or retire for value any shares of Common Stock or
any warrants, options or other rights or securities convertible into or exercisable for to acquire
Common Stock, except for (A) the repurchase of Common Stock deemed to occur upon exercise of stock
options to the extent shares of Common Stock represent a portion of the exercise price of the stock
options or are withheld by Cal Dive to pay applicable withholding taxes; (B) the repurchase of
Common Stock deemed to occur to the extent shares of Common Stock are withheld by Cal Dive to pay
applicable withholding taxes in connection with any grant or vesting of restricted stock; and (C)
the repurchase of stock of terminated employees as provided in any employee benefits plan or in a
stock purchase or other agreement;
(vi) adopt a shareholder rights agreement; or
(vii) dissolve, liquidate or wind up.
6.6 No Violations.
(a) Cal Dive acknowledges and agrees that it shall not, and shall cause the other members of
the Cal Dive Group not to, take any action or enter into any commitment or agreement that may
reasonably be anticipated to result, with or without notice and with or without lapse of time or
otherwise, in a contravention or event of default by any member of the Helix Group of: (i) any
provisions of applicable Law; (ii) any provision of the organizational documents of any member of
the Helix Group; (iii) any credit agreement or other material instrument binding upon any member of
the Helix Group; or (iv) any judgment, order or decree of any Governmental Authority having
jurisdiction over any member of the Helix Group or any of its respective assets.
(b) Helix acknowledges and agrees that it shall not, and shall cause the other members of the
Helix Group not to, take any action or enter into any commitment or agreement that may reasonably
be anticipated to result, with or without notice and with or without lapse of time or otherwise, in
a contravention or event of default by any member of the Cal Dive Group of: (i) any provisions of
applicable Law; (ii) any provision of the organizational documents of Cal Dive; (iii) the Existing
Helix Indebtedness, any credit agreement or any other material instrument binding upon Cal Dive; or
(iv) any judgment, order or decree of any Governmental Authority having jurisdiction over any
member of the Cal Dive Group or any of the Cal Dive Assets.
(c) Nothing in this Agreement is intended to limit or restrict in any way Helixs or its
Affiliates rights as stockholders of Cal Dive.
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6.7 Registration Statements.
To the extent necessary to enable the unrestricted transfer of the applicable shares of Cal
Dive Common Stock, upon consummation of the Initial Public Offering, Cal Dive shall file and cause
to remain effective a registration statement with the SEC to register Cal Dive Common Stock that
may be acquired by employees of any member of the Cal Dive Group as contemplated by Helixs or any
other member of the Helix Groups employee stock or option plans.
6.8 Compliance with Charter Provisions.
Cal Dive shall, and shall cause each of its Subsidiaries to, take any and all actions
necessary to ensure continued compliance by Cal Dive and its Subsidiaries with the provisions of
their certificate or articles of incorporation, bylaws, limited liability company agreement,
partnership agreement or other applicable organizational documents. Cal Dive shall notify Helix in
writing promptly after becoming aware of any act or activity taken or proposed to be taken by Cal
Dive or any of its Subsidiaries or any of their equity holders which resulted or would result in
non-compliance with any such organizational document provisions and, so long as any member of the
Helix Group owns any Cal Dive Capital Stock, Cal Dive shall take or refrain from taking all such
actions as Helix shall in its sole discretion determine necessary or desirable to prevent or remedy
any such non-compliance.
6.9 Future Intercompany Transactions.
All proposed intercompany transactions between Cal Dive and Helix after the Closing Date,
including any material amendments to the Transaction Documents, and any consent or approval
proposed to be granted by Cal Dive for Helixs benefit, in each case that would ordinarily be
submitted for approval by the board of directors of Cal Dive, will be subject to the approval of a
majority of the independent directors (as defined under the applicable rules of any securities
exchange on which shares of Cal Dive Common Stock are listed) of the board of directors of Cal
Dive.
6.10 [Intentionally Omitted].
6.11 Helix Policies.
If a provision of Cal Dives Charter or Amended and Restated Bylaws or of any Transaction
Document contradicts a policy of Helix or a member of the Helix Group, (the Helix
Policies) that applies to Subsidiaries of Helix, such provision in Cal Dives Charter or
Bylaws or Transaction Document shall control. In any other case, and except as otherwise agreed or
unless superseded by any policies adopted by the board of directors of Cal Dive, the Helix Policies
that apply to Subsidiaries of Helix shall apply to Cal Dive and its Subsidiaries until the Trigger
Date.
6.12 Operations.
Helix shall have the preferential right to use the Vessels up to the Utilization Limit at the
then prevailing market rate; provided that Cal Dive shall not be required to breach any of its
legal obligations to third parties in order to accommodate such preferential right. If at any time
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(a) the number of Vessels utilized by or on behalf of Helix, whether on a day-rate basis or
otherwise, is below the Utilization Limit and (b) Cal Dive wishes to enter into a Long-Term
Contract with a third party with respect to any of the Vessels that are not then being utilized by
or on behalf of Helix, Cal Dive shall notify Helix of its desire to enter into such Long-Term
Contract, and shall inform Helix of the corresponding day-rate for such Vessel(s). Helix shall
then have two (2) business days to exercise its preferential right to utilize such Vessel(s) (the
Notification Period) at the then prevailing market rate. If Helix does not notify Cal
Dive of its decision to utilize the Vessel(s) prior to the expiration of the Notification Period,
Helix shall be deemed to have declined the use of such Vessel(s) for such time, and Cal Dive shall
be free to contract the Vessel(s) to other parties. Such waiver shall not compromise Helixs
ability to exercise its preferential rights in the future with regard to the utilization of
Vessels. As used herein, Utilization Limit means the multiple of the total number of
Vessels in Cal Dives fleet and .2, rounded down to the nearest whole number, and Long-Term
Contract means any contract with a duration of 90 days or more. If the number of Vessels
utilized by or on behalf of Helix, whether on a day-rate basis or otherwise, is equal to or exceeds
the Utilization Limit, then Helix shall not have the preferential right to utilize any other
Vessels, unless and until such number falls below the Utilization Limit.
6.13 [Intentionally Omitted].
6.14 Tax Matters.
Notwithstanding any provision in this Agreement to the contrary, to the extent that any
representations, warranties, covenants and agreements between Helix and Cal Dive, and their
respective Groups, with respect to Tax matters are set forth in the Tax Matters Agreement,
including indemnification agreements and any tax sharing agreements and arrangements specifically
identified in such agreements, such Tax matters shall be governed exclusively by such Tax Matters
Agreement and not by this Agreement.
6.15 Litigation.
(a) Subject to Section 3.6, immediately following the execution and delivery of the
Underwriting Agreement by each of the parties thereto, Cal Dive shall, and shall cause the other
members of the Cal Dive Group to assume those Actions relating in any material respect to the Cal
Dive Business in which one or more members of the Helix Group is a defendant or a party against
whom any claim or investigation is directed, including those listed on Schedule 6.15(a)
(collectively, the Assumed Actions).
(b) Subject to Section 3.6, immediately following the execution and delivery of the
Underwriting Agreement by each of the parties thereto, Cal Dive shall, and shall cause the other
members of the Cal Dive Group to, (i) diligently conduct, at its sole cost and expense, the defense
of all Assumed Actions and all Existing Actions, (ii) except as may be provided in Section
6.3, pay all Liabilities that may result from the Assumed Actions and the Existing Actions, and
(iii) pay all fees and costs relating to the defense of the Assumed Actions and the Existing
Actions, including attorneys fees and costs incurred after the Closing Date. Existing
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Actions means those Actions (other than Assumed Actions) in which Cal Dive or any
other member of the Cal Dive Group has been named as a defendant or is the party against whom any
claim or investigation is directed, which relates to the Cal Dive Business, and which neither Helix
nor any other member of the Helix Group is named a defendant or is a party against whom such claim
or investigation is directed, including those listed on Schedule 6.15(b).
(c) Notwithstanding anything in this Section 6.15 to the contrary, Helix shall have
the right to participate in the defense of any Assumed Action and to be represented by attorneys of
its own choosing and at its sole cost and expense. In no event shall Cal Dive (or any other member
of the Cal Dive Group) settle or compromise any Assumed Action without the express prior written
consent of Helix unless (i) there is no finding or admission of any violation of any law or any
violation of the rights of any Person by Helix or any other member of the Helix Group, (ii) there
is no relief (either monetary or non-monetary) binding upon Helix or any other member of the Helix
Group, and (iii) neither Helix nor any other member of the Helix Group has any Liability with
respect to any such settlement or compromise.
(d) Subject to Section 3.6, each of Helix and Cal Dive agrees that at all times from
and after the execution and delivery of the Underwriting Agreement by each of the parties thereto,
if an Action is commenced by a third party naming both parties (or any member of its respective
Group) as defendants thereto and with respect to which one party (or any member of its respective
Group) is a nominal defendant, then the other party shall use commercially reasonable efforts to
cause such nominal defendant to be removed from such Action.
ARTICLE VII
DISPUTE RESOLUTION
7.1 General Provisions.
(a) The state and federal courts sitting in Harris County, Texas shall be the exclusive forum
for the resolution of any dispute, controversy or claim arising out of or relating to this
Agreement or the Transaction Documents, or the validity, interpretation, breach or termination
thereof (a Dispute).
(b) THE PARTIES HEREBY IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF ANY STATE COURT
LOCATED WITHIN THE STATE OF TEXAS OVER ANY SUCH DISPUTE AND EACH PARTY HEREBY IRREVOCABLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH DISPUTE OR ANY ACTION RELATED THERETO MAY BE HEARD AND
DETERMINED IN SUCH COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH DISPUTE BROUGHT IN SUCH COURT OR ANY DEFENSE OF INCONVENIENT FORUM FOR THE MAINTENANCE OF SUCH
DISPUTE. EACH OF THE PARTIES AGREES THAT A JUDGMENT IN ANY SUCH DISPUTE MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
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(c) IN CONNECTION WITH ANY DISPUTE, THE PARTIES EXPRESSLY WAIVE AND FORGO ANY RIGHT TO (I)
SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE, CONSEQUENTIAL, EXEMPLARY, STATUTORILY ENHANCED OR SIMILAR
DAMAGES IN EXCESS OF COMPENSATORY DAMAGES (PROVIDED THAT LIABILITY FOR ANY SUCH DAMAGES WITH
RESPECT TO A THIRD PARTY CLAIM SHALL BE CONSIDERED DIRECT DAMAGES), AND (II) TRIAL BY JURY.
(d) All communications between the parties or their representatives in connection with the
attempted resolution of any Dispute, shall be deemed to have been delivered in furtherance of a
Dispute settlement and shall be exempt from discovery and production, and shall not be admissible
in evidence for any reason (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.
(e) Notwithstanding anything to the contrary contained in this Article VII, any
Dispute relating to Helixs rights as a stockholder of Cal Dive pursuant to applicable Law or the
organizational documents of Cal Dive will not be governed by or subject to the procedures set forth
in this Article VII.
ARTICLE VIII
MISCELLANEOUS
8.1 Corporate Power; Fiduciary Duty.
(a) Each of Helix and Cal Dive represents as follows:
(i) each such Person has the requisite corporate or other power and authority and has taken
all corporate or other action necessary in order to execute, deliver and perform each of this
Agreement and each other Transaction Document to which it is a party and to consummate the
transactions contemplated hereby and thereby; and
(ii) this Agreement has been duly executed and delivered by each such Person and each
Transaction Document to which such Person is a party has been, or will be on or prior to the
Closing Date, duly executed and delivered by it and upon execution and delivery, this Agreement and
the other Transaction Documents will constitute a valid and binding agreement of such Person
enforceable in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance or similar laws affecting the enforcement
of creditors rights generally and subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding of law or in equity).
