Offshore Profile: Offshore Prospects Keep Bollinger Busy

Tuesday, April 06, 2004

Maritime Reporter recently spent some time with Mike Ellis, Executive VP and COO of Bollinger Shipyards, Inc., to discuss offshore market business trends and the future direction of one of the nation's elite marine construction companies.

Q: What is the significance of the Offshore Market to Bollinger?

A: The offshore market is very significant to Bollinger Shipbuilding. In addition to the 12 facilities that perform repair services on the offshore supply vessel markets, our new construction facilities build OSVs and other related equipment. When the offshore market is slow, it creates significant idle capacity in our industry which in turn makes for a difficult market for shipyards.

Q: What percentage of your business is related to the offshore business?

A: The percentage of our business that is related to the offshore market fluctuates from year to year, but roughly 50 percent of our total business is related to the offshore Gulf of Mexico energy business.

Q: How is Bollinger structured so that a downturn in one segment does not drag down the entire company?

A: Bollinger has worked very hard to diversify itself so that we would not be totally dependent on any one market. This strategy has proved successful over past downturns in the energy market; however, recently we have experienced downturns in both the Gulf of Mexico energy markets and the brown water transportation markets. We are very committed to our strategy of diversifying and we continue to look for businesses or markets that support our core competencies and help to further diversify our company. We are also committed to keeping our mix of commercial and governmental work. Where other large shipyards have failed to produce both commercial and military products in the same facilities, we believe that our commercial work gives us a competitive advantage from a cost standpoint and our military work gives us a technical advantage over our commercial competitors.

Q: What is your assessment of the current vessel building climate?

A: In the offshore energy markets, we think that the operators will continue to be cautious with respect to building new OSVs to either operate in deepwater or replace aged shelf vessels. We do, however, remain optimistic about the OPA90 offshore tank barge and tug markets. We have been very successful in several contracts for these units with several different customers. The government/military sector of our business may offer the brightest immediate future for Bollinger. We have a few Coast Guard contracts currently in our backlog and are working several other Navy/Army programs that will provide long-term backlog and security for our business going forward.

Q: What do you count as the major challenges to running a profitable boat building/repair business today?

A: There are so many challenges in our industry that I don't know quite know where to start, but I will comment on a few things that are a must to be a successful business in our industry. The first challenge is people: it is imperative to create a workforce that believes they can make a difference in your business, the only way to balance safety, environmental, regulatory issues, and productivity is to have a workforce that sincerely believes they can make an impact on our success. They have to feel a part of the team and our job is to create an environment to where we benefit from a team atmosphere. It's easier to create this type of atmosphere when you are a smaller company, but it just means that you have to work harder at retaining that type of atmosphere as you grow larger.

The second challenge is competitiveness: The shipyard business is changing with the uses of technology, planning, and effective use of engineering to decrease the cost of these very complicated vessels. To be successful, you have to manage the use of technology and reinvestment into the business to keep a competitive advantage. Another challenge is maintaining a steady backlog of work. This challenge is similar to the age-old question of whether the chicken or the egg came first. One could argue that if you take care of challenge #1 which is people and challenge #2 which is remain competitive, then you will always have a steady backlog of work. On the other hand, one could argue that a steady backlog of work will bring about a situation where you can afford to reinvest in the business, use technology, and create an environment that is conducive to retaining and motivating a workforce. Regardless, we remain committed to focusing our efforts on our greatest assets, which are our people. We will invest in our business to remain competitive and keep a steady backlog of work.

Q: If you could unilaterally change one policy/market condition, what would it be?

A: There are several that come to mind, but if we could open up drilling in the Florida Gulf of Mexico fields and possibly create better market conditions in the overall Gulf of Mexico energy markets, it would have an immediate positive impact on all aspects of our business.

Q: In relation to new Bollinger OSV designs, what is meant by "less is more"? (See story page 12)

A: The "less is more" all really started in 1996 with the Bollinger 145 Utility/Supply design and building programs. The 145 design, which is under 100 GRT, allowed for a minimal crew to operate a vessel that provide very efficient operating parameters and greater cargo capacities, with a very reasonable price, which usually came from a larger hull design and a larger price tag. We focused on operating efficiencies and capacities in a smaller foot print, mainly for Liquid mud, fuel and with the OSV's bulk product capacity. In meeting with Oil Company representatives and vessel operators Bollinger focused on meeting their demands and keeping the greater capacities in an efficient package that met their budgets.

Over the past five years this same concept evolved to our 166 ft. OSV and then to our 220 Class OSV. Our original 220 class hull, first built for MNM Boats measured 207 ft x 53 ft x 19 ft, with conventional propulsion and DP 1. This hull design provided capacities seen only in the larger 220-ft to 230 ft hulls at that time. When operators such as Tidewater and Seacor took a look at the design they liked what they saw and they placed orders to build different propulsion versions with Bollinger, but the foot print with the greater capacities remained the same.

Q: In your opinion, what have been the biggest changes in servicing offshore customer's needs?

A: I believe the biggest change in servicing our customer needs has come in the repair markets. In the past, most all repair work was done on a T&M or a cost plus type arrangement. As our customers have consolidated, become more sophisticated, and demanded fixed price bids for repair work, we have made upgrades to our program management and our infrastructure to be able to handle this type of fixed price contracting.

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