The Maritime Executive

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Volume 14, Edition 6 Co ntents
N o vem b er / D E C E M B E R 2 0 1 0
3
THE MARITIME EXECUTIVE

8 | Executive Achievement 46
34
Jose Luis Rice Jr. Report from Down Under:
President, Rice Propulsion The World Leader in
by nichole williamson High-Speed Watercraft
by robert c. Spicer Case Study:
12 | Washington Insider
Congress Passes Maritime 52 Hornbeck
Legislation Despite Gridlock Wiring the Oceans: Offshore Services
by Larry Kiern SatCom Comes of Age In just 13 years the company has
by Art garcia become a leader in the deepwater
16 | MarEx OP-ED Gulf of Mexico with an enterprise
OPEC at 50 60 value in excess of $1 billion.
by Michael J. Economides The Shipbroker’s Art By tony munoz
by barry parker
40
20 | MarEx Exclusive
A Conversation With Thad Allen 66
by Tony Munoz Advances in Clean Executive
Marine Propulsion Interview:
24 | Upgrades & Downgrades by richard carranza
The Outlook for Workboat Stocks Todd Hornbeck

by Jack O’Connell 72 The dynamic young leader
SatCom Directory discusses his vision for the future
28 and staying “one step ahead.”
Swimming Upstream: By tony munoz
The Struggle to Expand
America’s Marine Highway
by Barbara saunders
MarEx_41.indd 3 11/8/10 12:21 PM

Half Page Vert 10/26/10 8:50 AM Page 1
publisher / Editor-in-Chief
Tony Munoz :: tonymunoz@maritime-executive.com
Senior Editor
Jack O’Connell :: harvardjo@maritime-executive.com
Assistant editor
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Art Director
Evan Naylor :: enaylor@maritime-executive.com
Assistant Art Director
Daniel Bastien :: dbastien@maritime-executive.com
Senior Vice President, Sales & Marketing
Brett Keil :: bkeil@maritime-executive.com
Director of Sales - Asia
Philipho Yuan :: fyuan@maritime-executive.com
Director–Interactive Media
Carlos Dominicis :: cdominicis@maritime-executive.com
Internet Services Manager
Steven Gonzalez :: sgonzalez@maritime-executive.com
Circulation Manager
Cliff Kai :: ckai@maritime-executive.com
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editorial
“
A Year of Fallen Expectations, Challenges
and Rebuilding, and Maritime Excellence
The Deepwater Horizon disaster challenged America’s ecologic and economic forti-
tude. While the nation was enraged over the ecological destruction, Gulf communities slid into
economic crisis. Yet as the disaster unfolded, the offshore industry responded immediately with
a flotilla of specialized vessels manned by legions of marine professionals. In the face of the
worst environmental catastrophe in U.S. history, the ability of the Gulf Coast maritime com-
munity to respond immediately and decisively with manpower and equipment constituted an
impressive achievement. Additionally, the performance of MSRC, NRC and O’Brien’s Response
Management and their contractors places them among the most professional organizations in
the world.
MarEx is pleased to feature Hornbeck Offshore and its Chairman, President and CEO, Todd
Hornbeck, in this edition. Hornbeck and MarEx first met on a bayou in 1998 to photo-shoot the
Tony Munoz company’s inaugural offshore support vessel. It was the rebirth of Hornbeck Offshore, a company
Editor-in-Chief started by Todd’s father Larry in 1981 and merged into Tidewater in 1996. Todd Hornbeck’s vision
was to build vessels to meet the requirements of the deepwater Gulf of Mexico. Over the years the
company built or acquired 85 vessels, which made it one of the fastest growing companies in the
industry over the past decade. The Case Study and Interview with Todd Hornbeck offer valuable
insights into an organization that foresaw the deepwater not as a frontier but as a sound business
6
investment.
Meanwhile, U.S. Coast Guard Commandant Thad Allen, who was scheduled to retire this
year, was asked to stay on by President Obama to be the government’s point man on the BP oil
spill. In the process he became a national hero to many throughout the world. We were fortunate
to catch up with Allen, who is now a Senior Fellow at the Rand Corporation, as he sheds light on
his brilliant Coast Guard career and talks about the road ahead. We are extremely proud to have
this American icon in our pages, so enjoy. BTW, did you realize that OPEC turned 50 this year?
Well, it did and without much fanfare or notice by the mainstream media. But columnist Michael
J. Economides didn’t allow it to pass without stating his point of view on one of the most influen-
tial organizations in the world. From its modest beginnings in September 1960 through its golden
age and subsequent fall from grace, OPEC has challenged the prevailing “twilight in the desert”
scenario to maintain its geopolitical importance. The “professor of oil” brings home another gem
and must-read.
Columnists Larry Kiern and Jack O’Connell crafted their contributions for our mantra of “intel-
lectual capital for executives” with their handy brands of precision and excellence. Kiern explores
the key priorities and workings of the Coast Guard Authorization Act of 2010, which marks the
first time since 2006 that the Coast Guard has had a clearly defined agenda, while O’Connell shares
some tough love about workboat stocks which, not surprisingly, have had a bleak year. But the U.S.
market is not the only place taking a hit; it’s really been a global downturn of huge proportions.
And the markets will turn because the world is emerging from the Great Recession and expanding
economies still need oil.
MarEx contributors Bob Spicer, Richard Carranza, Art Garcia, Barry Parker, Nichole William-
son and Barbara Saunders have crafted their magic as well with some great articles. Spicer takes
us “Down Under” to see how the Australians are building some of the finest high-speed aluminum
watercraft in the world. Richard Carranza reviews propulsion and the potential of LNG-fueled
vessels to save the planet from pollution. Art Garcia’s first contribution to the magazine reaches
out to some of the big hitters in the world of satellite communications to see how affordable and
widespread these systems have become. Long-time contributor Barry Parker provides insight
into the world of ship brokering, while Barbara Saunders writes about the battle to upgrade
America’s Marine Highway. For our Executive Achievement feature, Assistant Editor Nichole
Williamson checks in with the fourth generation of Rice Propulsion in Mexico to see how that
company has grown into a global player. All in all, it’s a content-packed edition and a great way
to end the year. So sit back and enjoy! Mar Ex
Tony Munoz can be contacted at tonymunoz@maritime-executive.com with comments, input and

questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes
your participation in our editorial content.
MarEx_41.indd 6 11/9/10 7:14 PM

“The most valuable thing in our business is
your word – and ESG is all about business.”
“When we placed our first order with Eastern Shipbuilding Group for six offshore
supply vessels, they were truly people of their word. They delivered the vessels on time,
some earlier, and they stayed in budget. Their craftsmanship was outstanding. Our
experience dealing with Eastern Shipbuilding Group has been very professional and
we’ve just placed another order for six new vessels. If you have ESG build a vessel for
you, you can count on their word and expect to get great value for your investment.”
Shane Guidry, Chairman & CEO

Harvey Gulf International Marine, LLC
Since 1976, the Eastern Shipbuilding Group family has proudly built
over 300 vessels at our two Panama City facilities, producing the
most diverse product line on the U.S. Gulf Coast.
Contact us at: Tel: 850-763-1900 Fax: 850-763-7904 Email: sales@easternshipbuilding.com
2200 Nelson Street, Panama City, FL 32401

13300 Allanton Road, Panama City, FL 32404
See us at Booth 1837
www.easternshipbuilding.com at the WorkBoat Show
New Construction – Repair – Conversion – Industrial Fabrication
MarEx_41.indd 7 11/8/10 12:25 PM

Four generations of family
leadership have made Rice
Propulsion a global force.
By Nichole Williamson
ExecutiveAchievement
President, Rice Propulsion
8
Jose Luis Rice Jr.
The port town of Mazatlan sits on Mexico’s
west coast across from the southernmost point of California’s
Baja Peninsula. It is here in Mexico’s largest port that four Following in his father’s footsteps, third-generation head Jose
generations of the Rice family have guided Rice Propulsion to a Luis Rice designed and developed the manufacturing process for
position of leadership among propeller manufacturers worldwide. all the propeller and bronze piece production departments. He
This century-old family business continues to get better by using expanded the company throughout North America. During his
the accumulated wisdom of previous generations to build an even tenure and with the help of an efficient team, exports dramatically
brighter future. increased, reaching 80 percent of total production. It was also

