The following management's discussion and analysis should be read in conjunction with our historical consolidated financial statements located in Item 8. "Financial Statements and Supplementary Data" of this Annual Report. Any reference to Notes in the following management's discussion and analysis refers to the Notes to Consolidated Financial Statements located in Item 8. "Financial Statements and Supplementary Data" of this Annual Report. The results of operations reported and summarized below are not necessarily indicative of future operating results. This discussion also 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 Item 1A. "Risk Factors" and located earlier in this Annual Report.

Our Business

We are an international offshore energy company that provides specialty services to the offshore energy industry, with a focus on our growing well intervention and robotics operations. In February 2013, we completed the sale of ERT, our former wholly-owned subsidiary that conducted our oil and gas operations in the U.S., for $620 million plus contingent consideration in the form of overriding royalty interests in the Wang well and certain other future exploration prospects. We used $318.4 million of the sales proceeds to reduce our indebtedness under our Credit Agreement (Note 7) and we will use the remainder to continue to support the expansion of our well intervention and robotics operations.

Our Strategy

Over the past few years, we have improved our balance sheet and increased our liquidity through dispositions of non-core business assets as well as reductions in capital spending and the amount of our debt outstanding. With this goal substantially accomplished with the sale of ERT and the expected sales of our remaining pipelay vessels and related equipment, we are now positioned to expand and grow our core operations.

Our current focus is to expand our Contracting Services capabilities by growing our well intervention and robotics operations. We believe that focusing on these services will deliver higher long-term financial returns to us than the businesses and assets that we have chosen to monetize. We are making strategic investments that expand our service capabilities or add capacity to existing services in our key operating regions. We are strengthening our well intervention fleet by constructing a newbuild semisubmersible vessel, the Q5000, acquiring the Discoverer 534 drillship (renamed the Helix 534) which is currently undergoing upgrades and modifications in Singapore to render it suitable for use as a well intervention vessel, and chartering the Skandi Constructor for use in our North Sea and Canadian well intervention operations. In addition, we are expanding our robotics operations by acquiring additional remotely operated vehicles ("ROVs") and trenchers as well as taking delivery of a newbuild chartered ROV support vessel, the Grand Canyon. We also plan to charter two similar vessels, the Grand Canyon II and Grand Canyon III.

Economic Outlook and Industry Influences

Demand for our contracting services operations is primarily influenced by 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. Generally, spending for our contracting services fluctuates directly with the direction of oil and natural gas prices. The performance of our operations is also largely dependent on the prevailing market prices for oil and natural gas, which are impacted by global economic conditions, hydrocarbon production and capacity, geopolitical issues, weather, and several other factors, including but not limited to:

• worldwide economic activity, including available access to global capital and capital markets;
• demand for oil and natural gas, especially in the United States, Europe, China and India;
• economic and political conditions in the Middle East and other oil-producing regions;
• the effect of regulations on offshore Gulf of Mexico oil and gas operations;
• actions taken by OPEC;
• 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;
• technological advances affecting energy exploration production transportation and consumption;
• weather conditions;
• environmental and other governmental regulations; and
• tax policies.

We believe that the long-term industry fundamentals are positive based on the following factors: (1) long-term increasing world demand for oil and natural gas emphasizing the need for continual replenishment of oil and gas production;
(2) mature global production rates for offshore and subsea wells;
(3) globalization of the natural gas market; (4) increasing number of mature and small reservoirs; (5) increasing offshore activity, particularly in deepwater; and (6) increasing number of subsea developments.

At December 31, 2012, we had cash on hand of $437.1 million and $487.6 million available for borrowing under our Revolving Credit Facility. Our capital expenditures for 2013 are expected to total approximately $350 million. If we successfully implement our business plan, we believe we have sufficient liquidity without incurring additional indebtedness beyond the existing capacity under the Revolving Credit Facility.

