Offshore Logistics, Inc. Business Information, Profile, and History

Company Perspectives:

Our Company's mission is to provide the safest, most cost-effective and most reliable service to customers in a diverse community of markets including the Gulf of Mexico; Alaska; the North Sea region, including England, Scotland and Europe; and a number of international markets including Brazil, Mexico, Colombia, Australia, Nigeria, China and others.

History of Offshore Logistics, Inc.

Offshore Logistics, Inc., with headquarters in Lafayette, Louisiana, provides a variety of services to the petroleum industry, including air transportation and oil production management. Through a network of subsidiaries and affiliates, it operates one of the largest fleets of commercial helicopters in the world. Although it principally operates in the Gulf of Mexico, the North Sea, and Alaska, over its history it has provided logistical services in close to 100 countries. It is the only helicopter operator in the world to serve both the Gulf and North Sea oil markets. Its consortium of subsidiaries and partially owned affiliates includes Air Logistics, Air Logistics of Alaska, Inc., AirLog International, Inc., Grasso Production Management, and Bristow Helicopter Group Limited. Air Logistics provides helicopter transportation services for the offshore petroleum industry in the Gulf of Mexico, while its counterparts, Bristow Helicopters and Air Logistic Alaska do the same for oil production sites in, respectively, in the North Sea and Alaska. As of the end of March 2000, Air Log and Bristow operated 380 aircraft, 78 of which were under the control of unconsolidated entities. In addition, OLOG provides support services in other parts of the world, including Africa, Asia, the Pacific Rim and Central and South America. Grasso Production Management, Inc., operating in the Gulf of Mexico, is a major provider of oil production services. It offers contract personnel plus medical and engineering services to the Gulf's oil and gas industry and is a wholly owned subsidiary of OLOG. The company is not solely dependent on the petroleum industry, however; it also offers emergency services and support to agriculture and forestry industries.

1969--83: Offshore Logistic Gets Off and Running in the Oil Boom

Burt Keenan started up Offshore Logistics in 1969, after studying Business Administration at Tulane University, where he earned both his B.A. and M.B.A and developed his interest in capital investment in middle market companies. As Offshore Logistics' name implies, its purpose was to provide support services to the rapidly expanding offshore oil industry, then on the verge of a major boom. Initially, Keenan's company used boats to transport workers and materials down Louisiana's bayous out to offshore drilling platforms in the Gulf of Mexico 'oil patch.'

Although crew boats and supply vessels continued to meet many of the needs of the offshore oil industry, such as rotating the 'seven on, seven off' crews working on the rigs, a quick response capability mandated the use of helicopters for some tasks, and Offshore started using them in 1972, competing with such established companies as Petroleum Helicopters Inc. (PHI), which by 1970 had already logged over one million flight hours.

Keenan slowly built up the company's fleets of vessels and helicopters, faring well through the 1970s when offshore drilling in the Gulf of Mexico got into high gear. Management did face a few problems. For example, in 1975 the Teamsters Union mounted a campaign to unionize OLOG's pilots, something they had done at Petroleum Helicopters as early as 1970. However, the unionization efforts failed and would continue to fail for another two decades. A greater challenge for Keenan was to make significant inroads in a market dominated by PHI.

In the 1970s, Keenan also hired some key personnel, men who would survive his 1986 resignation and rise to important executive positions. Among others that Keenan hired as pilots in 1972 was Hans J. Albert, who would become OLOG's executive vice-president of international operations in 1999. In 1976, James B. Clement joined the company as controller. (He would become Keenan's successor as president and CEO in 1986--87.) In the next year, 1977, George M. Small also joined on as company controller. In 1997, when Clement became chairman, Small became the company's president, director, and COO.

In 1980, Offshore floated a public issue of 800,000 shares of $2.4375 convertible preferred stock that sold out at $25 per share. The proceeds of the sale were used to reduce debt as well as fund the purchase of needed equipment. The largest investor in Offshore was Atwood Oceanics, Inc., which purchased a 7.25 percent stake in the company in 1983, then increased it to 20 percent when OLOG hit troubled times with the deflation of oil prices.

