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Thursday, May 7, 2015

Risky Business

Manufacturers, operators address the challenges of supporting an offshore oil and gas industry beset by cheap oil

By Joseph Ambrogne

Bristow Helicopters uses the AgustaWestland AW189 for offshore transport missions, as well as for search and rescue in the U.K. Photo courtesy of Bristow Helicopters

With their fates tied to the ever-swinging price of crude oil, helicopter offshore transport operators had a tough year in 2014.

Around this time last year, oil sold for more than $100 per barrel. By January, that price had been halved.

Though prices have been on the rise (to more than $50 a barrel in mid-April from $40+ a barrel in March), last year’s drop was the largest since the global recession, and the offshore oil and gas industry hasn’t even come close to its former profits.

The lasting effects of this downturn on the OEMs, operators and other participants in offshore transport have been hard to predict. Like any major shakeup, a downturn has the power to reset the playing field.

Mirroring the exploration and production companies they serve, stronger operators may starve or acquire weaker ones that can’t weather the sudden losses in capital. Regional focuses may shift as old reserves are expended and fresh ones are discovered.

New contenders may enter the market. And operators may understandably hold off on major purchases until energy production increases again.

Nevertheless, many operators have reported confidence that this recent downturn is only a temporary lapse, and are investing—if perhaps more cautiously—in new airframes. Many are also reporting a focus on their internal business processes, hoping to maximize their fleet management logistics, corporate structures and safety practices as a means to ensure success in the coming market.

Aircraft Sales

The timing of this downturn was particularly nerve-wracking for OEMs. In Rotor & Wing’s “State of the Rotorcraft Market” study conducted almost two years ago, offshore operators had implied strong plans to invest in new aircraft to replace their aging fleets. Well aware of these intentions, manufacturers had been developing their next-generation helicopters—all incorporating the latest in performance, communication and safety innovations necessary for the offshore mission.

But the sudden drop in oil prices came just two months prior to Heli-Expo 2015, exactly when these OEMs had planned to display their new airframes for buyers. By the time the curtains finally came up, highly anticipated airframes like Bell Helicopter’s 525 Relentless and Airbus Helicopters’ H160 were part of a very different market than their exhibitors had originally hoped.

For worldwide operator Bristow Group, new-aircraft investments appear strong in spite of the downturn. On the first day of Heli-Expo, the company announced a partnership with AgustaWestland to develop an offshore configuration for the AW609 TiltRotor. The next day, Bristow finalized an order for 17 of Airbus’ next-generation H175, more than tripling the original order it placed two years prior.

Bell had similar success at the show. The company presented a plaque to Latin American oil and gas operator Aeroservicios Especializados (ASESA), commemorating the delivery of its 30th 412 airframe. A second Latin American customer signed on for two 525s. The manufacturer also announced that Waypoint Leasing had signed a letter of intent for the acquisition of 20 525s prior to the aircraft’s planned first flight.

According to Jay Ortiz, Bell’s VP and managing director of Latin American sales, the downturn isn’t likely to curtail sales of new aircraft.

“The largest offshore projects with the major companies are not as significantly influenced by today’s oil prices,” said Ortiz. “They are multi-billion dollar, multi-year programs. When they are in production, they will continue to produce, which means they will need the crews. Development efforts are also multi-billion, multi-year or multi-decade, so while they may moderate short-term, those will continue.”

In particular, Ortiz said he is optimistic about how next-generation aircraft, particularly the 525, will fare in the offshore market.

“Across the board, companies are focused on becoming leaner overall and creating efficiencies on all fronts, and their aviation plans are no exception,” he said. “As planners are looking out years ahead, they want modern aircraft that deliver the greatest economic value to their bottom line. That means greater payload and range. It also means they need and desire to operate with a very high standard of safety and reliability. That’s where the 525 comes in.”

T.R. Reid, VP of Communications at CHC Helicopter, believes that new aircraft are an essential expense.

“Customers overwhelmingly favor a newer generation aircraft,” he said. “As of the end of January, about 82 percent of our fleet value is represented by that newer technology aircraft: Sikorsky S-92s, Airbus EC225s, AgustaWestland AW189s, and Sikorsky S-76Cs as well. Those are very current aircraft and are in high demand by customers.”

But Ed Washecka, CEO of Waypoint Leasing, suggests that it may be harder to secure agreements for large fleet replacements in the downturn.

“I think one of the challenges we have—and maybe the industry has—is that we’ve got to be creative in how we get these new aircraft into the fleets of our customers,” he said. “They are going to have to be creative in how they sell it to the end users.”

For example, he said, “now is the time to move out of that Super Puma and trade in to the AW189. We’ve got to make that attractive. Whether it’s Bristow or CHC, they have got to make that attractive. Then ultimately BP or whomever has to make the decision.”

Rethink the Business

An AW609 TiltRotor in flight over the Fort Worth, Texas area. Bristow sees the improved speed, and range and airline-style amenities of the AW609 as ideal for oil and gas passengers traveling faster and farther from shore. Digitally-enhanced photo courtesy of AgustaWestland
In spite of its healthy purchasing at Heli-Expo, Bristow reports a noticeable impact on its offshore business as its oil and gas customers look to tighten their belts.

The company said it is proactively working with customers to improve operational efficiencies and reduce costs without compromising on safety. Measures include bundling its rotary-wing and fixed-wing aircraft operations, “right-sizing” its fleet where appropriate, and implementing what it calls its “fleet rationalization” strategy.

The company is continually renewing its fleet with newer-technology aircraft, but at the same time it’s also reducing the number of types it operates in offshore missions from 28 to six. The company’s investment in the AW609 is an example of this goal to achieve more missions with fewer aircraft types.

