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Report: Friede Goldman, Halter merger ‘makes sense’

GULFPORT – A recent report by Merrill Lynch says that the merger of Friede Goldman Inc. (FGI) and Halter Marine Group that was completed Nov. 3 “creates the U.S.’s most powerful energy leveraged shipyard operation.”

“It joins Friede’s two high-quality offshore rig design/construction/conversion Gulf Coast yards with Halter’s 21 yards that construct, convert, retrofit and repair offshore rigs and supply vessels as well as vessels for commercial and government entities,” states a Merrill Lynch report published Nov. 19.

The Merrill Lynch report states that it doesn’t expect the company’ energy-related businesses to achieve significant growth until late 2000-2001, but vessel repairs, equipment sales, non-energy related projects and the potential for rig conversions should prop up earnings until the energy-related vessel-rig new build cycle begins.

“It is clear to us that the combination of the two companies makes a lot of sense from both a long-term operations and shorter-term financial perspective,” the report said. “We think that the combined entity should have far greater ability to attract new business on both the rig and vessel sides of the energy-related construction business.

“Both Friede Goldman and Halter Marine have solid reputations in their respective industry segments, and, under the aggressive management style of J.L. Holloway (who was CEO of FGI) who will retain his Chairman and CEO positions in the new company, we think that Friede Goldman Halter will maintain its position as a high-quality, efficient design and construction/retrofit/conversion company.”

FGH is the nation’s largest energy-related shipyard constructor-fabricator with 23 yards on the Gulf Coast capable of building and converting both offshore rigs and offshore support vessels. Recently the company’s stock has traded down due to a contract dispute with Ocean Rigs ASA regarding the delayed delivery of two semisubmersible new build rigs. Ocean Rig had claimed $28 million in damages because of projected late delivery of the rigs, while FGI’s claimed that Ocean Rig owes FGI $75 million for change orders.

“For the past several months FGI stock has been under pressure due mostly to the uncertainty involved with the ongoing Ocean Rig negotiations,” the Merrill Lynch report said. “While we don’t believe that investors yet have a high level of confidence in the sector as a whole, if oil prices can hold at or near present levels and oil companies begin to increase capital spending budgets at the end of this year, we think investors will once again look to this group as a source for longer-term investments. At current levels, we think that FGH stock represents a good buying opportunity for value-oriented investors with long-term horizons.”

John Hastings, FGH vice president of investor relations, said there are some synergies that have resulted from combining some production facilities of the two companies.

“We are able to bid on projects we maybe couldn’t have bid on before because we are a bigger company now,” Hastings said. “We will see costs efficiencies due to economies of scale. We have a better benefits program because we can negotiate better with more employees. And we have eliminated the cost of one of us being a public company, and the fees that go along with that. We combined sales offices in Houston, and combined our advertising and marketing budgets. A lot of times we were selling to the same customer.”

FGH is now one of the largest employers in the state with a work force of 5,000. Friede Goldman’s corporate headquarters in Jackson have been closed, and the headquarters of FGH is now located in Gulfport.

Hastings said there are a number of projects underway right now in Pascagoula, including the construction of four large drilling rigs. He said yard manning levels are always a function of how much work is available, and no yard staffing reductions are planned as a result of the merger.

“Staffing levels have been maintained fairly level for some months right now,” Hastings said. “We hope we can sign up some new projects, and maintain staffing levels where they are now or, ideally, increase them.”

Michael Olivier, executive director of the Harrison County Development Foundation, said that the recent increases in oil prices should be a benefit for FGH and Ingalls Shipbuilding, which has completed a merger with Avondale.

“The Mississippi Coast since the 1970s has participated in some of the marine fabrication service sectors for the oil and gas industry,” Olivier said. “If you look at the block of offshore oil leases that have been sold in the past year, and couple that with the price of oil approaching $30 per barrel, you will see we are poised for a huge growth factor on the Mississippi Gulf Coast because our geographic location puts us in close proximity to the very large oil and natural gas reserves that will be mined in the next decade.

“These companies are positioning themselves by vertically integrating to provide the types of services needed to meet the needs of the oil and gas industry in the Gulf of Mexico. Anything over $22 per barrel, and the oil companies are making big money. We are approaching $30 now. OPEC is doing what they said they would do, living by its quota, so that has helped.”

Contact MBJ staff writer Becky Gillette at mullein@datasync.com.

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