The following management's discussion and analysis should be read in conjunction with our historical consolidated financial statements and their located in Item
8. "Financial Statements and Supplementary Data" of this 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 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 report.

Our Business

We are an international offshore energy company that provides reservoir development solutions and other contracting services to the 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 costs, relative to industry norms.

Our Strategy

In December 2008, we announced the intention to focus and shape the future direction of the Company around our deepwater construction and well intervention services. We intend to achieve this strategic focus by seeking and evaluating strategic opportunities to:

1) Divest all or a portion of our oil and gas assets;

2) Divest our ownership interests in one or more of our production facilities; and

3) Dispose of our remaining interest in our majority owned subsidiary, CDI.

We have engaged financial advisors to assist us in these efforts. The current economic and financial market conditions may affect the timing of any strategic dispositions by us and will require a degree of patience in order to execute any transactions. As a result, we are unable to be specific with respect to a timetable for any disposition, but we intend to aggressively focus on reducing debt levels through monetization of non-core assets and allocation of free cash flow in order to accelerate our strategic goals.

Consistent with this strategy, in December 2008 we announced the sale of our 17.5% non-operating working interest in the Bass Lite oil and gas field for $49 million in gross proceeds and in January 2009 we entered into a stock repurchase agreement with Cal Dive that resulted in us selling CDI approximately 13.6 million of CDI common shares held by us for $86 million in gross proceeds. This sale reduced our ownership interest in CDI to the current approximate 51%. We owned approximately 57% of CDI at December 31, 2008.

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 oil and gas 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 excess capacity, geopolitical issues, weather and several other factors.

Economic Outlook and Industry Influences

The recent economic downturn and weakness in the equity and credit capital markets has led to increased uncertainty regarding the outlook of the global economy. This uncertainty coupled with the probable decrease in the near-term global demand for oil and gas has resulted in commodity price declines over the second half of 2008, with significant declines occurring in the fourth quarter of 2008. Declines in oil and gas prices negatively impact our operating results and cash flow. We believe that these events have contributed to the significant decline in our stock price and corresponding market capitalization. In the fourth quarter of 2008, the declines in our stock price and the prices of oil and natural gas, were considered in association with our annual impairment assessment of goodwill as of November 1, 2008, at which time, we were required to assess the fair value of our goodwill, indefinite-lived intangible assets and certain of oil and gas properties that resulted in us recording an aggregate of $907.6 million of

impairment charges ($715 million for goodwill and indefinite lived intangible assets and $192.6 million for oil and gas property impairments) (Note 2). The aggregate of all impairment charges for 2008 was $930.6 million. Further, our contracting services also may be negatively impacted by declining commodity prices as such may cause our customers, primarily oil and gas companies, to curtail or eliminate capital spending. At the moment, it is still too soon to predict to what extent current events may affect our overall activity levels in 2009 and beyond. The long-term fundamentals for our business remain generally favorable as the need for the continual replenishment of oil and gas production should drive the demand for our services. In addition, as our subsea construction operations primarily support capital projects with long lead times, that are less likely to be impacted by temporary economic downturns. We have hedged approximately 73% of our anticipated production for 2009 with a combination of forward sale and financial hedge contracts. The prices for these contracts are significantly higher than the prices for both crude oil and natural gas as of December 31, 2008 and as of the time of this filing on March 2, 2009. If the prices for crude oil and natural gas do not increase from current levels, and we have not entered into additional forward sale or financial hedge contracts to stabilize our cash flows, our oil and gas revenues may decrease in 2010 and beyond, perhaps significantly, absent offsetting increases in production amounts.

In light of the current credit crisis, in October 2008, we drew down an additional $175 million on our Revolving Credit Facility to ensure adequate and readily available liquidity to mitigate the cash flow impacts of production shut-in from Hurricanes Gustav and Ike, to fund ongoing capital projects and for hurricane remediation and repair costs. After this draw down, we had approximately $44 million (approximately $59 million as of February 27, 2009) of additional capacity remaining under our Revolving Credit Facility (including letters of credit). Further, we have reduced our planned capital expenditures for 2009 to include primarily the completion of major vessel construction projects and limited oil and gas expenditures. If we successfully implement the business plan outlined above, we believe we have sufficient liquidity without incurring additional indebtedness beyond the existing capacity under the Revolving Credit Facility.

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 expenditures 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, including available access to global capital and capital market;

• 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;

• actions taken by the 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.

