Global Marine Inc.

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Global Marine Inc.

777 N. Eldridge Road
Houston, Texas 77079
(713) 596-5100
Fax: (713) 531-1260

Public Company
Employees: 1,500
Sales: $260.3 million
Stock Exchanges: New York
SICs: 1381 Drilling Oil & Gas Wells; 1311 Crude Petroleum & Natural Gas

One of the largest offshore drilling firms in the world, Global Marine Inc. drills oil and gas wells and produces crude petroleum and natural gas.

Global Marine was founded in 1953 as an offshore drilling venture formed by four small oil companies. The future of offshore drilling looked bright throughout the 1950s. War in the Middle East and new U.S. government import restrictions lead to great need for domestic oil production, and petroleum firms were scouring the Gulf of Mexico. The situation changed dramatically in 1958 when the state of Louisiana and the federal government became embroiled in a dispute over the ownership of the tidelands where oil companies were drilling. During the fight lease sales dried up, and the number of drilling rigs in U.S. coastal waters fell from 120 to 40. By this time, Globals major shareholders were Aerojet-General Corp. and Union Oil Co. of California. With the offshore-drilling market tumbling, a group of employees led by engineers Robert F. Bauer and Almeron Field bought Unions share of the company.

Within a few years the dispute was settled, and market conditions changed for the better. Global grew rapidly, going public in 1962. By the mid-1960s it was one of the worlds biggest offshore drilling firms, with rigs off the coast of Alaska, Nigeria, Australia, Libya, California, and Louisiana and in the Persian Gulf and the North Sea. The firm was not an oil company and did not sell oil. Global rented its rigs and crews to oil companies for offshore drilling. By 1965 the firms revenues reached $21.5 million, and all of its rigs were rented for two or more years in advance.

Offshore drilling had not existed until the late 1940s, and rig designs were rapidly becoming more sophisticated, able to work in deeper waters for longer periods, with greater comfort for the crew. While other firms worked on shallow-water platforms using a jack-up design, Global put its resources into building a fleet of self-propelled vessels that drilled though wells in their center. The firm believed these vessels had greater speed and flexibility.

With its core business doing well, Global branched into related fields. Through its subsidiary Global Engineering Company it began training crews and inspecting ships for the U.S. Navy. It also installed a secret underwater testing site for the Navys Polaris missiles. Through another subsidiary it engaged in long-range weather forecasting, usually for other companies involved in ocean exploration. It took core samples of the ocean floor for the National Science Foundation, raised shrimp in Hawaii, and mined for gold off Alaska. Along with other offshore oil companies, Global began to engage in its own oil exploration. It bought interests in the Canadian Arctic and North Sea, where some petroleum companies had found oil. It continued to build drilling vessels, owning 12 by the middle of the 1970s. Sales grew as its fleet expanded, reaching $89 million by 1974.

At about this time, worldwide publicity was briefly turned on Global Marine when it participated in a controversial attempt to raise a Soviet submarine off the floor of the Pacific Ocean, along with the Central Intelligence Agency and Howard Hughess Summa Corporation. The submarine broke in half as it was raised.

Despite its growing sales and fleet, Global faced trouble because of its heavy reliance on self-propelled vessels, the wisdom of which some industry analysts questioned. The vessels were less stable than other types of rigs in rough seas, and since they cost more to build, they cost more to rent. Because other types of rigs were judged better suited to the North Sea and Gulf of Mexico, Global missed many of the jobs it might have won. As a result, it lost money in 1976 and 1977. Further, it owned one of the oldest fleets in its industry. Finally in 1979, with oil prices rising, Global ordered 17 jack-up rigs for $400 million, to better compete for jobs in shallow waters. To finance its expansion, Global borrowed heavily, leaving it with a 4-to-l debt-to-equity ratio.

At first this seemed a wise plan. Globals revenues grew from $91 million in 1976 to $456 million in 1982. It paid off substantial amounts of its debt and ordered eight more rigs, to further modernize its fleet. However, oil prices collapsed in the following years, and with an oversupply of natural gas as well, rig rates plummeted by more than 50 percent between 1981 and 1983. In 1983 one of the firms drillships, the Glomar China Sea, sank in a typhoon off the coast of China, killing its entire crew of 84. In 1984 Global had to make a $120 million interest payment on its new rigs, at a time when half of its rigs were leased under break-even contracts. President C. Russell Luigs slashed spending and cut exploratory drilling. The firm made stock and bond offerings to raise cash. Its debt-to-equity ratio nevertheless remained at 2-to-l.

