North Sea helicopter operators are among oilfield-service companies looking forward to a regime change in the area's E&P business, besides asset buyers and brokers, and governments hungry for increased tax revenues. "The seeds of an activity recovery in the U.K. sector were sown earlier this year by the British government's decision to reduce royalties, offer incentive lease terms for new acreage awards, and to push the fallow prospect and acreage initiative," says Allen Brooks, Houston-based oil-service analyst for CIBC World Markets. Brooks covers St. John's, Newfoundland-based CHC Helicopter Corp., which is the leading helicopter-service provider in the North Sea, in flight hours. The first large example of the coming sea change was BP Plc's sale earlier this year of its prolific Forties Field to Apache Corp., which is expected to ramp up spending to increase the field's production. Other recent North Sea deals have included purchases by Perenco (from BG Group and from BP), Statoil (from Shell), Talisman (from BP), Canadian Natural Resources (from Murphy Oil), Tullow Oil (from Shell), Centrica Resources (from BG Group) and Paladin Resources (from Total and from Kerr-McGee). Brooks says, "Acreage with previous, but fallow, discoveries or that will not be retained by major oil companies, is being made more easily available to smaller independent oil and gas companies. As a result, there is very high level of interest in new companies entering the North Sea." These new entrants "will not want to wait around to find out what they have just acquired." He expects increased drilling, development and production-related work in the region sometime this year or next. CHC Helicopter (Toronto: FLYA) is joined by Lafayette, Louisiana-based Offshore Logistics Inc. (NYSE: OLG) as the major publicly held helicopter-service operators in the North Sea, the latter through its Bristow subsidiary. During the 1998-99 oil-price bust, the region's helicopter business was a dismal place. Since then, operations have become profitable again, and increasing profit margin is the prize each are hoping to win. Brooks expects investor enthusiasm for CHC shares will improve with the sea change but not sooner. "The inability to call the timing of an improvement in North Sea drilling and development activity likely will limit investor enthusiasm for the stock in the near-term." Until this renaissance for oil-service businesses in the North Sea , "flying hours in the North Sea could be up or down...." Flight hours for Bristow totaled 10,318 in the quarter ending March 31, down from 11,687 in the same period in 2002. CHC's flight hours in the Europe market totaled 19,430 in first-quarter 2003, down from 21,650 a year earlier. Both service providers reported increased revenues, per flight hour, from the region, however, as the result of increase fees: C$108.6 million for CHC, compared with C$102.1 in the same period a year earlier, and $42.8 million for Bristow, about as much as the year earlier. One of the leading economic indicators Alan Greenspan uses in measuring the direction of the U.S. economy is orders for cardboard-increased or decreased demand for this suggests the same for manufactured goods. Helicopter flight hours could be a leading indicator of increased oilfield activity in the U.K. North Sea and elsewhere. -Nissa Darbonne, Managing Editor
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