Healthy 2001 Projected By Many Repair Yards

Thursday, December 14, 2000
With the next "offshore boom" looming on the horizon, many of the vessel repair and conversion yards, particularly but not limited to the Gulf of Mexico region, are projecting good times in the coming year. Quite simply, the sustained high price of oil will eventually push oil majors - which have been sedate to date due to continued consolidation and a fear of extending too far, too soon - to start spending again on exploration and production, particularly in deepwaters. In conjunction with this is the expected decision of the U.S. MMS on the use of Floating Production Systems in the Gulf of Mexico, a development which will further drive down the cost of recovering product from record depths and have a resulting positive effect on the companies which build, repair and supply vessels, products and services for the offshore market.

A sign of good times to come was indicated by two players last month, J. Ray McDermott and Conrad Industries.

J. Ray McDermott, S.A., a subsidiary of McDermott International, Inc., has begun preparations to reactivate its Harbor Island fabrication facility in anticipation of increased activities in the marine construction industry.

The company expects Harbor Island, located near Corpus Christi, Texas, to be fully reactivated in early 2001, employing approximately 250 highly skilled fabrication workers.

The decision to prepare Harbor Island for reactivation coincides with an improvement in marine construction market conditions, worldwide. J. Ray McDermott will reopen its fabrication yard at Batam Island, Indonesia, for the Bayu-Undan gas recycle project and the company is also preparing its fabrication yard at Jebel Ali, Dubai, U.A.E. for a significant increase in activities. Harbor Island has been idle since 1996. The facility produced steel platform jackets and other offshore platform components up to 36,000 tons. Located on 275 acres, the Harbor Island facility feature an extensive lay down area and has the capability to fabricate large substructures and topsides for both bottom-founded and floating platforms. Deepwater access enables Harbor Island to be used for outfitting and integration of topsides for floating production systems (FPSO) and drilling units. Harbor Island will also serve as a supplemental support base for J. Ray McDermott's fleet of offshore construction equipment.

Meanwhile, Conrad Industries, Inc. is expanding its operations to prepare for an anticipated increase in work. The company reported net income of $626,000 and earnings per diluted share of $.09 for the three months ended Sept. 30, 2000 compared to net income of $71,000 and earnings per diluted share of $0.01 for the three months ended Sept. 30, 1999. The company had a net income of $2.0 million and earnings per diluted share of $0.28 for the nine months ended September 30, 2000 compared to net income of $1.6 million and earnings per diluted share of $0.23 for the nine months ended September 30, 1999.

William H. Hidalgo, President and CEO said, "As anticipated, the levels of vessels construction revenue and gross profit were impacted during the third quarter due to the hours expended by production personnel in the construction of our new 280 x 160 ft., 10,000 ton capacity dry-dock. The dry-dock is scheduled to be placed in service during the first quarter of 2001."

Hidalgo said, "On October 23, 2000 the company purchased 52 acres of land in Amelia, Louisiana for $1.3 million. The land is strategically located on the Intracoastal Waterway approximately 30 miles from the Gulf of Mexico and provides the company with the opportunity for development. The contracts that we currently have in progress and current bid activity lead to our optimism for continued improving conditions for our vessel construction segment. We continue to feel positive about future activity in the repair and conversion segment but we do not anticipate any significant increase in activity until 2001."

Conrad, founded in 1948, specializes in the construction, conversion and repair of marine vessels for commercial government customers and the fabrication of modular components of offshore drillings rigs and floating production, storage and off loading vessels. The company currently operates three shipyards located along the Gulf Coast in Morgan City and Amelia, Louisiana and Orange, Texas.

Conrad's revenues for the three months ended September 30, 2000 were $8.9 million compared to $6.9 million for the three months ended September 30, 1999. Revenues for the nine months ended September 30, 2000 were $27.4 million compared to $25.1 million for the nine months ended September 30, 1999. The company's backlog was $25.4 million at September 30, 2000 as compared to $25.1 million at September 30, 1999. Gross profit was $2.1 million (23.7% of revenue) for the three months ended September 30, 2000 as compared to gross profit of $1.2 million (17.3% of revenue) for three months ended September 30, 1999. Gross profit was $6.9 million (25.2% of revenue) for the nine months ended September 30, 2000 as compared to gross profit of $6.0 million (23.8% of revenue) for the nine months ended September 30, 1999.

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