Helicopter operators in the North Sea grapple with new challenges

Written by Mark Huber | Retrieved from Vertical Magazine

Despite the overhanging challenges of tax and environmental public policies, labor concerns, and supply chain issues, the North Sea offshore helicopter market will continue to grow at an estimated compounded annual growth rate (CAGR) of more than two percent through 2029.

So predicts a recent study from consultancy Mordor Intelligence. “New discoveries of oil fields in the North Sea region and private companies investing in oil-and-gas exploration and production are anticipated to drive the market,” the company notes. The consultancy also predicts that the United Kingdom will lead the offshore helicopter market during the period and that offshore wind energy development will grow at a faster rate than oil-and-gas within countries in the region, including the U.K., Belgium, Denmark, Germany, and the Netherlands. The U.K. continues to lead the region in offshore wind, more than quadrupling output since 2013, producing 23 percent of global offshore wind energy. Concomitantly, the U.K. leads Europe in offshore oil-and-gas production and continues to extract half its natural gas from North Sea wells.

Some of those wells reside in fields with substantial reserves, the majority of which are held in the Norwegian sector. However, oil production in the U.K. sector has been dropping precipitously, falling threefold over the last two decades. The latest U.K. licensing round between 2023 and 2024 resulted in 82 new licenses, down substantially from the 113 granted during the 2020 licensing round. The new licenses largely involve natural gas deposits in the southern North Sea.

This prompted a warning last year from David Whitehouse, CEO of Offshore Energies UK. “There are currently 283 active oil-and-gas fields in the North Sea, by 2030 around 180 of those will have ceased production due to natural decline. If we do not replace maturing oil-and-gas fields with new ones, the rate of production will decline much faster than we can replace them with low carbon alternatives.”

New wells can take as much as five years to bring in and the new leases are expected to produce the equivalent of 600 million barrels of oil by 2060. That is, if the leaseholders can continue to make an economic case for it. So far, they can. An estimated $28 billion will be spent in support of offshore operations in the U.K. and Norway in the coming year, according to the consultancy Rystad Energy. However, the North Sea Transition Authority’s 2024 Wells Insight Report found that shut-in wells rose to 31 percent of the available well stock and the Westwood Global Energy Group notes that five years of drilling in the region has only replaced 15 percent of existing production, between 2015 and 2019.

Taxation issues

The U.K.’s new Labour government took power over the summer, and in late July announced that the Energy Profits Levy (EPL) on oil-and-gas production would increase to 38 percent, bringing the total tax rate on the sector to 78 percent effective Nov. 1, and extended through March 31, 2030. In an official statement issued July 29, the government said it was also removing “unjustifiably generous investment allowances from the EPL by abolishing the levy’s 29 percent investment allowance for qualifying expenditures incurred after Nov. 1, 2024, and by reducing the extent to which capital allowances can be taken into account in calculating levy profits.” The EPL, first announced at a lower rate of 25 percent in 2022, has triggered a North Sea investment slowdown and even an exodus of some major oil companies well before Labour’s dramatic rate hike.

In September 2024, Offshore Energies’ Whitehouse predicted the rate hike would reduce tax revenues by US $16 billion between 2025 and 2029 as predicted capital investment in the U.K. North Sea sector would plummet by US $15.5 billion, resulting in “an accelerated decline of domestic [oil-and-gas] production, and a corresponding reduction in taxes paid, jobs supported, and wider economic value generated.” Some major oil companies are already slowing investment as a result or outright heading for the exit.

Neo Energy, one of the North Sea’s leading producers, said the new tax climate would materially slow its investment in the US $1.2 billion Buchan Horst project that was scheduled to come online in 2027. In May, Chevron, which has operated in the North Sea for 55 years, announced that it was selling its assets there and exiting the market. In July, Shell and ExxonMobil announced a deal to sell their NAM (Nederlandse Aardolie Maatschappij) to Canada’s Tenaz Energy. The Netherlands levies a 45 to 50 percent tax on revenues from the harvesting of natural resources. In the Danish North Sea, more than 55 platforms are producing oil and gas across 19 fields. In 2020, the Danish Parliament effectively banned the issue of new licenses there and the government announced it would end exploration by 2050. Denmark is the European Union’s largest producer of oil. It imposes a 52 percent hydrocarbon tax on North Sea oil and gas on top of the 25 percent corporate income tax.

This level of taxation has made offshore unions understandably nervous. In the U.K., trade union Unite reacted critically to the government’s boosted EPL and overall decarbonization plan, saying that “30,000 oil-and-gas jobs are at risk by 2030” and that “oil-and-gas workers can’t be the [coal] miners of net zero” emissions policy. The union said it would fight any government bans on oil-and-gas production unless workers were guaranteed “clean” energy jobs going forward.