during this period that the capacity for casting larger propellers
Building a Company was installed and nozzle manufacturing began, eventually leading
Today the business is led by the fourth generation of the fam- to the establishment of Rice Nozzles in 1978.
ily, Jose Luis Rice Jr., the great-grandson of Maximino Rice, After receiving a bachelor’s degree in mechanical engineer-
the company’s founder. From an early age Maximino worked in ing and a master’s degree in business administration, twenty-six
mines, workshops and foundries, perfecting his mechanical skills. year old Jose Luis Rice Jr. joined the family business. With his
More than a century ago, with a forge, anvil, hand tools and the help the company added yet another U.S. patent to its list when
help of his wife, Luisa, Maximino established himself in Mazatlan in 1998 father and son acquired the U.S. patent for the Rice
as a blacksmith, founding Maximino Rice e Hijos in 1909. In Speed Nozzle, designed to give 10 percent more power to a vessel
1919 he patented a system for the production of cast iron rings without any other modifications. This revolutionary nozzle truly
for internal combustion engines, using small furnaces of his own set the company apart because it not only increased vessel speed
invention. That same year the blacksmith shop began manufac- but improved fuel efficiency and bollard pull as well. It remains to
turing propellers. this day the company’s most popular propeller.
Inheriting their father’s technical skills and leadership, Maxi-
mino’s sons Luis and Andres Rice formed Rice Brothers in 1935 ISO Certification
and focused on developing and consolidating several companies Recognizing the importance of proving that the company abided
in the marine industry. Recognizing the future potential of the by the high standards of production and manufacturing that it
propeller business, especially with the busy port nearby, the two claimed to follow, young Jose Jr. worked hard to help his father
brothers formed Rice Propulsion in 1959. obtain the International Standards Organization’s (ISO) 9001
In this second generation Luis Rice, known for his great certification for Rice Propulsion. This certification instilled con-
charisma, took on the challenges of the family business and is fidence in new and potential customers and naturally led to even
credited with the rapid growth that followed. Contributing to that more business. With the ingenious engineering and manufactur-
growth was a device to draw and machine the pitch for propel- ing of its propellers and nozzles and a commitment to the highest
ler patterns that Luis designed and developed. The new design, standards of business integrity, it was only a matter of time before
which is still used today, revolutionized the way propellers were Rice Propulsion became the largest propeller manufacturing com-
manufactured, and Luis received a U.S. patent for it in 1961. He pany in Mexico and, later, a leading manufacturer in the Americas
also developed, by trial and error, nickel-aluminum alloys that and Canada.
combined high resistance with great elongation and are today the Under his father’s leadership, Jose Jr. learned the business
standard for international certification agencies. inside and out, at one point or another overseeing human re-
Mariti
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EXECUTIVE ACHIEVEMENT
sources, quality control, production, sales and finances for all the pletely to the repair of propellers has allowed for the latest in tech-
companies under the Rice Industries umbrella. Since 2002 he’s nology and equipment, giving Rice the ability to maneuver, weld,
run the show. Like his great-grandfather, grandfather and father balance, and modify propellers of any design and weight up to 20
before him, he has stayed true to the values that have made Rice tons. Marine Propulsion Repairs offers regeneration and straight-
Propulsion the leading propeller manufacturer it is today while ening of damaged areas, balancing and dye checks, on site, afloat
continuing to adapt to the ever-changing needs of its customers. or in-house. Just as he did for Rice Propulsion, Jose Jr. obtained
Recognizing the growing demand for larger pieces, Jose ISO 9001 certification for Marine Propulsion Repairs, ensuring
Jr. expanded the foundry and machining facilities to allow the its customers the high standards they had grown accustomed to
manufacture of propellers more than 13 feet in diameter. He also and helping maintain the trust of major clients like the U.S. Coast
made sure his staff had the latest technology to meet increasing Guard and Petroleos Mexicanos (PEMEX).
international standards and the ability to provide specialized solu- Despite his responsibilities as President, Jose Jr. is still involved
tions to clients. Through its proprietary in-house knowledge, Rice in all aspects of the business including administration, finance,
has developed a full line of propellers to meet the specific needs of sales, production and repair. He also seeks out new business and
every vessel on the water, from propellers that offer greater thrust maintains strong relationships with clients. In addition he over-
for tugs to propellers that eliminate hull-damaging vibrations sees the entire foundry business, which makes pieces for not only
for pleasure craft, and what it doesn’t have it will create to meet the marine industry but also for mining, steel, energy, sugar cane,
customer requirements. concrete and metallurgical companies.
To continue its commitment to providing the latest technology,
Jose Jr. has formed cooperative programs with naval research Putting It All Together
development centers and leading testing facilities worldwide. At a young 42 years of age and with three generations of leader-
The latest research is important in providing Rice with the best ship in his DNA, Jose Luis Rice Jr. knows what it takes to be
10
and least corrosive alloys to offer its clients. To continue to meet successful. When it comes to developing new business and
the rigorous ISO standards, Jose Jr. has implemented continual expanding the company, he holds firm to his great-grandfather’s
training programs for engineers and other staff involved in the motto: “Better to be a big fish in a small pond than a small fish in
production process. And to better serve clients, he has added a a big pond.” While expansion is important, sticking to what one
24/7 year-round support team, available to immediately assist any does best and holding tight to that niche is even more important
client anywhere in the world. and will keep the company at the top. And when it comes to
manufacturing and production his father knew how important
Marine Propulsion Repairs it was “to get things right the first time around.” While holding
Once again adapting to the changing times and the rise in metal true to the insights of his forebears, Jose Jr. has his own ideas
prices, the company enhanced its propeller repair services and in about the most important fundamentals of business. Number one
2007 the U.S. Coast Guard awarded Rice the first repair contract on his list would be customers, with employees a close second.
for patrol boat propellers. With the repair side of the business Keeping employees happy and motivated is, after all, the secret to
growing rapidly, Jose Jr. found it in the company’s best interests customer satisfaction.
to consolidate the repair division and in 2009 he established Jose Jr. hopes to see Rice Propulsion become a worldwide
Marine Propulsion Repairs. The formation of Marine Propul- leader in the manufacture and repair of marine propulsion
sion Repairs allowed Rice to cater to new and more complex equipment. To get there he says it will have to maintain a clear
markets demanding specialized services. Repair service quality is focus on the updating of its designs and the integration of new
controlled by ISO 484 Class S, I, II and operates with methods technologies while continuing to offer a competitive price. With
endorsed by all the major classification societies. All of the repair Jose Luis Rice Jr. at the helm, Rice Propulsion will likely exceed
staff are certified by at least one of the major classification societ- the expectations Maximino Rice had for the company 100 years
ies, a qualification Jose Jr. believed was essential to foster client ago. Stay tuned! Mar Ex
confidence in his business and the services it provides.
Eleven thousand square feet in new facilities devoted com- Nichole Williamson is Assistant Editor of The Maritime Executive.
For over 30 years, emphasizing safety, efficiency, and innovation
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washington insider Written by Larry Kiern,
Winston & Strawn LLP
WashingtonInsider
Congress Passes Maritime
Legislation Despite Gridlock
Notwithstanding the partisan gridlock that gripped Wash- However, no sooner had the legislation been signed into law
ington policymakers on most subjects in advance of the midterm than the new Commandant, Admiral Bob Papp, announced that
elections, Congress enacted into law a number of maritime provi- he was retaining the separate operational Atlantic and Pacific
sions that had been in the works for much of the 111th Congress. Area Commanders which Allen had proposed eliminating. Citing
The principal legislative vehicle for this accomplishment was the need to “steady the service,” Admiral Papp pledged to finish
the Coast Guard Authorization Act of 2010 (CGAA). Congress the service’s organizational realignment process already under-
completed its protracted deliberations on the measure on Sep- way by putting his own imprint on the final product. He issued
tember 28 and sent it to President Obama just before recessing. a statement to the service in which he said that “solidifying the
The President signed the legislation into law on October 15. The post-modernization chain of command will enhance your ability
measure marks the first Coast Guard authorization bill enacted to get your job done and keep your focus on safely and effectively
into law since 2006, and its passage flowed from recognition executing Coast Guard missions.” Admiral Papp has made no
of the Coast Guard’s successful performance responding to the secret of his concerns about the service being overextended and
Deepwater Horizon incident. underfunded in recent years.
12
No doubt as the process of seeking approval for the service’s FY
Coast Guard Authorization Addresses 2012 budget request proceeds through Congress, Admiral Papp
Key Agency Priorities must be very sensitive to the approaching period of austerity about
The CGAA enacts into law reorganization provisions referred to confront federal discretionary spending. The enactment into law
to as “modernization” that had been the service’s top legislative of the reorganization authority should allow the service to complete
priority for most of the previous four years. It authorizes up to a process that had been in doubt and should help it weather the ap-
four positions of Vice Admiral, elevates the Vice Commandant to proaching budgetary storm better than it otherwise would.
the rank of Admiral (it previously was a three-star, Vice Admiral The harsh reality is that the Coast Guard, and other domestic
position), and allows the service to replace existing Pacific and discretionary programs, likely face budget constraints akin to
Atlantic Area Commanders with Vice Admirals who will have dif- the 1990s when it was cut 12 percent and lost 4,000 personnel.
ferent functional responsibilities. Although the CGAA authorizes $10.2 billion for FY 2011 for the
According to previous agency statements, modernization Coast Guard and increases the authorized end-strength of military
would allow it to more closely mirror the other military services, personnel by 1,500 members to 47,000, the appropriations bills
facilitating coordination. Retired Commandant Thad Allen sought currently pending before Congress provide less funding. Senate
to reorganize the Atlantic and Pacific Area Commands into a appropriators approved only $9 billion for the Coast Guard in July.
single Operations Command at Portsmouth, Va. and a Readi- And if Congress fails to enact into law a Department of Homeland
ness Command in Alameda, Calif., where the Atlantic and Pacific Security appropriations bill during the lame duck session, then the
Commands are now located. He also sought to establish two service will have to operate under a continuing resolution that will
Deputy Commandant positions -- one for operations and one reduce its spending to last year’s level. As history teaches, this will
for support -- to integrate acquisition, logistics and maintenance mean cuts in the number of Coast Guard personnel, station clo-
functions. In proposing the reorganization, Admiral Allen argued sures, decommissioning of cutters and aircraft, and cuts in the ac-
that the Coast Guard “must have command-and-control and mis- quisition of new vessels, aircraft and equipment. In the face of such
sion support structures that optimize mission execution.” fiscal challenges, it is good to have reorganization finally resolved.
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MarEx_41.indd 12 11/8/10 12:26 PM

washington insider
Coast Guard Authorization Act of
2010 shows that progress is possible
although budgetary issues remain. MANAGING RISK
New Maritime Provisions

The new law features over 150 sections, many of which contain provisions of interest to
the maritime industry. These include diverse provisions about piracy; the marine safety
program; pollution prevention; and fishing, commercial vessel and port safety and secu-
rity. The provisions are far too numerous and complex to be addressed in detail here, but
Learn about our
the following overview highlights key elements of interest. knowledge and
»» Exoneration From Liability for Self-Defense From Piracy
The CGAA includes an important exoneration from liability to protect shipowners, experience using
operators and seafarers from lawsuits arising from actions taken to combat piracy.
LNG as a fuel for
This provision does not resolve all the issues surrounding this subject that arose in
the wake of the April 2009 attack by Somali pirates on the U.S.-flag vessels Maersk
Alabama and Liberty Sun. However, it bolsters the right of self-defense enjoyed by green shipping
American seafarers by clarifying that shipowners cannot be sued by pirates or their
survivors in the U.S. if they act in accordance with standards prescribed by the Sec-
retary of Homeland Security.
»» Marine Safety Program Reform
A major area of congressional attention during the 111th Congress was concern
about the performance of the Coast Guard’s marine safety program and problems
with maritime industry relations, which House Transportation Committee Chair-
13
man Jim Oberstar (D-MN) argued had suffered badly, especially after the service
prioritized port security post-9/11. Key aspects of his proposal were enacted into
law. For example, for the first time in the service’s history the Commandant must
appoint an “ombudsman” in each Coast Guard district to serve as “liaison between
ports, terminal operators, shipowners, labor representatives, and the Coast Guard.”
The ombudsman is responsible for improving communications, resolving disputes
and investigating complaints. This provision provides the maritime industry a formal

Photo Courtesy of RollsRoyce
institutionalized mechanism to address its complaints. It remains to be seen if it will
amount to much in practice, however, as the regulated community will surely remain LNG fueled workboat
reluctant to anger its regulator directly.
The reform measures institutionalize provisions to improve marine safety expertise.
The law mandates career tracks, minimum qualifications for marine safety personnel,
development of a long-term strategy for improving vessel safety, reports to Congress Find out about our
on efforts to recruit and retain civilian marine inspectors and investigators, and estab-
lishment of centers of expertise for marine safety. OSV Resource
»» Pollution Prevention Reform
Senator Maria Cantwell (D-WA), who serves as the Chair of the Senate subcommittee Center in Houston
of the Commerce Committee with authorizing jurisdiction over the Coast Guard, pur-
sued oil pollution prevention legislation for years, and the CGAA realizes some of her
goals and adopts others. It provides a mandate for double-hull-equivalent protection Visit us at booth 1810
for vessel bunker tanks to avoid oil spills like the Cosco Busan incident in San Fran-
cisco. It mandates that the Coast Guard pursue efforts to reduce oil spills during oil
transfers involving tank vessels and address the reasons for human error as the leading The International
cause of oil spills. The CGAA also includes audit and reporting provisions about how
the funds from the Oil Spill Liability Trust Fund are being spent and which responsible WorkBoat Show,
parties are not paying for oil discharges.
The law further includes an amendment to the liability provisions of the Oil
December 1-3, 2010,
Pollution Act of 1990 (OPA 90) that for the first time extends OPA 90 liability to New Orleans
cargo owners. The provision amends the OPA 90 definition of the term “responsible
party” to include “in the case of a vessel . . . the owner of oil being transported in
a tank vessel with a single hull after December 31, 2010.” The provision excepts
DNV
until 2015 certain vessels unloading oil in bulk at a deepwater port or offloading in
lightering activities within an established lightering zone more than 60 miles off-
1400 Ravello Drive
shore. As a practical matter, the use of single-hull tank vessels in the U.S. is unusual. Katy, TX 77449
However, this provision represents a significant change in the political compromise Tel: 281 396 1000
that was struck in OPA 90, which did not include cargo owner liability. The law www.dnv.com
also amended OPA 90’s financial responsibility provision by expanding its reach to
MarEx_41.indd 13 11/8/10 12:26 PM