Though CHC acknowledges that next-generation aircraft are important, the company said it believes that an operator’s efficiency in managing its fleet is far more important than the composition of that fleet.

“Among the companies that provide the kind of offshore oil and gas flying services that we do, you’re not going to find a wild difference in the makeup of the fleets,” said Reid. “One may have more EC225s, and another may have more S-92s, for example. But mainly fleets are similar. The real opportunity to differentiate is around availability.”

To that end, CHC has been transforming itself to better manage the various tasks that make up its aircraft operations—preparing helicopters before flights, scheduling pilots, training air crews, and allocating helicopters for specific locations and shifts.

“We are using software like AMOS and AMES, which are relatively established in fixed-wing aviation, but are newer technologies in rotary-wing,” said Reid. “We are using those to manage crews and their scheduling and ensuring that they are fully trained and current.”

CHC also provides its pilots with electronic flight bags combined with a software-based operational flight planning system that can be read from an iPad.

“It’s really useful for flight planning, but also modifications,” added Reid. “So if an aircraft is in flight and the customer asks, ‘Can you make an additional stop at this rig?’ for example, they can enter all of the requisite information and all of the payload and fuel and routing information. It’s all updated automatically.”

A New Player

An Airbus H175 used by Bristow Helicopters. Photo courtesy of Bristow Helicopters
Erickson Incorporated has been active in oil and gas since 1998, especially in Ecuador and Peru. But until recently, that was all onshore work, primarily with the S-64 Aircrane. They also did onshore work for HRT in Latin America.

In January, with the acquisition of Air Amazonia (formerly HRT’s aerial service provider), Erickson had the right of first refusal to bid on an offshore contract with HRT. It was selected to offer passenger crew change services to and from Polvo Oil Field in Brazil’s Campos Basin offshore Rio de Janeiro. It will use two S-76C+ helicopters for the work.

“That’s our first offshore contract, but the people that we have in that organization have many years of offshore experience,” said Santiago Crespo, Erickson’s vice president for oil and gas aviation. “As a company, we might be new to offshore right now, but the talent we have managing the business down in Brazil has a lot of offshore experience.”

Erickson views Brazil as the perfect market for its first foray into offshore work. The market is newer and not as heavily serviced as the Gulf of Mexico or the North Sea, and the company already has a strong reputation for its onshore work. Erickson plans to get its sea legs, then eventually branch out to other regions like Asia, Africa and Alaska.

“There’s still a lot of opportunity there,” Crespo said. “Even though the oil prices have deterred a little bit of the exploration and new work, we still believe that there is room in Brazil for more operators. You look at other regions and there are a lot more operators and then there are opportunities, so we think there are still opportunities to be competitive in the Brazilian market.”

Erickson is relying on the small size of its offshore division. It doesn’t have the high overhead of larger companies, so it can probably bid more competitively (cheaply) on this or that contract.

But in terms of capabilities and safety, they are no different from larger operators. “It’s all about scale,” Crespo said.

“What CHC and Bristow have is scale, but the complexity and the technical requirements and the safety standards are the same whether we do it or they do it,” he said. “Having worked at CHC and now at Erickson, I found that our culture, our safety culture and our business processes and systems are as sophisticated and as well-established as any major companies.”

Erickson also believes it has an edge in being the only outfit that combines operations, maintenance, repair and overhaul (MRO) services and original equipment manufacturing. Though it didn’t invent the Aircrane, Erickson acquired the S-64’s type certificate from Sikorsky in 1992.

Two years ago, it bought the type certificate from Pratt & Whitney for the JFTD12-4A turboshaft engines that power the S-64. In February, Erickson and Bell struck a deal for the former to assume product support responsibility for the Bell 214B and ST models, including spare parts supply, technical assistance, maintenance training and MRO services.

Regarding the drop in oil prices, Crespo said any industry that enjoys sustained high prices gets complacent.

“Oil companies, suppliers, vendors are just riding the wave,” he said. When prices dropped, everyone focuses on efficiency. What the drop in oil prices has done “is allowed everybody to look at the business and see where they can be more efficient, where they can improve business processes, add technology."

“What’s going to make our company weather this period is our unique cost structure,” he said. “We don’t have that large overhead of many aircraft sitting idle in the offshore world as many other companies have. So that allows us to be a little bit more competitive, I believe, when opportunities come up.”

A Focus on Safety

Well before its first flight, the Bell 525 Relentless has attracted several potential buyers. The 525’s large cabin (fitting 16 passengers) is built for safety, providing efficient ingress/egress during emergencies, and giving the pilot a wide field of view. Image courtesy of Bell Helicopter
At 2014’s CHC Safety & Quality Summit, one of the helicopter industry’s premier safety events, there was a great deal of discussion about confronting the “reality of our reality.”

The offshore segment has long led the helicopter industry in raising the level of operational safety.

In late 2013, operators serving the North Sea initiated a joint review of offshore helicopter safety there. That review identified a need to better share the operators’ operational experience to identify and address common issues.

“Doors that were typically closed to other operators were opened,” CHC President and CEO Karl Fessenden noted in welcoming attendees to this year’s Safety & Quality Summit. “Communication between the companies has been enhanced, all without compromising healthy competition between the operators.”

That initiative has since been expanded and funded to permit it to evolve from an informal to a more permanent arrangement. Dubbed HeliOffshore, it now has a worldwide mandate to work with and add to its roughly 30 member organizations. Era and PHI are among the newest members, and membership is expected to double.

“The primary common ground is that we all have significant stakes in offshore helicopter safety,” Fessenden said.

The group is focused improving safety through measures such as better use of automation, operational performance monitoring and health and usage monitoring systems as well as greater information exchange.

HeliOffshore, for instance, aims to develop an information-sharing protocol that promotes fast and effective safety-related communication while preserving confidentiality.

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