Appropriately, some 16 months after the undersea blowout of BPs Macondo well on April 20, 2010, triggered a cessation of deepwater exploratory drilling, the big three offshore helicopter operators “PHI Inc., Bristow Group and Era Helicopters/Era Group Inc.” were said to be riding the recovery and were reporting that exploration business in the Gulf was picking up. Deepwater production contracts, meanwhile, have provided stability while all three companies have stepped up efforts to follow the oil exploration business to international markets, where Bristow is already a major player, Era is making strong inroads and PHI is just beginning to spread its wings again.

Touching down at heliports in Texas, Louisiana and Alabama, its hard to discern big changes in the rotary-wing landscape, but recent industry statistics shed light on the year that passed.

The 2010 Gulf of Mexico Offshore Helicopter Operations and Safety Review, published by the Helicopter Safety Advisory Conference, said that the Gulfs reported fleet of 483 offshore helicopters, owned by 12 companies, flew more than 2.3 million passengers last year, down about six percent from 2009. Total fleet utilization was 334,067 hours on 938,690 flights, which represented about a three-percent drop in hours and 21.5-percent drop in offshore flights from 2009. (All of these numbers, however, had been showing declines since the highs of 2007 and 2008.)

Interestingly, hourly utilization of light-twin and medium-twin aircraft increased by about nine percent and six percent, respectively, arresting an ongoing decline that had been occurring since 2007. Meanwhile, single-engine and heavy-twin hours declined by about nine percent each, the result of reduced economic activity in shallow waters and the deepwater drilling moratorium, respectively.

On the day the Deepwater Horizon sunk, there were 42 deepwater exploration rigs in the Gulf. The U.S. federal government responded to the resulting disaster by imposing a six-month drilling moratorium at the end of May 2010, and then expanding it in mid-July. This led to a demobilization of deepwater rigs and lighter crewing on rigs remaining on site.

A surge in oil spill clean up and monitoring work more than made up for the loss of deepwater flying in the six months following the Deepwater Horizons sinking, with a large helicopter fleet dedicated to support drilling platforms working to stop the resulting undersea blowout as airborne eyes for the hundreds of vessels and as transport for the thousands of workers and overseers engaged in clean-up operations (see p.28, Vertical, Dec10-Jan11; and p.30, Vertical, Aug-Sept 2010).

But, most of that clean-up work ended around the time the offshore drilling moratorium was officially lifted in mid-October 2010. The following six months then produced the real downturn for most operators. With just 11 deepwater exploration rigs still at sea doing permitted work, and a de facto drilling moratorium in place as the process for issuing new drilling permits moved at a painfully slow pace ” just five permits issued by March 2011 ” very little was happening in the GOM during this period.

By the time of the National Ocean Industries Association (NOIA) annual meeting in April 2011, however, just about every oil company that is active in the deepwater region of the GOM was said to be expressing cautious optimism. Part of this was because the industry felt the economic and strategic importance of a resumption of deepwater exploration was just too great for the government to not let them get back to work.

This speculation was borne out by a Quest Offshore Resources report, produced for the American Petroleum Institute and NOIA, that said over 30 percent of the oil and 11 percent of the natural gas produced in the U.S. was produced in the Gulf in 2010. In other words, the region was economically critical for the country.

The report also painted a rosy picture for the near term for the region. It said oil-and-gas capital expenditures in the GOM would start increasing this year and would reach US$15.7 billion by 2013, a 142 percent increase from 2010 levels, and even about 32 percent better than the recent high of 2008.

Reports from the big three offshore helicopter operators flying in the Gulf of Mexico also suggested reasons for cautious optimism.

The heavyweight in the GOM, PHI Inc., had operating revenues of $517 million in 2010, an increase of a little over six percent from the previous year. At just over $345 million, PHIs oil-and-gas sector revenues increased over nine percent in 2010, with about 50 percent of that increase coming during the second and third quarters when the company was flying in support of the Deepwater Horizon incident.

More recently, in August of this year PHI reported that oil-and-gas operating revenues decreased $12.0 million for the six months ended June 30, 2011, related primarily to decreased medium aircraft flight hours and revenues resulting mainly from the continuing impact on our business of the Deepwater Horizon incident and the resulting decline in deepwater drilling activity in the Gulf of Mexico. Looking to the future, PHI is actively hiring experienced offshore helicopter pilots, in part to fill seats that have been created by fleet expansion and new contracts. Part of that expansion is coming by way of the 2010 order for 10 new AgustaWestland AW139s and the unannounced order in spring 2011 for six more Sikorsky S-92s.

PHI is also focused on returning to international markets, with aircraft working in the Democratic Republic of the Congo and Israel starting last year, and a new contract in Cyprus that was landed this summer. The company has also announced it is continuing negotiations with TAM Empreendimentos e Participaes SA to establish a joint-venture offshore operation in Brazil, a booming market where rivals CHC Helicopter, Bristow and Era are active.

