Over-exuberance in an up-cycle is common and can be expensive. How many times have we heard phrases such as “this time it’s different” or “we are entering a super-cycle” … decision making at that point is clearly difficult and the cost of getting it wrong potentially very high.
The reverse also applies. In a protracted downturn companies may become focused on having to “fire-fight” numerous micro issues at a business level ranging from cash-flow to staffing (or even managing the impact of a major pandemic.) Losing sight of the macro picture is easy to do and furthermore it can become easy to miss key inflection points and to think that business “will never recover.”
We think we are at a key inflection point in this crisis.
The macroeconomic data, news flow, and flight data are all turning in favour of a demand-side recovery.
S-92 MSN 920063 operated by Bristow returns to Aberdeen on the 21st October 2020.
Offshore rotorcraft activity is recovering faster than expected. Recent weeks have seen the strongest activity for heavy & super-medium helicopters since March of this year.
We have been continuing to track rotorcraft activity in terms of number of flights vs the year prior and have been sharing that with clients on an ongoing basis. We have been sense-checking this vs OEM data where possible. What we have seen in recent months is a gradual recovery in the number of flights of the crew transfer aircraft that we are tracking. Last week was the best week for activity we have seen this year since early March. There are several factors at play here including a resumption of (or even expansion of) offshore drilling activity in a number of key geographies. In Guyana, for example, not only have two rigs (that stopped working in the crisis) now restarted, an additional rig is being brought into the country by ExxonMobil (bringing the total number of rigs working for the operator to five compared to four at the start of the year). In the UK sector of the North Sea, manning levels remain down on pre-crisis levels but up some 2,000 people vs the bottom of the crisis. Overall North Sea flight activity is comparable to the start of the year.
In the US GoM we see tropical storms each year in the late summer and early autumn and this has contributed to the number of flights in recent weeks as platform evacuations and movement of aircraft in-land have occurred as a result of weather events.
Year-on-Year Flight Volume for Offshore Crew Change S-92, AW189, H175 and AW139 aircraft, 2020 vs 2019.
Expectations for economic growth for 2021 are positive. This bodes well for oil demand and oil prices.
% Change in GDP - latest quarter and forecast for 2020 and 2021. Source: The Economist
The Covid 19 crisis has pushed most economies into quarters of sharp negative growth, suppressing oil demand and pushing oil prices to record lows. Expectations for 2021 are for economic recovery and we already seeing an improvement in both crude oil spot prices and futures prices.
End-customers (upstream E&P companies) are operating with positive free cash flow.
This is an encouraging indicator for further investment in energy projects, our belief is that offshore hydrocarbons continue to offer some of the best returns per dollar invested and upstream energy companies will need those returns to be able to fund investment into energy transition initiatives. Free cash flow is a key determinant of the ability of an upstream company to invest in new developments. In the last month we have seen rig offshore rig counts improve in Latin America, the Middle East, Europe and Africa.
Oil Major Free Cash Flow. Source: Company Reports
Brent Crude Spot Prices $/bbl. Source: EIA.
We are now into the final chapter of the Coronavirus outbreak.
Everyone is being careful with the language they use, but ultimately a vaccine with 90% efficacy is going to be a game-changer and we could be less than a month from seeing an initial roll-out. This won’t change the ‘second wave’ we are seeing in Europe and the US and there are undoubtedly difficult months ahead. However, for the first time we have good reason to believe that there is a path to putting Covid 19 behind us in 2021.
Steve Robertson, Director
12th November 2020
Air & Sea Analytics
Existing Air & Sea Analytics clients can track the all of the above macro data (with interactive charts) and also the helicopter-specific data through our dashboard system otherwise known as ‘The Collective’. Please get in touch for more details.