(b) Notwithstanding any provision of this Agreement or any Transaction Document, no member of
the Helix Group and no member of the Cal Dive Group shall be required to take or omit to take any
act that would violate its fiduciary duties to any minority shareholders of Cal Dive or any
non-wholly owned Subsidiary of Helix or Cal Dive, as the case may be (it being understood that
directors qualifying shares or similar interests will be disregarded for purposes of determining
whether a Subsidiary is wholly owned).
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8.2 Governing Law.
This Agreement (other than the provisions relating to Helixs rights as a stockholder, which
shall be governed by the laws of the State of Delaware) and, unless expressly provided therein,
each other Transaction Document, shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Texas, without giving effect to any conflicts of law rule or
principle that might require the application of the laws of another jurisdiction.
8.3 Survival of Covenants.
Except as expressly set forth in any Transaction Document, the covenants and other agreements
contained in this Agreement and each Transaction Document, and liability for the breach of any
obligations contained herein or therein, shall survive each of the Separation and the Initial
Public Offering and shall remain in full force and effect.
8.4 Force Majeure.
No party hereto (or any Person acting on its behalf) shall have any liability or
responsibility for failure to fulfill any obligation (other than a payment obligation) under this
Agreement or, unless otherwise expressly provided therein, any Transaction Document, so long as and
to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or
delayed as a consequence of circumstances of Force Majeure. A party claiming the benefit of this
provision shall, as soon as reasonably practicable after the occurrence of any such event: (i)
notify the other parties of the nature and extent of any such Force Majeure condition and (ii) use
due diligence to remove any such causes and resume performance under this Agreement as soon as
feasible.
8.5 Notices.
All notices, requests, claims, demands and other communications under this Agreement and, to
the extent applicable and unless otherwise provided therein, under each of the Transaction
Documents shall be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with
receipt confirmed (followed by delivery of an original via overnight courier service) or by
registered or certified mail (postage prepaid, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as shall be specified in a notice
given in accordance with this Section 8.5):
If to any member of the Helix Group, to:
|
|
|
Helix Energy Solutions Group, Inc.
400 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
Attn: General Counsel
Fax: (281) 618-0505 |
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If to any member of the Cal Dive Group, to:
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|
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Cal Dive International, Inc.
400 N. Sam Houston Parkway East, Suite 1000
Houston, Texas 77060
Attn: General Counsel
Fax: (281) 618-0503 |
8.6 Severability.
If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced under any Law or as a matter of public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the parties to this
Agreement shall negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated by this Agreement be consummated as originally contemplated to the
greatest extent possible.
8.7 Entire Agreement.
Except as otherwise expressly provided in this Agreement, this Agreement (including the
Schedules and Exhibits hereto) constitutes the entire agreement of the parties with respect to the
subject matter of this Agreement and supersedes all prior agreements and undertakings, both written
and oral, between or on behalf of the parties with respect to the subject matter of this Agreement.
8.8 Assignment; No Third-Party Beneficiaries.
This Agreement shall not be assigned by any party hereto without the prior written consent of
the other party hereto. Except as provided in Article V with respect to Indemnified
Parties, this Agreement is for the sole benefit of the parties to this Agreement and members of
their respective Group and their permitted successors and assigns and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Notwithstanding the foregoing, Helix may assign, collaterally assign, or grant security
interests in all of Helixs right, title and interest in and to this Agreement, without the
consent of Cal Dive, to one or more financial institutions or other lenders or to any designees,
successors or permitted assigns of such financial institutions or other lenders that are, from time
to time, parties to the following Credit Agreement, as the same may be amended, restated, amended
and restated, renewed, extended, supplemented, replaced, or refinanced from time to time: that
certain Credit Agreement dated as of July 3, 2006, by and among Helix Energy Solutions Group, Inc.,
as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
and the other Lenders and Agents party thereto. In connection with the foregoing, Cal Dive hereby
(a) consents to the exercise by the Secured Parties (as defined in the Credit
-53-
Agreement) of the rights provided in the security documents granting such assignment,
collateral assignment, or security interest, including any foreclosure pursuant thereto and any
subsequent assignments by the Administrative Agent on behalf of the Secured Parties, (b) agrees to
provide the Administrative Agent with written notice of any default by Helix under the Agreement
which is not cured within any applicable grace or cure period, and (c) agrees that prior to
terminating the Agreement due to a default by Helix, it shall provide the Administrative Agent with
notice of such intended termination (including a detailed description of the reasons therefor) and
a reasonable opportunity to cure any underlying default (provided that the Administrative Agent
shall have no obligation to cure any default).
8.9 Public Announcements.
Helix and Cal Dive shall consult with each other before issuing, and give each other the
opportunity to review and comment upon, any press release or other public statements with respect
to the transactions contemplated by this Agreement and the Transaction Documents, and shall not
issue any such press release or make any such public statement prior to such consultation, except
as may be required by applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or national securities quotation system.
8.10 Amendment.
No provision of this Agreement may be amended or modified except by a written instrument
signed by both parties. No waiver by any party of any provision hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. The waiver by either party
of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any
other subsequent breach.
8.11 Rules of Construction.
Interpretation of this Agreement shall be governed by the following rules of construction:
(a) words in the singular shall be held to include the plural and vice versa and words of one
gender shall be held to include the other gender as the context requires, (b) references to the
terms Article, Section, paragraph, and Schedule are references to the Articles, Sections,
paragraphs, and Schedules to this Agreement unless otherwise specified, (c) the word including
and words of similar import shall mean including, without limitation, (d) provisions shall apply,
when appropriate, to successive events and transactions, (e) the table of contents and headings
contained herein are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement, and (f) this Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the party drafting or causing
any instrument to be drafted. In the event of a conflict or inconsistency between the provisions
of this Agreement and Article V of the Charter, the provisions of Article V of the Charter shall
govern.
-54-
8.12 Counterparts.
This Agreement may be executed in one or more counterparts, and by each party in separate
counterparts, each of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by facsimile or electronic mail shall be as effective as delivery
of a manually executed counterpart of any such Agreement.
[Signature Page Follows]
-55-
IN WITNESS WHEREOF, the parties have caused this Master Agreement to be executed on the
date first written above by their respective duly authorized officers.
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HELIX ENERGY SOLUTIONS GROUP, INC.
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By: |
/s/ Martin R. Ferron
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Name: |
Martin R. Ferron |
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Title: |
President and Chief |
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CAL DIVE INTERNATIONAL, INC.
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By: |
/s/ Quinn J. Hébert
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Name: |
Quinn J. Hébert |
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Title: |
President and Chief Executive Officer |
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SCHEDULE 1.1 VESSELS
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VESSEL: |
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FLAG: |
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MYSTIC VIKING
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Bahamas |
UNCLE JOHN
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Bahamas |
CAL DIVER I
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USA |
CAL DIVER II
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USA |
CAL DIVER IV
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USA |
CAL DIVER V
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USA |
MR. FRED
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USA |
MR. JACK
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USA |
MR. JIM
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USA |
POLO PONY
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USA |
STERLING PONY
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USA |
WHITE PONY
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USA |
BRAVE
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USA |
DANCER
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USA |
RIDER
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USA |
MIDNIGHT STAR
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Vanuatu |
FOX
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USA |
CARRIER
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USA |
KESTREL
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Vanuatu |
AMERICAN CONSTITUTION
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Panama |
AMERICAN STAR
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USA |
AMERICAN TRIUMPH
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USA |
AMERICAN VICTORY
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USA |
AMERICAN DIVER
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USA |
AMERICAN LIBERTY
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USA |
ECLIPSE
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Bahamas |
DLB801
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Panama |
S-1
SCHEDULE 2.2 TRANSFERRED SUBSIDIARIES AND INVESTMENTS
CDI Janus Holdings, LLC (Delaware)
CDI Prometheus Holdings, Inc. (Delaware)
CDI Umbra LLC (Delaware)
CDI Proteus LLC (Delaware)
CDI Vessel Holdings LLC (Delaware)
Cal Dive HR Services LLC (Delaware)
Cal Dive International Pte Limited (Singapore)
Cal Dive International (Australia) Pty. Ltd.
Offshore Technology Solutions Limited (Trinidad)
Marine Technology Solutions St. Lucia Ltd (St. Lucia)
S-2
SCHEDULE 2.4(b)(ii) CONTINUING AGREEMENTS
None.
S-3
SCHEDULE 6.15(a) ASSUMED ACTIONS
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Case |
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Case No. |
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Jacob Robichaux v. Cal Dive International, Inc., et al.
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5:06-cv-00217-DF |
Michael Erter, individually and on behalf of the estate of Ryan
Erter and Melissa Erter, individually v. Cal Dive
International, Inc., et al.
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3:06-cv-00654 |
United States of America v. Cal Dive International, Inc., et al.
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1:05CV02041 |
Jimmy Agbayani v. Cal Dive International, Inc., et al.
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6:05-cv-0081-TLM-MEM |
Danny Cunningham, et al. v. Cal Dive International, Inc., et al.
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5:04-cv-00282-DF |
S-4
SCHEDULE 6.15(b) EXISTING ACTIONS
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Case |
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Case No. |
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Donald Keith Willey v. Cal Dive International, Inc.
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3:06-cv-00410 |
April Renee Erter and A.C.E., a minor child v. Cal
Dive International, Inc.
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3:06-cv-00585 |
Patricia Erter, individually and on behalf of
Makayla Labruyere and Summer Labruyere, and Harold
L. Domingue, Jr. as personal representative of
Ryan A. Erter estate v. Cal Dive International,
Inc.
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6:06-cv-01913-RFD-MEM |
Leeland M. Lovell v. Cal Dive International, Inc.
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00054-249 |
Tessa Berard v. Cal Dive International, Inc.
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6:06-cv-01061-RTH-CMH |
S-5
exv10w11
TAX MATTERS AGREEMENT
BY AND BETWEEN
HELIX ENERGY SOLUTIONS GROUP, INC.
AND
CAL DIVE INTERNATIONAL, INC.
Dated as of December 14, 2006
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Section 1. Definition and Construction |
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2 |
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Section 1.1.
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Definitions of Capitalized Terms
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2 |
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Section 1.2.
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Construction
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8 |
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Section 2. Indemnification; Allocation of Responsibility for Taxes |
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9 |
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Section 2.1.
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Indemnification
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9 |
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Section 2.2.
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Allocation of Federal Income Taxes
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9 |
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Section 2.3.
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Allocation of State Income Taxes
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10 |
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Section 2.4.
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Foreign Income Taxes
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10 |
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Section 2.5.
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Allocation of Other Taxes
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11 |
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Section 2.6.
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Restructuring Taxes; Additional Taxes
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11 |
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Section 2.7.
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Payment for Certain Tax Benefits
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12 |
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Section 3. Proration of Taxes; Allocation of Tax Items |
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13 |
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Section 3.1.
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Proration of Tax Items
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13 |
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Section 3.2.
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Allocation of Tax Assets and Earnings & Profits
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13 |
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Section 3.3.
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Parent Equity Awards
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13 |
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Section 3.4.
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Separation Transactions Occurring After the IPO Closing Date
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14 |
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Section 4. Preparation and Filing of Tax Returns |
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14 |
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Section 4.1.
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Parents Responsibility
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Section 4.2.
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Cal Dive Filed Returns
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15 |
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Section 4.3.