washington insider
include “any tank vessel over 100 gross tons using any place a requirement that regulations governing “safety manage-
subject to the jurisdiction of the United States.” Previously ment systems” on certain passenger vessels, including ferries,
this provision had only applied to vessels over 300 gross tons. consider their particular operations. The CGAA institutionalizes
The CGAA provides the U.S. enabling legislation for the in- the America’s Waterway Watch Program to promote voluntary
ternational convention on anti-fouling systems for ships. This reporting of activities that may indicate a threat or an act of
includes establishing penalties for violations to be enforced terrorism and requires the Secretary of Homeland Security to
by the Coast Guard and the EPA. It also requires the Coast establish Coast Guard-deployable response teams to protect
Guard and the EPA to study and report to Congress on new vessels, port facilities, and cargo.
technologies for reducing air emissions from cruise and cargo
vessels. This sets the stage for future greenhouse gas regula- The Road Ahead
tion in U.S. ports. After working for two years on this legislation, Congress demon-
»» Fishing and Commercial Vessel Safety and Security strated that it is possible to legislate modest and uncontroversial
Following up on the 2009 National Transportation Safety measures for the maritime industry. The CGAA enacts many new
Board (NTSB) report on the sinking of the Alaska Ranger, the provisions that will require the Coast Guard to study, report, and
CGAA enacts real fishing vessel safety reform. It provides safety promulgate new regulations. How it will accomplish these new
equipment and construction standards for uninspected com- tasks while sustaining significant budget cuts remains to be seen.
mercial fishing vessels operating beyond three nautical miles of Mar Ex
the coast of the U.S. It requires fishing vessels of certain sizes
and those that undergo substantial changes to comply with load Larry Kiern is a partner at Winston & Strawn
line regulations, and it mandates periodic vessel examinations LLP, an international law firm of 900 lawyers. His
by the Coast Guard. While progress in this area has been pain- practice concentrates on maritime issues, including
14
fully slow, these measures should save lives. legislative, regulatory, and litigation matters. Before
Other commercial safety provisions include a study to joining Winston & Strawn, he was a Captain and
ensure safe and secure shipping in the Arctic; a requirement law specialist in the U.S. Coast Guard who served
that inspected vessels maintain official logbooks and log the as the Legislative Counsel and Deputy Chief of the
service hours of seamen, their injuries, and their illnesses; and Coast Guard’s Congressional Affairs Office.
MarEx_41.indd 14 11/8/10 12:27 PM

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MarEx OP-ED:
16
OPEC at 50 By Michael J. Economides

While not the force it once was,
OPEC still wields considerable clout
in a world that remains dependent
on the steady flow of oil.
OPEC turned 50 this year, an event that went virtually times worked but often did not, and certainly not equally for all
unnoticed by the mainstream media. An oil cartel formed in Sep- members of a disparate and often ragtag group of countries with
tember 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela a huge spectrum of needs and an even bigger void of management
was supposed, as its mission still states today, “to coordinate and skills and economic development. But one thing has worked: With
unify the petroleum policies of its Member Countries and ensure the exception of small inconsequential disruptions, oil has kept
the stabilization of oil markets in order to secure an efficient, flowing – providing a steady stream of the most vital and irre-
economic and regular supply of petroleum to consumers, a steady placeable element of the world economy.
income to producers, and a fair return on capital for those invest- Seven other countries are now members: Algeria, Angola, Ec-
ing in the petroleum industry.” Lofty pronouncements, which at uador, Libya, Nigeria, Qatar and the United Arab Emirates. There
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oped Economides
is a huge difference between the five founding members and the price hawks at a time when presumably their governments were
rest, some of whom went in and out of membership. Others are friendly to the West. Of course they became even more militant
relatively new while Indonesia, formerly a member, no longer is when their governments became unfriendly. Militant members
since it is now a net importer of oil. OPEC can never be ignored were the ones pushing for production quotas and a lid on produc-
for the simple reason that it houses 1,064 billion barrels of proven tion levels, which led to frequent and often transparent cheat-
oil reserves, about 80 percent of the world total of just over 1,300 ing among members. The non-absorber countries, on the other
billion barrels, and produces 27 million barrels per day, almost 32 hand, included Saudi Arabia with its enormous oil resources and
percent of the world total. other smaller Mideast nations, who wanted a far milder stance,
especially since they were closely aligned with the oil-consuming
The Golden Age countries and mainly the U.S.
One cannot think of OPEC apart from the emancipation of former
colonies and the emergence of assertive new national governments. Fall From Grace
Commodities and especially oil were the reason European powers It was in 1984 that OPEC frayed at the hem. Then-President
became colonists in the first place. OPEC, once it was established, Ronald Reagan “encouraged” Saudi Arabia to over-produce uni-
provided one of the most powerful vestiges of independence for laterally, and that sent the oil price on a tailspin. From November
these emerging countries. The need for oil by the developed world 1985 to February 1986 oil prices collapsed from $32 per barrel to
brought not only money but also a sense that finally former colo- less than $10. Caracas, Jakarta and Lagos never really recovered,
nists and “imperialists” were getting their just comeuppance. remaining the abject, poverty-ridden eyesores that were created
OPEC’s assertion of power reached a crescendo with the during the boom years, an era that would never return. There
Arab Oil Embargo of October 1973 following the second Arab- was an ancillary benefit for the U.S. The collapse of oil prices at
Israeli war (the Yom Kippur War). The Arab members of OPEC the height of the Cold War laid bare the internal fractures of the
17
threatened to withhold oil shipments to the West if it continued its Soviet Union, which depended on oil for almost all its “hard cur-
lopsided support of Israel against its Arab neighbors. It was the rency.” The fractures became gaping holes, and the rest is history.
first time in history that a cartel used oil as a weapon to effect a I have recounted all of these events in my book, The Color of Oil.
political aim. OPEC today is not what it used to be. It does not have the
The embargo never reached its threatened level but it brought power it once had to manipulate the market. Others have mud-
panic in the West, which had come to rely on cheap oil from far died the scene: Mexico and Brazil with their massive offshore
away. Dirty oil was not to spoil the pristine beaches of California developments; Canada with its tar sands; and especially Russia

or Florida, and it would not be enough anyway. The embargo with ambitious Communists-turned-capitalists such as Mikhail
made “energy crisis” part of the Western lexicon and introduced Khodorkofsky, the ex- Chairman of Yukos, who got afoul of
for the first time the rhetoric of “alternative” energy sources and Vladimir Putin exactly for his desire to become powerful enough
the even more potent (but still silly) notion of “energy indepen- that he could challenge OPEC. He is now rotting in a Siberian
dence.” But more to the point, it shot oil prices up, and the price prison. Russia did not want overproduction to collapse oil prices
shocks continued for a decade that included the fallout from and thereby shoot itself in the foot. But Russian oilmen showed
the Iran-Iraq war. During that decade the world witnessed the there was life beyond OPEC.
largest ever redistribution of wealth in its history – from the oil- OPEC also does not have the excess capacity it once had. A
consuming countries to the oil-producing countries. demonstrable excess of over 10 million barrels per day in 1995,
That was OPEC’s golden era and that’s when stories of ostenta- outside of Saudi Arabia, has been reduced to near zero today.
tious wealth, solid silver cars, gold toilet fixtures and all sorts of This is not what OPEC’s potential production capacity could be
outrageous playthings became the stuff of legend. Those were not but what it is now “behind the valve,” meaning oil it can turn off
just for the rulers. Even the middle classes could take weekend trips and on at will. The reason for the decline is simple: It takes huge
to Paris for shopping. The trouble was, and still is, that many of the reinvestment to maintain production capacity. Nigeria, Venezuela
OPEC countries suffer from endemic corruption and are grossly
mismanaged. With the notable exception of a couple of tiny mem-
bers, virtually none of them have capitalized on their oil revenues MARINE BUSINESS EXCHANGE
to diversify their economies and wealth-producing capabilities. Mergers, Acquisitions, Divestitures & Auctions
One is mystified at the persistent resistance to progress and mo-
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the longevity of notorious and buffoonish leaders who could never
have come and stayed in power had it not been for oil. Are you ready to sell your business or are you ready to expand
OPEC might have been a cartel but it was far from monolithic. your business through a merger or acquisition? We presently
Member countries were divided into “absorbers” and “non- have investors and buyers that are seriously interested in all
absorbers.” Absorbers were countries with large populations types of marine and marine related companies worldwide.
which could readily use all the revenues from oil. These included
Nigeria, Indonesia, Iran, Iraq and Venezuela. Absorbers had an Phone 251-626-0713
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MarEx_41.indd 17 11/8/10 12:27 PM

oped Economides
and Libya are suffering from gross and chronic

mismanagement and Iran is gasping under the
sanctions, no matter what the bravado of the
leaders of these countries might claim. As for
Iraq, it is hard to produce oil when people are
shooting at you and, when the U.S. military gets
out, I am not at all optimistic about future pro-
duction. All of these countries are producing only
about one-third of their geological potential.
OPEC had, moreover, little to do with the
run-up in oil prices from 2004 to 2008, when
they almost topped $150 per barrel. Geopolitical

headlines ruled those days. Consumption gone
berserk in China and sustained growth in the
U.S. dominated the market. I am surprised that
oil has yet to surpass $100, a testament to how much weaker the time soon a “twilight” in the Saudi Arabian “desert.” With proper
U.S. economy really is, even compared to some of the most pes- management and investment, that country can at least double its
simistic forecasts a couple of years ago. current production capacity and, along with
its fellow cartel members, remain a potent
Not Dead Yet geopolitical force for years to come.
One should not write OPEC off by any means, for at least two Mar Ex
18
reasons. First, “green” energy rhetoric notwithstanding, the world
will continue to be dominated by oil (and gas and coal, i.e., fossil Dr. Michael J. Economides is a Professor at
fuels) for at least another century. Second, “peak oil,” which will the Cullen College of Engineering, University
happen eventually, is not nearly close; and with all due respect to of Houston, and Editor-in-Chief of the Energy
my recently departed friend Matt Simmons, we will not see any Tribune.
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marex exclusive
20
A Conversation With
Thad Allen
Tony Muñoz: Tell our readers about yourself and your back- TM: What was your first command?
ground. Who is Thad Allen? Allen: I was Commanding Officer of LORAN transmitting sta-
Thad Allen: I’m the son of a retired Chief Damage Controlman, tion, 500 miles north of Bangkok in Lampang, Thailand, right
Clyde Allen, who lied about his age and joined the U.S. Coast at the end of the war in Southeast Asia. In fact, when I retired I
Guard (USCG) when he was 16 during World War II. I grew up think I was the last person on active duty that served there. I was
in the USCG. He and my mom got transferred around quite a actually there when Saigon fell, and we dismantled the LORAN
bit. I went to a number of schools mostly up and down the West chain and brought it home. It was rather bittersweet when we
Coast. Actually, I started grade school in Ketchikan, Alaska but started closing the LORAN chain, but it probably needed to be
graduated where my father retired in Tucson, Arizona, so I’m a done because they were using the same technology in 2010 that
native son of the Golden West. In my 39 years in the USCG, I they were using in 1974 and 1975.
spent most of them on the East Coast, so I’ve seen quite a lot of TM: What was your role during 9/11?
this country. I’ve also been around the world and it’s been a great Allen: I was Atlantic Area Commander. In fact, I was having a
and glorious career. physical at our clinic in Portsmouth, VA, and they were drawing
TM: You mentioned your father was career Coast Guard. Is blood. I looked across the way in the break room and saw on tele-
that what drew you to the service? vision when the plane hit the tower. Of course, I went right back
Allen: This is a pretty funny story. I applied to several universi- to work. While 9/11 was generally regarded as an aviation event,
ties and had appointments to both the Naval Academy and Coast it was very significant for the USCG. First of all, we closed New
Guard Academy. In the end I chose the Coast Guard Academy York Harbor and Boston Harbor because some of the planes took
because I thought I was too small to play Division I football, and off from Logan Airport. We also closed the Potomac River just
I thought in a Division III school I’d have a better chance to play. north of the Woodrow Wilson Bridge. The attacks occurred on a
And it worked. I walked on to the varsity as a freshman and was Tuesday morning and by Thursday there was so much pressure
captain my senior year. to reopen the Port of New York that we had to do it because so
MarEx_41.indd 20 11/8/10 12:27 PM