The market remained soft and Global lost $560 million between 1984 and 1986, forcing it to file for bankruptcy protection in 1986. Daily rates on its rigs had fallen from a peak of $50,000 during the early 1980s to $12,000 by 1986, while 75 percent of its drilling fleet stood idle. Sales dropped from $454 million in 1982 to $225 in 1986. Globals suspension of $20 million a month in interest payments prior to its bankruptcy essentially saved the company. Luigs gambled that Globals creditors would not foreclose. Global owed about $1.1 billion to a consortium of eight creditors, and many felt they would be more severely hurt by selling the firms assets than by giving it a chance to recover.

Globals financial situation was extremely complicated because it had borrowed using specific company assets, usually drilling rigs, as collateral for specific loans. But each rig was financed at different times by different creditors for different interest rates, and this lead to difficulty in coming up with a reorganization plan acceptable to enough of its creditors. The largest creditor was the U.S. Maritime Administration, which had guaranteed $200 million of Globals debt through federal programs geared toward reducing U.S. dependence on foreign oil.

Drilling picked up somewhat in 1987, but Global still had only about half of its rigs active, mostly in the Gulf of Mexico, while a worldwide oversupply of drilling rigs kept prices low. The firm continued to lose money ($155.6 million in 1988 alone) as it struggled to reorganize.

Global emerged from bankruptcy in early 1989. Ironically, it was again one of the strongest offshore drilling firms. Many of its competitors had also gone bankrupt and had not yet reorganized. Global had dealt with its financial problems, at least temporarily, and it now had one of the largest, most modern, and efficient fleets in the industry. It also had reduced its costs, cutting its workforce to 1,500 from over 3,000 in 1985, and hiring more lower-paid foreign workers. Its creditors traded two-thirds of the firms debt for ownership of over 90 percent of the company. Over the next three years, Global only had to pay one years interest on its remaining $446 million in debt. Meanwhile, the market had picked up somewhat. Nearly all of Globals rigs were at work, and the day rate had risen to about $26,000. Yet overall it remained a difficult time, alleviated only briefly in 1990 when oil prices rose in response to Iraqs invasion of Kuwait.

Under these conditions, Global was able to cut its debt by another $60 million by the end of 1991, aided by the terms of its new debt service agreement. However, company officials felt that this would not be enough to avoid a fiscal crisis by 1995. They resolved to recapitalize Global and cut its debt further. The firm sold one of its smaller jackup rigs for $18 million, and used the money to lessen its debt. The firms policy was to retire rigs that were becoming obsolete. It therefore retired the Glomar Biscay semi-submersible rig and the Glomar Atlantic drillship, reducing the average age of its fleet to about ten years. The Biscay was sold for scrap, while the Atlantic was purchased for use outside the drilling industry. Global sold 26 million shares of common stock and $225 million of senior secured notes. These moves decreased Globals total debt by $142 million.

These financial successes not withstanding, 1992 was another difficult year for Global. The average utilization rate for its rigs declined from 86 percent in 1991 to 78 percent in 1992, while the average day rate fell to $27,600 from $29,300. The North Sea market became particularly weak. The natural gas market also softened, and sales at Challenger Minerals Inc., the firms oil and gas subsidiary, fell to $19 million, down from $28 million in 1991. The firm sold an additional 3.9 million shares of stock in January 1993, raising another $7.8 million.

Principal Subsidiaries

Applied Drilling Technology, Inc.; Challenger Minerals, Inc.; Global Marine Drilling Company.

Further Reading

Contract Drillers Tap a Money Field, Business Week, March 13, 1965.

Field, Alan M., Staying Afloat, Forbes, October 6, 1986.

Global Marine Borrows, Slashes Ratesand Sticks Its Neck Out Further, Business Week, December 19, 1983.

Global Splash, Barrons, April 25, 1966.

Ivey, Mark, Global Marine: Pumped Up by Kuwait, Business Week, October 29, 1990.

Now All Global Marine Needs Is a Market, Business Week, March 13, 1989.

Stuart, Reginald, Global Marine Searches World for Undersea Riches, New York Times, March 20, 1975.

Vogel, Todd, Missing the Boat for the Ship, Forbes, November 15, 1975.

Scott M. Lewis

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Global Marine Inc.

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Global Marine Inc.