Business Activity Summary

Throughout the three year timespan of 2009 through 2011, we enhanced our financial position via the generation of approximately $600 million in pre-tax proceeds from dispositions of non-core business assets in order to strategically grow our core businesses. These dispositions included approximately $55 million from the sale of individual oil and gas properties, over $500 million from the sale of our stockholdings in Cal Dive and $25 million from the sale of our former reservoir consulting business.

In September 2012, we received $14.5 million from the sale of the Intrepid, one of our three subsea construction pipelay vessels. In October 2012, we entered into an agreement to sell our two remaining pipelay vessels, the Express and the Caesar, and other related pipelay equipment for $238.3 million, of which we have received a $50 million deposit that is only refundable in very limited circumstances. The final sale of these vessels will close and fund in two stages in 2013 following the completion of each vessel's existing backlog. Currently, we anticipate the Express sale will close in May 2013 and we expect the Caesar sale will close in July 2013. In February 2013, we sold ERT for $620 million plus contingent consideration in the form of overriding royalty interests in the Wang well and certain other future exploration prospects.

As we have shifted our focus towards growing our well intervention and robotics operations, we conducted the following activities in 2012 to expand our Contracting Services capabilities:

• we executed a contract with a shipyard in Singapore for the construction of a newbuild semisubmersible well intervention vessel, the Q5000, which is expected to be completed and placed in service in 2015;
• we contracted to charter the Skandi Constructor, which is expected to be utilized in our North Sea and Canadian well intervention operations starting in the first half of 2013;
• we acquired the Discoverer 534 drillship (renamed the Helix 534) which is currently undergoing upgrades and modifications in Singapore to render it suitable for use as a well intervention vessel and is expected to join our well intervention fleet in the Gulf of Mexico in the third quarter of 2013;
• we took possession of a newbuild ROV support vessel, the Grand Canyon, which was commissioned specifically for our use under the terms of a long-term charter agreement; and
• we plan to charter two similar vessels, the Grand Canyon II and Grand Canyon III.

We have disaggregated our contracting services operations into two reportable segments: Contracting Services and Production Facilities. Previously, we had a third business segment, Oil and Gas. In December 2012, we announced a definitive agreement for the sale of ERT. In February 2013, the sale of ERT closed. Accordingly, the results of ERT are presented as discontinued operations for all periods presented in this Annual Report.

All material intercompany transactions between the segments have been eliminated in our consolidated financial statements, including our consolidated results of operations.

Contracting Services Operations

We seek to provide services and methodologies that we believe are critical to developing offshore reservoirs and maximizing production economics. The Contracting Services segment includes well intervention, robotics and subsea construction operations (see "Business Activities" above regarding the planned dispositions of our subsea construction vessels). Our Contracting Services business operates primarily in the Gulf of Mexico, North Sea, Asia Pacific and West Africa regions, with services that cover the lifecycle of an offshore oil or gas field. In addition, our robotics operations are often contracted for the development of renewable energy projects (wind farms). As of December 31, 2012, our Contracting Services segment had backlog of approximately $810.1 million, including $534.9 million expected to be performed in 2013. Our Production Facilities segment reflects the results associated with the operations of the HP I as well as our equity investments in two Gulf of Mexico production facilities (Note 5). Backlog for the HP I totaled approximately $19.5 million at December 31, 2012. However, in connection with the sale of ERT, a new fee arrangement for usage of the HP I at the Phoenix field was agreed upon with the new owner of ERT. Under the terms of this arrangement, ERT will pay us a lower fixed annual demand fee; however, ERT will also pay us a variable throughput fee. We currently anticipate that the total combined fees will approximate the previous fixed annual demand fee. The revised terms now also provide that the HP I will continue to provide service to ERT's Phoenix field through at least December 31, 2016. At December 31, 2011, our combined backlog for both Contracting Services and the HP I totaled $539.7 million. Backlog contracts are cancelable without penalty in many cases. Backlog is not necessarily a reliable indicator of total annual revenue for our contracting services operations as contracts may be added, cancelled and in many cases modified while in progress.

