583 Thompson Road
The best opportunity for Gulf Island Fabrication is the sale of the MINDOC deep water concept. If one can be sold and prove itself operationally, then the company could secure follow-on contracts from other operators in the deep water area. There are other opportunities to more vertically integrate our company with the industry somewhat in a down cycle. As these opportunities present themselves, the company would seek to develop them through acquisitions or internal expansion. We're constantly looking into situations that would make sense and would add value to our shareholders.
Gulf Island Fabrication, Inc., a company headquartered on a 608-acre site in Houma, Louisiana, is a holding company conducting business through its subsidiaries. Chief among these is Gulf Island, L.L.C., a.k.a. Gulf Island Fabrication, which fabricates offshore drilling and production platforms, primarily for use in the oil and gas producing areas of the Gulf of Mexico and, to a lesser extent, in offshore areas of Latin America and West Africa. Specifically, Gulf Island makes jackets and deck sections of fixed production platforms; deck and hull sections of floating production platforms, including tension leg platforms (TLPs); piles; wellhead protectors; sub-sea templates; and other production, compressor, and utility modules. The company also manufactures and repairs petroleum-industry pressure vessels, refurbishes existing production platforms, and fabricates other kinds of steel structures, including warehouses. It also engages in offshore interconnect pipe hook-ups and inshore marine construction. One of Gulf Island Fabrication, Inc.'s two recently acquired subsidiaries, Southport, Inc., specializes in fabricating living quarters for crews working on offshore platforms. The other, Dolphin Services, Inc., provides off-shore maintenance and staffing services for oil-recovery platforms. Gulf Island claims to be one of only three U.S. companies capable of fabricating fixed offshore production platforms in water depths exceeding 300 feet. Among its principal customers are Texaco and Global Industries, which, together, account for about one third of the company's revenues.
1985-95: Company Begins Operations
Alden J. "Doc" Laborde, Huey J. Wilson, and other investors founded Gulf Island Fabrication Inc. (GIFI) in 1985. Laborde previously had founded Odeco and Tidewater, and has been credited with inventing the offshore oil patch supply boat and the first semi-submersible drilling rig. Wilson was president, CEO and chairman of Wilson's Distributors, a publicly traded company. These two men and the other founding investors would own 100 percent of the company right up until it went public and made its IPO in April of 1997.
At the time the investors created Gulf Island, they bought the assets of Delta Fabrication, then under the guidance of Kerry J. Chauvin, Delta's president. Chauvin had been with Delta since 1973, when he was initially employed as a project manager in charge of new construction. He joined the management team of Gulf Island Fabrication, serving as a board member, COO, and eventually president and CEO.
The company commenced operations at its fabrication yard on the Houma Navigation Canal in south Louisiana, about 30 miles from the Gulf of Mexico. Its property consisted of 608 acres, 261 of which would be developed for fabrication activities, with the remainder held in reserve for future expansion.
Initially, the company fabricated structural components for fixed, offshore petroleum platforms, including jackets (tubular steel, braced structures extending from the seabed mud line to a point above the water surface) and deck sections (the above-sea, multipurpose modules used for everything from drilling and production to quartering offshore crews). A traditional type, the fixed platform was widely used in offshore drilling and production. It answered the needs of client companies operating in sea depths of up to 1,000 feet. However, as the industry expanded into deeper waters, Gulf Island also began fabricating hull and deck sections for floating production platforms. In addition, it fabricated piles (rigid tubular pipes that are driven into the seabed to support platforms), sub-sea templates (tubular frames which are placed on the seabed and anchored with piles), wellhead protectors, and an array of production, compressor and utility modules, including pressure vessels capable of withstanding heavy internal pressure loadings.
All in all, 1985 was not a particularly auspicious year in which to start an oil services company. The industry went into a nosedive in the mid 1980s when oil became cheap and plentiful. Crude, which in the early 1980s had risen to $30 per barrel, slipped down as low as $8 per barrel by 1986. That development discouraged new exploration and drilling in the Gulf of Mexico, the company's primary territory. The slump, which continued into the early 1990s, took its toll on Gulf Island, but the company nevertheless gained and maintained profitability from 1988 onward.
The number of active rigs drilling in the Gulf dropped to 60 in May of 1992 before a partial industry resurgence increased that number to more than 150 by 1996, still a far cry from the count of active rigs during the oil boom of the 1970s and early 1980s. Improving prices for both crude and natural gas in part accounted for the rebound, but so did improvements in seismic and drilling technologies and production techniques. These improvements led to renewed activity in and around existing, shallow-water production fields as well as exploration and drilling at water depths previously considered too great for profitable development.
1996-97: Gulf Island Goes Public and Expands through Acquisition
A major contract in a high-visibility project came Gulf Island's way in 1996, when Texaco Corp. and Marathon Oil Co. joined forces in a $400 million plan to develop their deep-water Petronius platform, which was expected to produce an estimated 80 million to 100 million barrels of oil equivalent by the turn of the century. The two partner companies, each owning a 50 percent share, awarded contracts to three other companies, including Gulf Island Fabrication and J. Ray McDermott S.A. Under the terms of its $50 million contract, Gulf Island was to fabricate and integrate the platform's north and south decks; McDermott's $140 million contract called for the building of the compliant tower platform and all engineering and design work.
