Hvide Marine Incorporated - Company Profile, Information, Business Description, History, Background Information on Hvide Marine Incorporated

P.O. Box 13038
2200 Eller Drive
Fort Lauderdale, Florida 33316

Company Perspectives:

Hvide Marine Incorporated provides benchmark quality performance to our customers based on innovative solutions, safety, environmental responsibility, dedicated professional employees and modern efficient equipment, guided by Godly principles. Our growth strategy is clear: We will continue to grow through accretive acquisitions in our four niche businesses--Offshore Energy Support, Offshore & Harbor Towing, Chemical Transportation and Petroleum Product Transportation. Specifically, our goals include the desire to be one of the dominant companies and a quality leader for our customers in each of our market segments; and to generate annual revenues greater than $500 million by December 31, 2000; to have net income equal to or greater than ten percent of revenues, and to give a total return to shareholders of at least 20 percent annually. Hvide Marine Incorporated will continue to create added value for our shareholders, our customers and our employees.

History of Hvide Marine Incorporated

Hvide Marine Incorporated is among the leading domestic and international marine support and transportation services companies. Dominant in the domestic chemical transportation trade, the company also holds a significant position in petroleum product transportation. Based in Port Everglades, Florida, the company operates a fleet of 217 vessels in two core businesses, marine support services and marine transportation services. It primarily serves the offshore energy industry, in which Hvide's Seabulk Offshore Ltd. subsidiary is the third largest operator of supply and crew boats in the Gulf of Mexico. Its marine support services include 186 vessels. In addition, its Seabulk Offshore International subsidiary is the largest independent operator in the Arabian Gulf. The company's offshore and harbor towing includes the divisions Tampa Bay Towing, Port Everglades Towing, Mobile Bay Towing, and Port Canaveral Towing. Its marine transportation services business comprises 31 vessels that carry petroleum products to power plants in northern Florida and southern Georgia, in addition to specialty and industrial chemicals from Gulf Coast refineries to destinations along the East and West Coasts.

Company Origins

Hvide Marine Incorporated began in 1958 as a Port Everglades harbor tugboat operator and almost immediately expanded to Port Canaveral, just as America's space program was getting under way. NASA and the U.S. Navy used tugboats from Hvide's Port Canaveral Towing business in downrange rescue and recovery missions. Port Everglades and Port Canaveral Towing are the sole suppliers of ship docking and undocking services in their respective ports. Revenue derived from tugboat operations is primarily a function of the number of tugs available to provide services, the rates charged for their services, and the volume of vessel traffic requiring docking and other ship-assist services. The company shifts tugboats among ports depending upon demand.

Building a Fleet in the 1970s

In 1975 the company acquired its first petroleum product carrier. Hvide's fuel transport vessel worked solely for Shell Oil Company--under a long-term contract that extends until January 2000--hauling gasoline and crude oil from refineries in Texas and Louisiana to tank farms in Port Everglades, Tampa, and Jacksonville, Florida. Since entering service Hvide's Seabulk Challenger derived all of its revenue from successive voyage and time charters to Shell, a lucrative charter arrangement that provided Hvide Marine with 22 percent of its total revenues in 1993. The Challenger is a catamaran tugboat and barge combination conceived and patented by J. Erik Hvide, son of Hans Hvide, the company's founder.

Hvide's Sun State Marine Services, Inc. subsidiary is based in Green Cove Springs, Florida and transports fuel oil and other petroleum products to destinations along the Gulf Coast. It also operates a shipyard that maintains Hvide's vessels as well as making repairs to other commercial and military vessels.

The company began transporting specialty chemicals in 1977 with the launching of the Seabulk Magnachem, followed by the launching of the Seabulk America, the newest chemical tanker to enter the domestic trade. Hvide's two chemical carriers generally worked out of Houston and Corpus Christi, Texas. Specialty and industrial chemicals were transported from Gulf Coast refineries to destinations along the East and West Coasts. The chemical transportation business soon constituted a second place position in terms of company earnings, following Hvide's marine support services. With a single exception, all of Hvide's chemical carriers have full double bottoms as stipulated in the Oil Pollution Act of 1990, which mandates the use of double-hull vessels in the domestic trade by the year 2015. The vessels have specially coated or stainless steel cargo tanks and up to 25 cargo compartments. The cargoes may include caustic soda, alcohols, phosphoric acid, and lubricating oils. Revenue derived from chemical transportation operations was entirely attributable to the operations of Ocean Specialty Tankers Corporation (OSTC), a company equally owned by OMI Corporation and Hvide Marine. Hvide's revenues from chemical transportation consisted of distributions from OSTC attributed to the company's two chemical carriers marketed by OSTC and based on a formula that took into account individual vessel performance characteristics applied to OSTC's revenue (net of fuel costs, port charges, and overhead).

Technology and Expansion in the 1980s

Hvide Marine expanded into offshore energy support vessels with the acquisition of eight supply boats in 1989. Supply boats are typically 180 feet in length and are used to ferry equipment and material to offshore drilling and production rigs. Increased demand for the company's offshore energy support services has been related to fundamental changes in the U.S. Gulf of Mexico energy industry, including improvements in exploration technologies, such as computer-aided exploration and 3!D seismic (which increase drilling success rates), improvements in subsea completion and production technologies that have led to increased deepwater drilling and development, and expansion of the region's infrastructure that has improved the economics of developing smaller oil and gas fields. In addition, to replace reserves and maintain production, continuous drilling has become necessary, because of short reserve-life characteristics of U.S. Gulf of Mexico gas production.

Hvide Marine reported that revenues had increased from more than $33 million in 1989 to $45 million in 1991, but dropped to $36.6 million in 1992, with slight gains in the following year. In 1994 the 36-year-old Hvide Marine, which was one of Florida's largest privately held companies, filed for its initial public offering (IPO). In its filing application, the company stated that it intended to remain focused on developing its U.S. markets and that it intended to build a new 5,000-horsepower tugboat that uses the latest technological advances. The intention was to offer three and a half million shares at about $17 each. The company was hoping to land more than $50 million to finance six proposed acquisitions (the company had signed contracts for the purchase of nine additional tugboats, six fuel barges, and 28 offshore vessels). Hvide also hoped to repay debt, to redeem preferred stock held by Hans J. Hvide, to buy out a partnership that owned about 20 percent interest in some of the vessels, and to finance general corporate expenses. Approximately $5 million from the IPO was to be earmarked for the repayment of debt, leaving a balance of $51.3 million due to California Federal Bank and Den Norske Bank. The company had about $2.60 in debt for each $1 in equity, according to the filing. At that time Hvide held the exclusive franchise to operate tugs at Port Everglades and at Port Canaveral and owned or operated ten tugboats, two chemical carriers, and 18 other vessels. Outsiders were apparently confident in Hvide's abilities to perform. Alison Turner reported in the South Florida Business Journal that Hvide Marine was a well respected business in south Florida. She was supported in her appraisal by a maritime lawyer, who remarked, "They [Hvide Marine] are creative in their development of business," then added, "Their intellectual creativity has created a value business."

As it happened, the revenues needed were financed instead by proceeds from the issuance of Senior Notes, Junior Notes, and certain equity securities to members of a group of investors, according to the company reports. In 1996 the company did finally complete the IPO, which resulted in proceeds of approximately $76.7 million. Of the net proceeds almost half was used to fund the cash portion ($35.5 million out of $97.5 million total) of the purchase price of three chemical carriers, ten supply boats, and one crew boat.

An industry controversy erupted in early 1996 when the Transportation Department's Maritime Administration (Marad) agreed to provide $215 in loan guarantees in support of an expensive joint venture to construct five double-hulled tankers for Hvide Marine and Koninklijke Van Ommeren. The companies were lured by the Marad loans, which covered 87.5 percent of the construction costs. The tankers, intended for the U.S. coastal oil trade, would be built by the Newport News Shipbuilding and Dry Dock Company division of Tenneco Inc. The order represented a first domestic construction contract for Jones Act tankers since 1984. (The Jones Act requires that all cargo ships traveling between domestic ports be built in U.S. shipyards.) The ships were slated for a 1998 delivery, despite assessments by Marad analysts that determined that the new ships would not turn a profit for several years beyond their delivery date. Kirby Corporation, one of the larger independent shipping companies, sued to block the loan guarantees, fearing that the new tankers would keep shipping rates down. Others argued that there was not a need for replacement tonnage at this point in time, reasoning that tonnage additions would be built when needed, without artificial stimulus. Some predicted that the venture was a great risk to the companies involved. According to the trade paper Oil Daily at least one observer asked, "Does it really make sense to build tankers, when you're competing against barges?" Writer Alan Kovski added, "For short hauls, barges easily win the competition with ships, leaving ships to compete primarily for movements from Gulf Coast refineries to Florida and farther up the East Coast--not a booming business. And integrated tug-and-barge vessels extend the competitive range of barges."

The $240 million Double Eagle tankers were built for half of what they would have cost in 1991, according to company officials, who noted that the Oil Pollution Act of 1990, which established a mandatory replacement schedule of all single-skin ships entering U.S. waters, also influenced their decision. The Marad loan, reduced construction costs, and the impending need of upcoming ship replacements convinced Erik Hvide, chairman and CEO, that the plan would be profitable.

Marad Title XI loan guarantees require economic viability in a project, which is judged by a ten percent return on equity over the life of the vessels. Erik Hvide remained optimistic. He told Kovski, "If the five ships were added to the coastal trade today, they would help prevent rate spikes during periods of high demand, as occurred in December, 1995." He added, "But mandatory ship retirements will leave even greater potential for rate spikes unless even more new vessels are built."

Full Steam Ahead in 1997

Hvide Marine wasted little time in implementing its strategy for international expansion, in anticipation of strong growth opportunities. In May of 1997 the company reported that it agreed to purchase a fleet of 37 vessels for $61 million from Gulf Marine & Maintenance Offshore Service Company of Dubai, United Arab emirates. The new fleet allows offshore energy support in the Arabian Gulf, with operations lapping around the Indian subcontinent to Brunei in Southeast Asia. To head the new base, Jim McDowell, a former director for Seabulk Offshore in Lafayette, was positioned. Further expansion from the subsidiary-base is planned for the growing markets of the Middle and Far East. Tugboats, specialized construction and maintenance vessels, and crewboats were among the newly acquired assets, bringing Hvide's fleet to number 160 vessels that service the offshore energy industry and the domestic chemical transportation trade.

In a major expansion of its international operations, the company signed agreements in December of 1997 to acquire, for approximately $284 million, the 36-vessel offshore energy support fleet of the Isle of Jersey-based Care Group. Erik Hvide described the purchase as "a first-class fleet and our single biggest expansion to date, giving us access to new markets in West Africa, South Africa, Argentina and the North Sea." He announced that the move "added critical mass to our operations in Southeast Asia and represents a further consolidation of the worldwide oil field services business." Acquisitions from Gulf Maintenance, International Marine Services, Selat Marine Services, and the Care transaction brought 116 new vessels acquired by Hvide for the international support market in seven months of 1997. The company expected that the Care Group acquisition alone would add $90 million in revenues in the first full year of operation.

Long-term debt stood at $108 million at the end of 1996, of which approximately $33 million was repaid in February of 1997. A second public offering in January of 1997 resulted in net proceeds to the company of approximately $94 million, of which $10.2 million was used to repay remaining principal of and interest on the Senior Notes and other indebtedness. The remaining $58.1 million was used to fund vessel acquisitions and vessel refurbishments as well as to fund portions of future vessel acquisitions; the remainder was intended for general corporate expenses.

In 1994 Erik Hvide made a sketch in a yellow legal pad and came up with the design for a revolutionary new ship docking module (SDM). The design was refined by Hvide engineers and consultants at a Seattle, Washington design studio, Elliott Bay Design Group. The end result was a 90-foot, 4,000-horsepower, flying-saucer-like vessel, sporting twin Caterpillar 3516B diesel engines, intended for ship docking and harbor-assist work. Extremely maneuverable, the vessel would be the first capable of generating 100 percent of its bollard pull in any direction, requiring a mere two-person crew. Inspiration for the design came from the design of the Broward, a tractor tug designed for tanker escort work. The SDM's drives are mounted fore and aft and offset from center, giving it equal propulsion in all directions, a feature that distinguishes the vessel from all others of its type. Halter Marine of Lockport, Louisiana would build the ship docking modules for a price of approximately $4.75 million each. Hvide Marine contracted for three SDMs scheduled for completion in early 1998 and has applied for patent protection of their design in the United States and in numerous foreign countries.

The company takes great pride in setting industry standards and offers intensive training/rescue programs in conjunction with the U.S. Coast Guard, to ensure that new employees are trained in fire fighting, water survival, and various skills necessary for work at sea. Hvide's preemptive mindset seems to flow through every aspect of its operation, including a strong religious avowal, an interesting focus for a globally expanding company.

Principal Subsidiaries: Seabulk Offshore, Ltd; Seabulk Offshore International; Sun State Marine Services, Inc.; Ocean Specialty Tankers Corporation; Hvide Marine Transport.

Principal Divisions: Port Everglades Towing; Mobile Bay Towing; Tampa Bay Towing; Port Canaveral Towing.

Additional Details

Further Reference

"Hvide Marine's Acquisition," Wall Street Journal, May 27, 1997, p. A13."Hvide to Buy Tug Fleet," Oil Daily, September 5, 1997, p. 7.Kovski, Alan, "Building of Jones Act Tankers to Resume with $20 Million Contract for Tenneco Unit," Oil Daily, February 15, 1996, p. 3.------, "Federal Loans Accelerate Choices Faced by Shipping Firms," Oil Daily, March 6, 1996, p. 2."Purchase of 37 Vessels Set with Gulf Marine of Dubai," Wall Street Journal, May 15, 1997, p. B4.Turner, Alison, "Hvide Marine Sets $50 Million IPO," South Florida Business Journal, May 13, 1994, p. 1A.

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