11 April 2024

In recent weeks, many companies have been reporting results for year-end 2023, providing a useful opportunity to ‘health-check’ the state of the offshore industry, including mission critical rotorcraft operations.  

There are a myriad of published financial measures and we have chosen to focus on EBITDA (earnings before interest, taxes, depreciation and amortisation) for now.  It’s a useful, high-level measure that allows us to compare profitability over time and between sectors, and it also allows us to exclude fast changing interest costs for the time being. 

The offshore business is cyclical and has differing leads and lags across individual sub-sectors.  Some activities are more exposed to such trends usually because of service contract lengths or equipment lead-times. In periods of high oil prices and major investment in new capacity, oilfield services (OFS) companies generally see greater demand for products and services and can command higher prices if their products are in scarce supply. Conversely, profitability tends to suffer in lower demand periods due to greater market price competition in order to secure work. The last downcycle was unusual in that it also featured a global pandemic.    

Offshore rotorcraft operators typically have a mix of long term (3-10 year) contracts for platform support and short-term/ad-hoc contracts to support activities such as exploration well drilling, offshore construction or maintenance work and decommissioning. They may, in addition, provide services beyond oil and gas crew change including search and rescue (both related to oil and gas and also contracted by government).  Most contracts usually involve payment structures which involve a standing/fixed charge and then also a usage/variable charge, although exceptions exist.

What does the data show us?

We have examined the results of 51 companies which we have grouped into nine sub-categories as shown below. (Note: MMO = Maintenance, Modification and Operation; IRM = Inspection, Maintenance and Repair; EPCI = Engineering, Procurement, Construction & Installation.)

The chart data shows the impact of the initial oil price downturn in 2015/16 followed by, for most sectors, the Covid-19 pandemic in 2019/20. In the immediate aftermath of the oil price fall in 2015, there was pressure from oil companies to adjust pricing on key services and products, often mid-contract. During the pandemic many new construction projects were delayed as restrictions on people movements were a major issue.  However, offshore rotorcraft operators were not as financially impacted by the pandemic as other sectors, as they delivered a fundamental requirement to transport people offshore to existing platforms, and also to medevac ill patients. 

Very few OFS companies were structured to weather an extended downturn and also a pandemic. Of the 51 companies included in the analysis, it is notable that many have undergone financial restructuring and/or strategic moves to consolidate, enabling them to achieve cost savings and improve bargaining power. 

This applies to the rotorcraft sector where all three of the major international players – Bristow, CHC and PHI – have seen Chapter 11 restructuring, and both Bristow and CHC made moves to consolidate their position in the market. Bristow merged with ERA and acquired BHI, while CHC acquired most of the former Babcock offshore helicopter business.  

In 2023, we saw further improvement in EBITDA margins across almost all offshore sectors compared to the previous year, including in offshore rotorcraft operations. However, the rotorcraft sector still has some ‘room for improvement’ in terms of margins recovering to pre-downturn levels. The same applies to offshore contract drilling which saw EBITDA margins peak at just over 53% in 2015, but which last year averaged 22%.

Power gradients still exist

It is important to note that despite ~10-20% average EBITDA margins, offshore oil services companies, including rotorcraft, still lag way behind the absolute profitability of National and International oil and gas companies.  According to recent analysis, the four super-majors alone (Shell, Chevron, ExxonMobil and TotalEnergies) have generated over US$330 billion of Net Income from 2021 to 2023 (link).  Whilst some of these funds will be re-invested back into the industry to fund the energy transition, it is important to note that the absolute scale of the remaining financial resources does affect the bargaining power, negotiations and commercial terms offered to offshore oil services companies.

Concluding thoughts

Notwithstanding the power gradients, rotorcraft operators should be seeing improved margins and terms in 2024 as they absorb excess capacity and as market tightness persists.  They may also update and/or revise pricing in light of recent inflation.  Combined, this would offer welcome relief in light of the future capex and opex requirements of the (much delayed) investment cycle. 

Keep an eye out for further insights on these developments from LCI Analytics as the year progresses.