Trico Marine Services, Inc.
Trico Marine Services, Inc.
Sales: $248.7 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: TRMA
NAIC: 488320 Marine Cargo Handling
Trico Marine Services, Inc., is a Houston, Texas-based supplier of support vessels to offshore oil and gas drilling operations in the Gulf of Mexico, Latin America, Central America, the Caribbean, the North Sea and Europe, and West Africa. Trico’s 67-ship fleet includes six anchor handling boats, used to set anchors for drilling rigs as well as tow drilling rigs and other equipment; seven crew and utility boats to move people, food, and supplies from the shore to drilling rigs and production platforms; ten rig and platform supply boats, used to deliver oilfield supplies to drilling and production operations; one line-handling vessel for fiber-optic cable installation and similar tasks; and 43 supply vessels. Most of Trico’s ships are chartered on a day-rate basis. Offices are maintained in Houma, Louisiana; Fosnavag, Norway; Aberdeen, Scotland; Macae and Rio de Janeiro, Brazil; Cuidad del Carmen, Mexico; and Port Harcourt, Nigeria. Trico is a public company listed on the NASDAQ that has rebounded strongly after being relegated to pink sheet status following a 2004 bankruptcy.
Trico grew out of Trico Marine Operators, which had been founded by Robert O. Palmer and Thomas E. Fairley in Houma, Louisiana, in 1980 to operate support vessels. The two men had been colleagues at GATX Leasing Corporation. From 1974 until starting Trico, Fairley had been in charge of financial leases for marine leasing activity in the Gulf of Mexico through the Trans Marine International (TMI) subsidiary as well as industrial and marine equipment in eight southwestern states. Fairley joined TMI as a vice-president in 1978 after serving as general manager of International Logistics, Inc., an offshore marine service company. Prior to that, he was employed at another company in the industry, Petrol Marine Company.
In the early 1980s an oversupply of support vessels developed such that new construction ceased. In the Gulf of Mexico, the number of available support vessels peaked at around 700 in 1985. By 1992 that number would fall to 219. Like everyone involved in offshore drilling in the Gulf of Mexico in the late 1980s, Trico and the other suppliers of support vessels were devastated when the bottom fell out of the energy sector later in the decade. Of the 80 significant players in this sector, only a quarter would be in business by the 1990s. Palmer and Fairley were able to hang on but their vessels were owned by Chrysler Capital Corporation. Because no one had been building new support vessels for several years and older vessels had outlived their usefulness, the oversupply turned into a shortage in the early 1990s. Moreover, the energy sector began to rebound, leading to more offshore drilling activity in the Gulf and an increased demand for support vessels.
In 1993 Palmer and Fairley found a financial backer in the Boston-based private equity firm of Berkshire Partners LLC. In October 1993 Trico Marine Services, Inc., was formed to acquire the assets of Trico Marine Assets, Inc., and other similar companies the two had formed from Chrysler Capital, which included 40 supply and crew boats, five lift boats, a barge, a tug, and two others vessels. Fairley became chairman, president, and chief executive officer of the company, while Palmer was chief financial officer and a director. By the end of 1993, the new company carried a debt load of $44.6 million, almost all of which was taken on to acquire the fleet.
Trico’s first order of business was to upgrade and reconfigure its fleet to maximize revenues by increasing ship usage and the day rate the company could charge, while also paring down debt. In its first full year in operation, Trico generated revenues of $29 million and posted net income of $486,000. Management was also able to lop off $9 million in long-term debt. The following year, 1995, revenues dipped to $26.7 million and Trico lost $1.3 million, caused by a capital upgrade program that pulled several supply boats out of service to be lengthened, and a higher than normal number of hurricanes and tropical storms that limited the use of the company’s lift boats.
