Rowan Companies, Inc.

views updated

Rowan Companies, Inc.

2800 Post Oak Blvd., Suite 5450
Houston, Texas 77056-6196
U.S.A.
Telephone: (713) 621-7800
Fax: (713) 960-7660
Web site:http://www.rowancompanies.com

Public Company
Incorporated: 1924 as Rowan Drilling Company
Employees: 4,742
Sales: $645.95 million (2000)
Stock Exchanges: New York Pacific
Ticker Symbol: RDC
NAIC: 213111 Drilling Oil & Gas Wells; 23493 Industrial Non Building Structure Construction; 481211 Nonscheduled Chartered Passenger Air Transportation

Rowan Companies, Inc. is a leader in domestic and international oil drilling with two subsidiary businesses, Era Aviation and LaTourneau, Inc. that support its primary business. Rowan operates drills in Louisiana, Texas, the Gulf of Mexico, Canada, Alaska, and throughout the world. Era Aviation is a charter airline serving Alaska, the Gulf Coast, and the Western United States. LaTourneau, Inc. manufactures offshore drilling rigs. Since 1924, Rowan has been a leader in the industry and has strengthened its position consistently through decades of work in the oil fields.

Roaring to Life in the 1920s

When brothers Charlie and Arch Rowan had the opportunity to purchase a drilling rig in 1923, they decided to seize the day. Charlie, who had experience in the oil fields with Humble Oil, convinced Arch to join him in the fledgling drilling operation in the now famous oil fields of Corsicana, Texas.

Incorporating in 1924 as Rowan Drilling, the company added to its inventory an additional oil rig, purchased for $5,500. With total capital of $30,000, the brothers set the new rig near the town of Wortham. They hit a gusher in November 1924 that reached 200 feet in the air. The event launched Rowan’s business and created an oil boom in the city of Wortham that continued until 1927.

In 1927, the Rowan brothers established a second company, Rowan Oil Company. The newly formed company was to sell the oil produced by Rowan Drilling. Headquartered in Fort Worth, the company did not begin making money until 1928.

Continuing Prosperity in the 1930s

Outside of east Texas, the Great Depression had hold on the rest of the country, but in the oil fields, jobs and oil continued to gush plentifully. In 1933, Rowan Oil Company dissolved. Its older counterpart, Rowan Drilling, was also dissolved but then reborn as a Delaware corporation. Four stockholders—Charlie Rowan, Arch Rowan, A.A. Klein, and Bess Brants—divided the company, with the Rowan brothers retaining the majority of the shares.

Drilling with steam power was state-of-the-art for the 1920s, but by 1935 Rowan was moving ahead of the industry by purchasing its first diesel electric rig. In the late 1930s, the company extended its reach beyond Texas and into the marshland of Louisiana.

Because of an excess flood of oil in the market, the Texas Railroad Commission began regulating the production for oil wells. In response to this regulation, Rowan sued the state agency in a case that eventually went all the way to the U.S. Supreme Court. However, Rowan lost the case (6-3) as the Supreme Court refused to overrule the judgment of a state agency.

Changes in the 1940s

The 1940s brought a new landscape to the world and the oil industry. As the United States entered World War II in 1941, oil production was a key factor in the war effort. Rowan was ready to support the war effort with improved drilling technology. Arch Rowan was a founding member of the Petroleum Industry War Council, an organization that later became the National Petroleum Council.

After the war was over in 1945, Rowan, as well as other oil drilling businesses, experienced difficulties. In 1948, imported oil began to have an impact and exceeded domestic oil for the first time. However, demand increased with a growth in automobile and aircraft use.

In 1948 Rowan Drilling Company split into two companies when Rowan Oil was resurrected. This change was in response to Texas liability law and was designed to protect oil holdings by separating the drilling and leasing operations. Internally, changes were happening as well. To facilitate company communication, Rowan launched The Rowan Grapevine, a company magazine for Rowan employees.

By the end of 1948, Rowan had 78 wells—55 in Texas, 12 in New Mexico, and 11 in Louisiana. Accessing rigs in the swamps of Louisiana was challenging, so Rowan purchased a twin-engine Beechcraft airplane in 1948 to fly to those remote locations.

Growth in the 1950s

With 24 rigs in operation in three states, Rowan began the 1950s aggressively. In 1951, Rowan began offering benefits to its employees as well as establishing a joint headquarters in Fort Worth, Texas, for the two companies—Rowan Oil and Rowan Drilling.

