JUSTINWASTNAGE / ABERDEEN, DEN HELDER, STAVANGER & SCATSTA
The crisis in the North Sea oil-drilling industry has hit helicopter operators who ferry workers to rigs. But are prospects set to improve?
The aviation industry does not usually welcome rising oil prices, but helicopter operators who depend on the fortunes of the North Sea oil production market have reason to be cheerful. After several years of intense competition, the industry has consolidated and the survivors are restructuring in the light of a stable oil price. There is even better news ahead: new exploration funds and government money look to provide a bright forecast for an industry that has struggled to make a profit as its clients have slashed contract values and safety costs have risen.
There is cautious optimism on both sides of the North Sea, a 575,000km2 (222,000 miles2) block of ocean lying between Norway and the UK, as the price of a 160 litre (42USgal) barrel of crude oil has managed to stay above the $20 mark all year. This is in marked contrast to the situation four years ago, when oil prices fell to $10/barrel in 14 months. This level, which was lower than production costs in some areas, led to the oil companies scrabbling to make cost savings. The helicopter operators, which principally ferry workers between the shore and various oceanic platforms and rigs, suffered as a result and were forced to compete for fewer contracts at lower prices. Willy Toner, UK general manager for one such operator, Bristow Helicopters, says oil companies looking for cost savings drove contracts down to "unrealistic" levels.
A similar crisis in the 1980s, when oil prices also plummeted, trimmed the number of players in each national market down to a handful. This process was repeated in 2000, when the strain of two years of unsustainable competition for market share forced the merger of two UK operators, Bond Helicopters and British International Helicopters (BIH, formerly Brintel), both of which were controlled by Canadian Helicopter (CHC). Once approved by the competition authorities, the new venture gave the company, based in St John's, Newfoundland, Canada, most of the market, not only in the UK and Norwegian sectors of the North Sea, but also in the secondary fields off Denmark and Ireland, through satellite operations.
CHC's main rival on the world stage is Lafayette, Louisiana-based Offshore Logistics (OLOG). OLOG owns 49% of Aberdeen, UK-based Bristow Helicopters, which in turn owns 49% of Norway's second largest operator, Norsk Helikopter. Norsk's majority shareholder, Ugland Holding, also has equity in Bristow.
A near-monopoly
Following the simultaneous withdrawal from secondary markets of Danish government-contracted Maersk Air and Dutch flag carrier KLM Helicopters, the last remaining competitor in the North Sea is Schreiner Aviation, located outside Amsterdam in Den Helder. Chief operating officer Frits Hooft says Schreiner has received indication from oil companies that it would be welcome to bid for contracts in the southern UK sector, bordering the Netherlands' present fields. Despite this, Schreiner declined the opportunity to acquire BIH assets in 1998.
Industry insiders point instead to the possibility of the Dutch company being absorbed into one of the two North American giants, most likely CHC, which lacks a presence in the small Dutch and German sectors. This theory is given credence, says Norwegian arm CHC Helikopter Services' managing director Jakob Bae, by Norway's stated government policy to restrict the market to two operators. The UK government, while less openly anti-competitive, is nonetheless thought to favour a period of enforced market stability.
Several years of under-investment had left operators with ageing fleets, labour unrest and the prospect of a pilot shortage. Following the consolidation, operators went back to the oil companies and demanded a sustainable market, says Toner. "This means sustainable in terms of new aircraft acquisition and crew training," he says.
Although the threat of competition may have receded, with CHC and OLOG's North Sea fleets being broadly in line with oil companies' requirements, changes in oil extraction technology have also affected contract values for the two companies. For example, from their experience in parts of the personnel-starved developing world, oil companies have developed fully automated sub-sea wellheads, requiring only one or two workers instead of the teams of tens of rig crew traditionally employed. The introduction of these installations into the North Sea was only partially offset by new finds in deeper parts of the ocean. Activity in the sector fell 30% in the last 10 years, says Toner.
Even without the advent of unmanned platforms, better systems integration and resource planning at oil company flight departments had led to more efficient flight patterns. In the 1980s, for example, it was not uncommon to have one helicopter dedicated to one or two individual platforms belonging to one oil company, with helicopters flying in single workers at a time. At a cost of around £7,000 ($10,900) per 2h flight, it is not surprising that the oil companies revised their flight plans to maximise usage. Worker contracts were altered to ensure common 14-day shifts, schedules were published in a common database and oil companies began sharing flights across several installations.
