Talk at Marine Money's 6th Annual Houston Offshore Finance Forum last week confirmed the distress the workboat industry is experiencing.
Todd Hornbeck, chairman, president and CEO of Hornbeck Offshore Services Inc., described an industry that “has not seen the bottom yet” in the Gulf of Mexico. The reason, Hornbeck said, is that oil and gas operators will not cut dividends but have instead chosen to “make money on the backs of the service companies.”
Hornbeck was joined in a panel session by Quintin Kneen, president and CEO of GulfMark Offshore Inc.; Jeffrey M. Henderson, executive vice president and CFO of Harvey Gulf International Marine LLC; and J. Peter Laborde, founder of Laborde Marine.
The discussion focused on financials, with Kneen noting that liquidity is the “name of the game.” The real foci, he said, should be improving banking relations, redoing covenants and modifying debt agreements. Henderson agreed, noting that Harvey Gulf would be willing to go to cash breakeven in the short term, but anything less than that would require stacking.
While most agreed that banks are now not good sources of funds for the industry, they seemed to agree that private equity was still an option. In fact, Laborde noted that on a recent trip to New York City to visit with the private equity brigade, it surprised him to learn how much they actually knew about the offshore service vessel industry. Laborde indicated that they were particularly enthusiastic, even in the face of industry resistance.
“Over the last year, we have been telling them that this is not the time,” Laborde said. “[But] they are coming whether we like it or not. It’s like we have a bullseye on our backs.”
According to Hornbeck, the danger in the private equity fund scenario is that “if the banks will give us money, we will build boats. We are our own worst enemy.” Laborde agreed, noting that a publically traded company could be forced to overbuild by investors.
When asked about consolidation as an answer to the financial woes plaguing the industry, most panel members were skeptical.
“Why consolidate,” said Henderson, “when you can’t put the boats to work?”
As the discussion progressed, the consensus of the panel was that stacking was the best option.
“We believe that the best strategy is to take vessels out of the market,” Hornbeck said. “It’s the best way to reduce costs and save cash. If you don’t, and [you] work below costs, you are just damaging equipment for no reason.” However, he warned, the exit of skilled mariners from the market will make it difficult to bring vessels out of stack.
An alternative to stacking, especially for older, smaller vessels, is scrapping. But that is not without problems either. As Kneen noted, most OSV hulls are not big enough to bring to traditional scrapping yards and scrapping locally is often difficult because of environmental concerns and regulations. He suggested that most vessels will be scrapped in place with significant equipment removals.
