Value Line recently initiated coverage of GulfMark Offshore, Inc. (GLF), in its flagship product, The Value Line Investment Survey. The company provides offshore marine services to companies involved in the exploration of oil and natural gas. Its vessels transport supplies, materials, and workers to offshore facilities. The services it provides include supporting the construction, positioning, and ongoing operation of drilling rigs and platforms, along with related infrastructure. It has roughly 1,700 employees. The company was incorporated in 1996 and is based out of Houston, Texas.
As of November 7, 2012, the corporation had a fleet of 85 offshore supply vessels (OSVs), with an average age of eight years. The company’s three operating segments are in the North Sea, offshore Southeast Asia, and offshore in the Americas. Through the first nine months of 2012, the largest segments by revenue were the North Sea and Americas, both coming in at 42% of sales, with the remaining 16% coming from Southeast Asia. GulfMark also contracts vessels to other regions. It currently has one of the youngest, largest, and geographically-balanced fleets in the world.
The North Sea market tends to be the most demanding due to harsh weather, erratic sea conditions, and significant water depth. However, since projects in that region tend to be fewer in number, but larger in scope and with longer time horizons, vessel demand there tends to be more stable and less susceptible to significant swings than in other regions.
The company uses several types of vessels. Anchor Handling, Towing and Support Vessels are used to set anchors for drilling and towing rigs. Platform Supply Vessels serve drilling and production facilities, while supporting offshore construction and maintenance work. Fast Supply or Crew Vessels transport personnel and cargo to and from production platforms and rigs. Specialty Vessels have special features for specific jobs, including large deck spaces and high electrical generating capacities. Standby Rescue Vessels provide safety patrol for an area and are required for work in the North Sea and some other locations. Construction Support Vessels include pipe-laying barges, diving support vessels, and pipe carriers. Finally, Utility Vessels are used to provide limited crew transportation.
GulfMark is typically employed by oil and natural gas companies. The industry is fragmented with a blend of multi-national and regional competitors. The success of the industry depends on trends in oil and natural gas prices, which are affected by geopolitical and economic forces. While there is some vessel interchangeability between different regions, certain ships are not suitable for specific regions. For example, a vessel used in the Americas may not be suitable for the harsh operating environment of the North Sea.
The company plans to add to its fleet in the coming quarters. It has contracts with several shipyards to build seven new platform supply vessels, for a total cost of about $300 million, with the first of these to be delivered in the second quarter of this year. They will be managed from the North Sea region. GulfMark also has options for additional vessels.
Some of the ongoing operating costs the company faces include wages paid to vessel crews, which is the largest ongoing expense, repair costs, and expenses for certifications, insurance, and maintenance. These costs typically increase with vessel age. GulfMark also has to go through “drydocking” twice every five years. This involves bringing its vessels in to be inspected for structural erosion as well as any major overhaul of equipment.
Contracts with customers typically range from a few days to ten years. Its largest customer, Petrobras, accounted for more than 10% of 2011 sales. No other customer accounted for more than 10% of revenues. The company has about a dozen competitors in the North Sea market and several small and large competitors in the Southeast Asia and Americas markets.
Management believes that its revenues for 2012 will exceed those of 2011, driven by significant growth in rig activity in the majority of its operating areas. The company continues to see strength from Southeast Asia, while business in the Americas remains more volatile. Results in 2013 should benefit from the pickup of several new contracts. Management also remains focused on controlling costs, particularly for its drydock operations.
At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.