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Tax Accounting Practices
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15 |
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Section 4.4.
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Right to Review Combined Tax Returns
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16 |
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Section 4.5.
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Adjustment Requests; Carrybacks; Utilization of Tax Assets
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16 |
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Section 5. Payments Under this Agreement |
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17 |
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Section 5.1.
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Joint Taxes
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17 |
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Section 5.2.
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Payments to Tax Authority
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Section 5.3.
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Timing of Payments
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Section 5.4.
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Tax Treatment of Payments
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Section 5.5.
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Interest
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Section 5.6.
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Refunds
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Section 5.7.
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Payments by or to Other Members of the Groups
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20 |
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Section 5.8.
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Tax Benefits from Payment of Taxes
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20 |
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Section 6. Assistance and Cooperation; Retention of Tax Records |
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20 |
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Section 6.1.
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Assistance and Cooperation
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Section 6.2.
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Tax Records
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Section 7. Tax Contests |
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Section 7.1.
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Notice
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21 |
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Section 7.2.
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Control of Tax Contests
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Section 7.3.
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Reimbursement of Expenses
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22 |
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Section 8. Continuing Covenants |
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Section 9. Dispute Resolution |
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23 |
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Section 10. General Provisions |
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23 |
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Section 10.1.
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Effectiveness; Termination of Prior Tax Allocation Agreements
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Section 10.2.
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Survival of Obligations
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Section 10.3.
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Addresses and Notices
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24 |
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Section 10.4.
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Binding Effect
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24 |
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Section 10.5.
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Waiver
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24 |
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Section 10.6.
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Invalidity of Provisions
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Section 10.7.
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Further Action
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25 |
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Section 10.8.
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Integration
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25 |
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Section 10.9.
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Construction
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25 |
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Section 10.10.
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No Double Recovery
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25 |
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Section 10.11.
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Setoff
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25 |
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Section 10.12.
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Counterparts
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25 |
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Section 10.13.
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No Third Party Rights
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Section 10.14.
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Governing Law
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26 |
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TAX MATTERS AGREEMENT
This Tax Matters Agreement (this Agreement) is entered into as of December 14, 2006,
by and between Helix Energy Solutions Group, Inc., a Minnesota corporation (Parent), and
Cal Dive International, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
(Cal Dive).
Recitals
Whereas, as of the date hereof, Cal Dive is a direct wholly-owned subsidiary of
Parent;
Whereas, Parent is the common parent corporation of an affiliated group (as defined
in Section 1504 of the Code) of corporations (the Parent Consolidated Group) that has
elected to file consolidated Federal Income Tax returns;
Whereas, the Parent Consolidated Group has included Cal Dive and its direct and
indirect eligible domestic Subsidiaries;
Whereas, certain Parent Group Members, on the one hand, and certain Cal Dive Group
Members, on the other hand, file income Tax Returns on a consolidated, combined and/or unitary
basis for certain State Income Tax and Foreign Income Tax purposes;
Whereas, Parent and Cal Dive currently contemplate that Cal Dive will make an initial
public offering (IPO) of shares of Cal Dive common stock pursuant to a registration
statement on Form S-1 filed pursuant to the Securities Act of 1933, as amended;
Whereas, as a result of the IPO, Cal Dive and its direct and indirect eligible
domestic Subsidiaries will cease to be members of the Parent Consolidated Group, and Parent Group
Members and Cal Dive Group Members will cease to file Income Tax Returns on a consolidated,
combined and/or unitary basis for State Income Tax and Foreign Income Tax purposes;
Whereas, following the IPO, Cal Dive will be a common parent corporation of an
affiliated group of corporations, which will elect to file consolidated Federal Income Tax returns;
and
Whereas, in contemplation of the IPO, the Companies desire to enter into this
Agreement to provide for the allocation among them of the liabilities for Taxes arising prior to,
as a result of and subsequent to the IPO, and to provide for and agree upon other matters relating
to Taxes;
Agreements
Now, Therefore, in consideration of the mutual agreements contained herein, the
Companies hereby agree as follows:
Section 1. Definition and Construction.
Section 1.1. Definitions of Capitalized Terms.
For purposes of this Agreement (including the recitals hereof), the following capitalized
terms shall have the meanings set forth below:
Additional Tax means:
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(a) |
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with respect to any Post-IPO Event that affects the amount of
any Tax imposed on or attributable to any Group Member for which Parent is
otherwise responsible under this Agreement, an amount equal to the excess (if
any) of (1) the cumulative amount of Tax for which Parent is otherwise
responsible under this Agreement determined after taking into account any and
all Post-IPO Events, over (2) the cumulative amount of Tax that Parent would
otherwise be responsible for under this Agreement determined without taking
into account any Post-IPO Event; and |
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(b) |
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subject to clause (a) and without duplication, with respect to
any Post-IPO Event that affects a Tax Asset of any Group Member, an amount
equal to the Tax Benefits from such Tax Asset that Parent would have otherwise
recognized if such Post-IPO Event had not occurred. |
Adjustment Request means any formal or informal claim or request filed with any Tax
Authority, or with any administrative agency or court, for the adjustment, refund or credit of
Taxes, including (i) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax
Return or, if applicable, as previously adjusted, or (ii) any claim for refund or credit of Taxes
previously paid.
Affiliate means any Person that directly or indirectly is controlled by the other
Person in question. For purposes of the term Affiliate, the term controlled means the
possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Except as otherwise provided herein, the term Affiliate shall refer to Affiliates of a Person as
determined after the IPO.
Agreement shall have the meaning provided in the preamble.
Assets means, collectively, the Parent Assets and the Cal Dive Assets.
Boot Gain shall have the meaning provided in Section 2.7.
Cal Dive Assets means those assets and equity interests in Entities related to the
Cal Dive Business that were held by Parent Group Members before the Restructuring and are held by
Cal Dive Group Members after the Restructuring.
Cal Dive Business has the meaning set forth in the Master Agreement.
-2-
Cal Dive Filed Returns shall have the meaning provided in Section 4.2.
Cal Dive Group means, collectively, Cal Dive and its direct and indirect
Subsidiaries immediately after the IPO, including, without limitation, the Subsidiaries set forth
on Schedule 1.1.
Cal Dive Group Member means, individually, each member of the Cal Dive Group, and
the term Cal Dive Group Members means, collectively, as the context requires, all or less
than all of the members of the Cal Dive Group.
Cal Dive Indemnitees shall have the meaning provided in Section 2.1(a).
Cal Dive Separate Return means a Tax Return that includes one or more Cal Dive Group
Members and does not include any Parent Group Member, including any such Tax Return filed for
Federal Income Tax purposes by an affiliated group (as defined in Section 1504 of the Code) of
corporations the common parent of which is a Cal Dive Group Member or any other corporation that is
not a Parent Group Member.
Cal Dives Allocated Tax Liability shall have the meaning provided in Section
5.1(a).
Cal Dives Cumulative Tax Payment shall have the meaning provided in Section
5.1(a).
Cal Dives Redetermined Allocated Tax Liability shall have the meaning provided in
Section 5.1(b).
Carryback Item means any net operating loss, net capital loss, excess tax credit or
other similar Tax item which may or must be carried from one Tax Year to another Tax Year under the
Code or other applicable Tax Law.
Code means the Internal Revenue Code of 1986, as amended, or any successor law.
Combined Tax Return means, with respect to any Income Tax, a Tax Return that is
filed by one or more Parent Group Members and which includes, to any extent, one or more Cal Dive
Group Members or in which income, deductions, or credits of any Parent Group Member may be combined
with, or offset against, income, deductions or credits of any Cal Dive Group Member, including the
Consolidated Return filed by Parent for the Parent Consolidated Group.
Companies means Parent and Cal Dive, collectively, and Company means, as
the context requires, any one of Parent or Cal Dive.
Consolidated Return means any Federal Income Tax Return which is filed on a
consolidated basis by Parent (or any other member of the Parent Group), as common parent, and its
eligible Subsidiaries (as determined under Section 1504(a) of the Code or any successor provision)
and which includes, to any extent, any Cal Dive Group Member (as determined under Section 1504(a)
of the Code or any successor provision).
Controlling Company shall have the meaning provided in Section 7.2(a).
-3-
Default Rate means a rate of interest equal to the underpayment rate provided in
Section 6621(c) of the Code, determined as of the date any applicable payment required to be made
under this Agreement is due.
Dividend means, collectively, the distributions contemplated by Sections 3.5 and 3.7
of the Master Agreement.
Entity means a partnership (whether general or limited), a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or any other entity, without regard to whether it is treated as a
disregarded entity for Federal Income Tax purposes.
Equity Award means any equity-based incentive compensation award, grant or agreement
that provides for the delivery of shares of Parent stock to any Person as compensation for
services, including, but not limited to, an option to acquire shares of Parent stock (or other
equity-based incentives the economic value of which is designed to mirror that of an option,
including incentive stock options, non-qualified stock options, discounted non-qualified stock
options, cliff options and tandem stock options), restricted stock, restricted stock units, stock
appreciation rights, phantom stock units, performance shares, dividend equivalents, stock payments,
deferred stock payments, performance-based awards or warrants granted under any plan, agreement or
arrangement to the extent shares of Parent stock are issued, issuable or transferred (as opposed to
cash compensation).
Federal Income Tax means any Tax imposed by Subtitle A or F of the Code.
Federal Income Tax Return means any report of Federal Income Taxes due, any claims
for refund of Federal Income Taxes paid, any information return with respect to Federal Income
Taxes, or any other similar report, statement, declaration, or document required to be filed under
Federal Income Tax Law, including any attachments, exhibits, or other materials submitted with any
of the foregoing, and including any amendments or supplements to any of the foregoing.
Final Determination means the final resolution of liability for any Tax, which
resolution may be for a specific issue or adjustment or for a Tax Year, (a) by IRS Form 870 or
870-AD (or any successor forms thereto) on the date of acceptance by or on behalf of the
Controlling Company, or by a comparable form under the Tax Laws of a state, local or foreign taxing
jurisdiction, except that an IRS Form 870 or 870-AD or comparable form shall not constitute a Final
Determination to the extent that it reserves (whether by its terms or by operation of law) the
right of the Controlling Company to file a claim for refund or the right of the Tax Authority to
assert a further deficiency in respect of such issue or adjustment or for such Tax Year (as the
case may be); (b) by a decision, judgment, decree, or other order by a court of competent
jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer
in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Tax Laws
of a state, local or foreign taxing jurisdiction; (d) by any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods during which such
refund may be recovered (including by way of offset) by the jurisdiction imposing such Tax; (e) by
a final settlement resulting from a treaty-based competent
-4-
authority determination; or (f) by any other final disposition, including by reason of the
expiration of the applicable statute of limitations.
Foreign Income Tax means any Tax imposed by any foreign country or any possession of
the United States, or by any political subdivision of any foreign country or possession of the
United States, which is an income tax as defined in Treasury Regulations Section 1.901-2.
Group means the Parent Group or the Cal Dive Group, as the context requires, and the
term Groups means the Parent Group and the Cal Dive Group.
Group Member means any Parent Group Member or any Cal Dive Group Member.
Income Tax means each of any Federal Income Tax, State Income Tax or Foreign Income
Tax, as the context requires.
Indemnification Expenses shall have the meaning provided in Section 7.3.
Indemnified Company means (i) Parent, in cases where it is entitled to be
indemnified for Losses by Cal Dive under this Agreement, and (ii) Cal Dive, in cases where it is
entitled to be indemnified for Losses by Parent under this Agreement.
