Universal Compression, Inc.

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Universal Compression, Inc.

4440 Brittmoore Road
Houston, Texas 77041
Telephone: (713) 466-4103
Toll Free: (800) 234-4650
Fax: (713) 466-6574
Web site: http://www.universalcompression.com

Public Company
1954 as South Coast Gas Company
Employees: 2,280
Sales: $625.22 million (2003)
Stock Exchanges: New York
Ticker Symbol: UCO
NAIC: 532490 Other Commercial and Industrial Machinery and Equipment Rental and Leasing

Universal Compression, Inc. rents, maintains, and operates a fleet of compressors used to pressurize natural gas pipelines. It owns one of the largest rental fleets in the United States, and has been developing its international business in Argentina, Venezuela, Canada, and the Pacific Rim. International operations accounted for 28 percent of revenues in 2003.

Compression equipment is used to boost the pressure of natural gas as it is being gathered, processed, and distributed. Universal Compression has grown to a leading position in the rental market for compression equipment in part through acquiring a series of related businesses over the years. In early 2003, Universal's compressor fleet numbered 7,400 units providing 2.3 million horsepower. The individual compressors ranged in size from 100 to 5,000 horsepower, allowing Universal to serve a wide spectrum of users.

Origins of Tidewater Compression Services

Tidewater Inc.'s origins date back to the South Coast Gas Company, formed in 1954. Tidewater had the world's largest fleet of vessels dedicated to supporting the offshore oil industry. By the late 1980s, the company's compression business was worth $50 million a year. At this time, Minstar Inc., a group led by a Minneapolis investor, launched an unsuccessful takeover bid for Tidewater Inc. After that failed, Minstar offered to buy Tidewater's compression business alone, also without success.

Compressors are a requirement for gathering and moving natural gas through pipelines; more compressors are needed as the pressure falls in aging wells. In the early 1990s, more natural gas producers began turning to rental companies to meet their compression needs. According to Universal Compression's prospectus, these companies accounted for one-quarter of the natural gas field compression market in 1996. Most natural gas producers, transporters, and processors owned their own equipment, though the rental market expanded at a rate of 8 percent a year in the 1990s.

A couple of small acquisitions were made in the summer of 1993. Tidewater bought Santa Fe, Texas-based Allison Production Services' 26 compressors and acquired a fleet numbering 113 units from BJC Operating Co. of Shreveport, Louisiana. This brought Tidewater's fleet to 954 units.

Tidewater acquired Halliburton Compression Service for $205 million in 1994. The Halliburton business had revenues of $50 million a year in North America. Soon after, Brazos Gas Compressing Company was added. The two purchases together added 287,000 horsepower to the fleet, bringing its total to 480,000 horsepower. This gave TCS the largest rental fleet of natural gas compressors in the United States. Tidewater then spent a couple of years consolidating these acquisitions and improving utilization rates of the acquired companies in line with its own.

TCS posted net income of $7.8 million on revenues of $113.9 million in the fiscal year ended March 31, 1997. In 1997, Tidewater decided to sell off subsidiary Tidewater Compression Services (TCS) in order to focus on its much larger marine support business. It boasted the world's largest fleet of offshore oil service vessels, 750 in all. TCS accounted for only about a seventh of Tidewater Inc.'s total revenues.

1998 Formation of the Company Followed by Public Offering in 2000

Castle Harlan, a New York merchant bank, formed TW Acquisition Corporation on December 12, 1997, to acquire Tidewater Compression Services, Inc. After the $350 million acquisition, completed on February 20, 1998, TCS was merged with TW Acquisition Corporation and renamed Universal Compression, Inc.

In the fiscal year ended March 31, 1998, revenues for the business slipped to $108.8 million and the company recorded a net loss of $3.2 million. The company owned one of the largest rental fleets in the United States, and was developing its international business in Argentina, Venezuela, Canada, and the Pacific Rim. As of June 1998, Universal Compression had 37 units providing 21,000 horsepower deployed in the markets. Its total fleet consisted of 2,700 units providing 512,000 horsepower. The company had more than 500 customers.

