This Form 10-Q includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements concern management's expectations, strategic objectives, business
prospects, anticipated economic performance and financial condition and other
similar matters and involve significant known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of results to differ materially from any future results,
performance or achievements discussed or implied by such forward-looking
statements. Certain of these risks, uncertainties and other important factors
are discussed in the Risk Factors and Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company's 2020 Annual
Report on Form 10-K and this Quarterly Report on Form 10-Q. However, it should
be understood that it is not possible to identify or predict all such risks,
uncertainties and factors, and others may arise from time to time. All of these
forward-looking statements constitute the Company's cautionary statements under
the Private Securities Litigation Reform Act of 1995. The words "anticipate,"
"estimate," "expect," "project," "intend," "believe," "plan," "target,"
"forecast" and similar expressions are intended to identify forward-looking
statements Forward looking statements speak only as of the date of the document
in which they are made. The Company disclaims any obligation or undertaking to
provide any updates or revisions to any forward-looking statement to reflect any
change in the Company's expectations or any change in events, conditions or
circumstances on which the forward-looking statement is based. It is advisable,
however, to consult any further disclosures the Company makes on related
subjects in its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K filed with the Securities and Exchange Commission.
Overview
The following analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included in this Quarterly Report on Form
10-Q, as well as "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the 2020 Annual Report.
The Company provides global marine and support transportation services to
offshore energy facilities worldwide. As of June 30, 2021, the Company and its
joint ventures operated a diverse fleet of 82 support and specialty vessels, of
which 55 were owned or leased-in, 26 were joint-ventured, and one was managed on
behalf of unaffiliated third-parties. The primary users of the Company's
services are major integrated oil companies, large independent oil and natural
gas exploration and production companies and emerging independent companies, as
well as windfarm operations and installation contractors.
The Company and its joint ventures operate and manage a diverse fleet of
offshore support vessels that (i) deliver cargo and personnel to offshore
installations including wind farms, (ii) handle anchors and mooring equipment
required to tether rigs to the seabed, and assist in placing them on location
and moving them between regions, (iii) provide construction, well work-over,
maintenance and decommissioning support and (iv) carry and launch equipment used
underwater in drilling and well installation, maintenance, inspection and
repair. Additionally, the Company's vessels provide accommodations for
technicians and specialists. The Company operates its fleet in four principal
geographic regions: the U.S., primarily in the Gulf of Mexico; Africa and
Europe; the Middle East and Asia; and Latin America, primarily in Mexico, Brazil
and Guyana. The Company's vessels are highly mobile and regularly and routinely
move between countries within a geographic region. In addition, the Company's
vessels are redeployed among geographic regions, subject to flag restrictions,
as changes in market conditions dictate. The number and type of vessels
operated, their rates per day worked and their utilization levels are the key
determinants of the Company's operating results and cash flows. Unless a vessel
is cold-stacked, there is little reduction in daily running costs for the
vessels and, consequently, operating margins are most sensitive to changes in
rates per day worked and utilization. The Company manages its fleet utilizing a
global network of shore side support, administrative and finance personnel.
Offshore oil and natural gas market conditions are highly volatile. Prices
deteriorated beginning in the second half of 2014 and continued to deteriorate
when oil prices hit a thirteen-year low of less than $27 per barrel (on the New
York Mercantile Exchange) in February 2016. Oil prices were as high as $76 per
barrel in October 2018 and, during the beginning of COVID-19 pandemic in the
U.S. and elsewhere throughout the globe, WTI front month oil prices were pushed
for a short period of time to a new low of -$37.63 per barrel in
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April 2020 before recovering to $48 per barrel by year end. The Company has
continued to experience difficult market conditions as the overall decline and
continued volatility in oil and natural gas prices, have led to a general
decrease in exploration and production activities, and a particular decrease in
offshore drilling and associated activity. The Company's operating results have
been negatively impacted as oil and gas producing companies focused on cost
reduction and cut capital spending budgets. Although the underlying commodity
prices supporting activity have recovered substantially since year end 2020 with
oil hitting a high of approximately $72 per barrel in early June 2021, the risk
of continued volatility in the commodity prices remains. The Company's
operations and financial results were adversely affected by the COVID-19
pandemic as a result of decreased demand and the increase in costs due to
operational changes enacted to enhance crew and on-shore employee
safety. However, the Company believes that it has sufficient liquidity to meet
its obligations for the foreseeable future, especially after receipt of the
proceeds from the sale of Windcat Workboats and the tax refund under the CARES
Act.