1984--89: OLOG Survives the Deep Oil Industry Recession

Offshore Logistics was hit very hard in the oil bust. In 1984, it was forced to suspend its common and preferred stock dividends. In the next year, when its short-term debt climbed to over $71 million, the company sold its corporate office building and some aviation and marine equipment. It also cut employee salaries by ten percent and reduced paid vacations. Then, under pressure from creditors, it also restructured its principal and interest payments. In an additional move to remain viable, it transferred title to its fleet of 24 domestic supply boats and ships to the U.S. Maritime Administration in exchange for $50 million in loan guarantees. The debt service on the 24 vessels had cost the company about $14 million between 1983 and 1984, an expense that by 1985 it could no longer offset from the declining revenues produced by them. Offshore's agreement with the Maritime Administration reduced its long term debt of about $120 million to about $75 million. The company kept only its fleet of helicopters and international vessels.

In 1986, with the company struggling to survive, Keenan resigned, swapping his interest in OLOG for the cancellation of a personal $3.6 million loan he had floated with the company in 1982. He would eventually join the firm of Chaffe & Associates, Inc., a New Orleans corporate service company. With Keenan's departure, operational control of Offshore Logistics passed to senior vice-president Clement, who took on the posts of president and COO. At the time, OLOG was still in deep trouble. In the fiscal quarter that had just been completed in March, it logged a $2.9 million loss from revenues that had dropped to $19.1 million from $26.9 million in the same quarter the previous year.

For the remainder of the 1980s, under Clement's leadership the company continued following its strategy of selling its ships and boats and buying some of the assets of companies that were also using helicopters for offshore support services. By January 1987, the company also completed a recapitalization and debt restructuring that gave it some breathing room. By trading 31 percent of its stock, the company was able to lower its minimum annual debt service from $22 million to $8 million and free some capital for equipment purchases. Its chief acquisition was made in 1989, when it bought helicopters from a unit of Omniflight.

1990--2000: Some Early Obstacles and a Strong Finish

Although the offshore oil industry was still depressed at the start of the 1990s, up until the later part of fiscal 1991 the demand for OLOG's helicopter services continued to grow, helped some by the fact that some its smaller competitors stopped providing helicopter services altogether, leaving a vacuum that Offshore and its major competitor, Petroleum Helicopters, were quick to fill. Meanwhile, OLOG made its commitment solely to air support services, selling off the remnants of its marine fleet in 1991 and closing down its Marine Division altogether. Proceeds then went into the purchase of new helicopters. Its air fleet grew to 145 aircraft by March of 1991, at which time it had another 15 helicopters on order, with plans for adding 12 more in fiscal 1992.

With a 25 percent market share, second only to Petroleum Helicopters' 50 percent share, Offshore had emerged as a major provider of helicopter services in the Gulf and had doubled it revenue between 1989 and 1991. It appeared to be positioned to raise its earnings by about 20 percent per year. Even when Iraq's invasion of Kuwait brought a steep increase in aircraft fuel cost, OLOG was able to add fuel-cost surcharges to its rates without complaints from its principal customers. Also, because 60 percent of its revenue came from servicing existing production platforms, it was fairly well buffered against swings in the riskier oil industry enterprise--exploration drilling. It had also begun tapping into more markets abroad. In 1990, in a partnership with a Norwegian company, it formed H.S. Logistics, which soon landed contracts for providing helicopter services in New Guinea, India, and Brazil. It also had a 25 percent interest in a helicopter service operation with the Egyptian government and a sideline business providing training and maintenance services to helicopter operators in Indonesia and Mexico.

However, the industry's downswing in the early 1990s worsened, and by the end of 1991 new construction and drilling fell sharply, driving the rig count in the Gulf of Mexico to its lowest point in four years. It remained stagnant throughout 1992. To deal with the problem, Offshore's management imposed stringent cost controls over its domestic operations and attempted to compensate for the drop in domestic flight hours by increasing the company's international operations, which, at the end of 1991, had been using only ten of OLOG's 154 helicopters.

