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December 10,
2009
BY
EDGAR AND OVERNIGHT COURIER
Securities and
Exchange Commission
Division of
Corporation Finance
100 F Street,
N.E.
Mail Stop
7010
Washington, D.C.
20549-4628
Attention: Craig H.
Arakawa
Re: Helix
Energy Solutions Group, Inc.
Form 10-K for the fiscal year ended
December 31, 2008
Filed March 2,
2009
File No.
001-32936
Dear Mr.
Arakawa:
In its letter dated
December 1, 2009, the staff (“Staff”) of the Securities and Exchange Commission
(“Commission”) provided to Helix Energy Solutions Group, Inc. (the “Company”)
additional comments (the “Comments”) with respect to the Company’s Form 10-K for
the fiscal year ended December 31, 2008 (the “2008 Form 10-K”).
Set forth below are
the responses of the Company to such Comments after discussions with the
Company’s independent registered public accountants and our independent
petroleum engineers. The following numbered paragraphs repeat the
Comments for your convenience, followed by our responses to those
Comments.
Form
10-K for the Fiscal Year Ended December 31, 2008
Financial
Statements
Note
18 – Commitment and Contingencies, page 117
1. We
have read your response to prior comment 4 relating to your reversal of the
$69.7 million accrual for claims made by MMS for royalties on prior year oil and
gas production. We understand that you believe that the timing of
your accrual reversal is supported by the guidance in SAB Topic 13, specifically
as it relates to the criteria of revenue not being recognized until realizable,
where collectability is reasonably assured.
Please
tell us the extent to which the royalty amounts in dispute were collected by you
prior to your reversal of the accrual, also clarifying whether you or the
operator are responsible for making royalty payments to the
MMS. Since MMS does not appear to be directly involved in the revenue
generating transaction, please also clarify whether your accounting model is
based only on the uncertainty as to your portion of proceeds or if you also
believe that such revenue may not have been earned.
Response:
The dispute with the MMS covered production from Garden Banks blocks 667,
668 and 669 (“Gunnison Field”). Kerr-McGee is the
operator of these leases; however, the Company markets its share of the
production from these leases based upon its twenty percent (20%) working
interest, and as a result, the Company would have been responsible for paying
the royalties in accordance with the applicable
leases. The Company collected proceeds associated with
the sale of oil and gas from these leases net to the Company’s working interest
but recorded revenues only to the extent of its net revenue interest and did not
record revenues associated with the oil and gas production attributable to the
disputed MMS royalties. The Company previously did not recognize the
revenues associated with the disputed MMS royalties associated with the
production from these leases based upon the contractual obligation in the
Gunnison Field leases to pay certain royalties notwithstanding certain
conflicting provisions of the Deep Water Royalty Relief Act
(“DWRRA”). Accordingly, the Company did not believe that
such sales of oil and gas production subject to the disputed royalty qualified
for revenue recognition as, under the lease provisions, the revenues would not
have been earned at the time of the collection of the proceeds. The
Company concluded that the decision by the United States Court of Appeals for
the Fifth Circuit on January 12, 2009 provided sufficient persuasive evidence
that the Company was entitled to the revenue related to the disputed royalties.
Thus, the Company concluded that all criteria for revenue recognition were met
in the first quarter of 2009.
2. We
understand that you began to accrue for the potential royalty amounts in dispute
after receiving the original claim notification from the MMS in December
2005. Please tell us the amount of the total accrual reversed that
represents the initial accrual made upon realizing there was a dispute and also
the amount of any concurrent adjustments to the amounts of oil and gas reserves
that you were claiming for your interests in the Gunnison properties as a result
of MMS’ royalty claims; and if you had not lowered the reserves for this matter,
explain how your reserve reporting is not inconsistent with your revenue
accounting model if that is your view.
Response:
The Company has marketed its share of the Gunnison Field’s production
since initial production began in December 2003. The Company has
consistently collected proceeds associated with the sale of oil and gas from the
leases in accordance with its working interest but only recorded revenues to the
extent of its net revenue interest (as described in our response to Comment 1
above). Further, the Company accrued royalties according to certain
provisions of the leases regarding the obligation to pay royalty
(notwithstanding conflicting provisions of the DWRRA) based upon the volume of
production during the applicable period. Accordingly, the
Company’s accrual for the contractual royalty obligation was in place at the
time the MMS sent its original claim to the Company in December
2005. The Company did not recognize revenues regarding the oil
and gas production associated with the disputed contractual royalties until
January 2009. The
Company believes that the decision rendered by the United States Court of
Appeals for the Fifth Circuit on January 12, 2009 provided sufficient persuasive
evidence to conclude that the Company was entitled to recognize the revenue
related to the disputed royalties and that it would not be required to pay the
MMS the disputed amounts (i.e., the Court decided that the MMS had no authority
to impose contractual royalty obligation in the leases).