In order to reduce debt, fund further upgrades, and add more vessels to the fleet through acquisitions, Trico made an initial public offering (IPO) of stock in May 1996, netting about $48.4 million. Of that amount, $31.1 million was spent to retire loans and $11 million to acquire four supply vessels. A secondary offering was conducted in November 1996, raising another $31.1 million, almost all of which went to repay a revolving line of credit that had been used to acquire more support vessels. All told, Trico added 18 vessels in 1996 at a cost of $66.3 million. For the year, Trico doubled revenues to $53.5 million and netted almost $10 million, because of expansion in both the Gulf and long-term charters working in the waters off Brazil.
Trico’s rapid growth continued in 1997, spurred by escalating day rates for support vessels in the Gulf, which increased from $5,500 in 1996 to as high as $8,250 in 1997. Ten years earlier, vessels were able to command only $1,350 a day. As a result of increased day rates, revenues in 1997 soared to $125.5 million and net income more than tripled to $35.3 million. Trico aggressively acquired more boats operating in the Gulf (19 at a cost of about $105 million) but Fairley and Palmer were well aware that business in the Gulf was cyclical. To achieve some geographic diversity, Trico completed a major acquisition near the end of the year to become involved in the North Sea, paying $287.5 million in cash for Norway’s Saevik Supply ASA. Trico picked up 17 vessels built to withstand the rigors of the North Sea: 6 multipurpose ships and 11 large platform-supply ships. Operating in the North Sea, Saevik’s boats were able to command $13,000 to $15,000 per day. Thus, at the end of the year Trico’s fleet had grown to 100, compared to 64 at the start of the year, and 39 a year prior. To help fund the Saevik acquisition, Trico made another stock offering in late 1997, taking in $123 million.
Low oil prices, $15 to $16 a barrel, worried investors in early 1998, resulting in the sharp decline in all oil service companies’ stock. Trico lost about half its value and, fearful that someone might try to take advantage of the situation to attempt a takeover, the company adopted a “poison pill” that took effect once a person or investment firm acquired 15 percent of the common stock, making it extremely expensive to engineer a buyout.
In operating its business, Trico draws upon important strengths to meet the challenges facing today’s offshore support sector. Those strengths include having a high quality, well maintained fleet operating key markets, being a lean, low-cost operator and having a team of experienced people who place strong importance on safety and quality of service.
Business started off strong in 1998 and when the numbers were tallied, Trico recorded record revenues of $186.2 million, although net income fell to $25.3 million. More importantly, the second half of the year demonstrated that Wall Street’s concerns over low oil prices were not unjustified. Offshore activities decreased, leading to less use of support vessels and declining day rates. At a time when demand was flagging, Trico took possession of four newly constructed vessels, to be followed by another pair in the early months of 1999, but the new ships had deepwater capabilities and provided a modicum of diversity to the fleet.
The poor conditions of 1998 spilled over into 1999 when their impact became evident on Trico’s balance sheet. Revenues plummeted to $110.8 million, leading to a net loss of $33.4 million in 1999. In the Gulf, usage rates slipped to 59 percent from 62 percent the previous year and 85 percent in 1997. In the North Sea, usage fell from 95 percent in 1997 to 85 percent, while the average day rate decreased from $14,604 in 1998 to little more than $10,000 in 1999. The company took advantage of the downtime to refurbish a large number of its Gulf supply boats. To maintain finances, management launched a cost-cutting campaign and raised $50 million through a private placement of equity.
Conditions improved in 2000 but not early enough in the year to allow Trico to turn a profit. The company lost $12.7 million on revenues of $132.9 million. Management, in the meantime, continued its efforts to ensure it had sufficient financial capabilities. Six liftboats were sold for $14 million and $39 million was raised in another stock offering to pay down debt. Trico appeared to have turned the corner in the early months of 2001. The company enjoyed full usage in the Gulf and escalating day rates and strong business in the North Sea. Management looked to the future and invested in several state-of-the-art vessels: a pair of deepwater vessels with dynamic positioning capabilities and three of the latest crewboats, 155 feet in length with extra cargo capacity for delivering fuel and other supplies to production platforms. In the second half of the year, softness was beginning to creep into the market, and then the terrorist attacks of September 11, 2001, dealt a severe blow to the U.S. economy, resulting in lower demand for natural gas and less need for drilling activities and support vessels. When the year came to a close, Trico recorded revenues of $182.6 million but a net loss of $6.9 million.