Indemnifying Company means (i) Parent, in cases where it is obligated to indemnify
Cal Dive for Losses under this Agreement, and (ii) Cal Dive, in cases where it is obligated to
indemnify Parent for Losses under this Agreement.
Independent Firm means a nationally recognized accounting firm; provided,
however, that such term shall not include any accounting firm that performs or has
preformed audit services with respect to Parent or Cal Dive.
IPO shall have the meaning provided in the recitals to this Agreement.
IPO Closing Date means the first date on which the proceeds of any sale of Cal Dive
stock to the underwriters in the IPO are received by Cal Dive or any of its Subsidiaries.
IRS means the Internal Revenue Service.
Joint Taxes shall have the meaning provided in Section 5.1.
Loss means any loss, cost, fine, penalty, fee, damage, obligation, liability,
payment in settlement, Tax or other expense of any kind, including reasonable attorneys fees and
costs, but excluding any consequential, special, punitive or exemplary damages.
Master Agreement means that certain Master Agreement dated December 8, 2006, as
amended from time to time, between Parent and Cal Dive, and to which this Agreement is attached as
an exhibit.
-5-
Other Tax means any Tax that is not an Income Tax, including any value added tax,
any real or personal property Tax, any flat minimum dollar Tax, any withholding Tax or any capital
duty Tax.
Parent Assets means those assets and equity interests in Entities, if any, related
to the Parent Business that were held by Cal Dive Group Members before the Restructuring and are
held by Parent Group Members after the Restructuring.
Parent Business has the meaning set forth in the Master Agreement.
Parent Consolidated Group shall have the meaning provided in the recitals to this
Agreement.
Parent Filed Returns shall have the meaning provided in Section 4.1(a).
Parent Group means, collectively, Parent and its direct and indirect Subsidiaries,
other than Cal Dive Group Members, as determined immediately after the IPO, including, without
limitation, the Subsidiaries set forth on Schedule 1.2.
Parent Group Member means, individually, each member of the Parent Group, and the
term Parent Group Members means, collectively, as the context requires, all or less than
all of the members of the Parent Group.
Parent Indemnitees shall have the meaning provided in Section 2.1(b).
Payment Date means (i) with respect to any Federal Income Tax, (a) each of the due
dates for any required installment of estimated Federal Income Taxes determined under Section 6655
of the Code, (b) the due date (determined without regard to extensions) for filing any Tax Return
determined under Section 6072 of the Code and (c) the date any Tax Return is filed, and (ii) with
respect to any other Tax, the corresponding due dates determined under the applicable Tax Law.
Payment Period shall have the meaning provided in Section 5.5.
Person means an individual, any Entity or a governmental entity or any department,
agency or political subdivision thereof.
Post-IPO Tax Benefit shall have the meaning provided in Section 2.7.
Post-IPO Events shall have the meaning provided in Section 2.6(b).
Post-IPO Period means, with respect to any Tax, any Tax Year beginning after the IPO
Closing Date, and, in the case of any Straddle Period, the portion of such Straddle Period
beginning on the day after the IPO Closing Date.
Pre-IPO Period means, with respect to any Tax, any Tax Year ending on or before the
IPO Closing Date, and, in the case of any Straddle Period, the portion of such Straddle Period
ending on and including the IPO Closing Date.
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Prior Tax Allocation Agreements means any written or oral agreement or any other
arrangements relating to the allocation of Taxes existing between or among any Parent Group Member
and any Cal Dive Group Member prior to the date hereof (other than this Agreement).
Reimbursement Statement shall have the meaning provided in Section 7.3.
Restructuring means the restructuring by Parent of the Assets to cause the Parent
Assets to be held by the Parent Group and the Cal Dive Assets to be held by the Cal Dive Group.
Restructuring Taxes means any and all Taxes imposed on or attributable to any Group
Member that arise from or are attributable to such Group Members distribution, transfer,
assignment, other disposition, receipt, purchase or other acquisition of Assets pursuant to the
Restructuring, however effected.
Separate Company Tax means any Tax computed by reference to the assets and
activities of a member or members of a single Group.
Straddle Period means, with respect to any Tax, any Tax Year beginning on or before
the IPO Closing Date and ending after the IPO Closing Date.
State Income Tax means any Tax imposed by any state of the United States, the
District of Columbia or any political subdivision of the foregoing, which is imposed on or
measured, in whole or in part, by income, capital or net worth or a taxable base in the nature of
income, capital or net worth, including franchise Taxes based on such factors.
Subsidiary means, with respect to any Person, each Entity that such Person directly
or indirectly owns, beneficially or of record, (i) an amount of voting securities or other
interests in such Entity that is sufficient to enable such Person to elect at least a majority of
the members of such Entitys board of directors or other governing body or (ii) at least 50% of the
outstanding equity or financial interests of such Entity.
Tax or Taxes means any income, gross income, gross receipts, profits,
capital stock, capital duty, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation,
service, sales, use, license, lease, transfer, import, export, value added, alternative minimum,
estimated or other similar tax (including any fee, assessment, or other charge in the nature of or
in lieu of any tax) imposed by any Tax Authority, and any interest, penalties, additions to tax or
additional amounts in respect of the foregoing.
Tax Asset means any Tax Item that has accrued for Tax purposes, but has not been
used during a Tax Year, and that could reduce a Tax in another Tax Year, including a net operating
loss, net capital loss, investment tax credit, foreign tax credit, research and experimentation
credit, charitable deduction or credit related to alternative minimum tax or any other Tax credit,
but does not include the tax basis of an asset.
Tax Authority means, with respect to any Tax, the governmental entity or political
subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of
such Tax for such governmental entity or political subdivision, including the IRS.
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Tax Benefit means any refund received or credit or other Tax Item that actually
reduces otherwise required Tax payments (including any reduction in estimated Tax payments).
Tax Contest means an audit, review, examination or any other administrative or
judicial proceeding with the purpose or effect of redetermining Taxes of any Group Member
(including any administrative or judicial review of any claim for refund) for any Tax Year.
Tax Detriment means an increase in the Tax liability of any Group Member for any Tax
Year or a decrease in a Tax Asset of any Group Member. Except as otherwise provided in this
Agreement, a Tax Detriment shall be deemed to have been realized from a Tax Item in a Tax Year only
if and to the extent that the Tax liability of the Group Member for such Tax Year, after taking
into account the effect of the Tax Item on the Tax liability of such Group Member in the current
Tax Year and all prior Tax Years, is more than it would have been if such Tax liability were
determined without regard to such Tax Item.
Tax Item means, with respect to any Tax, any item of income, gain, loss, deduction
or credit, or other attribute that may have the effect of increasing or decreasing any Tax.
Tax Law means the law of any governmental entity or political subdivision thereof
relating to any Tax, including the Code, and any controlling judicial or administrative
interpretations of such law relating to any Tax.
Tax Records means Tax Returns, Tax Return workpapers, documentation relating to any
Tax Contests and any other books of account or records required to be maintained under the Code or
other applicable Tax Laws or under any record retention agreement with any Tax Authority.
Tax Return means any report of Taxes due, any claims for refund of Taxes paid, any
information return with respect to Taxes or any other similar report, statement, declaration or
document required to be filed under the Code or other Tax Law, including any attachments, exhibits
or other materials submitted with any of the foregoing, and including any amendments or supplements
to any of the foregoing.
Tax Year means, with respect to any Tax, the year, or shorter period, if applicable,
for which the Tax is reported as provided under applicable Tax Law.
Treasury Regulations means the regulations promulgated from time to time under the
Code as in effect for the relevant Tax Year.
Other capitalized terms defined elsewhere in this Agreement shall have the meanings given
them.
Section 1.2. Construction.
Unless the context otherwise requires: (i) references to a Section (other than in connection
with the Code or the Treasury Regulations) refer to a section of this Agreement; (ii) the word
including shall mean including, but not limited to; and (iii) words used in the singular shall
also denote the plural, and words used in the plural shall also denote the singular.
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The headings contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 2. Indemnification; Allocation of Responsibility for Taxes.
Section 2.1. Indemnification.
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(a) |
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Parents Indemnity of Cal Dive. |
Parent shall indemnify Cal Dive, each other Cal Dive Group Member and their respective
directors, officers and employees (collectively, the Cal Dive Indemnitees), and hold them
harmless from and against any and all Losses that arise from or are attributable to:
(1) any and all Taxes that are specifically allocated to or are the
responsibility of Parent under this Agreement;
(2) any failure by Parent to make a payment required by this Agreement to Cal
Dive when due; and
(3) any breach or nonperformance by Parent of any of its representations,
warranties or covenants contained in this Agreement.
|
(b) |
|
Cal Dives Indemnity of Parent. |
Cal Dive shall indemnify Parent, each other Parent Group Member and their respective
directors, officers and employees (collectively, the Parent Indemnitees), and hold them
harmless from and against any and all Losses that arise from or are attributable to:
(1) any and all Taxes that are specifically allocated to or are the
responsibility of Cal Dive under this Agreement;
(2) any failure by Cal Dive to make a payment required by this Agreement to
Parent when due; and
(3) any breach or nonperformance by Cal Dive of any of its representations,
warranties or covenants contained in this Agreement.
Section 2.2. Allocation of Federal Income Taxes.
Except as provided in Section 2.6, the responsibility for Federal Income Taxes,
including any adjustment to such Federal Income Taxes as a result of a Final Determination, imposed
on or attributable to any Cal Dive Group Member shall be allocated between Parent and Cal Dive as
follows:
|
(a) |
|
Parents Responsibility for Federal Income Taxes. |
Parent shall be responsible for any and all Federal Income Taxes, including any adjustment to
such Federal Income Taxes as a result of a Final Determination, to the extent such
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Federal Income Taxes are imposed on or are attributable to any Cal Dive Group Member for any
Pre-IPO Period.
|
(b) |
|
Cal Dives Responsibility for Federal Income Taxes. |
Cal Dive shall be responsible for any and all Federal Income Taxes, including any adjustment
to such Federal Income Taxes as a result of a Final Determination, that are imposed on or are
attributable to any Cal Dive Group Member for any Post-IPO Period.
Section 2.3. Allocation of State Income Taxes.
Except as provided in Section 2.6, the responsibility for any and all State Income
Taxes, including any adjustment to such State Income Taxes as a result of a Final Determination,
imposed on or attributable to any Cal Dive Group Member shall be allocated between Parent and Cal
Dive as follows:
|
(a) |
|
Parents Responsibility for State Income Taxes. |
Parent shall be responsible for any and all State Income Taxes, including any adjustment to
such State Income Taxes as a result of a Final Determination, that are imposed on or are
attributable to any Cal Dive Group Member for any Pre-IPO Period.
|
(b) |
|
Cal Dives Responsibility for State Income Taxes. |
Cal Dive shall be responsible for any and all State Income Taxes, including any adjustment to
such State Income Taxes as a result of a Final Determination, that are imposed on or are
attributable to any Cal Dive Group Member for any Post-IPO Period.
Section 2.4. Foreign Income Taxes.
Except as provided in Section 2.6, the responsibility for Foreign Income Taxes,
including any adjustment to such Foreign Income Taxes as a result of a Final Determination, that
are imposed on or are attributable to any Cal Dive Group Member shall be allocated between Parent
and Cal Dive as follows:
|
(a) |
|
Parents Responsibility for Foreign Income Taxes. |
Parent shall be responsible for any and all Foreign Income Taxes, including any adjustment to
such Foreign Income Taxes as a result of a Final Determination, that are imposed on or are
attributable to any Cal Dive Group Member for any Pre-IPO Period.
|
(b) |
|
Cal Dives Responsibility for Foreign Income Taxes. |
Cal Dive shall be responsible for any and all Foreign Income Taxes, including any adjustment
to such Foreign Income Taxes as a result of a Final Determination, that are imposed on or are
attributable to any Cal Dive Group Member for any Post-IPO Period.