thad allen
Editor-in-Chief Tony Munoz caught up with the former U.S. Coast
Guard Commandant and National Incident Commander for Deep-
water Horizon after his keynote address in early November at the
Excellence in Government Conference in Washington, D.C.
much petroleum is shipped up the Hudson River to places around tant achievements?
Albany and New England. There are no pipeline systems that go Allen: When I became Commandant in 2006, the next day I
up there. We really saw the impact of what it was like to close issued the “Commander’s Intent” action orders. Most of the time
New York Harbor and the impact on redistribution of oil and when there’s a change of command, the new commander issues
energy around New England. a Commander’s Intent so everyone knows what they’re going to
We also had the extraordinary and challenging task of coordi- do. I wanted to create a more flexible, more agile Coast Guard
nating the evacuation of people off Lower Manhattan. I’m not sure that could respond more nimbly to changes in demand from our
we’ll ever know how many. The estimates range from 400,000 to stakeholders. I issued ten orders and those orders laid out where
a million. As you know, the local cruise ships, tugboats, everybody I thought the USCG needed to go. I’d say probably the most
was called in to help that day. Beyond that, we did a lot of resupply important of those was the transformation and the re-creation of
and logistical support because the easiest way to get in and out of a logistics and maintenance system that could be used for aircraft,
Ground Zero was by boat. We actually tied a buoy tender up about small boats and cutters. We’ll see what history has to say a few
a block away and used the boom on the tender to bring water, years from now, but I think when people look back they’ll prob-
food and support supplies for the folks at Ground Zero. Probably ably say the most fundamental change was how we are organized
21
a little-known fact: We sent all our USCG chaplains that we could in the USCG to support ourselves and that an integrated logistics
muster to help administer to the responders and escorted some of system was created for the first time.
the families in so they could see what was happening. TM: As National Incident Commander for the Deepwater
TM: You were appointed the 23rd Commandant of the Horizon oil spill in the Gulf, you quickly distinguished your-
USCG in 2006. What do you consider your most impor- self as a no-nonsense leader and became a familiar face to
MarEx_41.indd 21 11/8/10 12:27 PM

thad allen
millions around the world. What lessons did you learn from equipment we were going to need. I took control of that and set
that experience? up a flow rate technical group. As far as the fate of the oil, I’m
Allen: One of the significant challenges in the oil spill was not sure if we really know for certain what the capability of the
that, under U.S. law, when there’s an oil spill of this scope the Gulf of Mexico is to absorb oil and how fast it biodegrades. We
government oversees the response. That’s much different than do know how much we skimmed and how much was burned.
the law under hurricanes or natural disasters, whereby pursu- We have models for how much evaporates. One of the last things
ant to an emergency declaration local governments are given I did before turning over the national coordination response
resources from the federal government and other places to run to Admiral Paul Zukunft was to issue an order that called for
the response. I don’t think that was well understood by state and comprehensive testing of the water column in the Gulf for hydro-
local governments. I’m not sure it was well understood by even carbons to make sure there was no oil that we didn’t know about
our national political leaders. The challenge I had was to make and to address the concerns of the American public that there
everyone understand the preeminent federal role was to oversee were plumes of oil below the water. At this point they haven’t
BP’s actions as the responsible party. It was a pretty tough com- been found.
munications challenge, but in the long run we succeeded and TM: You’re a member of The Maritime Executive’s LinkedIn
we also contained the well. It was a huge engineering challenge, group. What other social media do you use and do you find
but BP put a lot of effort into it with oversight from the federal them helpful?
government. In the long run the response that was mounted was Allen: When I was Commandant I was pretty fully immersed
significant – the largest response in the history of this country. in it. I had an official Facebook page. I had a blog. We had RSS
I believe the doctrine served us well. In the future, what we need feeds that linked all that together, and we were using Twitter. I
to understand is there’s a way to do it out there. We spent a lot wasn’t sure that blogging during the oil spill would have been the
of time arguing about what BP’s role should have been when we appropriate way to comment given the amount of scrutiny and
22
should have been focusing more on how to clean the oil up. the fact I was doing press briefs every day. Now that I’m retired,
TM: Any idea where all the oil went? I have a Twitter account that I haven’t done much with and a
Allen: There’s been a lot of talk about oil blooms and the flow personal Facebook account for the folks I deal with individually.
rate. I was more concerned about getting the flow rate right I’m on LinkedIn and I continue to monitor blogs and I subscribe
because it really impacted on how much response and skimming to a lot of different media widgets. I would call myself a pretty
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MarEx_41.indd 22 11/8/10 12:27 PM

thad allen
informed social media user.

TM: You’re a hero to many people, but who are some of
your own heroes?
Allen: Mine go back pretty far. One of the people I admire
most, he’s somewhat controversial, is Alexander Hamilton. He’s A Message to
generally regarded as the founder of the USCG, the first Treasury
Secretary and, arguably, the father of public administration in
the country. He had some ups and downs, some public prob-
Workboat Companies
lems with a lot of different people, but generally a very forward-
thinking guy who set the terms and conditions on how to run the I have walked in your shoes.
country and move it ahead.
More recently, there’s a host of folks to be astounded at due to As a former senior executive for a
the type of work they do. It’s mostly the day-to-day people in the workboat company I understand
USCG who pull people out of the water and give them back their the challenges of operating your
lives. They’re the public servants who go to work every day who company. I was challenged to
aren’t really celebrated much. A lot of people work very hard in find a software solution that
this country and it’s not often visible to the American public, but would streamline the business
the people I’ve worked around in the USCG for the last 39 years and assist our operation in
are my inspiration. problem areas. I chose
pr
MarineCFO, and it proved its
TM: Tell us about your new role at the Rand Corporation.
value many times over.
Allen: We had some discussions at the first of the year before we
MarineCFO helped us gain 23
knew this oil spill would occur. I wasn’t anxious to jump right into
operational efficiency and improve financial performance in all
government consulting and defense contracting roles. I wanted
operating areas. I was so impressed with the software and the
time to think and contemplate, do some speaking and writing. I’m
impact it had on the business, I joined the MarineCFO team.
a big believer in lifelong learning, and Rand has an extraordinary
reputation for academic research in a nonpartisan way. I thought
Contact me and let me show you how we can help your organization
if I could come up with the right relationship with Rand it would
improve efficiencies, lower costs, and better serve your customers.
be a way to take a year to write, read and, more importantly,

“
continue to learn from the extensive research that’s going on here.
The position I have right now is termed a Senior Fellow. It’s not
full-time, but I have a place where I’ve got computer connectivity “MarineCFO presents a robust solution that is con-
and I can do internal consulting about the issues I’m concerned figurable to our business model and is capable of
with, mostly in the areas of maritime security, intelligence is- expanding as we grow our business.”
sues related to border security, and things related to emergency
”
Jim Townsend, CIO Marquette Transportation.
response. So far it’s been a very interesting process.
TM: What books are you reading?
Allen: The last one I read is called The Imperial Cruise, writ-
ten by James Bradley. He also wrote Flags of Our Fathers and MarineCFO Live! is a web-based, no-hassle
Flyboys. He was curious about the antecedents of World War II software solution for small & medium-sized
and why we fought the war. He went back and did some research workboat companies to manage personnel &
and his premise was that a lot of things that set the conditions for crew, jobs & billing, maintenance & schedules.
World War II occurred when Theodore Roosevelt was President All without the need to install servers &
and a lot of it centered around a cruise that William Howard software.
Taft took as Secretary of War from San Francisco to the Pacific
Rim, where he visited all the countries that would ultimately be MarineCFO Enterprise
E is a robust software
involved in that conflict. It is an absolutely fascinating book. solution to automate business processes all the
way from the boat straight through dispatch,
TM: Now that you’re retired, what are you going to do with
personnel, maintenance and finally financial
all your spare time?
reporting. It is modular, enterprise-ready, and
Allen: I haven’t found any yet. I’m still transitioning to Rand. Next
customizable.
spring I’m going to teach a graduate-level course at my alma ma-
ter, GWU, called “Leadership in Large Complex Organizations.”
For relaxation I usually hike or bike, and my wife and I walk a lot
on weekends. We both really enjoy music, but the main center of
activity are our seven and nine-year-old grandsons here in Fairfax
County, Virginia. That’s the main reason we’re remaining in the
D.C. area, but also because my wife is the Assistant Dean for the
School of Management at George Mason University in Fairfax.
TM: Thanks for your time, Admiral. Mar Ex
MarEx_41.indd 23 11/8/10 12:27 PM

JackO’connell
JACKO’CONNELL
Upgrades Downgrades
The Outlook for Workboat Stocks
If you’re wondering about economy, anemic energy demand, large and-butter activity is its Offshore Division,
the state of the workboat market, look crude oil stockpiles, and the Deepwater which claims the third biggest fleet in the
no further than Trico’s Chapter 11 filing Horizon disaster and subsequent morato- world.
in August. Burdened with excessive debt rium made life miserable for the operators Seacor was not the only bright spot
and faced with the prospect of interest of offshore support vessels. Earnings on as, ironically, the largest oil spill in history
payments coming due that it couldn’t average are down by almost half com- –an event that proved disastrous for most
make, the company succumbed to the pared to a year ago with sharp drops in – meant profits for some. Edison Chouest,
realities of the marketplace and submit- revenue as well. Particularly hard hit were with its large fleet of monster, state-of-
ted a “pre-pack” plan of reorganization the Gulf of Mexico and North Sea. Other the-art offshore vessels, was another
24
for the second time in its roughly 15-year regions – Brazil, West Africa and the Far beneficiary, as was almost every company
existence. It expects to emerge with a East – fared better, giving promise for the with deepwater capability in the Gulf.
cleaned-up balance sheet sometime after future. Likewise, those companies with It was a temporary boost, to be sure, as
the first of the year. large global fleets tended to do better than Seacor warned in its earnings statement,
Need more evidence? How about small, regionally based operators. “Response activities are now winding
Tidewater, the biggest player of them all, down and equipment, people, vessels and
“preannouncing” in late October that its Profiting From Adversity helicopters are being released from spill
earnings in the third quarter would fall But wait. There were a few bright spots. support activities.” But it was sure fun
well below analysts’ estimates and would One company that defied all the odds and while it lasted with Uncle Sam and BP
be off by more than two-thirds compared reported record third quarter results was footing the bill and preventing a bad year
to a year ago? If this can happen to one of Seacor Holdings. The company’s large from becoming even worse.
the best-run and best-financed companies and diversified Environmental Services Gulfmark said it too had a “better than
in the industry, what does that mean for business (featured on the cover of this expected” third quarter. “The decrease in
everybody else? magazine’s September 2007 edition) drilling activity in the Gulf of Mexico was
It’s been a tough year, all right, the led the way, accounting for more than offset by prolonged spill response work,”
worst in recent memory. Despite relatively half of total operating income. “Oil spill stated President and CEO Bruce Streeter.
stable crude prices in the $75 - $85 range, response activities following the sink- Earnings of $19 million were a welcome
the combination of a struggling world ing of the Deepwater Horizon in April change from the massive loss of the previ-
defined this period’s results,” Seacor ous quarter, although Streeter cautioned
explained in a release, “as they reflect that the fourth quarter would likely be
the combined effort of Seacor’s Envi- “soft” due to the de facto moratorium in
ronmental Services, Offshore Marine the Gulf and seasonality in the North Sea.
Services, Aviation Services, and Harbor
& Towing business units.” Safety and A Counter-Intuitive
environmental preparedness can pay Strategy
off after all, and in more ways than one, Faced with declining demand for their
although they are too often taken for services, stagnant day rates and a gloomy
granted. short-term outlook, workboat companies
One might argue that Seacor is not are doing the only logical thing: They’re
really a workboat company because building more vessels. That’s right. Build-
of its hodgepodge of businesses and a ing more boats. At the same time that old-
strategy known only to its Founder and er vessels are being cold-stacked or sold,
Executive Chairman, Charles Fabri- new ones are being ordered and delivered.
kant, whose hero is apparently Warren Bourbon, the second biggest player behind
Buffett. And while it does operate in Tidewater by number of vessels, is “taking
businesses as diverse as commodities delivery of one new supply vessel every 12
trading and ethanol refineries, its bread- days,” boasted its Chairman and CEO,
MarEx_41.indd 24 11/8/10 12:27 PM

