GulfMark Offshore, Inc.

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GulfMark Offshore, Inc.

4400 Post Park Parkway, Suite 1170
Houston, Texas 77027
U.S.A.
Telephone: (713) (963-9522
Fax: (713) 963-9796
Web site: http://www.gulfmark.com

Public Company
Incorporated: 1997
Employees: 1,053
Sales: $114.1 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: GMRK
NAIC: 333132 Oil and Gas Field Machinery and Equipment Manufacturing

GulfMark Offshore, Inc. is a Houston-based firm that has found a niche providing support vessels and related services to companies involved in offshore exploration and drilling of oil and natural gas. Although most of GulfMark’s activity is conducted in the North Sea, some of its 53-vessel fleet also operates in southeast Asia, Brazil, and west Africa. The company uses six types of vessels to support its customers. Platform supply vessels are large-capacity cargo ships used to carry fuel, water, drilling equipment, and other supplies in support of offshore construction and maintenance work. Anchor handling, towing, and supply vessels are used primarily to set anchors for drilling rigs, but also serve to tow mobile drilling rigs and perform limited supply duty. Construction support vessels are designed for specific tasks, such as pipe carriers or pipe-laying barges. Standby rescue vessels are required for use in the harsh conditions of the North Sea and serve as a safety patrol for offshore facilities. They carry rescue personnel and specialized equipment and are capable of providing first aid as well as shelter. Finally, GulfMark operates crewboats, high-speed personnel and cargo transports.

GulfMark’s Lineage Dating Back to 1953

GulfMark grew out of Gulf Interstate Co., which was organized in 1953 as a pipeline engineering firm. By 1959, when it began operating as a public company, the firm had a net worth of less than $500,000. Gulf Interstate was involved in the construction of the $200 million Transwestern Pipeline, which extended from west Texas to California and was completed in 1960. The company continued to flourish in engineering, gaining a reputation as an innovator in this field. Gulf Interstate engineers designed and oversaw the construction of the world’s first long-distance ammonia pipeline, the Gulf Central Pipeline, which was completed in 1970. Now a $7 million company, Gulf Interstate looked to diversify. Operating pipelines was a natural offshoot of its expertise, but as early as 1960 the company’s management had begun investing in real estate, becoming especially interested in high-rise Houston office buildings. It owned the Americana Building, a ten-story building that also housed its headquarters, located in the heart of Houston’s business center. Across the street was the Houston Natural Gas Building, a 28-story structure in which Gulf Interstate held a 40 percent interest. The company also owned the Gulf Credit Card Center, which it leased to the Gulf Oil Company for its credit card operations. Moreover, Gulf Interstate acquired a 10 percent stake in some 3,300 undeveloped acres near Houston International Airport, as well as some property in Buffalo, New York. Gulf Interstate became involved in the marine terminal business, operating a “tank farm” in South Shield, England. The facility included 26 tanks to store gas and oil, as well as docking facilities.

Entering the Support Vessels Business: 1970s

It was also in the early 1970s during Gulf Interstate’s diversification efforts that it became involved in the support vessel business that would one day evolve into GulfMark. The company acquired a 49 percent interest in a Louisiana company called Gulf Overseas Marine Corporation. The remaining stock was owned by a single individual. Gulf Overseas provided utility boats that supplied the 100 drilling rigs that operated in the Gulf of Mexico. In addition it supplied crews for anchor handling duties. With each rig in the Gulf requiring at least two support boats, the company recognized a growing opportunity. Gulf Interstate also took a 50 percent ownership position in a subsidiary formed in 1973, Gulf Overseas Shipbuilding Corporation, to build two deep sea tug boats, with the possibility of additional future construction.

Gulf Overseas would be in need of these new vessels because in 1974 it accepted an attractive offer from a foreign company and sold its three-vessel fleet, generating an after-tax profit of nearly $1 million. Also in that year, Gulf Interstate sold the Americana Building and its Buffalo properties. Although still primarily an engineering company, it continued to cast about for business opportunities. Gulf Interstate bought a stake in Northwest Pipeline Corporation. It undertook oil and gas exploration in Texas and Oklahoma through a subsidiary, Gulf Interstate Exploration, Inc.

The promise of Gulf Overseas failed to materialize and in 1976 the business was forced to file for bankruptcy, resulting in Gulf Interstate reducing its ownership position. In the meantime, the company became involved in other fields almost by accident. In its efforts to protect underwater pipeline crossings, Gulf Interstate entered the erosion-control business through two subsidiaries: Hold That River and Ercon Corp. It soon emerged as a leader in the field, offering expertise in the building and maintenance of sea walls and other means to protect beachfront properties. Gulf Interstate’s work on underground pipeline detection also led the company into the development of radar systems.

Management of Gulf Interstate anticipated that a severe downturn in the oil and gas industry was on the horizon and in the early 1980s took steps that would ensure the company’s survival in an economic climate that proved to be the ruin of much larger firms. The company reduced staff and overhead expenses, as well as cut back on investments in research and development. Moreover, it ceased its involvement in drilling and seismic studies and raised cash by selling off assets not crucial to its core operations. In October 1983 the company changed its name to Gulf Applied Technologies, a year in which it generated revenues of $16.7 million and reported a net loss of $3.2 million. With a strong cash position the company was prepared to survive, but the prospects for its traditional pipeline business in the United States were “practically nonexistent,” according to its annual report. Although Gulf Applied lost another $9 million over the next two years, it was able to return to the black in 1986, posting a profit just short of the $1 million mark. The company focused its efforts on four operating segments: engineering, pipeline and terminals, radar systems, and erosion control. By the end of the decade, however, it would undergo a thorough restructuring.

