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Surviving the oil slump
Is everyone going to make it, or will there be a "thinning of the herd". Oil companies on the cheap, cancelling contracts, subbing cheaper airframes and operators. Helicopter operators taking a beating, stuck with crew, spares, overhead, and helicopters. All publicly traded companies in the industry losing share value. Will we all be around for the rebound?
Any bookies taking odds: Bond, Bristow, CHC, PHI, NHV, WESTAR.....Darwin favours the adapters, who will they be? |
The pinch will be felt by those having a high proportion of exploration support contracts. Established platforms are at their minimum manning already and they still have to be changed over as normal. The ones who are going to really be hurt are those coming to the end of their self-financed helicopter training.
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interestingly, companies such as Bristow and PHI have had 'relatively' stable share prices over the last 12 months albeit slightly downward trend. Take a look at CHC though. Something seems off. In the last 12 months theyve dropped from the $10 isssue price to a low today of $1.87
Surely if a company stock plummets like this, it has to be looked at closely for another reason if other similar companies arent suffering the same? I know the company was going to sell more shares at the end of last year but is it possible that the share price can be pulle down and then the buyer can purchase a lot of shares at a much lower price? They csnt just say the oil price is causing this??? I'd have thought there may be a suspension of stock trading when share value falls so fast? What about management? Shouldnt they be replaced if they are in control (or not) of a drop in company value like this. Doesnt exactly instill confidence. |
Take a look at CHC though. Something seems off |
Helimutt:
The Bristow stock is down $20 from its high of last year you don´t think that is significant? Even at $60 today is still a big drop since last year. You are correct that CHC stock is quite low and wonder where it will bottom out, one CHC stock is cheaper then a cup of coffee. Maybe is a good time to start buying in? |
Maybe is a good time to start buying in? I was thinking that very thought an hour ago. If the price is bottomed out, the only way is up. :) Maybe buy a few thousand shares and see what happens :ok: |
if the price is bottomed out, the only way is up |
It's not an oil slump, it's just reverting to the price that it normally is disregarding short term diplomatic emergencies. You look at the historical price and you will find that it has kept pretty stable with inflation apart from hiccups in the Middle East.
They don't call the shots so much now so it will stay at a consistent and stable price from now on. It will go up to fracking costs or fracking costs will come down to drilling. |
They don't call the shots so much now so it will stay at a consistent and stable price from now on. It will go up to fracking costs or fracking costs will come down to drilling. I hate the feeling when I realise that I am merely a pawn in the game. |
You forget the rest of the world. China, now the largest importer of oil is on a determined path to reduce its dependence on oil imports. I know, because I worked there and I know the latest policies. Should you go to China you would be staggered by the number of electric m/cycles and cars. Shanghai alone will have 26,000 car charging points within the next decade, all powered by nuclear electricity. When the territorial disputes in the South China Sea are sorted then an incredible amount of gas and oil will be available. It doesn't matter whether it's Chinese, Vietnamese or Phillipino oil, it's not Saudi.
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Important to understand that CD&R own 75% of CHC and it is unlikely they are changing their investment (ie selling shares).
The drop in stock price could well be the other investors who got duped by UBS and Barclays (acting for First Reserve, the previous owners) into buying crappy stock and finally calling it quits. Also worth noting that while CHC and BRS do the same job, CHC are relatively stronger in exploration contracts and BRS are much happier with long term production ones. Thus if OilCO decides to stop/ delay exploration, CHC are more likely to be hit. That said, if Oil CO decides to pick up again in 6 months when oil is $80 bbl then CHC is more likely to see the benefits. CHC is royally screwed though. I think they (CD&R) will sell off the bits of the business which are hard work and keep the bits that are working. Getting the stock now at 10c on the $ from 12 months ago is an interesting investment option for sure. |
Has the price ever gone down before? :ugh:
It amazes me that neither the oil industry nor most governments ever behave as though the oil price can go down. Then they don't behave as though it can ever go back up. Staggering stupidity. |
CHC recently sold 30+ aircraft (EC225s and S-92s) to Waypoint Leasing and then leased them back. That is not a company re balancing its fleet, it's a company which needs cash. These are operating leases. If you can't finance lease cheaper than you can buy an operating lease, your credit rating must be in the dirt. But CHC stock can only really go up, can't it?
