by Aaron Levitt | April 30, 2013 12:42 pm
It’s no secret that I’m a fan of the oil services industry.
As North America’s unconventional and deepwater drilling revolution unearths a plethora of hydrocarbons, all the firms that provide the equipment for such operations continue to profit. While high-tech deepwater drilling rigs and state-of the art fracking equipment capture most attention, oil service stocks are behind everything from drill-bits to worker housing and other interesting niches.
Heck, there’s actually an entire group of companies that focus on shuttling workers back and forth from shore to oil rigs in the Gulf — energy’s “Checkered Cabs,” if you will.
In this case, there certainly is “riches in niches.”
Generally, the E&P operators of the Gulf’s various rigs don’t own any major boats or helicopters. Instead, the production industry relies on a network of maritime vessel and helicopter companies to handle virtually all of their transportation needs, whether than means ferrying personnel or hauling heavy equipment and industrial supplies.
The average offshore oil rig worker tends to work two weeks on and two weeks off. As such, the current 1,600 helicopters servicing offshore oil and gas platforms across the globe are quite busy … and quite profitable.
Oil exploration firms generally pay helicopter operators a daily rental fee for their services, with extras being charged depending on flight times and other conditions. The average medium sized helicopter — which can hold 10 to 12 passengers as far as 120 miles — can cost an oi-and-gas firm anywhere from $1.5 million to $2 million per month to rent.
With some deepwater rigs located 200 miles offshore and requiring a bigger staff to operate, day rates for larger helicopters have surged in recent years. Overall, that’s allowed the oil-and-gas helicopter operators to rake in an excess of $4 billion annually.
More importantly, as we continue to tap the oceans depths for energy, the use and demand for these firms’ services will continue to grow — so much so that analysts at consultancy Lucintel estimate that the global helicopter industry will reach an estimated $24.7 billion by 2017.
That will certainly benefit these three oil and gas helicopter players:
With 556 different helicopters under its umbrella, Bristow Group (NYSE:BRS) is actually the second largest air-force in the world after the U.S. military. It spreads that fleet across the globe and recently has been racking up contracts, including one with Brazil’s Petrobras (NYSE:PBR) to provide helicopter services for its massive offshore efforts.
Analysts estimate that PBR’s helicopter needs will rise 350% over the next decade as it taps the nation’s rich pre-salt fields. As such, Bristow has been busy purchasing smaller independent rivals to add to its fleet.
To top it off, as the largest player in the space, Bristow features some of the juiciest margins at 15.4%, along with a decent 1.3% dividend yield. While that yield isn’t huge, it is cheap. Although BRS shares at near a 52-week high, they are currently trading at a forward P/E of 14.
That’s not too high considering the potential growth of the sector and Bristow’s leadership position.
Slightly smaller player PHI (NASDAQ:PHII) is essentially a direct way to participate in deepwater oil and gas exploration in the Gulf of Mexico. The company — whose initials actually stand for Petroleum Helicopters — primarily receives its revenue from servicing the Gulf and has expanded into larger helicopters designed to serve rigs more than 200 miles offshore in nearly 10,000 feet of water. Nearly 165 of its 268 aircraft operate in the Oil and Gas sector.
Its strict focus on the Gulf can be both good and bad. Margins at PHI are only around 10% since other places like Nigeria and Brazil command higher day rates. Still, the Gulf promises to be a hotbed of activity for years to come as new deepwater discoveries continue.
PHI currently can be had for a forward P/E of just 7, according to Morningstar. Plus, with a market cap of just $400 million, the company is firmly in buyout territory.
Spun off from support vessel firm Seacor (NYSE:CKH) in the beginning of this year, Era Group (NYSE:ERA) is one of the largest helicopter contractors, with 56% of its revenue coming from oil and gas operations. The company operates across the globe using both an operating business model as well as contract leasing business model.
Contract leasing is more profitable since it means the E&P firm is responsible for all the costs involved with flying, like fuel. The contract leasing business model accounted for roughly $60 million in revenue in 2012. That allowed Era to enter new markets — such as India and Brazil — while generating increasing cash flow.
Margins at Era are similar to PHI at just over 11% and the firm currently isn’t profitable since being spun-off. However, given its entrance into new markets, shares could be a buy as they haven’t moved much since Seacor let them loose.
As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.
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