Meanwhile, Houston, Texas, based Bristow Group reported an operating income of almost $190 million on revenues exceeding $1.2 billion for the year ending March 31, 2011. Reflecting the companys increased international focus, just 16 percent of Bristows fiscal year (FY) 2011 operating revenues were generated flying in the U.S., “where the company operates 83 helicopters from seven bases in the Gulf of Mexico and 14 helicopters from three bases in Alaska,” excluding revenues from the Bristow Academy and aircraft sales.

Bristows gross North American revenues increased a little over two percent in FY2011, to almost $194 million, primarily due to work from BP in support of the Deepwater Horizon spill control and monitoring effort and rate increases on certain existing contracts. When deepwater exploration stopped, Bristow was able to shift some of its medium helicopters and S-92s from the Gulf to international markets, where it remains extremely active.

For the first quarter ending June 30, 2011, Bristows North American operating revenue fell to just under $44 million from just over $52 million in the same period in 2010, on increased flying hours but decreased operating margins (3.6 percent compared to 10.2 percent in the prior-year quarter). Bristow said it expect its North American operating margins to remain lower, but expects an increase in work in the Gulf in the second half of FY2012.

Bristow does see a brighter future over the next five years. It has identified opportunities for 442 replacement and new growth helicopters for the oil and gas industry worldwide, including 42 light, 27 medium and 19 heavy helicopters in North America. The company believes it can win about a 25 percent market share of these new aircraft contracts.

The third major operator in the GOM, Era Group (of which Era Helicopters is a part), reported revenues of just over $235 million in 2010 (about the same as 2009), with decreased operating income of just under $20 million, according to parent company Seacor Holdings annual report. Over $112 million of Eras revenue came from flying in the Gulf and nearly $58 million was from helicopter leasing (largely on the international market).

In the first six months of 2011, Eras operating income was $19.5 million on operating revenues of close to $125 million, of which almost $88 million was earned in the U.S. domestic market. The contribution of oil-and-gas flying to domestic revenues included $57.2 million from the Gulf helicopter fleet and $11.4 million from the Alaska fleet. In the first half of the year, Era flew 30,558 flight hours, with 53 percent of those in the Gulf of Mexico. According to the company, Operating revenues were higher primarily due to additional aircraft being placed on contract and more flight hours in the U.S. Gulf of Mexico and the start of seasonal firefighting and flight-seeing activities in Alaska.

Finally, international growth has put the creation of an international company for pilots and mechanics on the front burner, according to Era executives. Now under the presidency of Robert Van de Vuurst (who took over from Neil Osborne in April 2011) the companys international footprint continues to expand, with 48 aircraft active overseas as of mid-2011. Of course, this may not be the biggest news for Era or the Gulf (see the above sidebar).

Ken Swartz is an award-winning helicopter industry journalist who has covered the market for 35 years. He has spent most of his career as an international marketing and media relations manager with airlines and a leading commercial aircraft manufacturer. He runs Aeromedia Communications, a marketing and PR agency, and can be reached at kennethswartz@me.com.

Signs that the helicopter market in theGulf of Mexico might be in for a little shakeup surfaced in mid-summer when Seacor Holdings Inc. announced on Aug. 1 that it was filing a registration statement for an initial public offering of Era Group Inc. with the number of shares, the price range and the timing of the proposed offering yet to be determined. The barriers to entry in the Gulf are extremely high, and the share offer could trigger industry consolidation, or the appearance of new investors.

Seacor, with revenues of over $2.6 billion US in 2010, acquired Era Aviation from Rowan Companies Inc.in 2004 and merged it with an earlier purchase, Tex-Air Helicopters,to form Era Helicopters. Seacor has since invested substantially in Era, and parent company, Era Group, to fund international expansion and the purchase of new helicopters. Still, although the aviation operation has grown, it only represents about nine percent of Seacor’s corporate revenues. Other investors can help it quickly regain its investment.

For the industry, the Deepwater Horizon incident highlighted the risk of helicopter operators having too much business tied to a single region or market. This may pave the way for further consolidation.

Not long after the Seacor announcement,Bristow Groups chief financial officer, Jonathan Baliff, was quoted by the Wall Street Journal as saying that Bristow has the biggest merger and acquisition (M&A) war chest in the industry. He also said he believes there is mounting pressure in the industry for consolidation: I dont think investors want us to buy up the mom-n-pop operators, but there is no doubt that we can consolidate regionally.

Bristow competes with Era in the Gulf, Alaska and Brazil, the latter is a high-growth market.

CHC Helicopter is another operator thatcould potentially be interested in acquiring a stake in Era. CHCrecorded operating income of about $46 million on global revenues of$1.45 billion in fiscal 2011, but recorded a net loss of just over$65 million after debt-financing charges were included. The operatorflies 263 mostly medium and heavy helicopters on oil-and-gas contracts in 26 countries, but has no operating presence in Canada, where it is headquartered, or the U.S., where it is owned.

CHC became American-owned in 2008 whenit was purchased by First Reserve Corp. of Greenwich, Conn. FirstReserve, which has some $20 billion under management, continues to support CHC with equity to support aircraft leasing . . . . [and] potential additional investment for accretive M&A activities.” Kenneth I. Swartz