Discontinued Operations

In February 2013, we sold ERT for $620 million plus contingent consideration in the form of overriding royalty interests in the Wang well and certain other future exploration prospects. As a result, we have presented the assets and liabilities included in the sale of ERT and the historical operating results of our former Oil and Gas segment as discontinued operations in the accompanying consolidated financial statements (Notes 1 and 3). For additional information regarding the operating results of our former Oil and Gas segment, see section titled "Discontinued Operations - Oil and Gas" elsewhere in Item 7.

Comparison of Years Ended December 31, 2012 and 2011

The following table details various financial and operational highlights for the
periods presented:

                                  Year Ended December 31,         Increase/
                                    2012             2011        (Decrease)
Revenues (in thousands) -
Contracting Services            $     899,793     $  738,235     $   161,558
Production Facilities                  80,091         75,460           4,631
Intercompany elimination             (133,775 )     (111,695 )       (22,080 )
                                $     846,109     $  702,000     $   144,109

Gross profit (in thousands) -
Contracting Services            $      36,522     $  137,444     $  (100,922 )
Production Facilities                  40,645         39,170           1,475
Corporate and other                   (19,374 )      (27,024 )         7,650
Intercompany elimination               (7,878 )           93          (7,971 )
                                $      49,915     $  149,683     $   (99,768 )

Gross Margin -
Contracting Services                        4 %           19 %
Production Facilities                      51 %           52 %
Total company                               6 %           21 %

                                              Year Ended December 31,
                                              2012               2011
Number of vessels (1) / Utilization (2)
Contracting Services:
Construction vessels                              6/90 %             8/76 %
Well intervention                                 3/82 %             3/90 %
ROVs                                             55/67 %            46/60 %

(1) Represents number of vessels as of the end of 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. Utilization statistics for construction vessels excluded the Intrepid in the second half of 2012 as this asset had been in cold-stack mode during the third quarter and was sold in September 2012.

Intercompany segment revenues during the years ended December 31, 2012 and 2011 are as follows (in thousands):

                          Year Ended December 31,         Increase/
                            2012             2011        (Decrease)

Contracting Services    $     87,718       $  65,638     $    22,080
Production Facilities         46,057          46,057               -
                        $    133,775       $ 111,695     $    22,080

Intercompany segment profit during the years ended December 31, 2012 and 2011 is as follows (in thousands):

                           Year Ended December 31,          Increase/
                            2012              2011         (Decrease)

Contracting Services    $      8,053       $       104     $     7,949
Production Facilities           (175 )            (197 )            22
                        $      7,878       $       (93 )   $     7,971

In the following disclosures regarding our results of operations, please refer to the tables above and Note 14 for supplemental information regarding our business segment results. Our disclosures specifically refer to our Contracting Services and Production Facilities segments. Disclosures regarding our former Oil and Gas segment are presented under "Discontinued Operations - Oil and Gas" below and in Note 3.

Revenues. Our Contracting Services revenues increased by 22% in 2012 as compared to 2011 reflecting significantly higher utilization for our subsea construction vessels, which benefited from an increase in activity in the Gulf of Mexico in the first quarter of 2012, the continued deployment of the Caesar on an accommodation project in Mexico, and the Express working offshore Israel and in the North Sea for most of the second and third quarters of 2012. The variance also includes an increase in our robotics revenues reflecting the high utilization of our chartered vessels and owned ROVs, the utilization of a number of additional spot market vessels for much of 2012, and the performance of a number of North Sea trenching projects in early 2012 (which activities are not normally conducted during the first quarter in large part because of seasonal weather patterns). We achieved a slight increase in our well intervention activities despite the Q4000 (70 days), Seawell (52 days) and Well Enhancer (52 days) all being in regulatory dry dock in 2012. The lost days associated with the regulatory dry docks were more than offset by increasing rates reflecting the high demand for our well intervention services and vessels.