Global economic conditions have deteriorated significantly over the past year with declines in the oil and gas market accelerating during the fourth quarter of 2008. Predicting the timing of any recovery is subjective and highly uncertain. Although we are currently is a recession, 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; (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, particularly in Deepwater; and (7) increasing number of subsea developments. Our strategy of

combining contracting services operations and oil and gas operations allows us to focus on trends (4) through (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 and new reservoirs in which we have an equity stake.

Activity Summary

Over the last few years we continued to evolve our model by completing a variety of transactions and events that 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 Offshore, Inc. and Acergy US Inc. for a combined purchase price of $210.2 million. We also acquired a significant mature property package in 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 Technology Services group through the acquisition of Helix Energy Limited for $32.7 million and the assumption of $7.5 million of liabilities. In 2006, we acquired Remington, an exploration, development and production company, for approximately $1.4 billion in cash and Helix common stock and the assumption of $358.4 million of liabilities. In March 2006m, we changed our name from Cal Dive International, Inc. to Helix Energy Solutions Group, Inc., leaving the "Cal Dive" name to our Shelf Contracting subsidiary, and in December 2006 completed a carve-out initial public offering of Cal Dive, selling a 26.5% stake and receiving pre-tax net proceeds of $264.4 million and a pre-tax dividend of $200 million from additional borrowings under the Cal Dive revolving credit facility.

During 2006 we committed to four capital projects which will significantly expand our contracting services capabilities: conversion of the Caesar into a deepwater pipelay vessel, upgrading of the Q4000 to include drilling capability, conversion of a ferry vessel into a DP floating production unit (Helix Producer
I) and construction of a multi-service DP dive support/well intervention vessel (Well Enhancer). During 2007, we successfully completed the drilling of exploratory wells in our Bushwood prospect located in Garden Banks Blocks 462, 463, 506 and 507 in the Gulf of Mexico. In January 2009, we announced an additional discovery at the Bushwood field (see "Oil and Gas Operations" in Item
2. "Properties" elsewhere in this Annual Report). Initial sustained production from Bushwood commenced in January 2009.

In December 2007, Cal Dive acquired Horizon for approximately $650 million. CDI issued an aggregate of approximately 20.3 million shares of its common stock and paid approximately $300 million in cash in the merger. The cash portion of the merger consideration was paid from CDI's cash on hand and from borrowings under its $675 million credit facility consisting of a $375 million senior secured term loan and a $300 million senior secured revolving credit facility, each of which is non-recourse to Helix. As a result of CDI's equity issued, we recorded a $98.6 million gain, net of $53.1 million of taxes. The non-cash gain was calculated as the difference in the value of our investment in CDI immediately before and after CDI's stock issuance.

Results of Operations

Our business consists of contracting services and oil and gas operations. We have disaggregated our contracting services operations into three reportable segments in accordance with SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". As a result, our reportable segments consist of the following: Contracting Services, Shelf Contracting, Production Facilities, and Oil and Gas. The Contracting Services segment includes operations such as deepwater pipelay, well operations, robotics and reservoir and well technology services. The Shelf Contracting segment represent the results and operations of Cal Dive, in which we owned 57.2% at December 31, 2008 and currently own approximately 51%. All material intercompany transactions between the segments have been eliminated in our consolidated financial statements, including our consolidated results of operations.

Comparison of Years Ended December 31, 2008 and 2007

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

                                          Year Ended December 31,
                                                                          Increase/
                                           2008             2007          (Decrease)
   Revenues (in thousands) -
     Contracting Services             $    996,535      $   708,833     $    287,702
     Shelf Contracting(1)                  856,906          623,615          233,291
     Oil and Gas                           545,853          584,563          (38,710 )
     Intercompany elimination             (250,945 )       (149,566 )       (101,379 )
                                      $  2,148,349      $ 1,767,445     $    380,904



   Gross profit (loss) (in
   thousands) -
     Contracting Services             $    213,427      $   188,505     $     24,922
     Shelf Contracting(1)                  254,007          227,398           26,609
     Oil and Gas(2)                        (60,601 )        120,861         (181,462 )
     Intercompany elimination              (26,165 )        (23,008 )         (3,157 )
                                      $    380,668      $   513,756     $   (133,088 )

   Gross Margin -
     Contracting Services                       21 %             27 %             (6 )pts
     Shelf Contracting(1)                       30 %             36 %             (6 )pts
     Oil and Gas (2)                          (11) %             21 %            (32 )pts