Though marsh drilling in Louisiana had been successful, drilling in deep water was new to Rowan, and the company first attempted it in 1954 in the Gulf of Mexico. Despite being plagued by bad weather, Rowan persevered and added a second rig. Helicopters were used to transport crew to the rigs.

In 1955, after 32 years of leadership, Arch and Charlie Rowan retired. Hamilton Rogers became president of Rowan Oil Company, and Gilbert Rowe, who had joined Rowan Drilling in 1944, assumed leadership of that company. That same year, Rowan Drilling built the Rowan building in downtown Fort Worth to serve as its headquarters.

Ten years after being split into two companies, Rowan decided that, though initially beneficial due to Texas liability law, operating two companies was not advantageous to the overall organization. The assets of Rowan Oil Company were sold to Texas Pacific Coal & Oil Company in a $9.6 million deal. The remaining company, Rowan Drilling, extended drilling operations into Mississippi in 1958.

Going Public: 1960s

In 1961, company founder Charlie Rowan died. Tragedy followed in 1962 when Arch Rowan, Jr., died at the age of 32 as the result of burns received during an accidental fire at his home. Arch, Jr., was a member of the board of directors of Rowan Drilling.

With Gilbert Rowe at the helm, significant changes happened in the 1960s. In 1963, the company said goodbye to Fort Worth, its headquarters since 1927, and relocated to Houston, Texas. Rowan extended its drilling operations, continuing to add rigs, including one in Alaska in 1966.

The biggest change for the company occurred on September 6, 1967, when Rowan launched its initial public offering (IPO) of 323,000 shares. The decision to become a public company resulted from the need for more operating capital to fund offshore work and technological advances. Two thirds of the common stock following the IPO was still held by Rowan executives and employees.

As of September 30, 1967, Rowan had assets of $8.7 million. Offshore drilling accounted for 42 percent of contract-drilling revenues and 65 percent of net income from contract operations. The move into drilling further north in Alaska brought increased challenges for Rowan. Not only was the weather frigid and hostile, transportation was a problem for the company. This challenge led to the company’s decision in 1967 to purchase ERA Helicopters, Alaska’s largest helicopter business. With the companies increased capabilities, drilling contracts increased as well.

Worldwide Exploration and Challenges in the 1970s

A new mobile drilling platform was designed and built to further Rowan’s oil drilling efforts. Its first contract operation was located off the eastern coast of Nicaragua in 1970 for Shell. A second mobile drilling platform was built and began work in the Gulf of Mexico. The company obtained contracts, with the help of this new equipment, in Nicaragua, Colombia, Honduras, and Venezuela. In 1972, a year after the business had renamed itself Rowan Companies, CEO Gilbert Rowe retired, with Bob Palmer named as his successor.

In 1973, the Yom Kippur War and ensuing embargo of U.S. oil supplies by the Organization of Petroleum Exporting Countries (OPEC) demonstrated U.S. oil dependence. The embargo caused a perceived shortage of gasoline, and OPEC raised the price of their oil. Also in 1973, Rowan purchased a second airline in Alaska—Merric, Inc. Together with Rowan’s subsidiary Era, the company now had 36 helicopters and 12 fixed wing aircraft. The airlines were immediately successful, jumping in revenue by 130 percent to $12.8 million by 1974. In 1978, Era built an aviation center at Anchorage International Airport to house the company’s fleet.

Company Perspectives:

The careful management of three assets —manpower, machines and money —to create stockholder value. Manpower: we believe that Rowan’s personnel policies are the number one factor that sets us apart from our competition. We hire at entry level, train and promote from within, reward competence and loyalty and provide top wages and unequaled job security. Machines: Rowan owns and operates premium equipment. Money: Rowan’s financial strategy: first, we plan for the long-term survival of the Company. We plan to meet each and every financial commitment on time and in full—just as we have done since 1923. We do not overcommit during the good times and we do not panic during the bad times.

Rowan’s broadening market continued to expand as Rowan began drilling in the North Sea off the coast of Norway in 1973, with the company’s first semi-submersible drilling rig. In 1975, a Rowan drilling tender, or rig-towing ship, was the first to venture through the Suez Canal since Egypt has closed the passageway to shipping in 1967 after the Six-Day War.

The year 1978 brought a threat to Rowan—a hostile takeover was attempted by Chicago Bridge & Iron. CEO Bob Palmer thwarted the attempt by negotiating with another investor, Schlumberger, to buy $1.9 million of the company’s stock. Schlumberger became a passive investor in the company. Despite the challenges of the 1970s, Rowan had experienced tremendous growth, doubling in size to 1,550 employees and adding new rigs and contracts in new areas.