Certain macro drivers somewhat independent of oil and natural gas prices may
support the Company's business, including: (i) underspending by oil and gas
producers during the current industry downturn leading to pent up demand for
maintenance and growth capital expenditures; and (ii) improved extraction
technologies. While alternative forms of energy may continue to grow and add to
the world's energy mix, for the foreseeable future, the Company believes demand
for gasoline and oil will be sustained, as well as demand for electricity from
natural gas. Some alternative forms of energy such as offshore wind facilities,
have the potential to support, in part, the Company's business. Low oil prices
and the subsequent decline in offshore exploration have forced many operators in
the industry to restructure or liquidate assets. The Company continues to
closely monitor the delivery of newly built offshore support vessels to the
industry-wide fleet, which has contributed to an oversaturated market, thereby
further lowering the demand for the Company's existing offshore support vessel
fleet. A continuation of (i) low customer exploration and drilling activity
levels, and (ii) continued excess supply of offshore support vessels whether
from laid up fleets or newly built vessels could, in isolation or together, have
a material adverse effect on the Company's business, financial position, results
of operations, cash flows and growth prospects.
The Company adheres to a strategy of cold-stacking vessels (removing from active
service) during periods of weak utilization in order to reduce the daily running
costs of operating the fleet, primarily personnel, repairs and maintenance
costs, as well as to defer some drydocking costs into future periods. The
Company considers various factors in determining which vessels to cold-stack,
including upcoming dates for regulatory vessel inspections and related docking
requirements. The Company may maintain class certification on certain
cold-stacked vessels, thereby incurring some drydocking costs while
cold-stacked. Cold-stacked vessels are returned to active service when market
conditions improve, or management anticipates improvement, typically leading to
increased costs for drydocking, personnel, repair and maintenance in the periods
immediately preceding the vessels' return to active service. Depending on market
conditions, vessels with similar characteristics and capabilities may be rotated
between active service and cold-stack. On an ongoing basis, the Company reviews
its cold-stacked vessels to determine if any should be designated as retired and
removed from service based on the vessel's physical condition, the expected
costs to reactivate and restore class certification, if any, and its viability
to operate within current and projected market conditions. As of June 30, 2021,
eight of the Company's 55 owned and leased-in, in-service vessels were
cold-stacked worldwide.
Recent Developments
Falcon Global Debt Payoff. On June 10, 2021, SEACOR Marine, FGUSA, and certain
subsidiaries of FGUSA, entered into the Conditional Payoff Agreement in respect
of that certain (i) FGUSA Credit Facility and (ii) FGUSA Obligation Guaranty. As
of June 10, 2021, there was $117.3 million of principal outstanding under the
FGUSA Credit Facility.
Under the terms of the Conditional Payoff Agreement, the $117.3 million of
principal outstanding was deemed satisfied in full following the payment to the
lenders of a total of $50.0 million comprised of (i) $25.0 million paid the
Company at the signing of the Conditional Payoff Agreement, (ii) $22.5 million
of hull and machinery insurance proceeds on June 18, 2021 and (iii) $2.5 million
paid by the Company on June 24,
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2021 (such amount subsequently reimbursed to the Company on June 29, 2021 from
hull and machinery insurance proceeds). All payments required for the
extinguishment of the debt pursuant to the Conditional Payoff Agreement were
completed during the second quarter of 2021. Following the final payment on June
24, 2021, the FGUSA Credit Facility terminated, and the mortgages and security
arrangements were released with respect to the nine liftboats securing the
obligations under the FGUSA Credit Facility.
