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Energy Growth Fuels Transactions

North America’s energy revolution is starting to have a profound impact on the maritime and offshore sectors.

By Harry Ward

Insights

N orth America is undergoing a gradual revolution in energy production, and the transformation has begun to have a profound impact on the maritime and offshore sectors. Despite a few volatile years and mixed performance of public companies in the offshore service and drilling markets, the outlook for energy services seems to be positive according to most analysts. Recovery in the Gulf of Mexico (GoM) continues to accelerate since the

Deepwater Horizon spill and deep water rig utilization rates are at their highest level in fi ve years. According to IHS, the number of deep water rigs under contract in the GoM is up from 75 to 80 in the past twelve months. Optimism stemming from such statistics has been refl ected in increased deal ac- tivity including company acquisitions, new vessel orders and purchases of drilling rights in recent months.

Offshore Service and Maintenance

A wide range of companies that provide operations and maintenance services to the offshore industry have seen over- all demand increase, and there has been a noticeable increase in the number of middle market M&A deals in the space. Late in 2013, Teledyne Technologies (NYSE:TDY) acquired CD

Limited (CDL), a supplier of subsea inertial navigation sys- tems and motion sensors for marine and offshore applications, for $22.5 million. Teledyne continues to build on its strong position in subsea instrumentation and imaging products, with the acquisitions of CDL and BlueView Technologies within a year of one another. Similarly, US-based Roper Industries (NYSE:ROP) acquired a UK offshore technologies company with its $55M purchase of Advanced Sensors Limited. Ad- vanced Sensors holds a strong position in the growing seg- ment of oil-in-water analyzers, and is likely just one of several acquisitions to come for growth-oriented Roper.

Offshore oil production creates a tremendous amount of waste, and there is a thriving industry built around consulting and cleaning services for the oil patch. In early February, private equity fi rm Lariat Partners announced the $100M acquisition of Newpark Environmental Services from Newpark Resources (NYSE:NR). Lariat will combine two acquired Newpark divi- sions with its platform company Offshore Cleaning Systems, to create a new industry leader called Ecoserv. Another small, private equity-backed deal was the acquisition of $34 million

Coates Offshore by Houston’s SCF Partners. Coates provides specialty rental equipment for well and pipeline test and main- tenance to offshore operators in the North Sea, and was di- vested by Coates Group Holdings Pty of Australia.

Clearly there has been a great deal of appetite among

American companies and investors for niche offshore services companies in the UK. Closer to home, business activity in the

GoM continues to grow overall, despite some short-term fl uc- tuations. Offshore service company Harvey Gulf International

Marine has been making headlines for several quarters now as it executes on an aggressive growth plan. Backed by the large private equity fi rm The Jordan Company, Harvey Gulf has expanded via acquisitions and newbuild projects, and has established itself as a leader in the migration to LNG fuel sys- tems for its fl eet. In the fourth quarter of 2013, Harvey Gulf completed the acquisition of Abdon Callais Offshore, LLC for $460 million. Abdon Callais came with a young, technically- advanced fl eet of 48 offshore supply vessels. The company also acquired 20 other advanced vessels from Gulf Offshore

Logistics and Bee Mar in the past couple of years, and has a number of new vessels under construction. In a fi nal note,

Harvey Gulf recently broke ground on its $25 million indus- try-leading LNG fueling facility Port Fourchon, LA.

Jones Act Deals

Beyond offshore service vessels, the energy revolution has energized business activity in other Jones Act segments. US- fl agged carriers for coastwise and inland transport of energy products have been in high demand, and some high-profi le fi nancial transactions have refl ected this trend. In December, pipeline and terminal giant Kinder Morgan Energy Partners,

LP (NYSE:KMP) agreed to acquire American Petroleum

Tankers (APT) and State Class Tankers (SCT) from an invest- ment group including The Blackstone Group and Cerberus

Capital Management. The $962 million cash deal gets Kinder

Morgan into the petroleum marine transport business with nine product tankers of about 330,000 barrels of capacity, in- cluding four scheduled SCT newbuilds under way at the Gen- eral Dynamics NASSCO shipyard.

Another interesting story in the Jones Act carrier world has been the transformation of Aker Philadelphia Shipyard (Oslo:

AKPS) from a struggling, government-supported facility to 10 I Maritime Professional I 1Q 2014

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