Drilling activity in the Gulf continued to decline in 2002 and to a lesser extent fell off in the North Sea. These conditions persisted in 2003. As a result, Trico’s revenues fell to $133.9 million in 2002 and slipped further to $123.5 million in 2003, while the company posted massive losses: $70 million in 2002 and $164.4 million in 2003. A new chief financial officer, Trevor Turbidy, was installed in August 2003. According to American Executive, “He didn’t need a calculator to figure out the company was in financial distress—with $400 million in debt, it was a restructure waiting to happen.” While the company had $60 million in cash, it was “trapped” overseas and could not be used to pay off debt in the United States. “Our biggest challenge,” Turbidy recalled, “was generating cash flow to service U.S. debt.”
Despite higher oil and gas prices, the demand for marine support vessels did not follow suit, making matters only worse for Trico in 2004. American Executive reported, “After thoroughly analyzing the company’s financials, the board recognized the need to implement a comprehensive restructuring plan in April of 2004.” At that time, Palmer also resigned as an officer and director of the company. Trico began negotiating with bondholders to swap stock for debt in hopes of keeping out of bankruptcy court, but there were too many bondholders to contend with, and it became apparent that the only sensible approach was to file for Chapter 11 bankruptcy protection in order to package a restructuring. To accomplish this end, the law firm of Kirkland Ellis and investment bank Lazard Freres were hired. It would be a brief bankruptcy, lasting only from December 21, 2004, to January 19, 2005.
Trico was able to erase about $270 million in debt, but the company still owed $150 million. To Trico’s good fortune, however, demand for support vessels picked up dramatically in the second quarter of 2005, just after Fairley decided to resign as president, CEO, and chairman. The company’s comeback was quick and strong. As business picked up, Trico’s stock, which had been relegated to penny stock status and delisted from the NASDAQ, soared to $21.50 per share in April and regained its listing in October 2005 when it made a public stock offering that raised $103 million. When the year came to a close, revenues had increased more than 50 percent, from $112.5 million in 2004 to $171.8 million in 2005. After posting a net loss of $95.9 million in 2004, Trico returned to profitability in 2005, netting $20.1 million.
- Predecessor company is founded.
- Trico Marine Services is incorporated.
- Initial public offering of stock is completed.
- Saevik Supply ASA is acquired.
- Company files for Chapter 11 protection.
- Trico emerges from bankruptcy.
To position the company for steadier growth, Trico relocated its headquarters to Houston and began moving vessels from the Gulf of Mexico to other international markets, especially West Africa and Southeast Asia, and negotiated long-term contracts to ensure more consistent cash flow. In 2006 Trico enjoyed a banner year, generating revenues of $248.7 million and net income of $58.7 million. Business was even better at the start of 2007.
Trico Marine Assets, Inc.; Trico Marine Operators, Inc.; Trico Marine International, Ltd.; Trico Supply AS.
GulfMark Offshore, Inc.; SEACOR Holdings Inc.; Tidewater Inc.
de Rouffignac, Ann, “Rising Tide Lifts Supply Boats,” Houston Business Journal, August 1, 1997, p. 1A.
French, Liz, “Back in the Black,” American Executive, April 2007, p. 68.
Gilbert, Katherine Kelly, “Trico Financially Ready to Move Forward,” Houma (La.) Courier, October 30, 2005.
Moreno, Jenalia, “Trico Marine Buys Norwegian Shipper,” Houston Chronicle, October 8, 1997, p. 2.
Slawsky, Richard, “Houma-Based Trico Marine Services Considering Sale of Assets to Trim Debt,” New Orleans CityBusiness, May 17, 2004.
Webster, Richard A., “Houston-Based Trico Marine Services Turns Corner,” New Orleans CityBusiness, June 19, 2006.