      Total company                           (18) %             29 %            (47 )pts

   Number of vessels(3)/
   Utilization(4) -
     Contracting Services:
       Pipelay                                9/92 %           6/79 %
       Well operations                        2/70 %           2/71 %
       ROVs                                  46/73 %          39/78 %
     Shelf Contracting                       30/60 %          34/65 %

1) Represented by our consolidated, majority owned subsidiary, CDI. At December 31, 2008 and 2007, our ownership interest in CDI was approximately 57.2% and 58.5%, respectively. Our interest in CDI decreased to approximately 51% in January 2009.

2) Includes asset impairment charges of oil and gas properties totaling $215.7 million ($192.6 million in fourth quarter of 2008). These impairment charges do not have any impact on current or future cash flow.

3) 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.

4) 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, 2008 and 2007 were as follows (in thousands):

                                Year Ended December 31,
                                 2008              2007         Increase/ (Decrease)
     Contracting Services   $    195,541       $  115,864     $               79,677
     Shelf Contracting            55,404           33,702                     21,702
                            $    250,945       $  149,566     $              101,379

Intercompany segment profit (which only relates to intercompany capital projects) during the years ended December 31, 2008 and 2007 were as follows (in thousands):

                                Year Ended December 31,
                                2008                2007          Increase/ (Decrease)
    Contracting Services   $     21,099       $      10,026     $               11,073
    Shelf Contracting             5,066              12,982                     (7,916 )
                           $     26,165       $      23,008     $                3,157

As disclosed in Item 2 "Properties" elsewhere in this Annual Report, virtually all of our oil and gas operations are located in the U.S. Gulf of Mexico. We have one property located offshore of the United Kingdom, Camelot, that is capable of production but has been shut-in since the third quarter of 2008. Revenues associated with our U.K oil and gas operations totaled $3.9 million in 2008 and $2.7 million in 2007 on production volumes of 0.3 Bcfe and
0.6 Bcfe, respectively. We had no production from U.K properties in 2006. The total operating costs associated with our U.K oil and gas operations totaled $4.1 million in 2008, $7.3 million in 2007 and $4.9 million in 2006.

The following table details various financial and operational highlights related to our Oil and Gas segment for the periods presented (U.S. operations only as U.K. operations were immaterial for the periods presented, see above):

                                            Year Ended December 31,
                                                                            Increase/
                                             2008              2007         Decrease
     Oil and Gas information-
       Oil production volume (MBbls)            2,751           3,723            (972 )
       Oil sales revenue (in                                              $     1,701
     thousands)                         $     253,656       $ 251,955
       Average oil sales price per                                        $     28.44
     Bbl (excluding hedges)             $       98.61       $   70.17
       Average realized oil price per                                     $     24.54
     Bbl (including hedges)             $       92.22       $   67.68
       Increase (decrease) in oil
     sales revenue due to:
         Change in prices (in
     thousands)                         $      91,360
         Change in production volume
     (in thousands)                           (89,659 )
       Total increase in oil sales
     revenue (in thousands)             $       1,701

       Gas production volume (MMcf)            30,490          42,163         (11,673 )
       Gas sales revenue (in                                              $   (41,013 )
     thousands)                         $     283,269       $ 324,282
       Average gas sales price per                                        $      2.02
     mcf (excluding hedges)             $        9.48       $    7.46
       Average realized gas price per                                     $      1.60
     mcf (including hedges)             $        9.29       $    7.69
       Increase (decrease) in gas
     sales revenue due to:
         Change in prices (in
     thousands)                         $      67,441
         Change in production volume
     (in thousands)                          (108,454 )
       Total increase in gas sales
     revenue (in thousands)             $     (41,013 )

       Total production (MMcfe)                46,993          64,500         (17,507 )
       Price per Mcfe                   $       11.43       $    8.93     $      2.50

                                                 Year Ended December 31,
                                                                                 Increase/
                                                  2008              2007         Decrease
          Oil and Gas revenue information
          (in thousands)-
            Oil and gas sales revenue        $    536,925       $  576,237     $   (39,312 )
            Miscellaneous revenues(1)        $      5,058       $    5,667     $      (609 )

(1) Miscellaneous revenues primarily relate to fees earned under our process handling agreements.