The proved reserves
associated with the Gunnison Field included only the Company’s share
attributable to its net revenue interest. Accordingly, the
proved reserves associated with the then disputed MMS royalty interest were
never included in the Company’s annual proved reserve
report. In January 2009, the Company increased its
proved reserves associated with the Gunnison Field upon conclusion that the
Company was not obligated to the MMS for the disputed royalty and as a result
had a higher net revenue interest.
Engineering
Comments
Significant
Oil and Gas Properties, page 33
3. We
have read your response to prior comment 17, regarding your interests in the
Bushwood field. We will require some clarification on the information
submitted with your reply. Please tell us the meaning of the map that
you provided, identify the parties associated with the ERT and DGE acronyms, and
indicate where you have disclosures about your claim to have picked up
additional acreage in your filing or explain why this has not been made
apparent.
Please
also tell us if a Unit has been formed with these properties and if so, why your
interest has not changed from when you were only developing the acreage under
your own lease. If a Unit has not been formed, please tell us your
rationale in claiming additional reserves that are not under your
lease.
Response: The
intent of the inclusion of the map was to illustrate how the Company acquired
additional acreage and proved reserves through the contractual agreement with
the owners of Garden Banks block 462 of an Area of Mutual Interest (“AMI”) in
lieu of a formal unitization. The provided map illustrates how formation of the
AMI with the Garden Banks block 462 owners allowed for contiguous ownership by
ERT across blocks 462, 463 and 506 which are underlain by certain productive
reservoirs. Additional reservoir(s) discovered by ERT outside the AMI area shown
on the map have higher working interests than the average 51% working interest
for the entire Bushwood field as disclosed in our 2008 Form 10-K. The Company
believes providing the map assists in clarifying the differing ownership
interests throughout the Bushwood field.
The acronyms on the
map of ERT and DGE represent Energy Resource Technology GOM, Inc. and Deep Gulf
Energy L.P., respectively. ERT is the Company’s
wholly-owned subsidiary through which it conducts its oil and gas
operations. Deep Gulf acquired its ownership interests in the
Bushwood field from the Company in 2008.
4. We
understand that a review of reserves by a third party engineer will not
necessarily include a title or ownership interest search, and that they will
often use the ownership interest they are told to use by the client for each
property. Please tell us whether the third party engineer was
informed that your working interest in the Bushwood Field had declined from the
previous year from 100% to 50%.
Response: The
Company provided Huddleston & Co., Inc. (“Huddleston”), the Company’s third
party reserve engineer, with all relevant factual information needed to complete
its audit of the Company’s estimate of proved reserves, including the Company’s
decreased ownership interests in the Bushwood field.
Estimated
Quantities of Proved Oil and Gas Reserves, page 123
5. We
note that you have not complied with prior comment 20, asking that you follow
the disclosure requirements set forth in paragraph 11 of SFAS 69, specifically
as these relate to providing explanations for significant reserve changes
depicted in the reserve table. We do not believe that presenting a
table of changes in the standardized measure of discounted future net cash flows
to comply with paragraph 33 of SFAS 69 obviates the need to also comply with
paragraph 11. We reissue prior comment 20.
For your
convenience, we have repeated former Comment 20 below.
20. We
note that you report significant reserve changes in several line items of the
reserve reconciliation table but do not provide explanations for those
changes. Please disclose the reasons for all significant changes as
required by paragraph 11 of SFAS 69.
Response: In
the Company’s future filings (beginning with the Company’s Annual Report on Form
10-K for the year ended December 31, 2009) the Company will disclose significant
changes affecting any line item and explanation for those changes within both
its proved reserve reconciliation table and its Changes in Standardized Measure
of Discounted Future Net Cash Flows disclosures.
In
connection with responding to the Comments above, we acknowledge
that:
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we are
responsible for the adequacy and accuracy of the disclosure in the
filing;
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staff
comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filing; and
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we may not
assert staff comments as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the United
States.
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If any member of
the Staff has any questions concerning these matters or needs additional
information or clarification, he or she should contact the undersigned at (281)
848-0431.
Very truly
yours,
/s/ Anthony
Tripodo
Anthony Tripodo,
Executive Vice President and Chief Financial Officer
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cc:
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Karl Hiller
(Branch Chief-Securities and Exchange
Commission)
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Michael
Overman (Helix)
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Lloyd Hajdik
(Helix)
Robert Murphy
(Helix)
Alisa Johnson
(Helix)
Marty Hall
(Helix)