In 1989 Shearson Lehman Hutton Group gained control of the company after acquiring a 30.5 percent stake in Gulf Applied. Much of Gulf Applied’s operations were disposed of, with the exception of erosion control services. Moreover, new management decided to expand the offshore marine services business in which the company had become involved through Gulf Overseas Marine Corporation in the 1970s. A major step in making this transition occurred in October 1990 when the company purchased the marine division of Offshore Logistics, Inc. for $17.8 million in cash. The assets acquired included 12 offshore support vessels, as well as support facilities, spare parts, and ongoing contracts. Three inactive crewboats were sold at book value, while five continued to operate in Southeast Asia, three in the North Sea, and one in the waters of Brazil. The new assets were folded into the Gulf Offshore Marine Division, which included a warehouse and servicing center in Louisiana held over from the company’s earlier business in support vessels.

Early in 1991 Gulf Applied changed its name to GulfMark International, Inc. It now operated in two industry segments: offshore marine services and erosion control services through its Ercon subsidiary. Ercon also owned a 21 percent stake in Energy Ventures, Inc., which was involved in drilling and workover services, drill pipe and premium tubulars, and the manufacture of artificial lift systems. Over the next two years GulfMark was especially active in building up its marine service division, adding four support vessels, three of which were wholly owned and the other 55 percent owned by a subsidiary. The division added to its fleet over the next few years, contracting with Norwegian shipyards to build new ships for deployment in the North Sea. In addition it acquired assets from BP Shipping in July 1993, so that by 1994 Gulf Offshore had 20 support vessels at its disposal. As these ships entered service, revenues began to grow for the corporate parent at a pace that the erosion control division could not match. After posting total revenues of $7.5 million in 1990 and $17.2 million in 1991, GulfMark reached $27.9 million two years later. Of this amount, erosion control contributed $5.3 million. In 1994 corporate revenues totaled nearly $34.5 million, but Ercon’s business increased to just $6.8 million. GulfMark’s momentum stalled somewhat in 1995, due to poor results in Southeast Asia. Revenue improved only slightly to just more than $36 million, and the company posted a $1.9 million loss on the year. In 1996, with three more support vessels in operation, total sales improved to $41.7 million and GulfMark returned to black ink, generating an $8.4 million net profit. Revenues from Ercon, however, dipped by nearly 21 percent.

Company Perspectives

GulfMark Offshore provides marine transportation and related services worldwide. Our primary objective is to provide quality, cost effective service, while at the same time ensuring safety and the preservation of the environment.

GulfMark Offshore a 1997 Spinoff

In December 1996, GulfMark announced that it would spin off its Gulf Offshore division to shareholders as a new publicly traded company. In April 1997 shareholders approved the transaction and the company’s offshore marine services assets were transferred to a new wholly owned subsidiary called GulfMark Offshore, Inc. It was then spun off and shareholders of “Old GulfMark” received equal shares in “New GulfMark.” The remaining assets, Ercon and a stake in Energy Ventures Inc., were then acquired by Energy Ventures in a tax-free merger that distributed 2.2 million shares of Energy Ventures stock to GulfMark shareholders. For legal and tax reasons, the deal was structured as a spinoff but in practical terms New GulfMark was the old company without the erosion control business. It retained the same board of directors, the same headquarters, and essentially the same management team. GulfMark was now more of a pure play offshore marine services company with no secondary line of business to distract investors. Later in 1997 the company made a public offering of stock, netting $33.4 million, which was earmarked for upgrading the fleet and building new vessels, as well as repaying debt.

In November 1997 GulfMark announced that it would add six support vessels to its fleet, three of which were already under construction, and three others to be built. A few months later, in February 1998, the company expanded its fleet through acquisition, paying $73 million in cash and the assumption of debt to purchase Brovig Supply, a Norwegian ship-owning company. As a result GulfMark added five more support vessels to its North Sea area of operation, and by the end of 1998 the total number of vessels in the fleet grew to 42. These additional ships had a dramatic impact on the balance sheet. In 1997 GulfMark recorded modest improvements over the previous year, with revenues increasing to $46 million, while turning a $6.1 million net profit. In 1998, however, the company saw sales almost double, topping $86.1 million, and net income totaled $20.8 million, despite a downturn in the price of oil and gas. To fund further growth, GulfMark completed a private placement of $130 million in notes in June 1998.

Continued volatility in oil and gas prices hampered GulfMark’s growth in 1999. The company expanded the fleet, with four new vessels entering service, three of which were owned and one chartered. Nevertheless, poor economic conditions led to revenues falling to $72.3 million and net income to $1.86 million. As the energy market recovered in 2000, GulfMark regained its momentum and initiated an aggressive new construction program to prepare for continued growth. It signed contracts worth approximately $148 million with Norwegian shipbuilder Aken Brattvaag for four new supply vessels and three anchor handling tug supply vessels. All seven were scheduled to be completed in time to replace vessels under charter. Revenues for the year improved to $77.7 million and net income grew to $7.9 million.

An increase in day rates for its vessels as well as expansion of the fleet through acquisitions set the stage for record results in 2001. The most significant acquisition was the $61.8 million deal for Sea Truck Holding, a Norwegian support vessel company, adding five platform supply vessels to the GulfMark fleet, which would reach 50 in number by the end of the year. Revenues increased to more than $114 million and net income to nearly $38 million in 2001. Despite a downturn in the stockmarket, shares of GulfMark displayed strong growth, improving from $23 in early October to more than $41 in late April. The company had no difficulty in selling $1.5 million shares of common stock in a March 2002 secondary offering, netting $50.3 million, which management intended primarily to pay down debt. GulfMark stock was so strong that in May 2002 management announced a two-for-one split. Clearly, GulfMark was attracting the attention of Wall Street, and some analysts speculated that the company was still undervalued and might very well attract a large bidder.