Early in 1997, Gulf Island purchased Dolphin Services Inc. and two related inland and offshore fabrication companies. As a group, these operations became a wholly owned subsidiary, which provided interconnect piping services on offshore platforms, inshore structures fabrication, and steel warehouse construction and sales. Dolphin also provided rig refurbishing services.
Gulf Island also went public in 1997. The company filed its IPO on February 14, 1997. The offering, which began trading in April on NASDAQ as over-the-counter stock, consisted of 2 million shares with a reserve of an additional 300,000 shares to allow for over-allotments. The common stock went on the market at $22.50 per share. Gulf Island's principal shareholders, Laborde, 81, and Wilson, 69, decided to make the offering primarily for the diversification of their assets and estate planning.
The Petronius project, a helpful boost in Gulf Island's financial arm, involved one disaster. Late in 1998, while attempting to install Gulf Island's south-deck, 3,800 ton module, J. Ray McDermott's heavy lift vessel, DB-50, accidentally dropped the unit, sending it to the bottom in 1,800 feet of water, where, in all likelihood, it was reduced to scrap by the water pressure and force of the module's impact on the sea floor. Texaco and Marathon decided to abandon the deck , temporarily suspending the Petronius project.
1988-2001: Company Continues Expansion and Diversification
It was also in 1998 that GIFI acquired all the outstanding shares of Southport, Inc., of Harvey, Louisiana, and its wholly-owned subsidiary, Southport International, Inc. The purchase price was $6.0 million in cash, plus additional contingency payments of up to $5.0 million based on Southport's bottom-line performance over the next four years. In order to insure a smooth transition in the ownership of Southport and maintain its quality of service, GIFI elected to retain the management team of its new subsidiary.
Southport had been founded in 1967 as a sister company to Stephen G. Benton Company, Inc., which, at the time, had been in business 14 years. Two years before Gulf Island purchased Southport, the company had completed and put into operation a new, 14-acre facility where it fabricated liftable building modules for both the domestic and international petroleum industries. Southport's chief products included various sized living quarters for offshore oil platforms, custom made to accommodate from four up to 250 bunks.
In 1998, as the offshore oil industry moved into deeper and deeper waters, the company actively moved further into the area of deep-water drilling. Over the course of the next three years, the revenue generated from that sector increased from almost nothing to about 40 percent of the company's total sales. It was in 1998 that, along with four other companies, Gulf Island formed a limited liability company dubbed MinDOC, an acronym for "Minimum Deepwater Operating Concept." The partners created MinDOC, L.L.C. to design, patent, and market a deepwater floating drilling and production concept. In the partnership, GIFI was joined by three engineering firms and a oil field service company. Gulf Island initially owned a one-third share of the new company, with the remainder divided equally among its partners.
In the next year, 1999, GIFI formed Gulf Island MinDOC Company, L.L.C. (GIMCO), a wholly-owned subsidiary created to develop and market deepwater oil and gas production structures, including the MinDOC deepwater floating production company in which GIFI had a proprietary interest. The new subsidiary's headquarters were then established in Houston.
Pursuant to a reorganization plan, on January 1, 2000, all of the operating assets, buildings and properties owned directly by Gulf Island Fabrication, Inc. were transferred to Gulf Island, L.L.C., a newly created and wholly-owned subsidiary formed to conduct all the fabrication and other operations previously conducted by the parent company. Thereafter, Gulf Island Fabrication, Inc. operated as a holding company and began conducting all its operations through its various subsidiaries, including Gulf Island, L.L.C. The purpose behind the change was to improve the management's efficiency and to allow for the further development and expansion of the subsidiaries under the holding company's auspices.
In 2000, the demand for GIFI's services and products hit an all time low, but prospects began to improve during the year as oil and natural gas commodity prices rebounded and started a rapid rise. Despite a 6.7 percent drop in revenue to $112.1 million, the company still turned a net profit and remained debt free. To trim costs somewhat, GIFI decided to relocate Southport operations in Harvey to an idle facility that it owned situated next to Gulf Island, L.L.C.'s main fabrication yard in Houma. The move, scheduled for completion in 2001, would bring three of Gulf Island's facilities within close proximity of each other, thereby cutting operational costs and enhancing efficiency.
In 2000, Gulf Island also completed a replacement module for the Petronius compliant platform owned by Texaco and Marathon Oil. The original module, accidently lost in 1998, had taken 27 months to build; Gulf Island, using over 180 workers for the project, built the new unit in just 12 months. In May, the module, housing crew quarters as well as production and waterflood equipment, was successfully installed by Saipem Ltd. using a derrick barge and a 7,700 ton capacity crane.
In April 2001, Kerry Chauvin, who had served as president and CEO of Gulf Island since 1990, took on the additional responsibility of board chairman. The company's co-founder, Alden "Doc" Laborde, who had been chairman since 1986, stepped down, indicating that his age and health made it necessary to do so. He remained an active board member, however, and was elected to the post of chairman of the board's executive committee.
It has been a point of pride for Gulf Island that it has been profitable every year since 1988, thanks to its focus on controlling costs and providing quality products and services. It has also prided itself on its innovations and its uniqueness, on the fact, for example, that it had developed a deep-water technology that would play a vital role in its growth in the 21st century.
Principal Subsidiaries: Deep Ocean Services, L.L.C.; Dolphin Services, Inc.; Gulf Island, L.L.C.; Southport, Inc.
Principal Competitors: CSO Aker Maritime; Friede Goldman Halter, Inc.; Global Industries, Ltd.; McDermott International, Inc.; UNIFAB International, Inc.