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Section 2.5. Allocation of Other Taxes.
Except as provided in Section 2.6, the responsibility for Other Taxes, including any
adjustment to such Other Taxes as a result of a Final Determination, imposed on or attributable to
any Cal Dive Group Member shall be allocated between Parent and Cal Dive as follows:
|
(a) |
|
Other Taxes imposed on Cal Dive Group Members. |
Cal Dive shall be responsible for any and all Other Taxes imposed on or attributable to any
Cal Dive Group Member with respect to any Tax Year.
|
(b) |
|
Other Taxes Imposed on Multiple Group Members. |
Notwithstanding anything to the contrary in Section 2.5(a), with respect to any Other
Taxes for any Tax Year that are imposed under applicable Tax Law on one or more Parent Group
Members and one or more Cal Dive Group Members:
(1) Parent shall be responsible for any and all such Other Taxes to the extent
any Parent Group Member is primarily responsible for such Other Taxes under
applicable Tax Law; and
(2) Cal Dive shall be responsible for any and all such Other Taxes to the
extent any Cal Dive Group Member is primarily responsible for such Other Taxes under
applicable Tax Law.
Section 2.6. Restructuring Taxes; Additional Taxes.
Notwithstanding any other provision of this Agreement to the contrary, the responsibility for
Restructuring Taxes imposed on or attributable to any Group Member shall be allocated between
Parent and Cal Dive as follows:
(1) Parents Responsibility for Restructuring Taxes. Except as
provided in Section 2.6(a)(2), Parent shall be responsible for any and all
Restructuring Taxes, including any adjustment to such Restructuring Taxes as a
result of a Final Determination, that are imposed on or attributable to any Group
Member with respect to any Tax Year.
(2) Cal Dives Responsibility for Restructuring Taxes. Notwithstanding
Section 2.6(a)(1), Cal Dive shall be responsible for any and all
Restructuring Taxes, including any adjustment to such Restructuring Taxes as a
result of a Final Determination, that are imposed on or attributable to any Group
Member to the extent that such Restructuring Taxes result, in whole or in part, from
any act or failure to act by any Cal Dive Group Member after the IPO Closing Date,
including any such act or failure to act that results in Parent recognizing income
or gain for Federal Income Tax purposes in excess of the amount of the Dividend.
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Subject to Section 2.6(a), but notwithstanding any other provision of this Agreement
to the contrary, Cal Dive shall be responsible for one hundred percent (100%) of any Additional
Taxes, determined for each applicable Tax Year, imposed on any Group Member that result or arise,
in whole or in part, from any act, failure to act, event or transaction that relates to any Cal
Dive Group Members breach of any representation, covenant or agreement contained in this Agreement
that occurs after the IPO Closing Date (a Post-IPO Event), including Additional Taxes
resulting or arising from any Cal Dive Group Member failing to provide assistance and cooperation
to Parent in accordance with Section 6.1 or failing to retain Tax Records in accordance
with Section 6.2.
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(c) |
|
Combined Tax Returns Filed After the IPO Closing Date. |
Subject to Section 2.6(a) and Section 2.6(b), but notwithstanding any other
provision of this Agreement to the contrary, in the event any Combined Tax Return includes any
portion of a Post-IPO Period, the Income Taxes that are treated as imposed on or attributable to
the Cal Dive Group Members included in such Combined Tax Return for purposes of this Agreement
shall be determined as if such Cal Dive Group Members were not required to join and did not join in
the filing of the Combined Tax Return for the Post-IPO Period but instead filed their own
consolidated, combined or unitary Tax Return based solely on their income, apportionment factors
and other Tax Items included in such Combined Tax Return for the Post-IPO Period, with such Income
Taxes being calculated in accordance with the principles of Treasury Regulations Section
1.1552-1(a)(2)(ii) for calculating the separate tax liability of a member of an affiliated group
or an applicable corresponding provision under the Tax Laws of any state, local or foreign
jurisdiction, as such corresponding provision is reasonably interpreted by Parent.
Section 2.7. Payment for Certain Tax Benefits.
As a result of the transactions contemplated in conjunction with the IPO, Parent will
recognize a substantial amount of taxable gain (the Boot Gain) as a result of cash
distributions by Cal Dive to Parent. As a result of this recognition of the Boot Gain, Cal Dive
will be entitled to increase its Tax basis in the assets contributed to Cal Dive by Parent and such
increase in Tax basis may result in a Tax Benefit to Cal Dive. For each taxable year of Cal Dive
that ends after the IPO Closing Date, but on or before the tenth anniversary of the IPO Closing
Date, Cal Dive shall compute its hypothetical Tax liability without taking into account the Tax
basis adjustment attributable to the recognition by Parent of the Boot Gain and subtract from such
hypothetical Tax liability its actual Tax liability for such year to determine the amount of the
post IPO Tax Benefit (Post-IPO Tax Benefit) for that year relating to the Tax basis
adjustment resulting from the recognition by Parent of the Boot Gain, such calculations being
subject to Parents review and approval. For each taxable year described in this section, Cal Dive
shall pay to Parent 90% of the Post-IPO Tax Benefit recognized with respect to such taxable year,
such payment to be made by Cal Dive to Parent on or before the 15th day following the date on which
Cal Dive files each Tax Return for such taxable year which includes such a Tax Benefit.
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Section 3. Proration of Taxes; Allocation of Tax Items.
For purposes of apportioning Taxes and Tax Items between Pre-IPO Periods and Post-IPO Periods
and preparing and filing Tax Returns under this Agreement, the following provisions shall apply:
Section 3.1. Proration of Tax Items.
Except as provided in Section 3.1(b), Tax Items of the Cal Dive Group Members shall be
apportioned between Pre-IPO Periods and Post-IPO Periods in accordance with the principles of
Treasury Regulations Section 1.1502-76(b) or an applicable corresponding provision under the Tax
Laws of any state, local or foreign jurisdiction, as such corresponding provision is reasonably
interpreted and applied by Parent. No election shall be made under Treasury Regulations Section
1.1502-76(b)(2)(ii) (relating to ratable allocation of a years items).
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(b) |
|
Restructuring Tax Items. |
In determining the apportionment of Tax Items between Pre-IPO Periods and Post-IPO Periods,
any Tax Items relating to the Restructuring shall be treated as extraordinary items described in
Treasury Regulations Section 1.1502-76(b)(2)(ii)(C) and shall be allocated to Pre-IPO Periods, and
any Taxes related to such Tax Items shall be treated under Treasury Regulations Section
1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall be allocated to Pre-IPO
Periods.
Section 3.2. Allocation of Tax Assets and Earnings & Profits.
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(a) |
|
Allocation of Tax Assets. |
Parent shall determine in accordance with applicable Tax Laws the allocation of any applicable
Tax Assets among Parent, each other Parent Group Member, Cal Dive and each other Cal Dive Group
Member. The Companies hereby agree that in the absence of controlling legal authority or unless
otherwise provided under this Agreement, each Tax Asset shall be allocated to the Group Member who
generated such Tax Asset.
On or before the first anniversary of the IPO Closing Date, Parent shall advise Cal Dive in
writing of the decrease in Parents earnings and profits under Section 312(h) of the Code
attributable to the IPO; provided, however, that Parent shall provide Cal Dive with
estimates of such amounts (determined in accordance with past practice) prior to such anniversary
as reasonably requested by Cal Dive.
Section 3.3. Parent Equity Awards.
Except as otherwise required by applicable Tax Law and subject to the following sentence,
Parent shall be entitled to claim on its Tax Returns any and all Tax deductions
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attributable to an exercise, or a disqualifying disposition, grant, vesting, payment or
delivery of shares, or other consideration in lieu of shares, by Parent, under or in connection
with an Equity Award (including a payment of dividends in connection with an Equity Award), and no
Cal Dive Group Member shall attempt to claim on any Tax Return any such Tax deductions.
Notwithstanding the foregoing sentence, if Parent determines that under applicable Tax Law (or as a
result of a Final Determination) no Parent Group Member is entitled to claim such Tax deductions
but a Cal Dive Group Member is entitled to claim such Tax deductions, such Cal Dive Group Member
shall be entitled to claim such Tax deductions on its applicable Tax Returns, and Cal Dive shall
pay to Parent the deemed tax benefit of such Tax deductions, regardless of whether any Cal Dive
Group Member actually claims such Tax deductions or realizes a Tax Benefit from claiming any such
Tax deductions. For purposes of this Section 3.3, the deemed tax benefit shall
conclusively be the total amount of the available Tax deductions for any such exercise,
disqualifying disposition, grant, vesting or payment multiplied by 40%. Cal Dive shall pay the
deemed tax benefit amount, if any, to Parent no later than twenty (20) days after the later of
(a) Parents notification to Cal Dive that a Cal Dive Group Member is entitled to claim such Tax
deductions or (b) the occurrence of any applicable exercise, disqualifying disposition, grant,
vesting, payment or delivery of shares, or other consideration in lieu of shares, by Parent under
or in connection with an Equity Award. Further, if the performance of the obligations described in
this Section 3.3 shall become impracticable or impossible due to any change in Tax Law or
the interpretation thereof by any Tax Authority subsequent to the date of this Agreement, the
parties hereto shall use their best efforts to find an alternative means to achieve the same or
substantially the same result as that contemplated by this Section 3.3.
Section 3.4. Separation Transactions Occurring After the IPO Closing Date.
If the Parent Group Member transfers any part of the Cal Dive Business (including any
Subsidiary) to the Cal Dive Group, or any Cal Dive Group Member transfers any part of the Parent
Business (including any Subsidiary) to the Parent Group, after the IPO Closing Date in a
transaction contemplated by the Restructuring, such transfer will be deemed to have occurred
immediately before the IPO Closing Date for purposes of computing the Taxes imposed on or
attributable to the Cal Dive Group and the Parent Group.
Section 4. Preparation and Filing of Tax Returns.
Section 4.1. Parents Responsibility.
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(a) |
|
Parent Filed Returns. |
Parent shall have the exclusive obligation and right to prepare and file, or to cause to be
prepared and filed, all Tax Returns that include any Group Member if Parent is responsible under
this Agreement for any portion of the Taxes reported on such Tax Returns (Parent Filed
Returns), including (i) all Combined Tax Returns and (ii) all Cal Dive Separate Returns for
which Parent is responsible for any portion of any Tax reported on such Cal Dive Separate Return,
and Parent shall have the exclusive obligation and right to prepare and file, or to cause to be
prepared and filed, all Adjustment Requests made with respect to Parent Filed Returns. Cal Dive
shall, and shall cause each other Cal Dive Group Member to, assist and cooperate with
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Parent in accordance with Section 6 with respect to the preparation and filing of all
Parent Filed Returns, including providing information required to be provided in Section 6.