The Operators

Helicopter service providers have been remarkably circumspect about these developments, typified by the response from a Bristow Group spokesman when queried by Vertical about the possible effect of the U.K.’s EPL hike. “We are in the process of reviewing this latest development to understand any potential impacts it could have on our business. In the meantime, Bristow will continue to safely support our clients in their offshore transportation needs.”

Bristow currently operates 13 helicopters in support of its U.K. offshore operations, primarily Sikorsky S-92As: nine in Aberdeen and two in Sumburgh. It also flies a pair of Leonardo AW139s from Norwich. According to the company’s most recent quarterly report, it also operates from Den Helder and Midden Zeeland in the Netherlands; and Bergen, Floro, Stavanger, Ekofisk, and Hammerfest in Norway. The company separately supports U.K. and Irish government search-and-rescue operations with separate, dedicated contract fleets of three S-92s, 15 Leonardo AW189s, and six AW139s. It is just one of several large operators in the region.

Long-time North Sea operator CHC acquired Babcock’s 30-helicopter operation in the U.K., Denmark, and Australia in 2021. However, the U.K.’s Competition and Markets Authority forced divestiture of the U.K. portion of the enterprise in 2022. It was acquired in 2023 by the Ultimate Aviation Group of South Africa as Offshore Helicopter Services UK (OHS). OHS operates a mixed fleet of approximately 15 S-92, AW189s, and AW139s from bases at Aberdeen and Sumburgh.

CHC has landed recent contracts to provide deep sea rig crew change services for Shell from CHC’s bases in Sola and Bergen (Norway) and AW139 service from Norwich to support the North Sea’s Sofia offshore wind farm. CHC operates a mixed fleet of S-92s, H175s, and AW139s from Norwich. Wind is becoming an increasingly important component of its business in the region. Last year it received a contract to support construction of the world’s largest offshore wind farm, Dogger Bank, off the Yorkshire coast.

NHV, also in the region, supports primarily oil-and-gas operations with 492 employees and a fleet that includes 10 Airbus H175 medium twins in Aberdeen, Scotland, and Esbjerg, Denmark; two Leonardo AW169 medium twins in Blackpool, U.K.; one AW139 in Den Helder, Netherlands, and two in Norwich, U.K. The company also operates several H145s in support of wind farms and shipping pilot services in the region. Worldwide, the company operates a mixed fleet of 35 helicopters. It recently signed a deal for four more Airbus H175s from lessor Milestone Aviation Group.

Challenging conditions

Aside from falling reserves and rising taxes, a challenging weather climate can make extraction and support difficult in the region. The area within the North Sea’s 290,000-square-mile (751,000-square-kilometer) footprint is host to the largest civil fleet of heavy instrument flight rules (IFR)-capable helicopters in the world. Until recently, that fleet was a duality, comprised largely of Sikorsky S-92A and Airbus Super Puma family helicopters. A series of gearbox-related accidents, culminating in the fatal 2016 accident near Turøy, Norway, undermined confidence in the Super Puma among the offshore workforce, and the type has now disappeared from the North Sea market. Airbus redesigned and replaced the type’s gearbox following an exhaustive investigation, but substantial reputation overhang apparently remains.

In June 2024, Unite released a helicopter safety survey of 1,200 North Sea energy workers, and the results were concerning. Eight years after Turøy, 75 percent of respondents said they still would not fly on a Super Puma. Nor were the results comforting with regard to the helicopter that has largely replaced the withdrawn Super Pumas, the S-92. The same survey found that 43 percent of respondents expressed concern over the S-92 supply chain and its potential safety impact; 35 percent said the S-92 was reliable, but supply chain issues had to be resolved; 34 percent said the industry was too reliant on a small number of helicopter models; and 19 percent called for more worker participation in the design and procurement of helicopters to address safety concerns.

Vertical previously reported that the availability rate for the S-92 had dropped to 85 percent due to continuing supply chain issues. This has happened while super-medium models, including the Airbus H175 and Leonardo AW189, have reported robust order books, while Bell expects its super-medium entry, the 525, to gain certification later this year. The Textron unit announced a purchase agreement for 10 525s to Norway’s Equinor in March 2024. The long-held industry consensus has been that super-mediums can perform most of the missions once flown by heavies such as the S-92 and the Super Puma.

A recent HeliOffshore study noted that continuing supply chain issues remain a “significant stress point in the industry” and are unlikely a short-term problem. “Following Covid and the prolonging of an uncertain future for the oil-and-gas industry, much of the supply chain reduced manufacturing and spares holding rates,” the organization noted. “This was followed by an increase in demand for flying, which has left the supply chain in a very difficult situation.”

Going forward, it is clear the supply chain as well as tax and environmental policies will subject North Sea helicopter operators to continued strain as the region grapples with managing the transition from oil-and-gas to wind power. The HeliOffshore study characterized the stress this placed on the offshore helicopter workforce as “unsustainable.”

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