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Hey TM, we cross paths again on the same topic! :)
I agree, CHC is a cashflow business and at the moment is cashflow negative. Selling those assets represents 2 things: 1. When CD&R bought CHC a big deal was made that a good chunk of their $600m investment would be to buy out some leases to make it easier for CHC to work in 'complex' jurisdictions where the traditional leasing firms and banks do not like to let their ac go. This plan appears to have gone up in smoke. 2. CD&R have seen their stock investment they made to First Reserve get basically set on fire (bought in at $8 a share ish) so they throw 1. above out of the window to start making their money back any way they can. Fire sale is fine with them. Surely it's only a matter of time before they sell Heli One? That's a business worth something to someone. Edited to add - I wouldn't bet on stock price can only go up... Funny that 2x PE firms have tried to work CHC and failed in last few years. I thought these people were best and brightest?! It's a who's who of the best universities on earth and I would trust not one of them to be any good running CHC... http://www.cdr-inc.com/professionals/partners.php |
What is interesting about the Leasing even Bristow now is leasing there new aircraft mostly through Waypoint Leasing. Same company that just bought 31 of the CHC aircraft.
Seems a lot of companies are getting away from tying up there cash in airframes. |
TW, that is absolutely true but CHC have run that model and are at about 90% leased now with that Waypoint transaction.
Bristow (according to the presentation from 12 Dec in the link below, p22) are at 34%. While they are moving towards the same model, they are still poles apart. It also goes back to my earlier point that if you are strong in Production contracts, leasing makes sense, they are long term, they are capital efficient, known quantities (reduced risk) and putting a leased asset on it makes absolute sense. Bristow Investors ? Overview ? BRS ? bristowgroup.com It's when you want to go to many parts of Africa the leased model doesn't work that well. |
It's when you want to go to many parts of Africa the leased model doesn't work that well. Titan lease from Gulf, Everett lease from BRS (not sure about Heli-Union)- and all operate succesfully in Africa. Outside of Nigeria, BRS, with a high ownership level, don't operate widely in Africa due to the short term nature of the exploration contracts. Perhaps you need to rethink your statement above? |
Minigun
You are talking about Titan and Everett who lease aircraft already owned by Gulf and Bristow. Operators don't sub lease a leased aircraft. Its not the same as leasing a new helicopter from Waypoint, Milestone or LCI. It's actually you who needs to rethink your statement since it is you who clearly doesn't understand the cash down, payment structure, TAP / PBH requirements and risk premium in a lease for a new aircraft. |
It's actually you who needs to rethink your statement since it is you who clearly doesn't understand the cash down, payment structure, TAP / PBH requirements and risk premium in a lease for a new aircraft. CHC have operated in South Africa, Tanzania, Mozambique, Namibia, Nigeria, Morocco and quite a few other countries in Africa quite successfully with the dreaded leased fleet model Outside of Nigeria, BRS, with a high ownership level, don't operate widely in Africa due to the short term nature of the exploration contracts. |
CHC have operated in South Africa, Tanzania, Mozambique, Namibia, Nigeria, Morocco and quite a few other countries in Africa quite successfully with the dreaded leased fleet model. Titan lease from Gulf, Everett lease from BRS (not sure about Heli-Union)- and all operate succesfully in Africa. Outside of Nigeria, BRS, with a high ownership level, don't operate widely in Africa due to the short term nature of the exploration contracts. "Successfully" is in the eye of the beholder it seems, just look at their respective share prices and financial performance. Operating a Bristow or CHC painted aircraft with someone else's name stuck on the side on a 6 month drilling contract in Africa is not actually what this discussion was about. |
TM,
Many thanks, but Im perfectly comfortable with the lessor/lessee relationship. This thread is about surviving the oil slump; I'm not sure you aren't a little confused by the fundamentals of economics. Oil companies are acutely focussed on reduced CAPEX and strict OPEX control; and employment of aircraft and associated revenue production will contribute towards thei survival of the aircraft operators, regardless of who's name is painted on the aircraft, or whether it is leased, owned, sub-leased or on loan from a mate called Gordon. I think that's pretty relevant to the thread, even if you have taken moral ownership of it. I am not sure how CHC, or Titan, BRS or Everett's ability to successfully put aircraft in the sky in aircraft in Africa (which was my original point in response to nowhere's post) can be judged by the current share price during a key market slump. |
Many thanks, but Im perfectly comfortable with the lessor/lessee relationship However, you don't seem to understand the financial terms and conditions of a long term operating lease. Surviving the oil price slump will be about keeping aircraft employed, you can park owned aircraft (albeit with some pain) but parking a leased aircaft will send an operator under very quickly. I hope that doesn't happen because as an oil company we like a healthy competitive market. |
Surviving the oil price slump will be about keeping aircraft employed, you can park owned aircraft (albeit with some pain) but parking a leased aircaft will send an operator under very quickly.