Streamlining operations
In Norway, oil companies have created regional alliances to formalise flight sharing. Bae says that, although some new fields have opened, many others have closed as reservoirs are depleted and the consolidation and co-operation between oil companies has led to efficiencies such as joining oil fields by drilling bore holes between reservoirs. In the UK, meanwhile, Bristow FlightShare was established in 1997 to offer a bus-like service between installations. Today, shared flights account for around 7% of all UK flights. Although this figure is lower than originally forecast, the exercise has also led to greater operating efficiency among the oil companies. Even once-commonplace pricing structures such as chock-to-chock charging have been re-evaluated, with several oil companies replacing them with retainer fees.
The new round of consolidation should leave the operators in better shape than ever, says Toner. Bristow and Norsk have started extensive collaboration in several areas, including flight operations, personnel swaps and the development of training programmes. Each OLOG-affiliated company has been restructured into business units in a bid to streamline operations. Bristow has also centralised its UK operations to its Aberdeen facility, merging staff from across the country.
Not surprisingly, fully integrated CHC goes further: after harmonising computer systems and management procedures, it has awarded the Aberdeen maintenance contract to its Norwegian division Astec, and is studying the creation of a combined training facility. More ambitious, though, is the plan to have one northern North Sea fleet divided between CHC Scotia and Stavanger-based Helikopter Services. If achieved, this would give CHC the opportunity to divest itself of older helicopter types.
Manufacturers and operators, having developed mission-specific variants of the helicopters, concentrate a lot of effort in keeping them flying and the age of many aircraft in service in flight hours is significantly lower than the calendar age of the airframe would suggest. For example, of the first 10 Sikorsky S-76s delivered in the 1970s, seven are still in service today, albeit with all-new avionics, rotors and gearboxes.
The lifespan of aircraft is also increased by maintenance procedures specific to the highly corrosive environment of constant over-ocean operation. North Sea helicopter engines are stripped and washed free of salt deposits upon each daily return to base and every external part is given an anti-corrosion coating at time of manufacture. Combined with computerised component monitoring, this experience has enabled Sikorsky operators to increase the time between major overhauls for an S-61 to from 9,000 to 16,800h when the aircraft was introduced in the 1960s.
Despite these life extensions, there is still a critical need for new aircraft and the newly created global operators are looking to rationalise their fleets. CHC, OLOG and Schreiner all have bases in emerging oil exploration zones such as West Africa, the South China Sea and South America. North Sea operators are now able to deploy the older aircraft in their fleet, mainlyS-61N heavy twins and S-76 medium twins, to "more suitable" operating areas around the world. Schreiner is to shift its S-76s to Nigeria; CHC will relocate its Sea Kings to Spain for coastguard activities; and Bristow has already reorganised its fleet to reduce excess capacity in the North Sea.
What this has created is the dominance of the 19-seat Eurocopter AS332 Super Puma twin-engined helicopter, mainly due to its large cabin and 815km (440nm) range. CHC Scotia is also launch customer for Eurocopter's re-engined, five-bladed EC225 (Super Puma Mark 2+), to add to its fleet of 19 Super Pumas, four AS365N Dauphins and three AS365N2s.
The emergence of the Super Puma as the de facto standard for North Sea operations is due in part to the development of mission-specific modifications made to each helicopter, most of which are proprietary. Given the newly created CHC-OLOG duopoly, coupled with an 18-month backlog from Eurocopter, the UK competition authority advises any aspiring entrant into the market (which realistically only means the on-shore rump of Bond and Alaskan offshore operator ERA Aviation) to look for an alternative to the Super Puma.
Variant launches
Keen to fill this void, should it ever appear, both Bell and Sikorsky have launched new helicopter variants. Sikorsky has a temporary solution in the S-76C+, an uprated version of the S-76C with Turbomeca Arriel 2S1 engines. Further down the line, building on production of military versions of the S-71, the low price of the 22-seat S-92 is certain to attract cost-sensitive operators if it achieves its certification deadline at the end of this year.
Agusta, in collaboration with its US partner Bell, is already reporting strong interest in its AB139, which Caspar Westerman, general manager of Schreiner's Den Helder base, describes as the "perfect North Sea helicopter". Despite setbacks caused by a fatal crash during testing, Agusta predicts the $7 million aircraft will be in production by 2004 and Schreiner's plans to bid for southern sector contracts in that year rely on the availability of a North Sea-equipped variant. AgustaWestland is also considering bringing its large EH101 up to North Sea specification, if a customer can be found.