Challenges of the 1980s

In 1981, Rowan CEO Bob Palmer was named the top CEO in the offshore drilling industry by the Wall Street Transcript. The recognition was made in part because of Palmer’s aggressive risk-taking in ordering new cantilever jack-up rigs, calculating that the industry would recover and that there would be a need for the new rigs.

However, demand for oil decreased as alternative fuels such as nuclear energy, coal, and natural gas were meeting energy needs. This, combined with an unsure world oil market, created challenges in the 1980s. The leadership of Rowan made it a point to plan for the future, even during this time, by employing new methods and by building a new type of offshore oil rig. These new oil rigs, “The Gorillas,” were 40 percent larger and could work in deeper waters, drilling down to 30,000 feet. The $85 million cost was high, but the new rigs represented the company’s future direction.

Both revenues and profits dropped in the early 1980s. Profits dropped from $119.4 million to $21.9 million, and revenues dropped from $401.6 million to $206.5 million during a one-year period from 1982 to 1983.

Rowan stuck with its aggressive plan while initiating cost savings-measures. A London office was opened in 1985 and led by Rowan Vice-President Paul Kelly, who had joined the company in 1982. Revenues began to post an increase in 1985 but profits were still declining for the company. The industry was increasingly unstable.

Two disasters made a mark on Rowan in the late 1980s. The new Gorilla rigs were performing well, but on December 8, 1988, Gorilla I, which was drilling in the North Sea, went down in a storm. The crew was rescued, but the rig was lost at sea. Another disaster called for help from Rowan, as one of Era’s helicopters was first on the scene of the Exxon Valdez oil spill. The Rowan subsidiary was key in providing transportation for rescuers, government officials, media, scientists, and animal rescue workers. Era’s service during the crisis earned it a Certificate of Merit award from the Coast Guard in 1989.

Resurgence in the 1990s and Beyond

In 1990, Rowan posted a profit for the first time in five years, led by the company’s aviation business, which provided 38 percent of revenues. In 1991, Rowan purchased KLM Helikopters B.V. from KLM Royal Dutch Airlines to add to its aviation sector. In 1993, the company grew again with the purchase of Marathon-LaTourneau Company from General Cable Corporation. The company had been building Rowan’s jack-up rigs for several years and now joined the Rowan family as a subsidiary. LaTourneau also operated a steel mill and manufactured heavy mining equipment.

By 1997, Rowan was reaping the benefits of its aggressive strategies as profits hit a record $147 million on $695 million in revenues. In 1998 and 1999, however, the company experienced a downturn, posting a loss in 1999 of $9.7 million.

Net income rebounded to $70.2 million in 2000. That same year, Rowan purchased two companies, The Ellis Williams Company, Inc. and EWCO, Inc.—manufacturers of mud pumps for drilling. Also, new revenue was raised in a secondary issue of 10.3 million shares of common stock at $24 per share. The aviation division increased revenues by 19 percent in 2000. CEO Bob Palmer, in the 2000 annual report said, “This past year has reinforced my belief that ‘the fundamentals of our primary business have never been better.’ “As Rowan Companies, Inc. moved to the future, it continued to aggressively develop new drilling rigs and new markets.

Principal Subsidiaries

LaTourneau, Inc.; Era Aviation, Inc.

Key Dates:

1923:: Charlie Rowan buys first drilling rig.
1924:: Charlie and Arch Rowan incorporate Rowan Drilling Company and hit gusher later that year.
1927:: A second business, Rowan Oil Company, is incorporated to market Rowan Drilling’s output.
1933:: Rowan Oil dissolves and Rowan Drilling is re-chartered as a Delaware corporation.
1935:: Rowan Drilling buys first diesel electric rig.
1948:: Company purchases its first airplane.
1955:: Arch and Charlie Rowan retire; Gilbert Rowe becomes president of the company.
1967:: Rowan becomes a public company and purchases ERA Helicopters (renamed Era Aviation).
1971:: Rowan Drilling assumes its present-day name.
1972:: Bob Palmer becomes CEO.
1978:: Hostile takeover attempt is thwarted.
1993:: Company purchases LaTourneau, Inc., a manufacturer of offshore drilling rigs.
2000:: Company offers for sale 10.3 million shares of common stock.