Hmmm.....I have seen many leases over the years that are strictly power by the hour. |
HeliHub Oil price not affecting Era and PHi at Houma
What it does not mention is that ERA furloughed about 35 of their most experienced IFR captains with no warning right before the holidays. |
Helilog
No such thing as an hourly lease with EC225s, S-92s and AW139s in the offshore related helicopter industry. |
What it does not mention is that ERA furloughed about 35 of their most experienced IFR captains with no warning right before the holidays |
I love watching mgd go blasting about (pun intended).
I articulated my position on leases poorly. CHC has operated leased ac in Africa for some time now, of that i have no doubt. The issue comes with short term exploration contracts and the nature of the leasing companies. Some are happy for their ac to go to darkest Africa, many are not. Whether they are or are not is reflected in owners consent costs, additional insurance costs, jurisdictional reviews and ultimately on the bottom line. They charge handsomely for this pleasure as well which means that the bids you submit with leased ac are often not as competitive as those with owned ac. Sad but true. |
So the offshore energy market isn't "red-hot"? :ugh:
Interesting also to see Sikorsky state during the recent opening of its new GOM office that it "doesn't expect the drop in crude oil prices to hurt its business." UTC itself was one of the first to warn of a weakening O&G market last October. I/C |
Nowhere,
I don't disagree with you, my friend; not as competitive as owned aircraft, but not impossible either. Agree owners consent, JR's and all the other aspects mentioned do add cost, but the process also ensures the operators have ticked all the regulatory boxes and fully costed the bid - and wont end up with their hand out a few months into the contract when reality strikes and unforseen costs arise. Ive seen smaller operators win on a cutthroat price, and then hit snags later on......... Indeed, sad but true. Safety's on, no blasting today. |
A slightly more upbeat perspective from Helivalue$ (reproduced here in full since I can't locate the article on-line).
World oil prices & helicopter demand Benjamin Moore, Senior Appraiser -- HeliValue$, Inc., February 2015 The reaction to the price of oil dropping below $50 a barrel has been amazing in the helicopter industry. Financiers have had coronaries. Some are jumping out of first-story windows. There have been several articles printed that suggest that since the “hysteric lows”, oops, I mean, “historic lows” of the price per barrel of oil, helicopter demand will sink lower than pond scum since no one will want to look for oil until these prices for oil increase. Just a few years ago, around 2002, a barrel of oil was $20! Since that time, it’s gone as high as $110 a barrel. Goldman Sachs, a company that everyone quotes, projected in 2008 that oil could reach $200 a barrel! That might be true yet- in thirty years? But, sanity and fracking has returned the price of oil to, shall we say, more realistic numbers. A few articles in places such as Reuters and other news sources seem to suggest that the helicopter offshore market is DOOMED. Yet, every manufacturer of helicopters that fly offshore has said that, though the short term may have some reduction in orders, the long term Oil & Gas Industry market will continue to need helicopters. We have seen plummeting stock prices in the publicly traded offshore helicopter fleet operators. Some have posited that it is another indication that the offshore market will be in trouble because of cutbacks to oil exploration. Yet the mood at the Helicopter Investor conference in London last week was cautiously optimistic: Clark McGinn of CHC repeatedly called the O&G helicopter industry a “rational market,” and John Mannion of Bristow consistently reminded the audience that flights to production platforms outnumber those to drill rigs by a sizeable percentage. It is the public’s misperception that the present market will remain the same for the next two or three years. The fleet operators do have some short-term problems facing them, but lack of contracts in the future is not one of them, yet. Their reasoning is solid. Most of the contracts being worked today are for production oil platforms. Those production wells require fewer people to operate than the exploration and drilling rigs. There may come a slowing of production. However, even if there is slowing, people have to be on those drill platforms to maintain them. And shutting down a well is expensive, time-consuming, and requires people to do the work…which requires helicopters to get them there. There are two reasons that exploration is going to go ahead, economics and politics. Let’s talk about politics first. Some years back Germany made the decision to shut down their nuclear-fired electric power generating plants and replace them with natural gas fired plants. Great, except the major source for natural gas, is Russia. Otto Von Bismark is hyperventilating in his grave. Most of Europe is in the same predicament. France is much less dependent since they are the largest user of nuclear energy to generate electric power per capita in the world. Regardless, all of Europe needs petroleum products, and the major source of oil today is, you probably guessed, Russia. Russia decides to do a little meddling in the Ukraine. The World reacts by trying to impose economic sanctions. Saudi Arabia does its bit by increasing production and lowering prices that force OPEC to do the same. The political decision to lower the price per barrel of oil is one of the reasons that oil is relatively cheap today. I do notice that the price of oil is starting to creep up again. However, this price per barrel level is creating economic havoc in Russia, Venezuela, and some other governments that depend on high prices per barrel to balance their books, complete infrastructure repair & improvements, and pay off debts. Europe’s major source has been Russia, but the lower cost oil prices help Europe to buy from other places such as