Our Production Facilities revenues increased by 6% in 2012 as compared to 2011, which primarily reflects the inclusion of the quarterly HFRS retainer fee, which commenced on April 1, 2011.

Gross Profit. Our Contracting Services gross profit decreased by 73% in 2012 as compared to 2011. This decrease was primarily attributed to asset impairment charges of $157.8 million for the Caesar and related mobile pipelay equipment, $14.6 million for the Intrepid, and $4.6 million for well intervention assets associated with our former operations in Australia (Note 2). Gross profit was also negatively impacted in 2012 because of the lost utilization of our Q4000, Seawell and Well Enhancer well intervention vessels as a result of the extended regulatory dry docks. The decrease in gross profit was offset in part by the high margins achieved on many of our subsea construction projects in 2012.

Loss on Sale of Assets, Net. The $13.5 million loss on the disposition of assets in 2012 reflects the sale of the Intrepid in September 2012 (Note 2).

Non-hedge Loss on Commodity Derivative Contracts. The $10.5 million loss on commodity derivative contracts primarily reflects the amount of mark-to-market loss of unsettled oil and gas commodity derivative contracts associated with de-designation of these contracts as hedging instruments following the announcement in December 2012 of the sale of ERT (Note 3).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses increased by $7.8 million in 2012 as compared to 2011. The increase is associated with higher long-term incentive compensation, which primarily reflects the fact that amortization of awards granted in 2012 vest over a period of three years (as compared to a five-year vesting period for all long-term incentive awards granted prior to 2012) (Note 9). Additionally, the 2012 amount includes approximately $3.5 million of severance and other closure costs associated with our decision to sell our remaining pipelay assets, to cease our Australian well intervention operations and to terminate the remaining lease term and other related closure costs associated with our previous office in Rotterdam, the Netherlands. Lastly, our 2012 amount also includes $2.6 million drawn against a letter of credit related to an international well abandonment project which was completed in 2011. We are seeking return of this amount but collection is not reasonably assured. Our selling, general and administrative expenses in 2011 included $1.6 million of severance costs related to the resignation of our former Executive Vice President and Chief Operating Officer.

As a percentage to revenues, our selling, general and administrative expenses were higher than our previously-reported amounts due to previously-allocated corporate shared services costs related to ERT being included in the results of our continuing operations. Under the applicable accounting guidance, such allocations are not permitted to be excluded from our selling, general and administrative expenses when a former business is presented as discontinued operations. The amount of corporate shared services that were previously allocated to ERT totaled $14.9 million in 2012, $18.5 million in 2011 and $10.7 million in 2010.

Equity in Earnings of Investments. Equity in earnings of investments decreased by $13.8 million in 2012 as compared to 2011. The decrease was primarily due to Independence Hub receiving lower fees from major customers of the facility following expiration of a five-year supplemental monthly demand fee in March 2012 and lower throughput at both the Deepwater Gateway and Independence Hub facilities, reflecting both storm-related disruptions and normal production declines of the fields using the facilities.

Net Interest Expense. Our net interest expense totaled $48.2 million in 2012 as compared to $70.2 million in 2011. The decrease in interest expense primarily reflects a $275 million reduction of our Senior Unsecured Notes indebtedness, including the early extinguishment of $75 million in the third quarter of 2011 and $200 million in the first quarter of 2012. The Senior Unsecured Notes bear a 9.5% interest rate which is greater than the 5.4% weighted average interest rate of our total indebtedness as of December 31, 2012. Capitalized interest totaled $4.9 million in 2012 as compared to $1.3 million in 2011. Generally, our capitalized interest will be increasing as we progress the construction of the Q5000 and the upgrades and modifications of the Helix 534. Interest income totaled $0.5 million in 2012 as compared with $1.4 million in 2011.

