SEACOR SMIT's story may well be one of those great American business tales of the late 20th century that will get a footnote in future MBA school texts - a company born out of pure opportunism from the ruins of a devastated industry, midwifed by informed investors who had a certain hope it would all come out okay.
Charles Fabrikant, SEACOR chairman, president and CEO, would probably tell you that's a bit dramatic.
"'Certain' is not a word I use much. 'Hope' is what I place a lot of emphasis on." Although reluctant to be considered a voice of the supply vessel business, he has been an articulate observer of the industry over the years following SEACOR's founding in 1990.The company has grown into the second largest operator of offshore supply and support vessels, and one of the handful of such firms that can be truly considered global in reach. It now controls 316 boats that work in all the world's prime oil and gas venues, from the U.S. Gulf to West Africa, the North Sea to Latin America. Revenues for 1997 were some $347 million, and earnings per share leaped from just under $3.00 in 1996 to $8.61 in 1997.
SEACOR has a reputation for agility and discipline in capital markets, and has used those abilities to its distinct advantage in pursuing opportunities for acquisitions and alliances. The result is a modern and efficient fleet having an average age of 16 1/2 years.
Fabrikant, 53, is by formal education a lawyer, a 1968 James Kent Scholar graduate of Columbia University (and '65 Harvard BA cum laude) who once clerked for Supreme Court Justice John Harlan. In the early seventies, he worked for the U.S. Environmental Protection Agency and later was a partner in a Washington, D.C., law firm specializing in environmental concerns. His professional memberships range from the District of Columbia and New York State Bars and D.C.'s Center for Strategic and International Studies, to the American Bureau of Shipping and the New York Society of Marine Arbitrators.
His "green" legacy carries on today in the form of SEACOR affiliates National Response Corporation (NRC) and International Response Corporation, emergency oil spill response contractors. Competition in the oilfield environmental services business has grown steadily since the Exxon Valdez spill in Alaska, due to what some say is a lack of uniform rules and enforcement on federal and state levels.
Another business that SEACOR helped to spearhead is Energy Logistics, Inc., a joint venture with Baker Energy. Energy Logistics styles itself the "United Parcel Service of the Gulf," offering its customers an alternative to chartering a supply vessel for the week or month. Operators only pay for each specific use. Fabrikant said the enterprise did remarkably well in its first full year of operations.
ML:"How did you get into the supply boat business?"
Fabrikant: "That's actually a fairly tortured route. I had worked for a charter brokerage firm when I was in college, and had been exposed to the shipping business through a family relationship to tankers and bulk carriers. After clerking and government practice in law, I started in the tanker and dry cargo business. From there I wound up in the inland barge business. Then someone I knew in the Maritime Administration suggested I look at the supply boat market. So that's how I got in it."
ML:"There have been pretty lean times in your business. Have you ever thought about getting out?"
Fabrikant: "Well, you always have to keep in your mind when you should sell. I've been in a bunch of businesses that had their moments like that. We got into this business in 1990, so we didn't have to struggle through some of the dreary times. Right now, though, I see this as a good place to be for the long haul."
ML:"You have been critical in the past of vessel operators who try to extend the service life of boats past reasonable limits. In your annual report letter to stockholders, you mentioned a 'fervent hope' that some of the older vessels in the worldwide fleet would be scrapped. How likely is that to happen?"
Fabrikant: "The sad truth is that old boats don't retire from service or get scrapped when rates go down. No one ever scraps an old boat if it can make money. With money you can make anything happen, and therein lies a dilemma. How much someone spends is really a function of where the market is and what you expect.
"There are quite a number of boats working out there now that were essentially written out of the system in the last downturn. Last year, a lot of people, looking at dayrates going up, resurrected a number of vessels that had been abandoned or diverted to such things as fishing, pumping millions of dollars into them to make them viable. The result is that both the domestic and international fleets are old. Many vessels are barely serviceable, ill-suited to their tasks and not at all reliable. Users want reliability. Also, maintenance on the older boats is considerably more expensive, and that's going to affect margins. It's going to take a lot more discipline in the industry before we can get to the scrapping point."
ML: "Current commodity pricing has to be in the mind of anyone in the service sector today, yet the long-term picture suggests that the underlying demand for oil and gas is as strong as ever. What's your view?
Fabrikant: "The long-term demand is the determining factor for us. Cheap prices will stimulate demand, but it's not clear how long that will take to translate into additional consumption. The dark side of current prices is the damage to oil producers' cash flows, which generate capital. New investments are vulnerable, particularly when they're based on rapid recoveries of that capital. Today's cash flow will limit tomorrow's activity.
"I've said before that future growth in energy demand will be related to developments in Asia. My personal view is that, after a pause of a year or two, demand will accelerate in that part of the world. You've got to look at history. The path to economic growth is never smooth. Just in looking at the United States, history shows that a long cycle of economic growth can coexist with bank failures, depressions, deflations--even a civil war. However, the fact remains that oil consumption in Asia will be affected by slower economic growth during 1998 and 1999.
"I think to anyone looking at this business, you've got to recognize that ours is a cyclical and volatile industry. Our job is to manage in that environment."
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