Saudi Arabia. They know that they must have a larger ready-access reserve of oil/gas in the future. This will blunt the amount of power that Russia might be able to exert when the present crisis is over. Those larger ready-access reserves are in the North Sea deposits off the coasts of Nova Scotia, Ireland, Scotland, and Norway. I believe Europe will encourage exploration in those areas. Now, let’s talk a bit about economics. Two of the largest emerging markets and growing future use of petroleum products are China and India. They have little oil and gas reserves on the land they own. China, in particular, has been trying to get dependable sources of petroleum products. For example, it has led to China pouring billions into Sudan for pipeline and infrastructure from South Sudan to North Sudanese ports. Those plans were spoiled when a civil war erupted between the north and south. Now China is investing more money and Army personnel to try to stabilize that supply of oil in North and South Sudan. As a result, their future growth will depend on offshore reserves in the South China Sea, the Indonesian archipelago and the East China Sea. Most of the offshore reserves are well off the coast and will demand helicopters to service both the production and exploration rigs. They need that exploration to go ahead now. Yes, politics enters into their reasoning also. Therefore, these growing economy governments do not want to rely on someone else to supply them with needed fuel. North America has the largest reserves of shale oil in the world. The development of economical fracking has been industry-changing. The natural gas in both shale oil reserves and the Bakken Formation makes the US a powerhouse in both. Just two years ago, the US imported 65% of the petroleum it consumed. Now, it’s only 26%. Fracking is also allowing us to revisit old oil deposits such as the Permian, Eagle Ford, Barnett and Haynesville Bossier basins (AKA Tea Pot Dome). Good heavens, the stuff is flowing like rain. Fracking has had a negative effect on the single light turbine market. You can pretty much drill anywhere in the Eastern United States and get a producing oil or natural gas well. Everywhere else, it’s a crap shoot. In the West and Canada traditionally, you first covered the area with seismic operations to look for oil, then spotlighted areas that might have gas/oil reserves (overthrust), then drilled exploration holes to confirm presence of oil/gas and then moved on when that didn’t produce. In the Eastern US, just drill, and you have a 90% chance of having a commercially producing well. Everywhere else, with traditional seismic methods, there is a 30% chance. Yes, fracking costs more to get that petroleum product out of the ground, but the producer will not have spent money looking for a producing hole in the ground and the petroleum product they get out of the ground using the fracking method will need less refining. Smart money goes to the sure thing. Shut down those seismic methods. The seismic operations are what produced the most contracts for light single-turbine helicopters in the Western US and Canada. With the exception of right after 9/11, we have the largest inventory of light single-turbine helicopters ever seen on the world market. We know there are over 500 on the market today, the number is growing, and values are dropping every day. The seismic industry is unlikely to come back for a while. Contracts for light drilling both for O&G and minerals have gone to the Bell 212s and Bell 205A-1s. We will closely watch what happens to the B212s and 205A-1s this season. |
The South East Asian Continental Shelf has enormous potential for the oil industry being at the doorstep of India and China. The territorial disputes over insignificent lumps of rock sticking out of the water bear witness to this bonanza. When this is sorted then China wil be going full tilt to reduce its dependency on foreign oil. This will continue to depress the price of oil as China is at the moment the world's biggest importer.
Good news for the helicopter industry, joint ventures with the Chinese if neccessary; not good news for Western helicopter drivers because, as I know, they have first class pilots of their own. |
Regardless of what the big companies may say to their shareholders, the first pilot number trimming is imminent.
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TM, you are behind the power curve with regards to those trimmings.
A certain large ooerator in the GoM has opened the furlough season before last Holidays. Over 30 were lrt go at last count.:( |
Hi Tot
Maybe in the GOM but I am talking about the two biggest players in other locations who until recently were recruiting. I hope it's only a very light trim or better still, a bit of a bluff. |
I hope for those, as has happened before, that have made the recent jump from miltary to civil that the 'last in first out' doesn't materialise.
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chc have just let 16 pilots go, add that and a couple of others who would have stayed if they'd been allowed, but weren't, and you have the start of pilot number reduction in CHC. Not UK sector by the way.
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Originally Posted by Fareastdriver
(Post 8872493)
I hope for those, as has happened before, that have made the recent jump from miltary to civil that the 'last in first out' doesn't materialise.
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Au contraire Bravo 73....
Fareastdriver was thinking more in the direction of: first in - first out :} |
No. I was thinking about the shakout in the early eighties. There we had people who had made life changing decisions to move up to Aberdeen with their new job flying the North Sea. They then found that they were the first to be made redundant. In retrospect most of them were lucky enough to recover their jobs a few months later but for some it was a very expensive shuttle.
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Yeah, like 20 months later!
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