Commercial

Offshore Outlook and Opportunities

By Georgina Hunter-Jones | October 6, 2016
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In the spring of this year, CHC and Bristow Group admitted they were surprised by the speed and severity of the downturn in the oil and gas market. Airbus Helicopters has said it is not expecting the market to return to its peak until 2020.

Over the last few years, there have been major changes in the use of helicopters in the oil and gas industry. This is partly the result of helicopter accidents (leading to many enhanced safety features) and mostly the result of a downturn in the market. The change has come quickly.

Photo courtesy of CHC

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In 2013, demand for new helicopters was so high there was a year-long waiting list, and a new breed of leasing companies was created. General Electric Co. paid $1.8 billion for Milestone Aviation Group, the largest helicopter-leasing company in the world. Lockheed Martin bought Sikorsky, partly for its military expertise, but also for its commercial sales. Manufacturers were vying to produce helicopters that flew faster and further. 

At the time, oil prices were about $100 a barrel. Contrast that with the current price of around $40 and it explains why oil and gas companies around the world are shedding pilots and wondering what to do with an excess of machines.

A recent monthly rig count by Baker Hughes shows an international count of 1,579, down 27.2% from September 2015. Of this, the U.S. is down 40%, Canada 27.6% and the rest of the world 17.6%. The numbers exclude onshore oil exploration and production. As an indicator of offshore helicopter activity, this shows that the offshore segment continues to be in a significant downward trend.

With such bleak forecasts, helicopters going into storage and pilots being retrained or given early retirement, what is the future of this industry?

The answer is surprisingly upbeat from a long-term view. Forecasts estimate that by 2050 the world population will number 9 billion, and the majority will be young and residing in developing nations. As the quality of life increases in these nations, so does the demand for energy. Assuming no credible alternative to oil and gas is found, there will be growth in the market.

The International Assn. of Oil and Gas Producers forecasts that by 2040, the world will need 25% more oil (about 17.9 billion tons) as well as other alternative methods of fuel. Chris Hawkes, the group’s safety director, said, “We actually need to explore and produce more oil and gas if we want to be able to meet all the demand.”

He said he agrees that we are currently “facing a challenge, but our industry is used to cycles, and we have been in similar situations before. We are used to boom and busts.”

On the short-term cost side, he said that the first priority is safety and that operators will have made provisions for the cyclical nature of the industry.

On safety in the future, Hawkes said despite recent advances in equipment and procedures, “we cannot be complacent.”

Jakub Hoda, Bell Helicopter’s managing director for Europe and Russia, remains upbeat about both the short- and long-term future. He said Bell sees opportunities for new exploration in the Black Sea, Middle East and Africa. The oil and gas market is still there, he said, but “the emphasis has shifted because of the low price.”

By the time the market rebounds, the “super medium” twin-engine 525 should be certified, he said, so its entry to service would appear to be at the right time.

Other manufacturers are also looking to have aircraft ready for the 2020 period. There has been discussion on the importance of new technology. However, Hawkes cautioned that it’s “hard to predict with certainty what combination will win.” Hawkes noted that drones might have an increasing role, but safety will always remain a priority.

So, in the long term, market forecasts appear positive for both helicopter operators and manufacturers. But current players, such as Bristow and CHC, might face challenges as competition increases. China, for example, has the Chinese National Offshore Oil Corp. that owns a 10% stake of the North Sea oil production and is attempting to buy a 19% stake in Russian oil company Rosneft. The Chinese National Petroleum Corp. also has operations in the Middle East, East Asia, Africa and Canada. It is building helicopters and cooperating with Russian helicopter manufacturers on the type of helicopters that can be used in the oil and gas industry.

Russian Helicopters CEO Alexander Mikheev said he expects new agreements with China.

The Asian oil and gas market also has many small players, and these will be vying for positions in the lucrative market.

In the long term, a number of experts said, the market will rebound and more than compensate for the current lean period. The question is how quickly, which might depend more on the speed of population growth than on any other factor. 

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