Walking through sunny Amsterdam streets carpeted with golden autumn leaves and into a vast hall full of smiles and perfectly-polished multi-million dollar machines, you could be forgiven for thinking nothing was amiss in the offshore helicopter world.
Indeed, the latest data from Westwood, presented for the first time at the Helitech 2018 show, provides some reason for cheer, with offshore project sanctioning up in 2018 versus 2017 and (for the first time since the downturn) an expectation of growth in the offshore helicopter market, with spend totalling some $17bn on helicopter operations over the 2019-2023 period.
So, what is the catch? Like any asset-heavy oilfield services business, the helicopter market is facing chronic over-capacity. Too many rotorcraft were ordered during the last cycle and these assets are now rapidly becoming ‘hot potatoes’ – passed back from helicopter companies to leasing companies and potentially further back in the supply chain. This is not a unique problem in the oilfield services sector, and many other asset classes exhibit similar characteristics. However, helicopters tend to have long service lives; the fleet stands at over 1,900 units and nearly 200 medium and heavy units have been delivered in the downturn so far (2015-2018). Over one hundred remain on order.
E&P companies have reigned in expenditure during the downturn. Non-essential operations have been cancelled. Crew rotations are now at longer intervals and fewer aircraft are in the air. With the focus on cost, oil companies have been successful at negotiating lower standby rates and are working the rotorcraft they do have contracted harder. Newer models, such as the latest ‘super-medium’ helicopters from the likes of Leonardo and Airbus, are likely to be favoured as they fly faster and use less fuel per journey compared to older alternatives. The existing ‘heavy’ fleet is very challenged, with H225 units mostly out of the market and other older alternatives carrying a premium in terms of operating costs.
So where is the opportunity? The deepwater sector was once seen as a holy grail for helicopter operations and yet some of the promise has not lived up to expectations. Brazil has been crippled for years by ‘Operation Carwash’ and is only just seeing a return to new project sanctioning. The US Gulf of Mexico has seen a double whammy of an environmental disaster offshore with Macondo and the subsequent surge in cheap onshore shale alternatives. The Gulf of Guinea has seen very little new sanctioning, with delays in the passing of the Petroleum Bill in Nigeria and uneconomic high cost greenfield projects in Angola. However, the prolific series of discoveries in Guyana have been remarkable and a fast-track approach to development is underway. The East Mediterranean and East Africa have seen a rush to develop deep water gas reserves. Elsewhere, in Asia, the Krishna Godavari basin in India will see deepwater development and further afield the South China Sea and Australasia continue to offer a lot of promise, albeit with their own local challenges ranging from local labour requirements to complex territorial disputes.
What else can come to the rescue of the offshore helicopter industry other than new activity? The obvious answer is change in E&P company behaviour. That said, there do not seem to be many signs of oil companies loosening the purse strings. Tight capital discipline will likely continue for some time – the oil price recovery will be seen as fragile, and maintenance of free cash flow and dividend payments will be seen as critical and not to be put at risk. Labour issues and pressure from unions may see change back to previous crew cycles (Shell has recently indicated that it will do just that) but what the helicopter industry needs is a substantial ramp up in activity rather than a slow and measured recovery. For now, the direction of the industry is very much in the latter direction, with a compound growth rate of 2% per annum to 2023.
Steve Robertson, Director, Head of Oilfield Services