In the case of any Parent Filed Return which is required by applicable Tax Law to be signed by any
Cal Dive Group Member (or by its authorized representative), Cal Dive shall cause such Cal Dive
Group Member (or its authorized representative) to sign such Parent Filed Return.
|
(b) |
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Preparation of Parent Filed Returns. |
Parent shall have the exclusive right, in its sole discretion, with respect to each Parent
Filed Return to determine (i) the manner in which such Parent Filed Return shall be prepared and
filed, including the elections, methods of accounting, positions, conventions and principles of
taxation to be used and the manner in which any Tax Item shall be reported, (ii) whether any
extensions may be requested, (iii) the elections that will be made on such Parent Filed Return,
(iv) whether an Adjustment Request should be made with respect to any Parent Filed Return, (v)
whether any refunds shall be paid by way of refund or credited against any liability for the
related Tax and (vi) whether to retain outside firms to prepare or review such Parent Filed
Returns.
|
(c) |
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Election to Join Combined Tax Returns. |
Cal Dive shall cause each Cal Dive Group Member to elect and join in filing Combined Tax
Returns with any Parent Group Member that Parent reasonably determines are required to be filed
under applicable Tax Laws or will result in the minimization of the net present value of the
aggregate Tax to the Group Members eligible to join in such Combined Tax Returns.
|
(d) |
|
Appointment as Agent. |
Cal Dive hereby irrevocably designates, and agrees to cause each other Cal Dive Group Member
to so designate, Parent as its sole and exclusive agent and attorney-in-fact to take such action
(including execution of documents) as Parent, in its sole discretion, may deem appropriate in any
and all matters (including Tax Contests) relating to Combined Tax Returns.
Section 4.2. Cal Dive Filed Returns.
Cal Dive shall have the exclusive obligation and right to prepare and file, or to cause to be
prepared and filed, all Cal Dive Separate Returns that are not Parent Filed Returns (Cal Dive
Filed Returns), and Cal Dive shall have the exclusive obligation and right to prepare and
file, or to cause to be prepared and filed, all Adjustment Requests made with respect to Cal Dive
Filed Returns.
Section 4.3. Tax Accounting Practices.
Except as otherwise provided in Section 4.3(b), to the extent the Tax accounting
practices or reporting position with respect to Tax Items reported on any Cal Dive Filed Return
might adversely affect any Parent Group Member, Cal Dive shall prepare such Cal Dive Filed Return
and report such Tax Items in a manner that is consistent with Parents past Tax accounting
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practices and reporting positions with respect to such Tax Items (unless such past Tax
accounting practices or reporting positions are no longer permissible under the Code or other
applicable Tax Law), and to the extent any Tax Items are not covered by past Tax accounting
practices or reporting positions (or in the event such past Tax accounting practices or reporting
positions are no longer permissible under the Code or other applicable Tax Law), in accordance with
reasonable Tax accounting practices and reporting positions selected by Parent.
|
(b) |
|
Reporting of Restructuring Tax Items. |
Parent shall determine the proper Tax treatment of any Tax Items relating to the Restructuring
and the method for reporting such Tax Item on any Tax Return. Such treatment and reporting method
shall be used by Cal Dive in preparing and filing any Cal Dive Filed Return unless there is no
reasonable basis for such Tax treatment. To the extent any Cal Dive Filed Return includes a Tax
Item relating to the Restructuring, Cal Dive shall submit a copy of such Cal Dive Filed Return to
Parent for its review. Cal Dive shall use its reasonable best efforts to make such Cal Dive Filed
Return available for Parents review sufficiently in advance of the due date for filing such Cal
Dive Filed Return to provide Parent with a meaningful opportunity to analyze and comment on such
Cal Dive Filed Return and have such Cal Dive Filed Return modified before filing.
Section 4.4. Right to Review Combined Tax Returns.
Parent shall make each Combined Tax Return and related workpapers available for review by Cal
Dive, if requested, to the extent (i) such Combined Tax Return relates to Taxes for which Cal Dive
may be responsible under this Agreement or (ii) Cal Dive reasonably determines that it must inspect
such Combined Tax Return to confirm its compliance with the terms of this Agreement. Parent shall
use its reasonable best efforts to make such Combined Tax Return available for review as required
under this paragraph sufficiently in advance of the due date for filing such Combined Tax Return to
provide Cal Dive with a meaningful opportunity to analyze and comment on such Combined Tax Return
and have such Combined Tax Return modified before filing. Parent and Cal Dive shall attempt in
good faith to resolve any issues arising out of the review of such Combined Tax Returns.
Section 4.5. Adjustment Requests; Carrybacks; Utilization of Tax Assets.
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(a) |
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Adjustment Requests and Carrybacks Requiring Parents Consent. |
Except as otherwise required by applicable Tax Law or unless Parent otherwise consents in
writing, Cal Dive hereby agrees to cause each Cal Dive Group Member (i) to not make any Adjustment
Request with respect to any Income Tax for any Pre-IPO Period and (ii) to make any available
elections to relinquish the right to claim in any Pre-IPO Period any Carryback Items of any Cal
Dive Group Member arising in a Post-IPO Period, including making the election under Section
172(b)(3) of the Code (and any similar provision of any other applicable Tax Laws) to relinquish
the right to carry back net operating losses. With respect to any Adjustment Request to which
Parent grants its consent under the preceding sentence, Cal Dive shall reimburse Parent for its
legal, accounting, administrative and other related expenses incurred in preparing, filing and
making any such Adjustment Request.
-16-
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(b) |
|
Carrybacks to Pre-IPO Periods. |
Notwithstanding Section 4.5(a), if any Cal Dive Group Member is required by applicable
Tax Law to carry back a Carryback Item arising in a Post-IPO Period to a Pre-IPO Period, the
Companies agree that any Carryback Item of any Parent Group Member that may be carried back to the
same Pre-IPO Period shall be deemed to be used before any Carryback Item of any Cal Dive Group
Member. If any Parent Group Member receives a refund or realizes a Tax Benefit as a result of a
Carryback Item of any Cal Dive Group Member arising in a Post-IPO Period being carried back to a
Pre-IPO Period, Parent shall make a payment to Cal Dive in an amount equal to such refund or the
realized Tax Benefit within 30 days following either the receipt of such refund or the filing of
the Tax Return reflecting the realization of such Tax Benefit.
|
(c) |
|
Other Adjustment Requests Permitted. |
With respect to any Tax imposed on or attributable to any Group Member for any applicable
Pre-IPO Period, Parent may make an Adjustment Request with respect to such Tax, including carrying
back a Carryback Item of any Parent Group Member arising in a Post-IPO Period to any Pre-IPO
Period. Any refund or other Tax Benefit obtained as a result of any such Adjustment Request
pursuant to the preceding sentence shall be for the account of Parent, and Parent shall have no
obligation to compensate or make a payment to any Cal Dive Group Member in the event any such
Adjustment Request results in a Tax Detriment to any Cal Dive Group Member.
|
(d) |
|
Utilization of Tax Assets. |
With respect to each Combined Tax Return and any adjustment to the Income Taxes reflected on a
Combined Tax Return as a result of a Tax Contest, Adjustment Request or otherwise, each Group
Member included in such Combined Tax Return shall be entitled to use, in accordance with applicable
Tax Laws, any and all Tax Assets of each other Group Member included in such Combined Tax Return.
Except as provided in Section 5.1(c) with respect to Joint Taxes, no Group Member that
utilizes the Tax Assets of any other Group Member shall be required to compensate or make any
payment to such other Group Member with respect to the utilization of such Tax Assets.
Section 5. Payments Under this Agreement.
Section 5.1. Joint Taxes.
With respect to any Tax for any Tax Year for which Parent and Cal Dive are each responsible
for a portion of such Tax under this Agreement (a Joint Tax), the following provisions
shall apply:
|
(a) |
|
Joint Taxes Relating to Parent Filed Returns. |
With respect to any Joint Tax that is reflected or reported on any Parent Filed Return, Parent
shall determine the amount of such Joint Tax that Cal Dive is responsible for under Section
2 (Cal Dives Allocated Tax Liability). At least 15 days prior to an applicable
Payment Date, Parent shall deliver to Cal Dive a statement setting forth in appropriate detail
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Parents determination of Cal Dives Allocated Tax Liability and the amount (if any) of the
cumulative net payments made with respect to such Joint Tax prior to the date of such statement by
the Cal Dive Group (Cal Dives Cumulative Tax Payment). Not more than 30 days after Cal
Dives receipt of such statement, Cal Dive shall pay Parent an amount equal to the excess (if any)
of Cal Dives Allocated Tax Liability, over Cal Dives Cumulative Tax Payment. If Cal Dives
Cumulative Tax Payment is greater than Cal Dives Allocated Tax Liability, then Parent shall pay
such excess to Cal Dive within 30 days of Parents receipt of the corresponding Tax Benefit
(i.e., through either a reduction in Parents otherwise required Tax payment or a refund of
prior Tax payments).
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(b) |
|
Adjustments to Joint Taxes. |
If there is any adjustment to any Joint Tax described in Section 5.1(a), whether as a
result of a Tax Contest, Adjustment Request or otherwise, Parent shall redetermine Cal Dives
Allocated Tax Liability (Cal Dives Redetermined Allocated Tax Liability). After
determining Cal Dives Redetermined Allocated Tax Liability, Parent shall deliver to Cal Dive a
statement setting forth in appropriate detail Parents determination of Cal Dives Redetermined
Allocated Tax Liability and the amount (if any) of Cal Dives Cumulative Tax Payments made with
respect to such Joint Tax prior to the date of such statement. Not more than 30 days after Cal
Dives receipt of such statement, Cal Dive shall pay Parent an amount equal to the excess (if any)
of Cal Dives Redetermined Allocated Tax Liability, over Cal Dives Cumulative Tax Payments. If
Cal Dives Cumulative Tax Payment is greater than Cal Dives Redetermined Allocated Tax Liability,
then Parent shall pay such excess to Cal Dive within 30 days of Parents receipt of the
corresponding Tax Benefit (i.e., through either a reduction in Parents otherwise required
Tax payment or a refund of prior Tax payments).
|
(c) |
|
Payments for Use of Tax Assets. |
If a Parent Group Member realizes a Tax Benefit upon its utilization of a Tax Asset of a Cal
Dive Group Member, Parent shall make a payment to Cal Dive equal to the Tax Benefit realized to the
extent such utilized Tax Asset of the Cal Dive Group Member arose or accrued during any Post-IPO
Period. If a Cal Dive Group Member realizes a Tax Benefit upon its utilization of a Tax Asset of a
Parent Group Member, Cal Dive shall make a payment to Parent equal to the Tax Benefit realized to
the extent such utilization occurs during any Post-IPO Period. Any payment required to be made
under this Section 5.1(c) shall be paid within 30 days following either the receipt of a
refund or the filing of the Tax Return reflecting the realization of such Tax Benefit.
Section 5.2. Payments to Tax Authority.
With respect to each Tax Return that a Company is required to prepare and file under this
Agreement, such Company shall pay, or cause to be paid, to the applicable Tax Authority when due
(including extensions) all Taxes determined to be due and payable. With respect to any Joint Taxes
described in Section 5.1(a), Parent shall pay, or cause to be paid, to the applicable Tax
Authority when due such Joint Taxes.
-18-
Section 5.3. Timing of Payments.
In the event a Company is required to make a payment to the other Company under this Agreement
and the time for making such payment is not otherwise provided for in this Agreement, the first
Company shall make such payment within 30 days of its receipt of such other Companys written
demand for such payment, which written demand shall include in reasonable detail an explanation and
computation of the amount due.
Section 5.4. Tax Treatment of Payments.
Unless otherwise required by applicable Tax Law, the Companies agree that any payments made by
one Company to the other Company (other than any reimbursement of expense pursuant to Section
4.5(a) and interest payments pursuant to Section 5.5) pursuant to this Agreement shall
be treated for all Tax and financial accounting purposes as nontaxable payments (dividend
distributions or capital contributions, as the case may be) made immediately prior to the IPO and,
accordingly, as not includible in the Taxable income of the recipient Company or as deductible by
the payor Company. If, notwithstanding the previous sentence, there is a Final Determination that
the recipient Companys receipt of such payment is subject to Tax, the payor Company shall pay to
the recipient Company an additional amount that, when added to the prior payment, will result in
the recipient Company receiving an amount equal to such prior payment, after taking into account
all Taxes that are payable by the recipient Company with respect to the receipt of such prior
payment and such additional amount.