JACKO’CONNELL
It’s been a tough year, one of
the worst ever. Is there light at
the end of the tunnel?
disposing of 517 vessels in the process, of
which 420 were sold for proceeds of $665
million and the rest scrapped. It currently
has a fleet of 396.
workboat stocks To pay for all this, the company has
Company (Symbol) Year-Ago Price Recent Price Change* Vessels taken on debt for the first time in recent
Seacor Holdings (CKH) $81 $97 20% 159 memory. But not to worry. It is sitting on
Bourbon SA (GBB:FP) €28 €33 18 388 more than $500 million in cash and its
Tidewater (TDW) 44 48 9 396 debt ratio stands at a healthy 22 per-
Gulfmark Offshore (GLF) 28 30 7 89 cent. It remains the only company in the
workboat space to pay a dividend, a sign
Hornbeck Offshore (HOS) 24 23 -4 85
of its financial strength and confidence
Trico Marine (TRMA) 6 N/A N/A 41
in the future. “Our day will eventually
Sources: Barron’s, Bloomberg. *Ranked
come,” stated its Chairman, President and
CEO, Dean Taylor, during a third quarter
Jacques de Chateauvieux. Bourbon’s rate. Tidewater, it seems, has been on a conference call, “and when it does, we’ll
recently announced 2015 Leadership newbuilding spree for the last ten years, be ready with the largest and newest fleet
Strategy envisions a fleet of 600 vessels ever since the downturn of the late 1990s, in the world.” In the meantime, “We’re
in the next five years (up from about 400 when it realized it had to do something growing our business and doing so at an
today), financed in part by the sale of its about an old and increasingly uncom- attractive cost of capital,” he added. As
bulk carrier fleet. Total cost: a whopping petitive fleet. Tidewater has added 230 for the immediate outlook, “We remain in
25
$2 billion. Bourbon operates in more than new vessels in the last 10 years at a cost the trough of the earnings cycle,” Taylor
30 countries and is particularly strong in of some $3.4 billion. It currently has 30 lamented, with CFO Quinn Fanning
West Africa. more on order totaling nearly $700 mil- adding, “Day rates will bounce along the
Not to be outdone, Tidewater contin- lion. Tidewater, to its credit, has essen- bottom for at least the next two quarters.”
ues to take new deliveries at an impressive tially replaced its entire fleet since 1990, The company cold-stacked 17 additional
MarEx_41.indd 25 11/8/10 12:28 PM

JACKO’CONNELL
vessels in the quarter. pre-Deepwater Horizon levels. Gulfmark’s Hornbeck has already announced it will
What’s the logic behind this flurry of Streeter is more optimistic: “The Gulf of be stacking four additional vessels in the
newbuildings? “Operators will need newer Mexico will come back and be an area of fourth quarter while Tidewater will stack
vessels in order to be competitive when the great potential.” He’s just not sure when. 17 to 20. Not an encouraging sign.
market finally does rebound,” stated Dave It all depends on the pace of new per- So what to expect? Brazil, West Africa
Wilson, an oilfield services analyst with mitting, of course, and the newly minted and other international hotspots beckon,
Howard Weil in New Orleans. Gulfmark’s Bureau of Ocean Energy Management yet surprisingly few vessels – and fewer
Streeter put it more succinctly, “There seems in no hurry to proceed. Hornbeck rigs – have migrated out of the Gulf. The
will be a flight to quality” with the “great Offshore’s CEO Todd Hornbeck, profiled general feeling is that we’ve been through
unwashed” of inexperienced crews and elsewhere in these pages, strikes a posi- this kind of downturn before and we’ll
vessels being left by the wayside. The gen- tive note, believing it will happen sooner get through this one too and be better for
eral consensus is that customers, once the rather than later. Hornbeck, of course, the experience. The light at the end of
downturn is over, will demand only the has a lot at stake, since its high-spec fleet the tunnel is visible, the “new normal” as
best in terms of offshore equipment and, is deepwater-oriented and accounts for Todd Hornbeck calls it, and it will grow
unless you can offer the latest and greatest about 15 percent of the market (privately increasingly bright with each passing day.
in workboat technology, you’re likely to be held Edison Chouest is first with an ap- We’ll see. In the meantime, see you in
left out in the cold. proximate 37 percent share). Hornbeck New Orleans! MarEx
reported better-than-expected third
Whither the Deepwater? quarter results, attributing nearly half Jack O’Connell, the senior editor of this
The big question facing the industry today its revenue in the period to the oil spill magazine and a former maritime execu-
is when will the deepwater Gulf return? cleanup effort. But that work is quickly tive, is a private investor who may own
26
Opinions vary, but nobody is expecting drying up, and the next two quarters are shares in some of the companies men-
anything to happen for the remainder of expected to be especially challenging given tioned in his columns. The views expressed
2010. Tidewater’s Taylor predicts “a long the de facto moratorium, the end of the in this column are his and his alone and
slow recovery for deepwater drilling in the cleanup process, and seasonal factors in are not in any way to be construed as
Gulf” – up to a year before it returns to both the Gulf of Mexico and North Sea. investment advice.
The Massachusetts Maritime

Academy Foundation would like
to thank the 2010 Sponsors of
our 16th Annual Admiral’s Ball
Power Flame, Inc.
Absolute Heating
Brzek Insulation
Peter John Goulandris, H’02
Mary Ellen and Peter Lawrence ‘63
Boston Harbor Pilot Mr. & Mrs. Richard E. Lyall ‘79
Association, LLC Ouellette & Smith, PA
Tel: 508 830 5045 • Fax: 508 830 6451 • Email: tavery@maritime.edu • www.maritime.edu
MarEx_41.indd 26 11/8/10 12:28 PM

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MarEx_41.indd 27 11/8/10 12:28 PM

By Barbara Saunders
Swimming Upstream:
28
The Struggle to Expand America’s Marine Highway

Plans are proceeding to expand U.S. inland waterways into an

interconnected system of environmentally friendly supercargo passages – if with vastly
less funding than is needed. The White House remains a major sticking point when it
comes to providing the necessary support for waterway improvements. Funding for
America’s Marine Highway initiative and general infrastructure en-
hancements would need to rise considerably for these programs to meet
their full potential for relieving congestion and reducing pollution from
Major funding remains
America’s highways and railways. There’s also a crucial need to develop
more cargo capacity as the nation’s population rises in years to come.
logjammed despite
“The President wants to double exports, but our highways and rail-
ways would have a tough time handling it,” stated Cornel Martin, Presi-
ambitious plans to relieve
dent and CEO of Waterways Council, Inc., a trade group that focuses congestion on the nation’s
primarily on waterway infrastructure issues. Looking down the road, he
added, “By 2050, for example, we’ll need triple the amount of food we highways and rails.
produce today due to population growth alone.”
Inland waterway improvements would help smooth the way for the 73 percent
increase in cargo traffic that’s expected over the next 25 years. A 2005 study by the
U.S. Department of Transportation’s (DOT) Maritime Administration (MARAD)
reported that the nation’s highways will feel the strain of some 58,000 tractor-trailers by
2020, nearly double the 32,000 operating in 2004. Yet inland waterway expansion was
conspicuously absent from President Obama’s Labor Day announcement to spend $50
billion on much-needed infrastructure improvements.
Compelling Case
Why the omission when the arguments supporting the expansion of America’s Marine
Highway are so compelling? For instance, barges can move one ton of cargo 576 miles
on a single gallon of fuel versus only 413 miles by rail and 155 miles by tractor-trailer.
MarEx_41.indd 28 11/8/10 12:28 PM

SWIMMING UPSTREAM
One 15-barge tow has the same capacity

as 216 rail cars or 1,050 tractor-trailers.
Put another way, a barge moving four tons
of cargo 2,300 miles uses 9,000 gallons
of fuel versus 53,000 gallons if moved
by tractor-trailer. In addition to the fuel
savings, expanding the nation’s water-
ways effectively lowers emissions of NOx,
carbon monoxide and hydrocarbons while
relieving highway congestion and reducing
the nation’s reliance on imported oil.
Safety is another compelling argument.
For every one injury sustained on a barge,
there are 125 on the rails and 2,171 on
tractor-trailers. Meanwhile, waterway
expansion would help create and sustain
jobs in the maritime industry. More than
60 shipyards have closed over the last 50
years, and job losses have been severe with
more than 40,000 merchant mariners, 38,000 longshoremen and fuel. The report advocated raising the tax between 30 and 45
200,000 shipyard workers idled. percent, or up to 29 cents per gallon. For its part, Congress has in
29
“Those of us who advocate for water resources will need to the past provided only $170 million per year in appropriations for
increase our efforts to educate Congress and the public on the waterway infrastructure improvements whereas a total of $380
economic and environmental benefits of improving the waterway million per year is needed, according to the Waterways Council.
infrastructure,” stated Amy Larson, President of the National So the government clearly needs to do more as well.
Waterways Conference (NWC), a broad-based umbrella group On the brighter side, MARAD issued a final rule calling for
representing multiple users. “We’re very concerned that the Presi- an expanded Marine Highway Program in April 2010. In August
dent’s FY 2011 budget contained no additional funding. When it announced its selections for the 11 specific corridors, connec-