As of June 30, 2021, the Company recognized a gain on the transactions
contemplated by the Conditional Payoff Agreement of approximately $62.0 million.
SEACOR Power. On April 13, 2021, the SEACOR Power, a liftboat owned by a
subsidiary of the Company with nineteen individuals on board, capsized off the
coast of Port Fourchon, Louisiana. The incident resulted in the death of several
crew members, including the captain of the vessel. The accident also resulted in
the constructive total loss of the SEACOR Power. The Company is responsible for
the salvage operations related to the vessel and is coordinating with the U.S.
Coast Guard in connection with the removal of the vessel, including the safe
removal of fuel and oil, from the water. The Company expects salvage costs to be
covered by insurance proceeds.
The capsizing of the SEACOR Power has garnered significant attention from the
media as well as local, state and federal stakeholders. The National
Transportation Safety Board ("NTSB") and the U.S. Coast Guard are currently
investigating the incident to determine the cause of the accident and the
Company is fully cooperating with the investigation in all respects and
continues to gather information about the incident. It is expected that the
joint NTSB and U.S. Coast Guard investigation will take a significant period of
time to complete, possibly as long as two years or longer. Numerous civil
lawsuits have been filed against the Company and other third parties by the
family members of deceased crew members and the surviving crew members employed
by the Company or by the third parties. On June 2, 2021, the Company filed a
Limitation of Liability Act complaint ("Limitation Action"), which has the
effect of enjoining all existing civil lawsuits and requiring the plaintiffs to
file their claims relating to the capsizing of the SEACOR Power in the
Limitation Action. There is significant uncertainty in the amount and timing of
costs and potential liabilities relating to the accident involving the SEACOR
Power, the impact the incident will have on the Company's reputation and the
resulting possible impact on the Company's business. See Part II. Item 1A. "Risk
Factors" elsewhere in this Quarterly Report on Form 10-Q for further
description.
Sale of Windcat Workboats. On January 12, 2021, a wholly-owned subsidiary of the
Company, completed the sale of the Windcat Workboats crew transfer vessel
("CTV") business through the sale of 100% of the equity of Windcat Workboats
(together with its subsidiaries, the "Windcat Group"), to CMB N.V. (the "Windcat
Buyer") pursuant to a Sale and Purchase Agreement entered into on December 18,
2020 (the "Windcat Sale"). At closing, the Windcat Buyer paid to the Company an
aggregate purchase price of £32.8 million. After deducting transaction costs and
expenses and giving effect to foreign exchange rate hedges, the Company received
net cash proceeds of approximately US$42.6 million. The Windcat Buyer also
assumed all of the approximately £20.4 million of debt outstanding under Windcat
Holdings' existing revolving credit facility. The Windcat Group owned a total of
41 CTVs and held interests in an additional five CTVs through its joint
ventures, all of which were included in the Windcat Sale.
Tax Refund Agreement. On June 26, 2020, the Company entered into the Tax Refund
Agreement with SEACOR Holdings. The Tax Refund Agreement enabled the Company to
utilize NOLs generated in 2018 and 2019 to claim refunds for tax years prior to
the Company's spin-off from SEACOR Holdings in 2017 (at which time the Company
was included in SEACOR Holdings consolidated tax returns) that are now permitted
to be carried back pursuant to the provisions of the CARES Act and for which
SEACOR Holdings needs to claim the refund on behalf of the Company. As a result,
the Company received an aggregate amount of cash tax refunds of $32.3 million
(including $1.1 million of interest paid by the IRS in respect of refund payment
delays), of which $12.5 million was received prior to March 31, 2021 and the
remaining $19.8 million was received in April 2021.
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Consolidated Results of Operations
The sections below provide an analysis of the Company's results of operations
for the six and three months ("Current Year Quarter" and "Current Year Six
Months") ended June 30, 2021 compared with the six and three months ("Prior Year
Quarter" and "Prior Year Six Months") ended June 30, 2020. For the periods
indicated, the Company's consolidated results of operations were as follows (in
thousands, except statistics):
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