Universal posted a net loss of $2.4 million on sales of $129.5 million in the fiscal year ended March 31, 1999. Soon, it was looking to raise new capital to pay down some of its debt, which then amounted to about $350 million. The market for compressor-related stocks was good in 2000, reported the Houston Business Journal.

Universal Compression completed an initial public offering (IPO) on the New York Stock Exchange in June 2000. Universal raised $154 million in the IPO.

In September 2000, Universal Compression acquired Gas Compression Services Inc. (GCSI) for $12 million in cash and $46 million in Universal stock, plus $53 million in assumed debt and operating leases. GCSI was based in Traverse City, Michigan.

More Acquisitions in 2001

Two more companies were acquired in February 2001: Weatherford Global Compression Services, L.P. and ISS Compression, Inc, the parent of IEW Compression, Inc. The purchase of Weatherford International Ltd.'s compression business doubled Universal's size, adding 950,000 horsepower to the fleet, making it the second largest oilfield compression company after Hanover Compressor of Houston. As a result of the deal, Weatherford International gained a 48 percent holding in Universal, worth $412 million, making it Universal's majority shareholder.

Universal paid $15 million cash for IEW, which had revenues of about $19.5 million a year. IEW brought Universal a strong presence in the Gulf of Mexico. Universal paid $707.3 million in stock and assumed debt for the Weatherford unit, which took the company into Canada.

Tulsa, Oklahoma-based KCI Inc. was acquired in July 2001 for $98.7 million in cash, stock, and assumed debt. Universal had previously been focused on the field side of the natural gas business; KCI was much stronger on the pipeline side, reported the Houston Chronicle. July 2001 also saw the purchase of Louisiana Compressor Maintenance Co. Inc. (LCM) and LCM Turbo. Universal paid $25 million for LCM. Technical Compression Services, Inc. was added in October 2001. After Hanover Compressor bought out the Schlumberger natural gas businesses in 2001, Universal and its Houston-area rival together controlled 85 percent of the natural gas compression business, reported the Houston Chronicle.

Universal was affected by something of an industry downturn in 2001 and 2002, due to the Enron scandal and a slow economy. Its services remained in demand, however, even when fewer natural gas rigs were being developed, since older wells required more compressors.

Universal operated the second largest domestic fleet of natural gas compressors. Its 6,900 units totaled two million horsepower. Besides renting compression equipment, Universal had two divisions to fabricate and service it. The fabrication division, which employed about 100 people, was moved from Tulsa to Houston in the spring of 2003. The rental business was divided into domestic and international divisions. These accounted for a little more than half of sales, but 81 percent of gross profit, reported Investor's Business Daily in 2002. Net income rose 32 percent to $33.5 million in the fiscal year ended March 31, 2003, on sales of $625.2 million, up 8 percent.

Company Perspectives:

Safety. We, at Universal Compression, must protect the safety of ourselves, our co-workers, our customers, and our suppliers before all else.

Service. Universal Compression is a "service company." Our mission is simply to help our customers improve their performance by supplying the very best compression services in the world. Integrity. At Universal Compression, we will conduct our business in a manner that will always reflect a high standard of ethics. We are committed to being fair and honest in all our dealings.

Key Dates:

South Coast Gas Company is founded.
Tidewater, Inc. acquires South Coast Gas.
Halliburton and Brazos compression businesses are acquired.
Universal Compression is formed; the company buys Tidewater Compression Services.
Universal Compression goes public on the New York Stock Exchange.
Weatherford Global Compression Services and others are acquired.