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 highlights certain relevant expense items in total (in thousands) and on a cost per Mcfe of production basis (with barrels of oil converted to Mcfe at a ratio of one barrel to six Mcf):

                                                       Year Ended December 31,
                                                  2008                         2007
                                          Total        Per Mcfe        Total        Per Mcfe
  Oil and gas operating expenses(1):
    Direct operating expenses(2)       $  80,710     $     1.72     $  80,410     $     1.25
    Workover                              28,982           0.62        11,840           0.18
    Transportation                         5,095           0.11         4,560           0.07
    Repairs and maintenance               20,731           0.44        12,191           0.19
    Overhead and company labor             4,798           0.10         9,031           0.14
      Total                            $ 140,316     $     2.99     $ 118,032     $     1.83

  Depletion and amortization           $ 185,373     $     3.94     $ 217,382     $     3.37
  Abandonment                             15,985           0.34        21,073           0.33
  Accretion                               12,771           0.27        10,701           0.17
  Impairments (3)                        215,675           4.59        64,072           0.99
                                       $ 429,804     $     9.14     $ 313,228     $     4.86

(1) Excludes exploration expense of $32.9 million and $26.7 million for the years ended December 31, 2008 and 2007, respectively. Exploration expense is not a component of lease operating expense. Also excludes the impairment charge to goodwill of $704.3 million in fourth quarter of 2008.

(2) Includes production taxes.

(3) Includes impairment charges for certain oil and gas properties totaling $215.7 million ($192.6 million in fourth quarter of 2008).

Revenues. During the year ended December 31, 2008 our consolidated net revenues increased by 22% compared to 2007. Contracting Services gross revenues increased 41% over 2007 amounts primarily reflecting the following:

††† the addition of two chartered subsea construction vessels as well as an overall increase in utilization of our subsea construction vessels;

††† commencing performance of several longer term contracts;

††† increases in the utilization and rates realized for our well operations vessels;

††† strong performance by our robotics division driven by a higher number of ROVs in our fleet and additional services required following Hurricanes Gustav and Ike; and

††† increased sales by our Shelf Contracting business (see below), resulting from its acquisition of Horizon in December 2007 and increased work following Hurricanes Gustav and Ike .

Our increases were partially offset by the following negative factors:

††† an increase in the number of out-of-service days for the Q4000 associated with marine and drilling upgrades. The Q4000 was out of service for most of the first half of 2008;

††† weather related downtime associated with Hurricanes Gustav and Ike.

Gross revenues for our Shelf Contracting business increased 37% in 2008 compared to 2007 primarily reflecting the revenue contribution of the Horizon assets that were acquired in December 2007 partially offset by lower vessel utilization related to winter seasonality and harsh weather conditions which continued into May 2008, and weather downtime associated with Hurricanes Gustav and Ike. Following the storm, our Shelf Contracting revenues benefitted from the increased scope of work associated with the storms including inspections, repairs and reclamation projects.

Oil and Gas revenues decreased 7% during 2008 as compared to the prior year. The decrease is primarily associated with the loss of production following the shut-in of many of our oil and gas properties following Hurricanes Gustav and Ike. Our production rates in 2008 were 27% lower than the same period last year; however our current net daily production is approximately 90% of pre-storm production volumes after adjusting for the sale of one major deepwater property in December 2008. The decrease in our revenues was partially offset by substantially higher oil and natural gas prices realized over the amounts received in 2007, which reflects near historical high prices for both oil and natural gas over the first half of 2008. Prices of both oil and natural gas decreased significantly during the second half of 2008, with price reductions accelerating in the fourth quarter of 2008.

Gross Profit. The Contracting Services gross profit increase was primarily attributable to improved contract pricing for the well operations and ROV divisions. These increases were partially offset by lower margins realized on certain longer term deepwater pipelay projects reflecting the delays in delivery of the Ceasar and processing of certain change orders which prevented revenue recognition under the percentage-of-completion method (Note 2). We also recorded approximately $9.8 million of estimated losses on two contracts in which we believe the future revenue benefits will be exceeded by the estimated future costs to service the contracts (Note 2). The gross profit increase within Shelf Contracting was primarily attributable to the initial deployment of Horizon's assets that were acquired in December 2007 and additional work following Hurricanes Gustav and Ike, offset by increased depreciation associated with Horizon assets and weather-related delays over the first five months of 2008 and during Hurricanes Gustav and Ike. Our 2007 Shelf Contracting operations were . . .