Section 5.5. Interest.
Any payment that is not made within the period prescribed in this Agreement (the Payment
Period) shall bear interest at the Default Rate, compounded semiannually, for the period from
and including the date immediately following the last date of the Payment Period through and
including the date of payment. Notwithstanding Section 5.4, the interest payment shall be
treated as interest expense to the payor (deductible to the extent provided by applicable Tax Law)
and as interest income by the recipient (includible in income to the extent provided by applicable
Tax Law).
Section 5.6. Refunds.
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(a) |
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Refund Received by Parent Group Members. |
If a Parent Group Member receives a Tax refund with respect to Taxes for which a Cal Dive
Group Member is responsible hereunder, Parent shall pay to Cal Dive within 30 days following the
receipt of the Tax refund, an amount equal to such Tax refund.
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(b) |
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Refund Received by Cal Dive Group Members. |
If a Cal Dive Group Member receives a Tax refund with respect to Taxes for which a Parent
Group Member is responsible hereunder, Cal Dive shall pay to Parent within 30 days following the
receipt of the Tax refund, an amount equal to such Tax refund.
-19-
Section 5.7. Payments by or to Other Members of the Groups.
When appropriate under the circumstances to reflect the underlying liability for a Tax or
entitlement to a Tax refund or Tax Benefit, a payment which is required to be made by or to a
Company may be made by or to another member of the Group to which that Company belongs, but nothing
in this Section 5.7 shall relieve any Company of its obligations under this Agreement.
Section 5.8. Tax Benefits from Payment of Taxes.
With respect to any Tax Benefits received by a Cal Dive Group Member after the IPO Closing
Date that result from Taxes for which Parent is responsible hereunder, including as a result of the
utilization of foreign tax credits and minimum tax credits, Cal Dive shall make a payment to Parent
in an amount equal to the Tax Benefit received, with such payment being made within 30 days
following the filing of the Tax Return reflecting the realization of such Tax Benefit. For
purposes of this Section 5.8, the Cal Dive Group Member (i) shall be deemed to realize such
Tax Benefit in the first Tax Year (or Tax Years) that such Tax Benefit (or the Tax Item giving rise
to such Tax Benefit) may be realized under applicable Tax Law, (ii) shall be deemed to pay Tax at
the highest marginal corporate Tax rates in effect in each relevant Tax Year and (iii) shall be
deemed to have utilized the Tax Items attributable to the Taxes that are the responsibility of
Parent giving rise to such Tax Benefit prior to similar Tax Items of any Cal Dive Group Member that
could have otherwise been utilized by the Cal Dive Group Member.
Section 6. Assistance and Cooperation; Retention of Tax Records.
Section 6.1. Assistance and Cooperation.
Cal Dive shall cause each Cal Dive Group Member to cooperate with Parent and its agents,
including accounting firms and legal counsel, in connection with Tax matters relating to (i) the
preparation and filing of Tax Returns, (ii) determining the liability for and the amount of any
Taxes due (including estimated Taxes) or the right to an amount of any refund of Taxes and (iii)
any Tax Contest. Such cooperation shall include making all information and documents, including
Tax Records, in any Cal Dive Group Members possession relating to any Group Member available to
Parent for inspection during normal business hours upon reasonable notice and, upon request by
Parent, providing copies, at Cal Dives expense, of such information and documents, including Tax
Records. Cal Dive shall also make available to Parent, as reasonably requested and available,
personnel (including each Cal Dive Group Members officers, directors, employees and agents)
responsible for preparing, maintaining and interpreting information and documents relevant to Taxes
and personnel reasonably required as witnesses or for purposes of providing information or
documents in connection with any Tax Contest. Any information or documents provided under this
Section 6 shall be kept confidential by Parent, except as may otherwise be necessary in
connection with the filing of Tax Returns or in connection with any Tax Contest.
-20-
Section 6.2. Tax Records.
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(a) |
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Retention of Tax Records. |
Each Company shall preserve and keep all Tax Records exclusively relating to Separate Company
Taxes of its Group for Pre-IPO Periods, and Parent shall preserve and keep all other Tax Records
relating to Taxes of the Groups for Pre-IPO Periods, for so long as the contents thereof may become
material in the administration of any matter under the Code or other applicable Tax Law, but in any
event until the later of (i) the expiration of any applicable statutes of limitation, or (ii) seven
years after the IPO Closing Date. If, prior to the expiration of the applicable statute of
limitation and such seven-year period, a Company reasonably determines that any Tax Records which
it is required to preserve and keep under this Section 6.2 are no longer material in the
administration of any matter under the Code or other applicable Tax Law, such Company may dispose
of such Tax Records upon 90 days prior notice to the other Company. Such notice shall include a
list of the Tax Records to be disposed of, describing in reasonable detail each file, book or other
record accumulation being disposed. The notified Company shall have the opportunity, at its cost
and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records.
|
(b) |
|
Access to Tax Records. |
The Companies shall make available to members of the other Group for inspection and copying
during normal business hours upon reasonable notice all Tax Records in their possession to the
extent reasonably requested by any such member of the other Group in connection with the
preparation of Tax Returns, Tax Contests or the resolution of items under this Agreement.
Section 7. Tax Contests.
Section 7.1. Notice.
Each Company shall provide prompt notice to the other Company of any pending or threatened Tax
audit, assessment or proceeding or other Tax Contest of which it becomes aware that could affect
any Tax liability for which the other Company may be responsible under this Agreement;
provided, however, that failure to give prompt notice shall not affect the
indemnification obligations hereunder except to the extent the Indemnifying Company is actually
prejudiced thereby. Such notice shall contain factual information (to the extent known) describing
such audit, assessment or proceeding in reasonable detail and shall be accompanied by copies of any
notice and other documents received from any Tax Authority in respect of any such matters.
Section 7.2. Control of Tax Contests.
|
(a) |
|
Tax Contests Relating to Tax Returns. |
Except as otherwise provided in this Agreement, the Company responsible for preparing and
filing a Tax Return pursuant to Section 4 of this Agreement (the Controlling
Company) shall have the exclusive right, in its sole discretion, to control, contest and
represent the interests of each Group in any Tax Contest relating to such Tax Return and to
resolve, settle or agree to
-21-
any deficiency, claim or adjustment proposed, asserted or assessed in connection with or as a
result of any such Tax Contest. The Controlling Companys rights shall extend to any matter
pertaining to the management and control of the Tax Contest, including execution of waivers, choice
of forum, scheduling of conferences and the resolution of any Tax Item.
|
(b) |
|
Additional Taxes & Restructuring Taxes. |
Notwithstanding any other provision of this Agreement to the contrary, Parent shall have the
exclusive right, in its sole discretion, to control, contest and represent the interests of each
Group in any Tax Contest relating, in whole or in part, to Additional Taxes and Restructuring Taxes
and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or
assessed in connection with or as a result of any such Tax Contest. Parents rights shall extend
to any matter pertaining to the management and control of the Tax Contest, including execution of
waivers, choice of forum, scheduling of conferences and the resolution of any Tax Item.
In the case of any Tax Contest with respect to any Other Tax for which Cal Dive is solely
responsible under Section 2.5, Cal Dive shall have the exclusive right, in its sole
discretion, to control, contest and represent the interests of the Cal Dive Group in such Tax
Contest and to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted
or assessed in connection with or as a result of any such Tax Contest. With respect to any Other
Tax not described in the preceding sentence, Parent shall have the exclusive right, in its sole
discretion, to control, contest and represent the interests of the Groups in such Tax Contest and
to resolve, settle or agree to any deficiency, claim or adjustment proposed, asserted or assessed
in connection with or as a result of any such Tax Contest.
Section 7.3. Reimbursement of Expenses.
If the Indemnifying Company is not the Controlling Company, the Indemnifying Company shall
reimburse the Controlling Company for its costs (including accountants fees, investigatory fees
and fees and disbursements of tax counsel) (Indemnification Expenses) incurred in any Tax
Contest that are reasonably allocable to the portion of the contested Taxes that would be the
responsibility of the Indemnifying Company hereunder upon a Final Determination that such contested
Taxes are due. The Controlling Company shall provide the Indemnifying Company with a written
statement (a Reimbursement Statement) periodically (but not more often than monthly) that
sets forth the amount of the Controlling Companys Indemnification Expenses since the most recent
Reimbursement Statement and due hereunder. Within 15 days of the Indemnifying Companys receipt of
each Reimbursement Statement, the Indemnifying Company shall pay to the Controlling Company the
total amount of the Indemnification Expenses shown on such Reimbursement Statement.
Section 8. Continuing Covenants.
Except as otherwise provided in this Agreement, each of Parent (for itself and each other
Parent Group Member) and Cal Dive (for itself and each other Cal Dive Group Member) agrees (i) not
to take any action reasonably expected to result in an increased Tax liability to another Group, a
reduction in a Tax Asset of another Group or an increased liability to another Group
-22-
under this Agreement, (ii) not to take any action, fail to take any action or commit any
omission that would result in Additional Taxes and (iii) to take any action reasonably requested by
a Company that would reasonably be expected to result in a Tax Benefit or avoid a Tax Detriment to
such Company; provided, that such action does not result in any additional direct or
indirect cost not fully compensated for by the requesting Company.
Section 9. Dispute Resolution.
In the event that the Companies disagree as to the amount or calculation of any payment to be
made under this Agreement, or the interpretation or application of any provision under this
Agreement, the Companies shall attempt in good faith to resolve such dispute. If such dispute is
not resolved within 60 days following the commencement of the dispute, the Companies shall jointly
retain an Independent Firm, reasonably acceptable to the Companies, to resolve the dispute;
provided, however, that in order to pursue any such dispute resolution under this
Section 9, the Indemnifying Company must first pay to the Indemnified Company, or place in
an escrow account reasonably satisfactory to the Indemnified Company pending resolution of such
dispute, an amount equal to the payment which is the subject of such dispute. The Independent Firm
shall act as an arbitrator to resolve all points of disagreement and its decision shall be final
and binding upon the Companies. Following the decision of the Independent Firm, the Companies
shall take, or cause to be taken, any action necessary to implement the decision of the Independent
Firm. The fees and expenses relating to the Independent Firm shall be borne by the Company that
does not prevail in the dispute resolution proceeding. Notwithstanding any provision of this
Agreement to the contrary, the provisions of Article VII of the Master Agreement shall apply to any
disagreement between the Companies relating to Restructuring Taxes or any matter relating to any
Tax Contest.
Section 10. General Provisions.
Section 10.1. Effectiveness; Termination of Prior Tax Allocation Agreements.
This Agreement shall be effective on the date first written above. Immediately prior to the
close of business on the date hereof (i) all Prior Tax Allocation Agreements shall be terminated,
and (ii) amounts due under such Prior Tax Allocation Agreements as of the date hereof shall be
settled. Upon such termination and settlement, no further payments by or to any Parent Group
Member or by or to any Cal Dive Group Member, with respect to such Prior Tax Allocation Agreements,
shall be made, and all other rights and obligations resulting from such Prior Tax Allocation
Agreements between the Companies and their Affiliates shall cease at such time. Any payments
pursuant to such Prior Tax Allocation Agreements shall be ignored for purposes of computing amounts
due under this Agreement.
