Uncertainty over crude oil production, prices and barge utilization have put the brakes on Kirby Corp.’s four-year run of record profits, causing the nation’s largest inland tank operator to release a cautious outlook in its first quarter earnings report in April.
But Kirby officials say that this does not represent a collapse in the oil transport market that was seen in 2008-2009, and that the situation will improve once crude prices stabilize and the expected additional barge volumes from refined products and petrochemicals come on line.
Specifically, Kirby said that revenues in its marine transportation services were down 4%, to $420 million, from the first quarter in 2014, inland term contracts renewed flat in the first quarter, and its diesel engine services business is operating in a “very challenging environment” due to softness in the OSV activity in the Gulf, necessitating a 40% cut in the workforce.
During the first quarter, market continues were also impacted by fog and wind in the Gulf of Mexico, and by harsh winter conditions in the Illinois and upper Ohio rivers.
Nonetheless, “this is not a broad-based market downturn, but more of a pause which has put the brakes on new inland tank barge construction, a very positive reaction, and gives the market some breathing room,” David Grzebinski, president and CEO, told analysts in a conference call April 29 after Kirby released its first quarter results. “Rates should firm once excess equipment has been absorbed and market confidence returns.”
Kirby has enjoyed four years of improved earnings, with record inland transportation rates, record earnings and record revenue last year. This is largely due to strong demand for its tank barges from energy companies seeking to move huge volumes of crude oil to refineries from the boom in the hydraulic fracking industry.
Grzebinski said that some barges moving crude from the Bakken Shale formation in North Dakota and from Canada have been redeployed, but barge utilization in the 30,000-bbl. barge market has been affected and this has put pressure on prices. He said the company expects crude oil production to decline as the year progresses.
He said that Kirby is still “very profitable. You got to remember we are at record rates and rates have been going up for four year, so this is just a slight pull back.”
Added Joseph Pyne, Kirby’s chairman: “When this turns, it could turn pretty quickly, and you could be back on an up cycle a lot quicker than you think. But we just need to kind of work through this malaise that ’s out there and get the market balanced.”
Officials said there are numerous chemical and refinery projects in the Gulf that will keep the company busy into the future. There is also growing demand for pressure barges, and Kirby purchased six of them in February at a cost of $41.3 million.