Loss on Early Extinguishment of Long-term Debt. The charges of $17.1 million in 2012 were associated with the early extinguishment of portions of our debt in the first quarter of 2012, including $11.5 million related to our repurchase of $200 million of our Senior Unsecured Notes and $5.6 million related to our repurchase of $142.2 million of our 2025 Notes (Note 7). The $2.4 million of charges in 2011 were related to premiums we paid to repurchase approximately $75 million of our Senior Unsecured Notes during the third quarter of 2011.

Other Expense, Net. We reported net other expenses of $0.6 million in 2012 as compared to $1.1 million in 2011. These amounts primarily reflect foreign exchange fluctuations in our non U.S. dollar functional currencies. We recorded foreign exchange losses of approximately $0.1 million in 2012 as compared to $1.9 million in 2011. The foreign exchange losses were attributed to the strengthening of the U.S. dollar against other global currencies. Included in these foreign exchange gains or losses were $0.4 million and $0.2 million of gains related to our foreign exchange forward contracts in 2012 and 2011, respectively (Note 17). In 2012, we recorded a $0.6 million loss associated with the de-designation of our interest rate swaps. In 2011, we also sold our remaining 0.5 million shares of Cal Dive common stock for net proceeds of approximately $3.6 million. Our gain on the sale of these remaining Cal Dive common shares was approximately $0.8 million.

Income Tax Benefit. Income taxes reflected a benefit of $59.2 million in 2012 as compared to $36.8 million in 2011. The variance primarily reflects decreased profitability in the current year period. A 47.0% tax benefit was recorded for 2012, which was less favorable than the tax benefit that was recorded for 2011. The favorable effective tax rate for 2011 reflects the $31.3 million net tax benefit derived from the reorganization of our Australian well intervention operations.

Comparison of Years Ended December 31, 2011 and 2010

The following table details various financial and operational highlights for the
periods presented:


                                            Year Ended December 31,         Increase/
                                              2011             2010        (Decrease)
Revenues (in thousands) -
Contracting Services                      $     738,235     $  780,339     $   (42,104 )
Production Facilities                            75,460        117,300         (41,840 )
Intercompany elimination                       (111,695 )     (123,170 )        11,475
                                          $     702,000     $  774,469     $   (72,469 )

Gross profit (in thousands) -
Contracting Services                      $     137,444     $  132,723     $     4,721
Production Facilities                            39,170         64,203         (25,033 )
Corporate and other                             (27,024 )      (12,997 )       (14,027 )
Intercompany elimination                             93        (19,112 )        19,205
                                          $     149,683     $  164,817     $   (15,134 )

Gross Margin -
Contracting Services                                 19 %           17 %
Production Facilities                                52 %           55 %
Total company                                        21 %           21 %

Number of vessels (1) / Utilization (2)
Contracting Services:
Construction vessels                               8/76 %         7/74 %
Well intervention                                  3/90 %         4/83 %
ROVs                                              46/60 %        46/62 %

(1) Represents number of vessels as of the end of 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. At December 31, 2010, our well intervention vessels count included one vessel chartered by us from our Australian joint venture company (Note 5).

(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, 2011 and 2010 are as follows (in thousands):

                          Year Ended December 31,         Increase/
                            2011             2010        (Decrease)

Contracting Services    $     65,638       $ 109,012     $   (43,374 )
Production Facilities         46,057          14,158          31,899
                        $    111,695       $ 123,170     $   (11,475 )

Intercompany segment profit during the years ended December 31, 2011 and 2010 are as follows (in thousands):

                           Year Ended December 31,          Increase/
                           2011              2010          (Decrease)

Contracting Services    $      104       $      15,655     $   (15,551 )
Production Facilities         (197 )             3,457          (3,654 )
                        $      (93 )     $      19,112     $   (19,205 )

Revenues. Our Contracting Services revenues decreased 5% in 2011 as compared to 2010 reflecting the decreased subsea construction activity in the Gulf of Mexico, primarily attributable to delays in permitting of projects since the Macondo well control incident in April 2010 as well as the decreased amount of internal vessel utilization in 2011 to develop our own oil and gas properties. The decrease in the utilization rates for our pipelay and robotics . . .