Congress reconvenes after the November elections, we’re hoping tors and crossings that will be the program’s initial focus and that
to work with committees in the House and Senate to get funding would extend marine transportation routes near land corridors
for FY 2012.” with especially heavy traffic congestion (see map). Connectors
are the shorter byways that act as feeders to corridors, the large
Progress in Washington multistate routes. In September MARAD awarded $7 million
Despite the absence of needed funding, several noteworthy in grants for three pilot demonstration projects. While that’s a
developments occurred during 2010. In April a consensus group proverbial drop in the bucket compared to what is needed, it
representing some 150 stakeholders – the Inland Waterways Us- nevertheless provides momentum for the program. “MARAD has
ers Board – adopted its final report addressing how to fund in- done a very good job in designating grants and selecting the ap-
frastructure improvements and prioritizing them for the first time propriate projects and corridors,” said NWC’s Larson.
ever. Known as the Inland Waterways Capital Development Plan,
the proposal retains the present 50/50, industry-federal govern- Marine Highway Focus
ment cost-sharing formula for projects over $100 million but also The $7 million in grant funding will be used to expand waterways
advocates a hike in the federal tax on diesel fuel to fund the effort. between Texas and Florida in the Gulf Coast region and on the
Upkeep to the system is provided by the Inland Waterway Trust East Coast between Richmond and Hampton Roads, Virginia.
Fund, which is supported by a tax of 20 cents per gallon on diesel This will jumpstart the program and demonstrate how expanded
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SWIMMING UPSTREAM
waterways can relieve highway and railway overload. The grants identified as a major truck bottleneck, would save up to 500,000
will also fund a new start-up water-service corridor between hours of vehicle delays per year – along with related fuel, water
Itawamba, Mississippi and Mobile, Alabama. and emission reductions. It would provide additional benefits by
Another $800,000 was provided to study other marine utilizing low-emissions engines and ultra-low-sulfur fuel.
highway initiatives showing promise. These include a West Coast
Hub Feeder and Golden State Marine Highway serving 13 ports Grander Schemes
between Crescent City, Washington and San Diego, California. While not all initiatives can benefit from what’s already there with
Another initiative would improve Midwest connections between quite such simplicity, they can potentially produce even greater
Peoria, Illinois and the Gulf Coast. Finally, an East Coast initia- results. A grander scheme is envisioned in the Tennessee-Tombig-
tive would expand service between Florida and Massachusetts at bee (Tenn-Tom) Project, which would create a new container-on-
specific locations to improve overall shipping capacity. In addition barge service between Itawamba, Mississippi on the Tenn-Tom
to the grant projects, MARAD targeted eight projects with long- Waterway and Mobile, Alabama and help the congested I-65
term public benefit and sustainability that would need no further corridor accept more freight traffic. I-65 currently handles about
federal support after initial funding. It also identified six projects 3,150 truck trips per day, a number that is expected to increase to
that offer promise for the future. 25,000 by 2035, according to DOT. Right now significant traffic
“These projects demonstrate how water transportation can help comes to Tennessee by rail and then is trucked to Mississippi.
solve some of our toughest transportation challenges,” commented The new initiative would create a nearly all-water route for freight
U.S. Transportation Secretary Ray LaHood. “Transporting goods from the Panama Canal to the Tenn-Tom Waterway.
by water will let us reduce congestion and greenhouse gas emis- Another grand scheme is envisioned by the Port Authorities of
sions. These grants will help a long-overlooked means of transpor- Galveston, Texas and the State of South Carolina for a Gulf-to-
tation finally grow.” Yet, according to Waterways Council’s Martin, Atlantic Coast series of public- and private-funded improvements
30
“It can’t succeed long-term if we don’t fund the infrastructure.” that would make a major dent in traffic congestion and related
pollution problems. The initiative would distribute both inter-
Reinventing the “Ferry Wheel” national and domestic containers between the Gulf Coast and
for a Pollution Solution the Mid- and South Atlantic Coasts on a new fleet of U.S.-flag
Some of the pilot projects selected for preference in future fund- vessels with cutting-edge technologies. Adding to the economic
ing would thriftily reinvent the ferry wheel, so to speak, to get boost, the vessels would be built in U.S. shipyards and crewed by
noteworthy environmental and economic results. U.S. mariners. The project would provide “measurable relief,”
A case in point is the proposed Cross Sound Project between its developers say, to 400 miles of congestion on I-10 and more
New London, Connecticut and Orient Point, New York, which than a dozen major freight bottlenecks along I-95. The route also
would increase ferry capacity across Long Island Sound. The includes the movement of large volumes of hazardous materials
service currently makes 12,000 one-way ferry trips per year along that would be transported much more safely by water than by
a 16-mile route, eliminating a 166-mile highway drive through land. Sponsors say the plan could conceivably be completed by
congested portions of Long Island, New York City and Connecti- the time the Panama Canal expansion is finished in 2014, provid-
cut. The project would expand capacity 3,000 trucks per year, ing additional import-export capacity for the region.
saving nearly 500,000 highway miles driven. In addition to emis-
sion reductions and energy savings, it would improve the livability Political Pitfalls and Potential
of the surrounding areas. With all the obvious environmental and economic benefits, why
A second example is the proposed James River project between is the idea of enhancing inland waterways and, more importantly,
Hampton Roads and Richmond, Virginia along the very congested obtaining the needed funding such a hard sell in Washington? A
I-64 highway corridor, which entails doing more of what’s already major reason, says NWC’s Larson, is that lock-and-dam projects
working well. It would expand upon existing container-on-barge are usually viewed as “pork barrel” undertakings. In other words,
service between four terminals in the Hampton Roads area, shift- Congress is accustomed to thinking project-by-project and not
ing more freight from urban roads to water. I-64, which has been on a national scale. “We need a systems approach to explaining
MarEx_41.indd 30 11/8/10 12:28 PM

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SWIMMING UPSTREAM
the importance of waterway projects, not the piecemeal one used resorting to one-way traffic due to the lack of vital infrastructure
traditionally,” notes Larson. “We also need to include the multiple projects. “If there isn’t additional funding, it will be disastrous for
uses of waterways, such as flood control and hydropower, in ad- the whole country. There will be a ripple effect on all the ports
32
dition to navigation and traffic flow. And we need to do a better sending agricultural and other goods down the Mississippi,” she
job of selling the economic benefits of these projects as a whole, warned, adding, “There just isn’t sufficient appreciation for the
demonstrating how they all work together.” benefits of waterborne transportation.” MarEx
Larson cited an example of what she termed a “frightening
wake-up call” – the possibility of the lower Mississippi River Barbara Saunders is a writer and editor based in Houston.
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MarEx_41.indd 11/8/10 PM
HORNBECKOFFSHORESERVICES
Flight deck on the HOS Achiever.

NOVEMBER/DECEMBER 2010
Hornbeck
34
Offshore
Services
In just 13 years Todd Hornbeck has built a company with a

leadership position in the deepwater Gulf of Mexico and an
enterprise value in excess of $1 billion.
On a bright sunny day in the summer of 1998 Jeff Mudgett and I, who had co-
founded this magazine two years earlier, drove south from New Orleans for a
few hours to do a photo shoot on the first new vessel of Hornbeck Offshore. We
knew that Tidewater Marine and the original Hornbeck Offshore had merged in
1996 and the new company was the undertaking of Todd Hornbeck, the son of
the previous company’s owner. Driving around a small bend with a crusty old bait
store nestled on an unimposing knoll, we came upon a new platform support vessel
towering over the bayous flowing to the ocean. The vessel was tethered to a small
docking area barely the length of the ship. As we exited our vehicle the waters sud-
denly boiled on the surface with fish being herded by dolphins, and it was evident
that this was a very unique place to see a ship. by Tony Munoz
MarEx-41-HOS-CS-Int-110810.indd 34 11/8/10 11:16:58 AM

35
Spread: The HOS Iron Horse, one

of Hornbeck’s two 430-ft DP3
Merwede T-22 class multi-purpose
support vessels, providing ultra-

deepwater subsea construction,
inspection, repair and maintenance
services worldwide.
Upper Right: The bridge of the HOS
Achiever, featuring a highly quali-
fied U.S. crew and state-of-the-art
vessel technology.
Lower Right: One of the nearly
48,000 cumulative personnel
transfers between Shell’s Perdido
spar and the HOS Achiever, which
served as a “floating hotel” for
Perdido’s offshore workforce for
nearly eight months in 2009.
Within a few minutes a young man in his early thirties arrived In 1997 Todd Hornbeck, along with a partner, co-founded
ALL PHOTOS COURTESY HORNBECK OFFSHORE SERVICES
and introduced himself as Todd Hornbeck. As we started to talk, Hornbeck-Leevac Marine Services with $1 million in seed
it became apparent the young owner was extremely proud of the money, a tugboat and a few barges. They ventured into the
new vessel with the HOS insignia painted on the house. He gave mature U.S. Gulf of Mexico offshore marine services industry
us a tour and displayed his intimate knowledge of the offshore not to test their mettle but with a vision of a next-generation ves-
industry and the new technologies employed throughout the sel. Larry Hornbeck, Todd’s father, started his offshore support
boat. He made it clear this vessel was the first in a progressive company in 1981, and it became successful and was eventually
building program he was embarking upon over the next several sold to Tidewater in 1996. But let’s be clear: Todd Hornbeck was
years. Now, more than a decade later, we are honored to update not born on third base, and venturing into the oil and gas market
our readers on the journey of Hornbeck Offshore and its Chair- takes more than just money. It takes an extraordinary amount of
man, President and CEO, Todd Hornbeck, toward becoming one fortitude, timing and vision.
of the most influential maritime companies in the world. In the late 1980s the U.S. GOM was known as the “Dead
Sea” because oil prices made exploration and production
BUILDING ON A DREAM economically unattractive. By 1996, after more than a decade
Lots of people dream of building a company with worldwide of depressed activity, the industry began to rebound, lifted
aspirations, but few dare to chase down the vision because the by incentives such as royalty relief from the federal and state
chances – and consequences – of failure are too great. The governments. Crude was now trading on world markets between
vicissitudes of the oil and gas markets are a highway of broken $16 and $23 per barrel and GOM production was rising, so
dreams, men and companies who planned and did their best, but companies began unstacking boats and hiring mariners. In 1997
discovered the timing was not right. Anadarko positioned its Neptune platform in 1,930 feet of GOM

