Bristow Takes Long View of Oil Price Slide

 - January 22, 2015, 8:24 AM
The current drop in oil prices is not having an effect on Bristow's offshore oil operations.

The tumbling world price of crude oil is not expected to make a significant impact on operations at OGP helicopter service company Bristow Group, maintains the company’s senior vice president and chief financial officer. Other companies, manufacturers and industry analysts expressed opinions ranging from optimism to cautiousness.

John Briscoe told AIN in early December that the current oil slide is not causing “any impact on our operations.” However, Briscoe said that Bristow is “being proactive in this environment, working with our customers trying to find ways to help them through this situation by helping them control their costs.” Briscoe emphasized that this did not mean that Bristow is discounting existing or future contracts, but rather working with customers to consolidate or reduce labor “and other third-party costs.” On average, Bristow’s OGP contracts earn 65 percent of their revenues without flying. Even in the current oil environment, the company expects to be flying $4.3 billion worth of contracts starting in 2016 and that will continue over future years.

Bristow is the world’s largest OGP helicopter services company as measured by fleet size, accounting for nearly one-third of the total worldwide OGP fleet. It currently has major helicopter transportation operations in the North Sea, Nigeria and the U.S. Gulf of Mexico, and in most of the other major offshore oil- and gas-producing regions of the world, including Australia, Brazil, Canada, Russia and Trinidad.

Opportunities Ahead

Briscoe said Bristow is proceeding with its commitments to buy and lease new helicopters. “We are not deferring deliveries and we haven’t canceled any orders. In fact, we still have demand for more equipment. Our customers are still seeing additional opportunities and they are still talking to us about those, even within the framework of a challenging crude oil price,” he said.

“We think of our order book in terms of future opportunity, but [firm] orders never match up exactly with future opportunities; it’s actually less than what future opportunities we think will mature. We think our orders are conservative. We use our [order] options to bridge what the actual opportunities are and in that way have the flexibility to be able to move up or down with the order book to meet the actual demand,” Briscoe said.

As of December, Bristow had identified 246 “qualified aircraft opportunities” over the next three years: 146 of them are for medium helicopters and 100 for large; of these it classified 129 as “realistic” and said it expects 50 of those to result in new contracts. Bristow has 24 new helicopters on firm order, the majority of them large machines. It also has options on another 48. Of the 246 opportunities, 79 are in North America, primarily the Gulf of Mexico, and another 55 in South America and the Caribbean.

Bristow takes the long view with regard to unique dislocations in specific energy markets such as Brazil and Nigeria, according to Briscoe. In Brazil, new exploration and output by the majority state-owned oil company, Petrobras, has habitually run behind schedule.

“We think there is actually a tremendous amount of long-term opportunity for [OGP lift] in Brazil,” Briscoe said. “Petrobras is working hard to meet its goals and targets and we think it is going to be focused on that. Some projects might get delayed but we actually think that those projects become even more important in a low-price environment and that those projects will continue. We don’t see any of the projects in Brazil being canceled. Could there be delays? Absolutely. Those are always hard to predict. But eventually everything moves forward, and perhaps with a greater sense of urgency than we have had in the past. But it is hard to predict.”

The political instability and actual or possible armed conflict caused by falling oil prices in countries where governments are overdependent on oil revenues has not affected Bristow so far and Briscoe thinks that the security Bristow has in place in countries such as Nigeria is up to the challenge. “We’re not making any changes to our security arrangements around the world at this time. We believe that we have good security arrangements in each of the jurisdictions in which we operate. But we will continue to reassess and revisit the issue,” he said.

Finally, Briscoe noted that falling oil prices have not prompted Bristow to focus on non-energy sectors beyond its normal balanced business plan. “It was already part of our strategy to pursue non-energy-related business. Right now there is an active tender for the [UK territory] Falklands [Islands] for search-and-rescue. We think the search-and-rescue and other government outsourcing opportunities are going to be three-, five-, 10-, 20-year opportunities and not all governments are going to move forward at the same pace. The tendering and bid process could be longer than we would see for some other commercial opportunities. That’s fine, given the scope and scale of the important service that is currently being provided by military or other government agencies.” He contends that the outsourcing model raises quality–bringing new equipment and technology to bear–while reducing costs.

One area Bristow is not currently pursuing is the market for supplying supplemental military airlift in combat hot spots, particularly in the Middle East. But Briscoe didn’t rule it out, either. “That’s not something front and center for us right now. It’s not something we wouldn’t do, but we would risk-assess those types of missions or opportunities closely before we would move forward,” he said.

 

Industry Input

Falling oil prices seem to be of little concern for the operators, analysts and manufacturers that spoke to AIN about the issue, expressing unfazed optimism to cautiousness.

Teal Group analyst Richard Aboulafia has seen limited consequences of the plummeting oil price so far. “It certainly has an impact but not particularly hard,” he told AIN. He even stopped short of establishing a clear relationship between the market losing some robustness and oil price levels.

So far, Aboulafia has not heard anything like “we are deferring deliveries because of oil prices.” Moreover, those helicopters that are the workhorses of the industry continue to sell well. For example, the AgustaWestland AW139’s production rate is 80 per year and it is not picking down, Aboulafia noted. The final reason to rest assured, he suggested, is that leasing companies do not seem to have reacted.

Airbus Helicopters experts predict some sort of minimal downturn. “We can expect that cost-control measures at international and national oil companies will cause a contraction,” Thierry Mauvais, Airbus Helicopters’ head of oil and gas market development, told AIN. Cost-control measures will most likely first affect the exploration segment, such as in the Arctic, while in production the focus will be on adopting lower-cost methods, Mauvais went on. With such a solid foundation, offshore helicopter sales will probably stay at a sustained level despite the impact on exploration activities.

For a couple of years, Christopher Grainger, in charge of oil and gas sales and customer relations at Airbus Helicopters, has seen a few postponements but no cancellations. The bulk of the helicopters Airbus sells for offshore applications are EC225s. Combined annual orders for the civil EC225 and the military EC725 average 50.

Exploration will probably pick up again in two to three years, Mauvais believes. This will notably happen in frontier countries such as Senegal, Namibia, Madagascar, Mauritius and Morocco. Airbus Helicopters experts concur with Aboulafia in saying another reason for optimism is that lessors are not withdrawing. Lessors may even take advantage of the slowdown to reinforce their position and be ready for the next upturn, Grainger suggested.

David Martin, responsible for sales and support of Sikorsky’s worldwide energy customers, says he has seen no change to his business that could be attributed to the price of oil. “The issue of oil price has just started, whereas this industry is a long-cycle one,” he emphasized. In other words, customers place orders with an eye on the long term, and Martin has seen the exercise of options as evidence of this strategy.

The market has “plateaued since 2011,” but Martin says Sikorsky expected it. He predicts a flat or slightly down market until 2018.