Although the rig count in the Gulf improved in 1993, which led to a rebound in contracted helicopter services through 1995, Offshore had already begun following through on plans for diversification of its operations that it had made in 1992. Convinced that the instability of the industry was forcing some restructuring of the nation's oil and gas industry, the company began a new phase of development. In 1993, it purchased a 50 percent interest in Seahawk Services Ltd. and for the first time began offering oil production management services for offshore drilling and production rigs. Seahawk was proffering these services as well as providing offshore medical support services and temporary personnel to the petroleum industry. In October of 1993, OLOG took additional steps to expand its oil and gas production management services by trading its share in Seahawk for a 27.5 percent interest in Grasso Corporation, a Dallas-based oilfield services company whose wholly-owned subsidiary, Grasso Production Management (GPM), was providing similar services to the oil industry in the Gulf. Like Seahawk, GPM provided contract personnel and medical and engineering services to offshore sites. OLOG's investment in Grasso at that juncture amounted to about $4.13 million. The investment grew in September 1994, when, through a merger agreement, OLOG acquired the remaining 72.5 percent interest in Grasso Corporation by issuing a 0.49 share of common share for each share of stock held by Grasso's shareholders. The merger, treated as a purchase for accounting purposes, turned Grasso Production Management (GPM) into a wholly-owned OLOG subsidiary.

In October of that same year, OLOG bought 75 percent of Cathodic Protection Services (CPS), a company that provided oil companies with corrosion control services. CPS, headquartered in Houston, Texas, was established in 1946. It was the nation's first commercial engineering company exclusively devoted to using cathodic corrosion control in pipelines, oil and gas casings, offshore rigs and platforms, storage tanks, and other steel structures. However, OLOG did not keep its majority interest in CPS, electing to sell it in 1997, in part to offset the cost of its 1996 purchase of a 49 percent share in Bristow Aviation Ltd., a British helicopter company that served the oil industry in the North Sea with operations parallel to those of OLOG in the Gulf of Mexico.

It was in also in 1997 that Clement retired, and CFO George Small succeeded him as Offshore's president and CEO. The following year, OLOG increased the size of its helicopter fleet, purchasing 23 new aircraft, 18 of which it bought outright. These were to be added to its fleet of helicopters and fixed-wing planes that by May 1997 had already climbed to 307 aircraft.

Prospects for increasing contracted flight services seemed very good in 1998. Among other things, Bristow landed a seven-year contract with Shell Exploration UK. However, a temporary setback came in 1999 when depressed oil prices slowed down North Sea exploration activities and forced OLOG to curtail some of its operations. That proved to be a brief lull, however, and in the summer of 2000 crude prices soared up again. In any case, thanks to its diversification in the 1990s, the company seemed most unlikely to be derailed on any oil-price roller-coaster ride provided courtesy of OPEC. It was also doing well enough by the decade's end let the unionization of some of its personnel roll easily off its corporate back.

Principal Subsidiaries: Air Logistics of Alaska Inc.; Air Logistics LLC; Airlog Part Sales Inc.; Offshore Logistics Management Services; Grasso Production Management Inc.

Principal Competitors: CHC Helicopter Corporation; Petroleum Helicopters, Inc.; Rowan Companies, Inc.

Chronology

• Key Dates:

• 1969: Offshore Logistics (OLOG) founded by Burt Keenan.
• 1972: Company begins using helicopters.
• 1986: Keen resigns and James Clement becomes president, COO, and, later, CEO.
• 1993: Company purchases 50 percent of Seahawk Services Ltd., then swaps Seahawk stock for interest in Grasso Production Management.
• 1994: Grasso Production Management becomes Offshore subsidiary; company purchases 75 percent of Cathodic Protection Services.
• 1996: OLOG buys 49 percent of Bristow Aviation.
• 1997: George Small succeeds Clement as president and CEO; company sells Cathodic Protection Services.