water, and deepwater drilling’s future seemed assured. When Hornbeck-

Leevac Marine opened its doors that same year, its modern 220-foot
proprietary in-house OSV design was ready to be built. The question of
whether the oil industry was willing to pay for a new technologically ad-
vanced boat when plenty of traditional 180-foot boats were available was
the gamble Todd Hornbeck took.
Unfortunately, in late 1997 oil prices collapsed again and by April 1999
only 488 drilling units were working in the GOM. However, deepwater
exploration kept going as ExxonMobil worked its Hoover-Diana develop-
ment; BP’s Atlantis, Thunder Horse (largest field ever discovered in the
Gulf), Holstein, King, King’s Peak and Marlin fields were ramping up;
and Shell’s Crosby and Nakika and BHP Billiton’s Mad Dog discoveries
were getting ready to come online. Meanwhile, Hornbeck continued to
build and acquire vessels because the company was convinced the U.S.
GOM deepwater was the future and the deepwater required a new breed
of vessel.
GOING PUBLIC
By the time Hornbeck Offshore went public in April 2004, the company
owned 23 OSVs (17 constructed by the company and six purchased from
the Candy Fleet Corporation), 12 tugboats and 16 barges. The financial
36
markets understood that the next dimension of oil and gas production was
the deepwater and Hornbeck had the newest fleet of boats in the industry.
As the company’s Initial Public Offering moved forward, reports circu-
Hornbeck’s 66-acre shore base facility (“HOS Port”) located in Port Fourchon. In
lated about weak demand for boats and falling rates. But investors knew
addition to serving as the base of operation for the company’s U. S. Gulf of Mexico that, while this might apply to the traditional GOM fleet that had been
fleet, HOS Port provides logistics support for drilling, production and construction
projects in both deepwater and shelf Gulf of Mexico locations. built in the 1970s, the deepwater market was booming.
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Meanwhile, for Todd Hornbeck the IPO represented the upstream and downstream segments of the company’s business.
rebirth of the company his father had started and sold to Tidewa- Ultimately, what Hornbeck had done was build a company
ter. At the time of the sale Hornbeck Offshore was the second with the youngest OSV fleet in the industry and a modernized
largest supply boat operator in the world and Tidewater was tug-and-barge division. He developed an entrepreneurial culture
the largest. The symbolic rebirth may have been a dream come with his management team and an ownership mentality among
true for the younger Hornbeck, but his business savvy drove the employees. By reminding them that they were in the service busi-
building of a next-generation fleet of boats to meet the demand ness, he instilled a sense of pride and belonging that didn’t exist
of the emerging deepwater. Wall Street, the oil companies and in the “cowboy” mentality days of the old offshore industry.
Todd Hornbeck knew the deepwater was the future.
The IPO provided $80 million in gross proceeds, which al- THE CHALLENGE OF DEEPWATER HORIZON
lowed the firm to fund its future growth. While many thought The growing deepwater had the industry moving again and the
at the time that Hornbeck was exclusively an offshore OSV future was filled with anticipation as companies invested in all
operator, its tug-and-barge unit was simultaneously investing in types of vessels. By 2007 there were a record 15 rigs in water
double-hull tank barges and a modern fleet of tugboats. In the depths of 5,000 feet or more, and drillers announced another 15
volatile offshore markets of 2003 and 2004, the “downstream” new mobile offshore drilling units would be delivered between
segment of the company provided a stable base of cash flow and 2009 and 2011 with the capability of drilling in depths of 7,000
covered 100 percent of all company-wide fixed charges, includ- to 12,000 feet. When President Obama announced on March
ing debt service and maintenance capital expenditures. 30 of this year that he was opening the vast expanses along the
By 2005 the company was also operating two coastwise tank- Atlantic coastline, the eastern Gulf of Mexico and the north coast
ers, a fast supply vessel and two foreign-flagged anchor-handling of Alaska to oil and gas drilling and exploration, the industry re-
vessels as well as a new shore-based facility in Port Fourchon. It joiced because it had waited a very long time for this and would
37
was running 25 next-generation OSVs, 14 oceangoing tugs and finally have additional offshore opportunities in the U.S.
18 oceangoing barges for petroleum transport in the northeast- Mishaps on oil rigs are rare, but on April 20 the Deepwater
ern U.S. and Puerto Rico. It had also developed a new market Horizon exploded, killing 11 workers and injuring 17 others
application for the double-hulled tank barges by using them to while another 98 survived without serious physical injury. The
perform well stimulation services in the deepwater, which was news stunned the nation, and as the world watched the spectacu-
an innovative way to use the same equipment in the both the lar fire consume the rig on television Hornbeck Offshore – along

38
The HOS Mystique, one of Hornbeck’s new 250EDF class new generation offshore supply
vessels now working in ROV / construction support.
with many other offshore support companies – sent boats to issue from a technical point of view and prevailed. Ultimately,
fight and extinguish the fire. But after 36 hours of intense burn- the Administration lifted the moratorium on October 12 but with
ing the melting rig sank into the ocean, and once again the world technical restrictions.
was reminded that offshore drilling is a very dangerous business.
Hornbeck Offshore employed its ROVs to assist in the “NOT ALL HORSES WERE BORN EQUAL. A FEW WERE
numerous attempts to cap the well-head. The company put at BORN TO WIN” (MARK TWAIN)
least 25 vessels to work assisting in the emergency response and Since 1997 Hornbeck has been funding numerous newbuild
cleanup. Hornbeck had envisioned his company with the right programs and has augmented its fleet through acquisitions.
equipment for every job required by his customers, but he had Today the company has a fleet of 80 vessels including 54 OSVs
never expected, like most of us, that his company would be called ranging from 200-feet to 430-feet and a fleet of oceangoing
upon to meet the equipment needs of the greatest environmental tugs and barges, most of which are double-hulled. It is a unique
disaster in U.S. history. The company had met the greatest chal- combination of upstream and downstream operations. In 2009
lenge ever posed in the Gulf of Mexico ultra-deepwater. it posted revenue of $386 million and operating income of $102
On April 27 the government issued a temporary ban on million. Its enterprise value is more than $1 billion. Not bad for a
offshore drilling in the GOM in depths deeper than 500 feet. company that began 13 years ago with $1 million in seed money!
Then a six-month ban was issued on May 27 by Ken Salazar, According to Todd Hornbeck, this has been the building stage of
Secretary of the Department of Interior. Hornbeck Offshore the business plan, and now he is moving it into the mergers and
was immediately impacted by the closing of the 33 rigs impacted acquisition phase. The company also operates overseas and plans
by the moratorium. In June it filed a lawsuit against the DOI to review opportunities around the world.
(Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663) in Todd Hornbeck may have rung the opening bell at the New
U.S. District Court in New Orleans. The company had watched York Stock Exchange in 2004, but he put a shot across the bow
its stock drop 37 percent since the explosion, and the ban had of the offshore industry many years before that on the bayou
idled its vessels and personnel. when he took this magazine’s founders on a tour of his first
On June 22 Judge Martin Feldman of the U.S. District Court OSV. From the beginning he knew what the industry needed
in New Orleans lifted the ban and prohibited the government and designed those advanced technologies in-house. He was
from enforcing it. On July 17 Salazar issued a second ban based clear about building on the emerging opportunities in deepwater
not on water depth but on drilling configuration and technology. exploration and drilling, and he kept that focus and stayed the
The judge ruled the second ban wasn’t any different than the course. Today, the company has worldwide recognition, a mod-
first and the courts threw it out, but the government pursued the ern fleet and a visionary leader. What’s next, Todd? MarEx

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MITAGS-PMI-Mates-FP-Wrkbt-Comp-Ad.indd 1 10/29/10 2:56:34 PM
Todd Hornbeck, Chairman, President & CEO
Hornbeck
Offshore Services
MarEx: HOS began in 1997 with one boat. Tell and 12 other vessels. Within each of these ma-
us about the extraordinary growth from that jor categories, our vessels are comprised of a
point forward. wide variety of different vessel designs ranging
TMH: As I reflect back over the past 13 years, I in size and specifications capable of servicing
am very pleased with the exceptional growth that our customers’ needs from “cradle to grave”
our company has achieved. By any measure, we anywhere in the world. For example, we have 10
have exceeded the goals we originally established distinct classes of OSVs, two distinct classes of
in 1997. Today, our diverse fleet of 85 vessels is MPSVs and four distinct classes of double-
40
comprised of a total of 51 new generation hulled barges.
offshore supply vessels, or OSVs, four The primary catalyst that
multi-purpose support vessels, has fueled our invest-
or MPSVs, nine double- ment decisions
hull tank barges, nine has been the
ocean-going tugs exponential
The dynamic young

leader and founder
of Hornbeck Offshore
talks about his vision
for the future and
keeping the company
“one step ahead.”
By Tony Munoz

TODDHORNBECK
growth in technology that our customers experienced in the Our market strategy has always been to diversify
deepwater, which led to their success in finding ever larger our revenue mix by expanding our operational
oil and gas deposits there. In the late 1990s, our customers
and Wall Street were keenly focused on reserve replace-
footprint in two core markets (the U.S. GOM and
ment. This caused them to fund research and development Latin America), extending our geographic reach
of enhanced drilling and production technologies to drill into new foreign markets (the Middle East) and
and commercially produce hydrocarbons in water depths
adding as many oilfield and non-oilfield specialty
of up to 10,000 feet and well depths of up to 35,000 feet.
This ultimately drove the need and opportunity for us to niche services as possible.
develop innovative new marine solutions to keep pace with
the dynamic offshore technology curve. Early on we recognized vices as possible. We have also designed our vessels to take full
that the existing fleet of conventional OSVs operating in the Gulf advantage of their versatile platform and to participate in every
of Mexico was not capable of meeting the complex demands of phase of oilfield marine support services -- from the spudding
deepwater, deep well and other logistically demanding projects. of an exploratory well, through the completion process, includ-
So we began a program to construct technologically advanced ing flotel and well-testing services, to the installation, repair and
new generation OSVs using the proprietary designs of our in- maintenance of the production infrastructure through the life of
house engineering team. Consequently, our company has had a the field, to providing environmental response capabilities and
rich history of offering unique marine solutions to the offshore hurricane relief efforts to protect the oilfield, to assisting with
sector. the decommissioning of the field when it is ultimately plugged
MarEx: Today the company is more than just an offshore and abandoned. In the oilfield, our vessels have been adapted
energy support company. Please explain the diversity of your to operate in a host of specialty configurations, such as seismic,
41
operations. deepwater well stimulation, high-pressure pumping, deep-well
TMH: Our market strategy has always been to diversify our mooring, and ROV subsea construction. We have also ventured
revenue mix by expanding our operational footprint in two core into such diverse non-oilfield specialty services as military ap-
markets (the U.S. GOM and Latin America), extending our plications, fiber-optic cable-lay, and oceanographic research.
geographic reach into new foreign markets (the Middle East) MarEx: HOS has recently invested more than $1.5 billion in
and adding as many oilfield and non-oilfield specialty niche ser- next-generation vessels and equipment. While a father loves
Mission Ready
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Booth 3069
December 1-3 in New Orleans.

TODDHORNBECK
all his children, what are the Our $215 million follow-on public equity offering that the GOM is worth
most innovative vessels in and $75 million privately placed “tack-on” to fighting for. At the end of
the fleet? the day, the GOM represents
TMH: You’re right. I do think our existing 6.125% senior notes were very well one of the most promis-
of our vessels in a paternal received, resulting in excellent pricing of both ing deepwater regions in
sense, but unlike if you’d ask securities. In September 2006 we refinanced our the world and, given the
me to “play favorites” from technological advances that
among my three children, this
revolving credit facility to increase its borrowing have been achieved in the
is an easy one. We recently base, extend its maturity and lower our interest ability to identify, drill for
designed in-house and con- rate. In November 2006 we completed a $250 and produce hydrocarbons
structed the two largest and in the ultra deepwater lower
million convertible bond offering on very attrac-
most flexible DP-2 classed tertiary and Miocene geo-