Principal Subsidiaries

BRL Universal Equipment 2001 A, L.P.; BRL Universal Compression Funding I 2002, L.P.; Compression Services de Mexico, S.A. de C.V.; Compression Systems International, Inc.; Enterra Compression Investment Company; PT Universal Compression Indonesia; UCO Compression Holding, L.L.C.; UCO Compression LLC; UCO Compression 2002 L.L.C.; Universal Compression Argentina, S.A.; Universal Compression (Australia) Pty, Ltd.; Universal Compression B.V. (Netherlands); Universal Compression (Canada) Holdings, Ltd.; Universal Compression Canada, Ltd.; Universal Compression of Colombia, Ltd. (Cayman Islands); Universal Compression Company, L.P.; Universal Compression Finance Company, Ltd. (Barbados); Universal Compression, Inc.; Universal Compression LTDA (Brazil); Universal Compression International, Inc.; Universal Compression International, Ltd. (Cayman Islands); Universal Compression de Mexico, S.A. de C.V.; Universal Compression (Ontario), Ltd. (British Virgin Islands); Universal Compression del Peru, S.R.L.; Universal Compression Services, L.P.; Universal Compression Services de Venezuela, C.A.; Universal Compression (Thailand), Ltd.; Universal Compression de Venezuela Unicom, C.A.; Uniwhale Ltd. (Cayman Islands); Uniwhale de Colombia E.U.

Principal Divisions

Domestic Contract Compression; International Contract Compression; Fabrication; Aftermarket Services.

Principal Competitors

Compressor Systems, Inc.; Hanover Compressor Company; J-W Operating Company.

Further Reading

Darmin, Jennifer, "Universal Compression Launches Bid to Raise $172.5 Million in IPO," Houston Business Journal, April 17, 2000.

Davis, Michael, "Castle Harlan to Buy Tidewater Gas Business," Houston Chronicle, Bus. Sec., December 20, 1997, p. 2.

, "Chronicle 100 EnergyOil and Gas: Five Local Energy-Related Stocks Go Great Guns; But 2 Biotech Companies, Caught in Tech Morass, Have a Tougher Time," Houston Chronicle, May 20, 2001, p. 16.

, "Deal Would Compress Companies; Weatherford to Buy Stake in Universal," Houston Chronicle, Bus. Sec., October 25, 2000, p. 1.

, "Houston-Area Firm to Buy Natural Gas Compression Holdings," Houston Chronicle, June 29, 2001.

"Gas Compression Services Being Bought by a Rival," New York Times, August 8, 2000, p. C4.

"GE Unit Acquires U.S. Weatherford's Gas Compressor Unit Gemini," AFX European Focus, December 22, 1999.

Judice, Mary, "Castle Harlan to Buy Tidewater Inc.'s Compression Business for $360 Million," Times-Picayune (New Orleans), December 19, 1997, p. C2.

Lemons, Deidra M., "Compression Firm Adds Tulsa, Okla., Company to Its Acquisitions," Houston Chronicle, May 30, 2001.

McKanic, Patricia Ann, "Tidewater Bid Led by Jacobs Is Called Off," Wall Street Journal, May 9, 1999, p. 1.

"Texas Firm Buying Out KCI Inc.," Tulsa World, May 30, 2001, p. 1.

"Tidewater Boosts Compressor Fleet," Times-Picayune (New Orleans), August 3, 1993, p. C10.

"Tidewater Buys Halliburton Compression Unit," Lloyd's List, December 3, 1994, p. 2.

"Tidewater Inc. Holder Seeks Auction Process in Sale of Any Assets," Wall Street Journal, May 16, 1989, p. 1.

"Tidewater Says It May Sell Compression Operation," New York Times, August 22, 1997, p. D3.

"UCO Agrees to Buy Louisiana Compressor Maintenance for $25 Million," Petroleum Finance Week, June 25, 2001.

"Universal Compression Announces an IPO of 7 Million Common Shares," Petroleum Finance Week, May 29, 2000.

"Universal Compression Holdings Moves 100 Tulsa Jobs to Houston," Journal Record (Oklahoma City), April 30, 2003.

Walsh, Andrew, "Centillium IPO Gains More Than 20%," Daily Deal, May 24, 2000.

Woodard, Chris, "Universal Compression Holdings Inc.; Houston, Texas; Trends, Purchases Rev Up Business Here," Investor's Business Daily, February 6, 2002, p. A8.

Frederick C. Ingram

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