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ValueX Vail 2015 Presentation: Bristow Group

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Matthew Griffith, CFA presentation on Bristow Group from the ValueX Vail, June 26, 2015.

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Bristow's Business

Simple Business Model

Bristow operates a fleet of owned and leased helicopters serving two end markets

Bristow Group

Monthly Fixed Charges and Production Focus Mute Cyclicality

  • 70% of operating income comes from a fixed monthly charge and is independent of hours flown
  • 60% of Bristow’s revenue is driven by production rather than exploration and development
  • Contracts typically last from two to five years

Bristow Group

  • EIA oil production statistics support the assertion that variable revenue is driven by production –over the past two years BRS’ flight hours have a strong relationship to oil production in their primary geographies

Bristow Group

  • There are ~8,000 offshore production installations versus ~800 drilling rigs
  • It is unlikely companies will broadly shut-in producing wells
  • Over the medium term, producing platforms will continue to require regular transportation of operations and maintenance personnel independent of the price of crude

“In the production phase, long-term crew transfer support is required. As production continues to ramp up, particularly in deepwater regions, the drivers for a larger fleet of modern helicopters strengthen.” –Offshore Engineer(blog)

Pricing of Oil & Gas Support Services Less Volatile Than Drilling

Bristow Group

  • Drillers –
    • SLB CQ1 Earnings Release –“…first-quarter revenue decreased 19% sequentially driven by the severe decline in North American land activity and associated pricing pressure…three-quarters of the overall sequential decline was due to lower activity and pricing…”
    • HP CQ1 Earnings Call –“As expected, the number of quarterly revenue days significantly declined, resulting in…a 24% decline in revenue days as compared to the first fiscal quarter…looking ahead to the third quarter of fiscal 2015, we expect revenue days to decrease by about 32% quarter-to-quarter…”
  • Bristow -
    • CQ1 Earnings Call –‘Now in the fourth quarter, we saw…[the] onset of contracting helicopter demand, primarily in the North Sea and in the US Gulf of Mexico. We believe thisregional contraction will continue and translate into a 5% to 10% operating revenue decline in our oil and gas business in FY 2016”

While declining oil prices lead to immediate volume and pricing pressure at most oil service companies, BRS expects only 5-10% declines for the entire fiscal year

  • These data points appear consistent with the oil services pricing environment post-GFC

Becoming Less Reliant on Energy

  • Bristow is no longer solely reliant on the offshore oil and gas transportation end market
    • Starting in April 2015, BRS is providing comprehensive search-and-rescue services for the UK
  • At full run rate, the UK contract could account for 12% of company revenue
    • Over the 10-year life of the contract, BRS estimates an incremental $2.5B of revenue and $1.1B of adjusted operating income
    • 85% of revenue from SAR is fixed monthly charges versus 65% for oil and gas due to lower flight hours and higher availability requirements
    • Adjusted margins are expected to be in the mid-40% range versus FY 2015 adjusted margins of 33% for the existing European business
  • Other countries are exploring outsourced SAR arrangements similar to the UK’s in order to reduce spending and improve quality of service
  • Bristow has also started to explore expansion into air medical

Bristow’s Competitive Advantage

Duopoly Market in Offshore Transport

  • Bristow and CHC (ticker: HELI) have the majority of market share in the offshore transportation market

Bristow Group

Consistent, Safe Operations Across Geographies

  • Bristow operates in four main segments –Europe/Caspian (43% of FY 2015 revenue), Africa (19%), Americas (21%), and Asia Pacific (16%)
  • Bristow’s customers are the largest IOCs and NOCs in the world
  • Customer list includes Chevron, Conoco Phillips, Exxon Mobil, Shell, ENI, Statoil, and Petrobras (through an unconsolidated affiliate)
  • This does lead to customer concentration –the top ten customers account for 58% of revenue
  • The majority of Bristow’s large customers operate offshore across several of their geographies
  • Only CHC offers comparable services to the largest E&Ps globally

See full presentation below.

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