Section 10.2. Survival of Obligations.
The representations, warranties, covenants and agreements set forth in this Agreement shall be
unconditional and absolute and shall remain in effect without limitation as to time.
-23-
Section 10.3. Addresses and Notices.
All notices, consents, requests, instructions, approvals, statements, reports and other
communications provided for herein shall be validly given, made or served, if in writing and
delivered personally or sent by registered mail, postage prepaid, or by facsimile transmission:
If to Parent:
Helix Energy Solutions Group, Inc.
400 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
Attn: General Counsel
Fax: (281) 618-0505
If to Cal Dive:
Cal Dive International, Inc.
400 N. Sam Houston Parkway East, Suite 1000
Houston, Texas 77060
Attn: General Counsel
Fax: (281) 618-0503
or to such other address that a Company may, from time to time, designate in a written notice to
the other Company given in a like manner. Notice delivered personally shall be deemed delivered
when received by the recipient. Notice given by mail as set out above shall be deemed delivered
five calendar days after the date the same is mailed. Notice given by facsimile transmission shall
be deemed delivered on the day of transmission provided telephone confirmation of receipt is
obtained promptly after completion of transmission.
Section 10.4. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the Companies and their
successors and assigns.
Section 10.5. Waiver.
No failure by any Company to insist upon the strict performance of any obligation under this
Agreement or to exercise any right or remedy under this Agreement shall constitute waiver of any
such obligation, right or remedy or any other obligation, rights or remedies under this Agreement.
Section 10.6. Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions contained herein
shall not be affected thereby.
-24-
Section 10.7. Further Action.
Each Company shall execute and deliver all documents, provide all information and take or
refrain from taking action as may be necessary or appropriate to achieve the purposes of this
Agreement, including the execution and delivery to the other Company and their Affiliates and
representatives of such powers of attorney or other authorizing documentation as is reasonably
necessary or appropriate in connection with Tax Contests under the control of any such other
Company in accordance with Section 7.
Section 10.8. Integration.
This Agreement constitutes the entire agreement between the Companies pertaining to the
subject matter of this Agreement and supersedes all prior agreements and understandings pertaining
thereto. In the event of any inconsistency between this Agreement and the Master Agreement or any
other agreements relating to the transactions contemplated by the Master Agreement, the provisions
of this Agreement shall control.
Section 10.9. Construction.
The language in all parts of this Agreement shall in all cases be construed according to its
fair meaning and shall not be strictly construed for or against any Company.
Section 10.10. No Double Recovery.
No provision of this Agreement shall be construed to provide an indemnity or other recovery
for any costs, damages or other amounts for which the damaged Company has been fully compensated
under any other provision of this Agreement or under any other agreement or action at law or
equity. Unless expressly required in this Agreement, a Company shall not be required to exhaust
all remedies available under other agreements or at law or equity before recovering under the
remedies provided in this Agreement.
Section 10.11. Setoff.
All payments to be made by any Company under this Agreement may be netted against payments due
to such Company under this Agreement, but otherwise shall be made without setoff, counterclaim or
withholding, all of which are hereby expressly waived.
Section 10.12. Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an
original, and all of which taken together shall constitute one and the same instrument.
Section 10.13. No Third Party Rights.
This Agreement is only intended to allocate the responsibility for certain Taxes between
Parent and Cal Dive and to address the other Tax matters stated herein. Nothing in this Agreement,
express or implied, is intended or shall confer any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement upon any Group Member or Person
-25-
other than Parent and Cal Dive. Parent and Cal Dive acknowledge and agree that the respective
rights of the Parent Indemnitees and the Cal Dive Indemnitees expressly provided under this
Agreement may only be enforced by Parent and Cal Dive, respectively.
Section 10.14. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of
Texas applicable to contracts executed in and to be performed in the State of Texas.
[Signature Page Follows]
-26-
In Witness Whereof, the Companies have caused this Agreement to be executed by their
respective officers as of the date set forth above.
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HELIX ENERGY SOLUTIONS GROUP, INC.
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By: |
/s/ Martin R. Ferron
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Name: |
Martin R. Ferron |
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Its: President and Chief Executive Officer |
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CAL DIVE INTERNATIONAL, INC.
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By: |
Quinn J. Hébert
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Name: |
Quinn J. Hébert |
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Its: President and Chief Executive Officer |
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SCHEDULE 1.1
List of Cal Dive Subsidiaries
CDI Janus Holdings LLC
Cal Dive HR Services LLC
Cal Dive International Pte Limited
Cal Dive International (Australia) Pty Limited
CDI Proteus LLC
CDI Umbra LLC
Marine Technology Solutions St. Lucia Limited-IBC
Offshore Technology Solutions Limited (40% owned)
CDI Prometheus Holdings, Inc.
CDI Vessel Holdings LLC
SCHEDULE 1.2
List of Parent Subsidiaries
Helix Oil & Gas, Inc.
Helix Energy Solutions (U.K.) Limited
Well Ops, Inc.
Vulcan Marine Holdings LLC
Neptune Vessel Holdings LLC
Helix Energy Solutions BV
Cal Dive I Title XI, Inc.
Helix Vessel Holdings LLC
Cal Dive Offshore Ltd.
Canyon Offshore, Inc.
Energy Resource Technology GOM, Insc.
Energy Resource Technology (U.K.) Limited
Canyon Offshore Limited
Canyon Offshore International Corp.
CKB Petroleum, Inc.
CKB & Associates, Inc.
Box Brothers Realty Investments Company
CB Farms, Inc.
Box Resources, Inc.
Helix Energy Limited
Well Ops (U.K.) Limited
Helix RDS Limited
Helix RDS Sdn Bhd (50% owned)
Helix RDS Pty Limited
Helix HR Services Limited
Well Ops PTE Limited
Vulcan Marine Technology LLC
Deepwater Gateway LLC (50% owned)
Helix Energy Services PTE Limited
Helix Energy Services Pty Limited
Kommandor LLC (50% owned)
Wells Ops SEA Pty Ltd. (58% owned)
exv21w1
Exhibit 21.1
Subsidiaries of Helix Energy Solutions Group, Inc.
As of December 31, 2006
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Name of Subsidiary |
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Jurisdiction of Formation |
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Canyon Offshore, Inc.
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Texas |
Canyon Offshore Limited
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Scotland |
Canyon Offshore International Corp
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Texas |
Helix Energy Solutions BV
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The Netherlands |
Helix Energy Solutions (U.K.) Limited
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Scotland |
Well Ops (U.K.) Limited
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Scotland |
Helix HR Services Limited
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Scotland |
Well Ops PTE Limited
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Singapore |
Helix Energy Limited
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Scotland |
Helix RDS Limited
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Scotland |
Helix RDS Pty Limited
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Australia |
Well Ops, Inc.
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Texas |
Energy Resource Technology GOM, Inc.
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Delaware |
CKB Petroleum, Inc.
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Texas |
CKB & Associates, Inc.
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Texas |
Box Brothers Realty Investments Company
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Texas |
CB Farms, Inc.
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Texas |
Box Resources, Inc.
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Texas |
Energy Resource Technology (U.K.) Limited
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Scotland |
Cal Dive I-Title XI, Inc.
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Texas |
Helix Vessel Holdings LLC
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Delaware |
Neptune Vessel Holdings LLC
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Delaware |
Vulcan Marine Holdings LLC
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Delaware |
Vulcan Marine Technology LLC
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Delaware |
Cal Dive Offshore Ltd.
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Cayman |
Helix Oil & Gas, Inc.
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Delaware |
Kommandor LLC (50% interest)
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Delaware |
Cal Dive International, Inc. (73% interest)
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Delaware |
Helix Energy Services Pte. Limited.
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Singapore |
Well Ops SEA Pty Ltd (d/b/a Seatrac) (58% interest)
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Australia |
Helix Energy Services Pty Ltd
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Australia |
exv23w1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement Forms S-3 (Nos.
333-103451 and 333-125276) and in the related Prospectuses and Forms S-8 (Nos. 333-126248,
333-58817, 333-50289 and 333-50205) of Helix Energy Solutions Group, Inc. of our reports dated
February 28, 2007, with respect to the consolidated financial statements of Helix Energy Solutions
Group, Inc. and subsidiaries, Helix Energy Solutions Group, Inc. managements assessment of the
effectiveness of internal control over financial reporting, and the effectiveness of internal
control over financial reporting of Helix Energy Solutions Group, Inc., included in this Annual
Report (Form 10-K) for the year ended December 31, 2006.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 28, 2007
exv23w2
Exhibit 23.2
[Letterhead of Huddleston & Co., Inc.]
February 28, 2007
Helix Energy Solutions Group, Inc.
400 North Sam Houston Parkway East
Suite 400
Houston, TX 77060
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Re:
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Helix Energy Solutions Group, Inc.
Securities and Exchange Commission
Form 10-K
Consent Letter |
Gentlemen:
The firm of Huddleston & Co., Inc. consents to the naming of it as experts and to the incorporation
by reference of its report letter dated February 14, 2007 concerning the proved reserves as of
January 1, 2007 attributable to Energy Resource Technology GOM, Inc. in the Annual Report of Helix
Energy Solutions Group, Inc. on Form 10-K to be filed with the Securities and Exchange Commission.
Huddleston & Co., Inc. has no interests in Helix Energy Solutions Group, Inc. or in any of its
affiliated companies or subsidiaries and is not to receive any such interest as payment for such
report and has no director, officer, or employee employed or otherwise connected with Helix Energy
Solutions Group, Inc. We are not employed by Helix Energy Solutions Group, Inc. on a contingent
basis.
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Very truly yours,
HUDDLESTON & CO., INC.
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By: |
/s/ PETER D. HUDDLESTON
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Name: |
Peter D. Huddleston, P.E. |
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Title: |
President |
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exv31w1
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Owen Kratz, the Principal Executive Officer of Helix Energy Solutions Group, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Helix Energy Solutions Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: March 1, 2007 |
/s/ OWEN KRATZ
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Owen Kratz |
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Executive Chairman |
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exv31w2
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, A. Wade Pursell, the Principal Financial Officer of Helix Energy Solutions Group, Inc., certify
that:
1. I have reviewed this annual report on Form 10-K of Helix Energy Solutions Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
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Date: March 1, 2007 |
/s/ A. WADE PURSELL
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A. Wade Pursell |
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Executive Vice President and
Chief Financial Officer |
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exv32w1
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying annual report of Helix Energy Solutions Group, Inc.
(Helix) on Form 10-K for the period ended December 31, 2006, as filed with the Securities and
Exchange Commission on the date hereof (the Report), I, Owen Kratz, Executive Chairman of Helix,
hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Helix.
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Date: March 1, 2007 |
/s/ OWEN KRATZ
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Owen Kratz |
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Executive Chairman |
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A signed original of this written statement required by Section 906 has been provided to Helix
and will be retained by Helix and furnished to the Securities and Exchange Commission or its staff
upon request.
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.
exv32w2
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report of Helix Energy Solutions Group, Inc.
(Helix) on Form 10-K for the period ended December 31, 2007, as filed with the Securities and
Exchange Commission on the date hereof (the Report), I, A. Wade Pursell, Senior Vice President
and Chief Financial Officer of Helix, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of Helix.
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Date: March 1, 2007 |
/s/ A. WADE PURSELL
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A. Wade Pursell |
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Executive Vice President and
Chief Financial Officer |
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A signed original of this written statement required by Section 906 has been provided to Helix
and will be retained by Helix and furnished to the Securities and Exchange Commission or its staff
upon request.
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended.