YEARBOOK

The workboat industry has been enjoying good times for much of the decade, a winning streak that has seen many companies set new revenue and earnings records. The sputtering economy will probably put an end to the streak in 2009. Still, despite the downturn and shrinking backlogs, shipyards are staying relatively busy (see below). Despite an inevitable slowdown in tug construction that began last year, interest in new tugs is still high. On the inland waterways, though demand for some commodities shipped by barge has slowed, many inland operators are still posting healthy earnings. For passenger vessel operators, the upcoming season may not be as bad as some feared, with many operators reporting good advance bookings. Offshore, low oil and gas prices have affected the U.S. Gulf, with rates and utilization down for several vessel classes that rely on the shallow-water shelf market.

Shipyards are showing resilience during the economic downturn

By Ken Hocke, Senior Editor

What a difference a year makes. At this time last year, most U.S. second-tier shipyards were enjoying healthy backlogs, with slots reserved for years in advance. Equipment suppliers were overwhelmed trying to keep up with orders for new engines, Z-drives, gears and other equipment needed to build or repair workboats.

Fast-forward to April 2009, and orders for new vessels, engines, and marine products and services in general have slowed significantly, affecting many workboat-related companies.

For example, Caterpillar recently announced in its first-quarter earnings report that sales for marine applications decreased 7 percent due to reduced demand for workboats and other commercial vessels.

Island Boats in Jeanerette, La., was forced to suspended operations in April after unsuccessfully negotiating with Southern States Offshore Inc. on the construction of a second 168'×32’x10’ aluminum crewboat that was underway at the yard. In March, Island Boats delivered the first 168-footer, the Southern Belle, to Houston-based Southern States.

“Right now we’re trying to get our customer to reconsider, and then we’ll be open again,” said Miles Thomas, owner of Island Boats. “I’m also considering selling off the yard’s assets.” Industry experts say such a sale is unlikely as long as the disputed crewboat remains at the yard.

Orders for crewboats and other offshore service vessels are down, with many Gulf OSV operators stacking equipment over the past year as activity in the U.S. Gulf has slowed. The price of oil has plummeted since last summer, and the number working rigs in the U.S. Gulf, especially jackups, has dropped dramatically.

“Hopefully the price of oil will go up, and things will open up,” said Gary Stansbury, manager at Mariner LLC, a Houma, La., shipyard that handles construction and repair work. “[The oilfield downturn] is affecting brownwater stuff as well. A lot of brownwater is linked through the oil and gas industry.”

Mariner is currently building two steel OSVs, one of which is a 170'×36'×12' supply boat for an international customer. “This boat is special because there aren’t many boats this size that are DP-2,” said Stansbury. “This boat will be under 500 ITC (International Tonnage Convention) tons, meaning no SOLAS (Safety of Life at Sea) requirements are needed.”

SILVER LINING

Times may be tough, but it’s not all doom and gloom for the shipyard industry. Many owners have taken steps to counter the weak economy. “Some [yards] are holding up really well, securing contracts. Some have contracts out to 2012,” said Matt Paxton, president of the Shipbuilders Council of America, which represents over 100 shipyards. “Our yards are doing what they have to do — diversifying, whatever, to stay healthy.”

New construction has softened, but repair work has picked up considerably and filled some of the void.

“Repair work is dominant right now,” said Robert Socha, vice president, marketing and sales, Bollinger Shipyards Inc., Lockport, La.

He said the company’s Bollinger Amelia Repair in Amelia, La., has “plenty of work.”

Conrad Aluminum LLC, Amelia, La., currently has no new vessels under construction, but the yard is full of both steel and aluminum repair work.

“We can pretty much pick up anything under 300 tons — steel or aluminum,” said Todd Babin, the yard’s aluminum manager. “They’re coming in to do what they have to do to meet the [Coast Guard] regulations. We’re also doing some modifications for overseas work.”

Conrad Aluminum is hiring, and they are now seeing higher-quality applicants with more experience, said Babin. “Some yards have had to lay off qualified workers because there’s not enough work at some places,” he said. “We are seeing more experienced American applicants.”

Bollinger’s Socha said the need for qualified workers at his company has eased, but the company is always searching for high-quality employees. “During the [International] WorkBoat Show, we were looking for labor,” he said. “Now we have a stable workforce. We still attend job fairs, but now we’re really looking for that special skilled worker. Somebody we’d miss if we didn’t go there.”

Conrad and Bollinger aren’t the only yards that have seen repair work increase.

Bay Ship and Yacht Co. in Alameda, Calif., has been busy repairing tugs, barges and Coast Guard vessels. Michael L. Anderson, the yard’s marketing manager, said they have been flush with repair work over the past year, which he finds surprising with the nation’s economic woes. “This is probably our best year ever,” he said. “We don’t know [why]. We can’t figure it out.”

 Repair work is also strong on the East Coast. “In the yards around Hampton Roads [Va.], they’ve got good repair and maintenance workloads,” said Paxton.

In April, Norfolk, Va.-based Colonna’s Shipyard Inc. added to its repair backlog when it was awarded a five-year contract worth an estimated $71.5 million to handle the Staten Island Ferry fleet. 

SLOW IMPROVEMENT

The shipyard industry is feeling the effects of the weak economy, but there are some positive signs out there.

The stimulus package signed into law by President Obama in February will pump about $100 million into the Maritime Administration’s small shipyard grant program through the American Recovery and Reinvestment Act of 2009. A small shipyard is defined as one with fewer than 600 employees.

And there may be a new market for vessel construction or refitting. The Obama administration’s offshore energy policies with respect to programs involving wind farms and wave energy have yet to be defined. Both would likely require specialized offshore service vessels.

The U.S. Navy recently awarded a contract to Wisconsin-based Marinette Marine Corp. to build the Navy’s third Littoral Combat Ship (LCS). Marinette Marine built the first Navy LCS, which was commissioned in November 2008. The contract will keep 100 workers employed at the shipyard and close to 200 workers that had been laid off will be called back to work.

Last September, Bollinger signed a contract with the U.S. Coast Guard to build up to 34 Sentinel-class 153'5"×25'5"×8'5" fast response cutters. The first is due for delivery in September 2010.

“I think if you were to take a poll of the hundred or so midtier yards we represent, they would say folks are working,” said Paxton. “Right now, we’re doing OK.”

“We’ve got to keep our optimism,” said Mariner’s Stansbury. “Boats continue to get older. That’s a fact. Oil and gas demand will grow again. That’s a fact.”

Paxton said that whatever goes on offshore, OSVs will have to be involved. “We have to have good offshore development,” he said. “We want to make sure they are all serviced by Jones Act vessels.” 

^ BACK TO TOP

YEARBOOK: TUGS

Tug-building slowdown spawns creativity and more availability

By Michael Crowley, Correspondent

A year ago, new tug construction was still hot after a feverish 2007, and slower but steady demand was expected this year and beyond. But that was before the world economy tanked.

“These are some interesting times,” said Jonathan Parrott of Jensen Maritime Consultants, Seattle. Some boatyards have experienced a slowdown in new construction contracts, but Parrott feels “things are beginning to pick up again.” However, as part of the process, a few tug-building yards have been engaging in some creative risk taking.

In one case, Parrott said a yard had contracts for tugs that “weren’t going to come to fruition,” but at the same time had Z-drives that were about to be delivered.

That could spell problems for someone who must hold on to unclaimed Z-drives for an extended period of time.

“Because of EPA regulations, the thing will be to get them to match Tier 3 or Tier 4 engines,” said Parrott. “The ratings will change — rpm and horsepower will be different. They may not be able to use the Z-drives. Anyway, the propellers will have to change. How do you deal with that?”

To deal with it, the shipyard may go ahead and “build the tugs and figure out what to do once they get them built,” Parrott said.

In another case, Jensen is working with a yard that wants to build a tug on spec “while aiming it at a particular client,” Parrott said. The problem is that the yard and client have different ideas about how the tug should be built. JMC’s job is to iron out those differences on the spec boat.

For a shipyard, the upside of assuming such risk is that the tug industry will at some point need more new boats. The risk in building a tug with no customer during tough times is it may take a long time before there are any takers. And that can prove costly.

Besides the spec tugboats, JMC designed the 100'×40'×16' Delta Billie for Baydelta Maritime. Built at Nichols Brothers Boat Builders in Freeland, Wash., the ASD tug was delivered to Baydelta in April. It’s the third 6,800-hp tug Nichols Brothers has built to that design for Baydelta, with a fourth due to be launched this summer.

In Mobile, Ala., C&G Boat Works is building its second 86-footer for Moran Towing Corp. The escort tug will be outfitted with a pair of 2,680-hp MTU engines. C&G is also building two 92' shiphandling/escort tugs for Crescent Towing, New Orleans.

TUG AVAILABILITY

Parrott said one thing tug designers have to be thinking about is “what LNG terminals are going to be asking for. They are talking about higher steering forces, higher escort speeds.”

“But the 100 and 105 footers are pretty much at the limit,” he said. “And some terminals are already pushing the 100-foot class to the limit. And the smaller tugs — 90 to 100 feet — are really getting close to the hairy edge on performance. Ship and terminal operators don’t seem to be cognizant of the fact that there’s a limit to what smaller boats can do.”

However, the new LNG designs may have to wait. Several LNG terminals have been delayed, which is one reason behind the increase in the number of higher horsepower azimuthing and tractor tugs for sale, according Marcon International Inc., a Seattle-area vessel and barge broker.

In Marcon’s April tug market report, the company reported that the weak global economy has helped increase the number of tugs listed for sale worldwide by almost 29 percent over the last six months.

Since October, the number of U.S. tugs up for sale has increased over 22 percent and the number of overseas tugs for sale is up over 31 percent, the report said. The average age of available tugs has dropped slightly, which indicates that more new tugs are for sale. Prices are also starting to come down.

In the Northeast, Bruce Washburn of Washburn & Doughty Associates said he’s not sure how the nation’s economic turmoil will affect the tug market, but “so far everyone seems to be moving along.”

The East Boothbay, Maine, yard is finishing work on the tugs damaged in last year’s fire that leveled the boatyard. The new fabrication building at the yard should be pretty much completed by June. When completed, the building will feature twin 225-foot-long working bays that will be able to handle tugs with 50-foot-plus beams.

In mid-May, a keel was laid for a 121-foot ATB tug for Moran. Two 98-foot tugs are nearing completion, as well as a 92-footer that was in the fire. A 121-foot ATB tug for Moran will be launched in July, and parts were being cut for two 98-foot Robert Allan-designed Z-Tech tugs. Each 98-footer will have a pair of 6,000-hp, 16-cylinder MTUs. The tugs will be working in the Gulf of Mexico.

Ocean Tug & Barge Engineering in Milford, Mass., designed the Moran ATBs underway at Washburn & Doughty. “There hasn’t been a slowdown for us at all,” said Ocean Tug’s Bob Hill. “Petroleum transport is sensitive to these [economic] things. But we are seeing other markets open. Where the oil has slowed down, there are things ATBs are starting to get into.”

Currently Ocean Tug & Barge has designs out for two container ATBs and a pair of bulk ATBs.

“This will continue. There will be a pent-up demand particularly for container and project cargo units. And some of the small oil barges in the 60,000-bbl. size are starting to reach the ATB market,” Hill said.

Hill also has a couple of diesel-electric ATBs in the works. One of them will include an LNG barge, which, he said, “will have a unique propulsion arrangement between the tug and barge.”

“There will always be an interest in alternative power,” said Parrot. “The big issue is if shoreside infrastructure is there to support the boats. Gas boats need a ready supply of LNG, and electric-hybrid boats need twice as much shore power as is typically available.”

Speaking of alternative power, Crowley Maritime is moving forward on the design of an LNG tug to operate in Los Angeles.

“We are still a bit away from it, but our people are working with the port of Los Angeles and the South Coast Air Quality District,” said Crowley Maritime’s Ed Schlueter.

As far as problems with shoreside infrastructure go, Schlueter said, “Now it’s an inconvenience, but it will square itself away.”

Crowley Maritime has not been holding back on building new tugs. Three 185,000-bbl. ATB barges are scheduled to be launched between April and July plus one heavy-lift flat-bed barge for the offshore energy industry.

Those will be followed by three 330,000-bbl. ATB sets. The barges will be built at VT Halter Marine in Pascagoula, Miss., and the tugs at Dakota Creek Industries in Anacortes, Wash.

What’s driving the design of tugs, Schlueter said, is “what’s happening with air and water pollution regulations. You have to think what those requirements will be in 10 or 15 years. The guy who doesn’t deal with the next 15 years is not going to be in business.”

One example is a tug Crowley may build. “Not one drop of water will go over the side. Not gray water, black water, engine-cooling water, wash-down water. Nothing over the side,” said Schlueter.

But with times the way they are, operators need to think hard about going forward with more newbuilding.

 “If you are not cautious about building a boat now, what are you going to do with it in 15 years?” Schlueter asked.

^ BACK TO TOP

YEARBOOK: INLAND WATERWAYS

Barge industry is doing better than most, but preparing for the worst

By Pamela Glass, Washington Correspondent

Throughout most of 2008, inland tug and barge companies were sitting pretty with many operators reporting record profits. A strong economy produced strong demand to move commodities up and down the river system, and this kept barge rates and utilization high.

But things began to fall apart late last year. As the economy began to sour, the financial system plunged into turmoil, Mother Nature dolled out a bunch of nasty weather, and global trade contracted. The result was less traffic on the inland waterways.

Four months into 2009, barge companies are navigating through a highly uncertain environment due to a global recession, with restraint and caution ruling the day.

Many inland tug and barge operators rely mainly on term contracts negotiated before the economy tanked, rather than spot market work, which has helped insulate them from the economic downturn. One is Blessey Marine Services. Despite a drop in backhauls, the first quarter was the New Orleans-based tank-barge operator’s second best quarter ever, according to company president Walter Blessey. Its best was the previous quarter.

“We have been recognized and rewarded by our customers with long-term contracts that give us the support and stability to continue to grow,” Blessey said in an e-mail.

Barge operators have also been somewhat insulated from the weak economy because they don’t rely on consumer goods, instead hauling commodities such as export grain and corn and energy sources like coal and petroleum, for which there is always demand. But the industry has started to feel the pinch as the economic slump touches the products they move. There are indications that the drop in energy demand has been impacting coal, coke and petroleum shipments.

MORE BAD TIMES?

“There is a lot of evidence that companies are bracing for potential bad times and being conservative in their spending on nonessentials,” said Thomas Allegretti, president of the American Waterways Operators, which represents barge companies in Washington, D.C. “This is taking the form of all kinds of spending reductions, from staffing to delays in capital investments.”

For example, Canal Barge Company Inc., a liquid and dry cargo barge operator based in New Orleans, is using the slowdown “to manage our business tighter and better, working on internal improvements that will improve our customer service and identifying inefficiencies and unnecessary expenses to be dealt with,” said H. Merritt Lane III, president and CEO. “We are not slowing down training or cutting benefits, and should be able to provide stable employment to our mariners.” He said the company is also taking advantage of attractive shipyard pricing to repair aging equipment.

Lane said that barge operators are looking to cut costs in several ways, including seeking rate concessions from suppliers and conserving fuel. “With lower demand, least efficient equipment is being tied up. The value of a barge day has been reduced, so operators are looking at how slowing down system velocity might allow fuel savings.”

Canal Barge began to see a slowdown in traffic late last year.

“Liquid volumes appeared to start declining during the mid fourth quarter last year,” Lane said in an e-mail interview. “This was most acute for those products most closely tied to the automotive or housing markets. Also, export shipments stopped abruptly both as a reaction to the world economic crisis and the credit lockup that ground international trade to a halt. We saw shippers work down their inventories to create cash and to adjust to the new normal.”

He added that tank-barge utilization is down 10 to 15 percent from a year ago. “Our customers are looking for flat renewals for the most part on their contract renewals and seem to be capitalizing on their increased choice by doing more business with their highest quality and most core carriers. Quality of service, younger barge fleet and relationships are being valued again and this is a positive development.”

Blessey Marine is also seeing top-notch service being rewarded. “Years ago the mentality for shippers was simply ‘what is the cheapest rate.’ Now most care about the quality of the operation,” said Blessey. “They don’t want their name associated with an incident even if it isn’t their nickel. Most are doing the right thing and not the cheapest thing.”

As far as equipment supply, Lane indicated that operators have been disciplined, and the supply of barges has been reduced.

“It doesn’t look like dry cargo tonnage for open hoppers will be coming on line in 2009,” he said. “Although there is less demand for hopper barges, the supply of barges is reduced as well, as the major [companies] show restraint and because of a large number of scrappings and foreign sales during 2008.”

“Any barge that’s added to capacity right now is a barge that’s just going to get tied up,” Kirby Corp. CEO Joe Pyne told analysts recently.

Informa Economics, a Memphis, Tenn., research and consulting firm, said that the overall dry cargo barge fleet decreased slightly in 2008, while the number of tank-barge bottoms increased over 4 percent.

Weak economy slows traffic

By far the biggest drag on the barge market has been the weak economy, which has significantly slowed river movements.

Preliminary data from the Army Corps of Engineers’ Waterborne Commerce Statistic Center show that traffic was off 8.3 percent in 2008 compared to 2007. The exception was coal, but that was offset by declines in petroleum, chemicals and farm products.

Lock data showed coal traffic was up 4.1 percent, petroleum and chemicals were down 15.7 percent, and farm and food products were off almost 30 percent.

“Regionally, traffic through key locks showed decreases along nearly all major waterways including the Upper Mississippi, Illinois, Columbia-Snake, Gulf Intracoastal Waterway, Kanawha and Arkansas,” David Grier, navigation specialist at the Corps of Engineers’ Institute for Water Resources, wrote in an analysis prepared for WorkBoat. “Only the Tennessee showed any significant increase.”

He said that barge rates fluctuated but generally held their ground through 2008, reflecting dips in equipment availability, challenging river navigation conditions and shifts in fuel prices.

The inland industry also faced challenging operating conditions during the year, including a cold winter, high water on the Illinois and Ohio rivers, disruptions on the Columbia River, and major maintenance closures of Lock 19 on the Mississippi River. After the river reopened, high water hampered navigation through March 2008, and then major flooding hit the Upper Miss in June.

A barge and tanker collision that caused an oil spill closed the Mississippi River to navigation near New Orleans in July, and in late August the Upper Miss was closed again because of shoaling conditions that resulted in vessel groundings. September hurricanes closed the lower Miss and the GIWW east of New Orleans.          

PLUSES AND MINUSES

In addition to the economic slump, the industry faced other important challenges last year, many of which continue into 2009. There was the bumpy rollout of the Transportation Worker Identification Credential and legal maneuvering with the EPA in several states regarding vessel discharge permits. The November elections put new leaders in Washington charged with setting waterways policy. There were delays in mariner licensing, especially those applications that involved extensive medical reviews. The Obama administration said it would pursue the unsuccessful Bush administration lockage fee proposal to raise money for the depleted Inland Waterways Trust Fund. And a much-anticipated towing vessel inspection program is just about ready to see the light of day after many years of development.

On the plus side, a stimulus package approved by Congress early this year is expected to speed up several inland lock-and-dam construction projects. In late April, the Corps released its list of $4.6 billion in civil works projects. About $4.1 billion will be spent on 892 operation and maintenance projects and 178 new construction projects.

“We intend to quickly put these dollars into action to get our fellow citizens to work on Corps projects throughout the nation,” said Maj. Gen. Meredith “Bo” Temple, deputy-commanding general for Civil and Emergency Operations for the Corps. “At the same time, we will use these funds to build long-term value for the nation in its water resources projects.”

Additionally, a healthy budget in 2008 for the Corps helped boost progress on six major lock-and-dam additions or replacement projects last year, including the opening of a new 800-foot lock chamber at Marmet, W.Va., on the Kanawha River.

^ BACK TO TOP

YEARBOOK: Passenger Vessels

Summer season outlook is mixed for passenger vessel owners and operators

By Dale K. DuPont, Correspondent

Times are tough but not impossible for many dinner boat, cruise line and ferry operators.

Passenger vessel owners are hoping folks are ready to put the worst of the economic news behind them and have a little fun. But they know full well luring them onboard will take some work.

“People are very, very cost-conscious. They all want a deal,” said Capt. Walt Webster, owner of Dubuque River Rides, Dubuque, Iowa. “Last year was very much of a challenge, and this year we are cautiously optimistic.”

Webster, who runs sightseeing and dinner cruises on the Mississippi River with the paddlewheeler Spirit of Dubuque and the motor yacht Miss Dubuque, lost 20 percent of last season because of the Midwest floods that hit Iowa especially hard. So he’s working with budget-minded customers. Menus may have more chicken and pasta than prime rib. But, Webster said, “In the long run, we’re going to be fine.”

Not everyone can say the same.

Hawaii Superferry halted operations after being dealt a crippling blow by the state Supreme Court in an environmental impact case. In operation less than two years, the company’s 866-passenger Alakai returned to Mobile, Ala., where it was built at Austal USA and where its sister vessel, the Huakai, was recently completed. The fate of the two ferries has not been determined.

Most of Majestic America Line’s fleet of riverboats are idled and for sale. One of them, the historic Delta Queen, is currently biding her time as a hotel in Chattanooga, Tenn. Another was to be auctioned off in May. And RiverBarge Excursion Lines Inc., another overnight cruise operator, cited the poor economy and weak bookings for suspending operations after a decade in business.

The year ahead promises to be just as eventful, though there may not be another incident that rivals the one in New York City in January when passenger vessels made up the bulk of the workboats that came to help after US Airways flight 1549 ditched in the Hudson River. Vessels from NY Waterway, Circle Line Sightseeing Cruises and Interstate Navigation were all on the scene.

Nearing completion is one of the industry’s biggest and most costly challenges: a Coast Guard proposed rule setting new weight standards because the average American has gotten heavier. After an extended comment period, the Coast Guard is still working on the rule, which would require average passenger weight to be figured at 185 lbs. rather than the current 160 lbs. (or 140 lbs. for vessels operating in protected waters). All passenger-carrying vessels subject to stability regulations would have to be reassessed within a year.

IT’S THE ECONOMY

Still, the most immediate concern is the economy. And for some operators it’s not all doom and gloom.

“Bookings are actually up a bit,” said Anthony Gillespie, owner of Nautical Cruise Lines, a special events cruise operator in Freeport, N.Y. A lot of the worst news hit in the off-season, and people are now in a better mood, said Gillespie, who counts on repeat customers on Long Island and the surrounding area that want to book cruises “at a reasonable rate.”

“We’ve had a number of calls. Things look like they’re going to be OK,” said Capt. Gerry Ryan, owner of Linda J Charters, Chincoteague Island, Va., who runs a 24', 15-passenger Coast Guard-inspected pontoon boat. “I’m looking forward to a good season.”

But competition has heated up with 18 tour boats vying for passengers versus five or six a few years ago, said Ryan, who has operated his sunset/nature cruise business for 15 years. As for all the people pushing for deals, he said, “We have some flexibility.”

Dan Blanchard, owner of American Safari Cruises, Seattle, saw opportunity on the horizon. After heading the company for seven years, he bought the assets early this year from a controlling shareholder who he would identify only as a Seattle real estate developer.

“This is the time to buy,” said Blanchard, who notes a lot of the small ship operators based in the Northwest are experiencing a 40- to 45-percent cut in their Alaska business. Passengers also are booking closer to departure dates rather than several months out.

Consequently, “I think May is going to be the busiest May we’ve ever had,” he said of recent booking patterns. People are getting over the emotional trauma of the big hits to their net worth and going cruising.

His luxury brand operates in Alaska and Mexico. In the fall and next spring Blanchard’s company will cruise the Columbia and Snake rivers — one of two operators that decided to fill the void left when Majestic America pulled out of the market. “We’re hoping there’s going to be demand,” he said. Seattle’s Cruise West also added a new itinerary for the Columbia-Snake on its 96-passenger Spirit of ’98.

Blanchard also has a contract to purchase two other small U.S.-flag vessels, which he will operate under a new brand, Sea Lodge Cruises. Daily rates on the new line will average $400 to $450 compared to his higher end American Safari rates of $1,100 per day. Depending on market conditions, he’ll start sailing in Alaska in 2011 or sooner.

U.S. river and coastal cruising is still a viable market, said Lawrence Dessler, executive director of the Niche Cruise Marketing Alliance, Seattle. “It takes education and some creativity in how you package it,” he said.

And while the Delta Queen and RiverBarge’s River Explorer may no longer be plying the Mississippi, American Canadian Caribbean Line’s Niagara Prince has scheduled river cruises between Chicago and New Orleans in June.

The historic Delta Queen is docked on the Tennessee River in Chattanooga, on charter as a boutique hotel expected to open this spring. By June it also should be hosting daily tours with lounge entertainment and a restaurant on board, said Bob Wiemuth, spokesman for the Delta Queen Hotel. “Reservations are looking great,” he said.

The vessel has not received another congressional exemption for overnight cruises needed because it has a wood and steel superstructure. Majestic America’s parent, Ambassadors International Inc., is trying to sell the Delta Queen and other vessels as well as other assets while concentrating on its foreign-flag Windstar Cruises. If it can’t unload the assets, raise more capital or renegotiate debt, it may not be able to stay afloat, regulatory filings warn.

One of Majestic’s vessels, Empress of the North, was scheduled to be sold at auction in mid-May in Portland, Ore., according to a federal court order. Minimum bid was $7 million on the 360', 223-passenger boat that is backed by federal Title XI loan guarantees. The Maritime Administration paid bondholders $38 million last summer.

Bondholders for another Majestic Title XI-financed vessel, the American Queen, received $29.6 million from taxpayers on Christmas Eve. The 418', 436-passenger vessel is now in Beaumont, Texas, and Marad wants to sell it, too.

^ BACK TO TOP

YEARBOOK: OFFSHORE

As business slows, it’s still all about deepwater in the U.S. Gulf of Mexico

By David Krapf, Editor in Chief

Everyone who has been in the offshore energy business for a while knows that it is a cyclical industry — with a history of booms and busts.

The last few years have indeed been boom times, and activity was bound to slow. Once commodity prices began to plummet in the second half of 2008, so did U.S. Gulf of Mexico activity, especially in shallow water.

Even with the slowdown offshore, most OSV companies still enjoyed healthy earnings in 2008. But cracks began to appear late in the year, and the carnage continued into 2009.   

In March, nearly half of the world’s idle rigs were in the U.S. Gulf, primarily jackups and submersibles. This had a big effect on operators of smaller OSVs that rely on the shallow-water market.

For the most part, the large sophisticated supply boats that service the deepwater market had been unaffected. But that began to change in February when average day rates for large supply vessels (over 200') fell almost $4,000 from January, to $17,250, according to WorkBoat’s monthly day rate survey. In April, average rates for large OSVs had fallen to under $15,000.

more Jackups idled

In April, only 28 of 73 jackups were working in the U.S. Gulf, according to ODS-Petrodata. That’s a utilization rate of only 38.4 percent. The actual number of jackups under contract, however, is higher. In early May, 50.7 percent of the fleet was contracted, a slight increase over the previous week’s all-time low of 46.6, according to ODS.

Rig operators are feeling the pinch. Ensco International Inc., which has eight of its 43 jackups in the U.S. Gulf, saw first quarter 2009 earnings drop to $1.56 a share from $1.88 a share during the first quarter of 2008. Utilization of the company’s jackup fleet was 80 percent in the first quarter compared to 95 percent a year earlier.

In the company’s recent quarterly conference call with analysts, Dan Rabun, Ensco’s chairman, president and CEO, said they were feeling the impact of lower oil and gas prices on utilization.

“We currently have idle jackups in Southeast Asia, the Middle East and in the U.S. Gulf of Mexico,” he said. “We will not hesitate to cold-stack rigs to reduce cost if we do not see near-term work opportunities.”

ENSCO, like many other rig operators, continues to move jackups out of the Gulf. “It’s important to note that we have significantly reduced our Gulf of Mexico jackup exposure,” said Jay Swent, Ensco’s senior vice president and chief financial officer, “and will only have seven rigs remaining in the U.S. Gulf after ENSCO 98 and 90 move to Mexico in May and September.”

There has been some talk that the drop in jackup rig demand in the U.S. Gulf has finally reached its low point, as evidenced by the slight increase in utilization in early May.

“Demand for drilling rigs in the U.S. Gulf of Mexico region remains very weak. However, the rate of decline appears to have slowed in recent weeks and activity may be at a near-term bottom,” said John Rynd, CEO of Hercules Offshore, Houston, which operates the largest jackup fleet in the U.S. Gulf.

However, Rynd warned that the market is still extremely weak.

“Jackup drilling activity in the U.S. Gulf of Mexico is now at a low not seen since the early days of the industry. The contracted rig count is off 48 percent from the June highs of 2008,” Rynd said during the company’s April conference call with analysts.

Of its domestic fleet of 20 jackups, nine are working in the U.S. Gulf, six are currently cold-stacked and another five are warm-stacked. Three Gulf submersibles are also cold-stacked.

Hercules posted a first-quarter loss of $4.9 million, or 6 cents a share, compared with a profit of $4.9 million, or 5 cents a share, for the year earlier period.

“Our outlook has not changed dramatically since our last conference call on February 10th,” Rynd said. “At that time we cautioned that the drilling business, particularly in the U.S., was headed for a historic slowdown and international regions were also poised to slow dramatically. Unfortunately this outlook has continued to play out.”

But Rynd said he was confident that things would improve.

“We believe the current low natural gas prices, while they may be with us until the economy improves, are ultimately unsustainable. So, as well economics improve with reduced service costs and higher natural gas prices, at some point we are confident we will eventually experience a sharp rebound in activity.”

cold-stacked

The soft U.S. Gulf jackup market has led to an increase in vessel cold-stackings. SEACOR Marine said they have cold-stacked 18 vessels in the U.S. Gulf. Hornbeck Offshore Services and others have also stacked some conventional vessels due to the sharp drop in demand.

Other operators such as Tidewater continue to reposition vessels overseas. Tidewater moved seven vessels, including two deepwater OSVs, overseas in the fourth quarter.

The U.S. Gulf, even with the slight erosion in rates for larger supply boats, continues to be a tale of two markets. Operators with more deepwater business are for the most part faring better than their shallow-water brethren.

In the first quarter, Hornbeck reported earnings of $1.01 a share, topping analysts’ estimates of 92 cents a share. In the first quarter, the Covington, La.-based OSV operator said utilization for its “new-generation” OSVs was in the low- to mid-90 percent range with day rates averaging about $23,000.

“Results such as these indicate our deepwater focus, and mitigates the impact of a declining market that hit shallow-water regions more quickly and dramatically,” Todd Hornbeck, the company’s chairman, president and CEO, said in a conference call with analysts. “While it is natural to ask whether day rates and utilization will hold at current levels, the better question to ask is whether in this or any market our assets are in a better position to compete for the best available jobs. We believe the answer is yes.”

^ BACK TO TOP