The definition of what can and cannot be flown in and out of ocean-anchored helipads is set to be enshrined in the thirdchapter of the Joint Aviation Regulations on operations (JAR-OPS 3), as soon as the European Joint Aviation Authorities can decide on the fine print - largely the issue of translation. JAR-OPS 3, however, is likely to be exceeded by operators' own standards.
Despite some high-profile incidents (like the loss of two crew and nine passengers in May after a Bristow Sikorsky S-76 helicopter crashed into the sea off the east coast of the UK), North Sea helicopters are safer than single-engined fixed-wing turboprops in terms of fatalities, says Graham Dainty, training and standards manager at Bristow. A study shows that the accident rate for twin-engined commercial air transport helicopters weighing under 2,300kg (5,070lb) is just over two a year, while single turboprops in the same weight class have on average two and a half accidents a year, based on a three-year moving average.
Despite this, recruitment by different oil companies puts constant pressure on the operators, since there is no standardised training course for new staff - each company even using different types of life jackets. But it means that the North Sea often gets equipment upgrades ahead of mainstream aviation.
"In general, the focus on safety has intensified over the years, mainly at the request of offshore workers. So when there is an accident, it creates a lot of attention" says Bae. Helikopter Services lost a Super Puma off the coast of Brønnøysund five years ago, killing 12, as the result of an engine overspeed caused by a sheared connection cable. The Turbomeca engines were modified as a result. "Safety is a continuous process between the aviation authorities, the manufacturers and the operators because no one wants another accident," says Bae.
The safety record of offshore operators is also testament to the pilots, says Bae. The role of a North Sea pilot is to actually fly the aircraft in challenging conditions, rather than to oversee the functioning of the autopilot, he says. However, the pilots feel they have lost ground in terms of salary over the years compared with their colleagues in airlines.
Caspar Westerman, general manager at Schreiner, says that, when it took over from KLM Helicopters, it had to restructure the collective labour agreement that the Dutch flag carrier had in place and which mirrored the fixed-wing operation - but upwards, rather than downwards. "When you consider that a North Sea pilot has to routinely face force seven winds in the dark and sleet, you start to think that airline pilots are paid too much and rotary-wing pilots too little," he says. This view is backed up by research carried out by the British Airline Pilots Association, which showed that at around $75,000 a year, rotorcraft captains with 10 years' experience were earning around one-third less than their fixed-wing peers.
Bae says pilots in both the UK and Norway have become more assertive in closing the gap between fixed-wing and helicopter pilots. Industrial action by pilots has led to large pay rises, including some of around 30% for CHC pilots on both sides of the North Sea. Bristow is thought to have agreed to a similar pay increase and Schreiner has yet to conclude its negotiations. The situation is aggravated by the lack of new recruits coming into the market. The hiring of qualified pilots has therefore become a challenge and operators recruit more from the civil emergency service sector than from the military now that military pilots are better paid.
Despite this massive rise in labour costs, operators are looking to the future with renewed vigour. CHC has increased staffing levels by one-fifth this year ahead of new contracts expected early next year. Much of this optimism is fuelled by discoveries in the North Sea, such as a new oil field called Buzzard, discovered in January, which is thought capable of producing more than 400 million barrels a year. There is also a growing desire to source petrochemicals from regions outside the Middle East.
In light of this, operators are developing new bases to service the oil companies' evolving needs. For example, Bristow and charter carrier Flightline have developed a fixed-wing service, using a BAe 146, between Aberdeen and Scatsta in the Shetland Islands, 150km off the UK's north coast, as a staging post to travel to new fields being explored in the East Shetland basin.
Passenger growth
There are around 600 passenger movements a day, says Willy Inkster, airport manager, but this could treble depending on future offshore installation growth in the area. Bristow is also in talks with Atlantic Airways about a new base on the Danish Faeroe Islands using two new helicopters, and satellite operations in Iceland.
Norway's government, meanwhile, is to increase its development fund for North Sea oil exploration next year by 30%, in an attempt to stimulate growth in the industry. Most of this money will be spent exploring oil and gas deposits in the deep waters near the Arctic, where Helikopter Services is expanding its Hammerfest base.
Although oil production is still forecast to slide by 100,000 barrels this year, the industry remains upbeat, as natural gas production is being developed to replace it. This, with new terminals, platforms and rigs, could propel the offshore helicopter industry to the profit levels of the 1970s and free the industry from the tyranny of oil prices for ever.
Source: Flight International
