News June 12, 19:17 Eastern Time
OFFSHORE LOGISTICS' OUTLOOK IS BRIGHT, DESPITE LAGGING DEMAND RECOVERY
Jun. 12, 2000 (Petroleum Finance Week, Vol. 8, No. 24 via COMTEX) -- Results for
its recently completed fiscal year don't show it fully. Still, Offshore
Logisitics Inc. (NASDAQ: OLOG) sees increased demand for its offshore helicopter
transportation services. So the Lafayette, La., oil field service company is
optimistic as it moves into fiscal 2001.
"The way we're seeing improvements is not unusual. The Gulf of Mexico tends to
come back more quickly than the North Sea, which is a higher-cost producing
area," Offshore Logistics President George Small told investors and analysts in
a teleconference early last week. "The March quarter was the first where we saw
flight hours increase from the comparable quarter a year earlier. But the
international arena is very, very encouraging. We're seeing more activity in
some remote areas of the world than we expected a year ago."
Wall Street oil field service analysts generally agreed that Offshore Logistics
has turned the corner and is starting to rebound. "It posted its first
year-to-year increase in flight hours this past quarter since September 1998,"
one told Petroleum Finance Week. "Prior to that time, its best quarter was March
1998, which was the last decent quarter for the Gulf of Mexico. Significantly,
the latest improvement came during a normally weak quarter. The summer quarter
usually is better because activity is at its peak in the North Sea. Many
helicopters also have to be on standby in the Gulf because it's hurricane
season."
But the analyst cautioned that the Gulf of Mexico's drilling recovery so far has
involved primarily shallower water jackup drilling that rely on work boats to
transport personnel and equipment. Helicopters come into play only when
semisubmersible rigs are involved, which has not happened extensively, he noted.
But the analyst added that this could be changing since Diamond Offshore Inc.
(NYSE: DIO), with its recently announced offering, seems to be gearing up to put
more of its semis back to work.
Other analysts were more enthusiastic. "We're very favorably inclined, " said
George J. Gaspar of Robert W. Baird and Co. Inc. in Milwaukee. "Margins
across-the-board all have very promising opportunities to increase dramatically
over the next year and a half. We're impressed with the potential altering of
demand for helicopter services for deepwater exploration and development, not
just in the Gulf, but also in West Africa and Brazil. Offshore Logistics is
pretty well entrenched in Nigeria, which should give it a good jump-off point to
provide aircraft to producers in other West African nations. And a potential
rekindling in the North Sea should accelerate in 2001." He rates the company's
stock a strong buy and raised his 12-month price target for it to $22 from $18
per share.
Offshore Logistics' North Sea operations apparently hold the key to its overall
improvement. Small said that the margins in its Bristow division were "virtually
break-even this past year, and only about 10 to 12 percent in previous years,
about half of what we get in the Gulf of Mexico, where it's more than 20
percent." He indicated that the company has started to reduce its work force
there and is evaluating its maintenance practices to assure that they become
more cost-effective without compromising safety and reliability.
"The North Sea market took quite a shot last year when a third of the rigs went
off line. We certainly will need to see some price improvements in Europe before
we get back to double digit margins. But we can do some works on head counts in
the meantime and recently received a new contract at significantly higher
rates," Small said. "If we can get Bristow back to its historic ranges, it
probably would be the most significant thing we could do for the company that
doesn't have anything to do with improving markets."
Falgoust said that the North Sea continues to lag Offshore Logistics' other
operating areas and looks as if it will be unprofitable again this quarter. "But
the company is restructuring there, although it was hurt when it did not get two
significant contracts renewed. More rigs are coming back into the area, which
should help," she pointed out. Gaspar suggested that there's ample opportunity
for improved earnings by the Bristow unit since it has gone through significant
downsizing. "The North Sea operations represent 40 percent of Offshore
Logistics' current revenue, setting the stage for at least a 10 percent
operating margin recovery," he noted.
West Africa, Mexico and Brazil offer significantly greater growth potential,
according to Drury Milkie, who recently took charge of Offshore Logistics' new
international division. "I think Nigeria, where our customers have announced so
many deepwater projects, is very exciting," he said during the teleconference.
"It was a market that used shorter distances, and he had equipment there to
serve that purpose. Now, our customers are looking deeper and we are moving
aircraft there to meet that need."
In Brazil, where Offshore Logistics has seven owned aircraft and three more
helicopters it shares with a joint venture partner, Milkie expects more
equipment to be needed soon. "The flight hours have been extremely high, more
than 150 hours per aircraft in March. We can't continue that indefinitely," he
said. Milkie said that Offshore Logistics hopes to finalize its joint venture
agreement there soon because a lot of what Petroleos Brasileiros S.A. is
drilling is far away, "not just from the beach line, but also from the closest
landing strip. We can reposition aircraft from the North Sea to handle this."
Offshore Logistics has taken its non-helicopter service segment, Grasso
Production Management Co., off the market after holding serious negotiations
with a European oil field service company that Small did not identify. "This
market is consolidating as such companies offer production management as part of
much larger service packages," he explained. "The company that expressed
interest in GPM planned to make it part of a package that would run from seismic
work to reservoir engineering. But the deal did not come down the way we wanted
and we took it off the market."
Small said that GPM already has signed $8 million of new contracts,
approximately 20 percent of its annual volume, and that the company looks more
valuable than ever to Offshore Logistics. "That's not to say that there won't be
a deal in the future. But we're satisfied with the way GPM is working and look
forward to increased activity there in fiscal 2001," he said.
"We're exciting about our prospects, although we recognize that they depend
heavily on commodity prices," Small continued. "But if natural gas prices stay
north of $3 per thousand cubic feet and West Texas Intermediate stays above $25
per barrel, there's no reason to expect our customers to cut their capital
budgets. If that's the case, we look forward to significantly improved earnings
next year."
- Nick Snow in Washington |