multi-purpose supply vessels tive terms that allowed us to monetize our high logic trends, the long-term
operating in the world today. stock volatility and strong credit profile. prospects for growth are
The proprietary HOS 370 enormous. Some estimates
class HOS Centerline and show up to 50 billion barrels
HOS Strongline are the only vessels in the world to have received of oil equivalents (BOE) in these subsalt geologic regions. To put
certifications by the U.S. Coast Guard under Subchapters “L,” that in perspective, there have been approximately 50 billion BOE
“I,” “D” and “O,” which allows them to operate as a supply discovered in the traditional geologic regions in the GOM and
vessel, industrial/construction vessel, and as a petroleum and about half of that has been produced. The lower tertiary and Mio-
chemical tanker. These two world-class vessels are fully SOLAS- cene trends might, in essence, represent a second GOM waiting to
42
and Jones Act-compliant and, with their 30,000 barrels of liquid be produced. We think that’s very exciting for the long term.
mud carrying capacity and highly unique regulatory pedigree, MarEx: Officially, the moratorium is over. Is there a possibility
represent a major step forward in our efforts to support our that the Bureau of Ocean Energy Management (BOEM) will
customers’ ability to service a diversity of projects with a single keep it going by slowing permitting activity?
vessel. TMH: I don’t think there’s any doubt that the pace of permitting
MarEx: How were you able to finance this latest OSV newbuild activity in the GOM is going to be a lot slower for the foreseeable
program in the midst of a worldwide recession? future. But because of its enormous potential, activity will even-
TMH: We have always had the philosophy that it is better to raise tually resume and, over the course of several years, it will resume
money when you can on good terms, not when you need to. As to a level that may even exceed pre-Macondo levels.
in life, timing was everything as we took advantage of robust MarEx: The government repeatedly said the moratorium had
market conditions in late September 2005 to recapitalize our little impact on the Gulf Coast economy. Do you agree?
balance sheet by accessing the capital markets in the immediate TMH: No, I do not agree. We haven’t yet fully seen the impact of
aftermath of Hurricane Rita. Our $215 million follow-on public the drilling moratorium on the local economy. While some layoffs
equity offering and $75 million privately placed “tack-on” to our have been deferred, it is only a question of time because drilling
existing 6.125% senior notes were very well received, result- rigs and all of the assets that support them, like our vessels, will
ing in excellent pricing of both securities. In September 2006 not be able to remain idle for long. The fact that oil companies
we refinanced our revolving credit facility to increase its bor- and drilling contractors have been willing to pay the price of sit-
rowing base, extend its maturity and lower our interest rate. In ting on the sidelines, and thereby save some jobs, is not sustain-
November 2006 we completed a $250 million convertible bond able. If the pace of permitting does not pick up, rigs will leave and
offering on very attractive terms that allowed us to monetize our significant job losses and economic harm will occur.
high stock volatility and strong credit profile. As a result of these MarEx: The Jones Act is constantly under attack for stifling
financings we were able to achieve, according to one investment job growth, impeding commerce, and recently from prevent-
bank, one of the lowest weighted-average costs of capital in the ing foreign vessels from assisting in the GOM oil spill cleanup.
oilfield service industry. With over $500 million in excess cash Should there be waivers on certain work that requires spe-
and up to $250 million in undrawn revolver borrowing capac- cialty vessels?
ity, combined with the substantial free cash flow that we were TMH: The Jones Act traces its roots back to the third act of
projected to generate during the construction period, we were Congress in 1789. It is bedrock legislation and has been part
well-positioned heading into the downturn of late 2008 with of this country’s economic fabric from the very beginning. This
ample “dry powder” to execute our aggressive growth strategy. nation has been one of the most prosperous to have ever existed,
MarEx: HOS states that about 35 percent of its revenue so I don’t see how a law that has been with us since the birth of
comes from upstream vessels, which is an obvious reason to our nation can be attacked for stifling job growth or impeding
file a lawsuit against the Department of Interior’s moratorium commerce. The Jones Act has promoted the investment of billions
on drilling in the OCS. Was HOS more exposed than other and billions of dollars by vessel owners to build vessels in U.S.
operators? shipyards employing many thousands of workers. It enables the
TMH: There are several other vessel operators in the Gulf of employment of U.S. mariners and all of the shoreside support
Mexico (GOM) that joined in the lawsuit with us who also believe that is needed in order to operate ships in a safe and environmen-

TODDHORNBECK
tally sound manner. I don’t think that stifles job growth either. actively bidding additional vessels abroad.
The real question that you need to ask is whether vessel day MarEx: When do you see the global offshore market improving?
rates in the GOM are higher than in other international markets TMH: With oil prices still above $80 per barrel, we believe the
as a result of the Jones Act. I think you would be surprised to worldwide supply-demand equation for new generation OSVs
find that day rates in the GOM are actually lower than in many will remain healthy for the foreseeable future and will be driven
other markets around the world. This is a highly efficient and by demand for higher-spec vessels, which is our core business.
competitive market that supports one of the great U.S. industries With more deepwater and ultra-deepwater drilling and production
and is crucial not only to our national security but to our energy units scheduled to come online globally over the next 12 to 24
security as well. We have no argument with the issuance of waiv- months, we expect that the market for our type of equipment will
ers when Jones Act-qualified vessels are not available. In fact, continue to gradually improve. Clearly, certain emerging markets,
we have publicly supported an appropriate waiver system. The such as Brazil, will be more robust than others, but we expect to
problem has been that, instead of waivers, foreign vessels have see a fairly broad-based and evenly distributed global demand
operated on the OCS in violation of the law and that is another profile. Plus, as I mentioned earlier, we are very optimistic about
matter entirely. We have a responsibility to our investors and to an eventual full recovery of the post-Macondo Gulf of Mexico
our employees to ensure that vessels that are not legally qualified over that same time period, as well as a pick-up in activity in other
to conduct operations on the OCS do not do so. traditional Latin American markets, such as Mexico.
MarEx: HOS has expanded throughout the U.S. and is now in MarEx: As HOS plans its strategy over the next five years, will
a few strategic markets overseas. Are there plans for further the company continue to invest in new opportunities or is its
overseas expansion? current profile adequate?
TMH: Yes. Over the years many of our customers have expressed TMH: We expect to continue having follow-on investment op-
an interest in chartering our vessels for international operations. portunities as we believe that the offshore energy industry’s
43
With roughly thirty percent of our supply vessel fleet chartered technological innovation cycle will continue to develop and will
for use in foreign markets as well as a significant level of in- drive the need for new and different equipment as technologies
house experience managing vessels worldwide, we will continue advance. At Hornbeck Offshore we never forget that this is a
to evaluate additional international opportunities. We currently service business, so we must stay focused on satisfying our cus-
have eight vessels in Brazil on long-term charters with Petrobras, tomers’ current needs while preparing to meet their future needs.
five vessels in Mexico, one in Trinidad, two in Qatar and are If we don’t, someone else will. We are engaged in a very volatile

TODDHORNBECK
and cyclical industry that is constantly affected by a myriad of The only viable way to replace existing reserves is through the
market forces. Disciplined decision-making based on objective drill bit.
criteria is imperative. The ability to anticipate the future, stay Oil companies are increasingly searching for large deposits of
flexible and “turn on a dime” is critical to our long-term success. hydrocarbons offshore.
That is why we focus on staying on the leading edge of new ves- The steady trend in offshore drilling is toward deeper waters
sel construction in each of our marine segments while searching and deeper well depths.
for acquisition opportunities of new generation equipment at a Exploratory success drives a commensurate increase in subsea
reasonable price. These attributes have allowed us to profitably production infrastructure.
grow in ever-changing market cycles, while remaining true to the Deeper waters tend to be farther removed from the shore-based
core values embodied in our mission statement. Everything we logistics chain.
do, from developing innovative technologies for our fleets to hir- Deeper wells require more drill pipe and exponentially greater
ing the best people in the business, is driven by our goal of being liquid volumes.
the company of choice in our industry. Subsea infrastructure needs to be inspected, repaired and
MarEx: Any final thoughts for our readers, Todd? maintained at least annually.
TMH: Looking back on our various achievements and the signifi- New generation OSVs and MPSVs are ideally suited to meet all
cant growth we’ve experienced over the past decade or so, it’s of these demand drivers.
easy to lose sight of the fundamental beliefs that have driven our With our large and growing multi-class fleet of increasingly
success. The overarching macro thesis for our business model is larger, more versatile vessels, Hornbeck Offshore is extremely
deceptively simple. Following is a summary of what we continue well-positioned to take advantage of these macro-trends. I am
to believe to be the underlying truths of our industry: confident that we can repeat the success of the past and stay
Oil and natural gas are the predominant fuel sources of our one step ahead of whatever future challenges we may face if we
44
energy-driven economy. remain true to our business model and execute our proven strat-
World oil consumption will continue to increase, especially egies in the years to come. This past decade has proven to be a
driven by China and India. fast-paced and encouraging start to what we believe will become
Alternate fuels are not likely to displace oil and natural gas for a launching pad for yet another period of sustained profitability
the foreseeable future. and growth.
The oil and natural gas production decline curve is real. MarEx: Thanks, Todd, and our readers thank you too. MarEx
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MarEx_41.indd 45 11/8/10 12:30 PM
Report From Down Under:
The World Leader in

High-Speed Watercraft By Robert C. Spicer, CPT
The Austal-designed and built US Navy Littoral

Combat Ship (LCS) “USS Independence” is the
first military platform to feature the company’s
innovative trimaran hullform - delivering superior
efficiency, seakeeping and maneuverability.
MarEx_41.indd 46 11/8/10 12:30 PM

With companies like Austal, HYPAC and Sea Transport leading
the way, Australia is top dog when it comes to the design and
production of high-speed, aluminum passenger and patrol vessels.
Australia, that magical continent 9,700 nauti- Navy and Coast Guard ships, knows the Australian marketplace
cal miles from New York, 11,600 from Rotterdam and 4,500 well: “Australia has been at the forefront of high-speed craft since
from Shanghai, rests in the center of the world’s imaginings: an their inception and remains at the forefront today. The design-
enchanted land of mystical beginnings. Starting with the arrival ers and shipyards continue to improve their designs and bring
of the Aborigines (some say as early as 68,000 BC), the steady out new concepts.” Kaminsky noted that “Compared to other
stream of the adventurous continue to arrive daily. In the year countries and Australia’s huge coastline, we have relatively limited
ended August 2010, 5.8 million tourists visited Australia, an usage of high-speed vessels at the moment. Most of the ones that
increase of six percent over the previous 12-month period. This do operate inside Australia are passenger ferries to the Barrier
unique land continues to draw the inquisitive traveler to a warm Reef and Rottnest Island, although there is an increasing number
tropical climate in the North and a temperate zone in the South. of crewboats and FSVs being delivered as our offshore oil and gas
And with a coastline that stretches 25,760 kilometers and ranks fields continue to expand. The use of high-speed patrol boats to
as the world’s seventh longest, is it any wonder that some of the protect Australia’s borders and apprehend human smugglers and
finest high-speed watercraft on the planet are designed and built drug runners is also expanding.”
in Australia? HYPAC is expanding its offerings to include steel winches
and additional products for conventional vessels, With its recent
HYPAC acquisition by Precision Technology, a U.S.-based company in
Paul Kaminsky, Director of HYPAC, the Adelaide, South Roanoke, VA, HYPAC has been able to manufacture its prod-
Australia-based manufacturer of lightweight deck machinery for ucts inside the U.S. and supply them directly to customers like
47
high-speed ships such as passenger ferries, ROPAX vessels (fer- Northrop Grumman in Newport News.
ries that carry both passengers and vehicles), crewboats, FSVs, Australian design technology has been exported for many
47

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MarEx_41.indd 47 11/8/10 12:31 PM

High-Speed Watercraft
years. For example, the vast majority of the U.S. fast ferry fleet
is made up of Australian designs built at U.S. shipyards. “As the
Australian market is relatively small, it is expedient to design
vessels for construction in other countries,” noted HYPAC’s
Kaminsky.
Austal
In the design and manufacture of high-speed craft, Austal is a
world leader. With its head office in Henderson, Western Aus-
tralia, Austal began in 1988 with a vision to build high-quality
commercial vessels for the international market. It is now a global

company with operations in Australia and Mobile, Alabama.
Austal entered the military market in 1998 with an order for eight
Bay Class Patrol Boats for the Australian Customs Service. Size-
able orders soon followed from various navies and coast guards
including the Royal Australian Navy. Its proven record of excel-
lence has placed Austal at the top of the world’s elite patrol vessel
builders. In 2001 it became the first company to supply the U.S.
military with high-speed Theatre Support Vessels.
Austal is now the world’s largest builder of fast ferries and
48
aluminum patrol boats and was recently successful in winning the
contract to design and build the U.S. Department of Defense’s
next generation, multi-use platform, the Joint High-Speed Vessel
(JHSV). Austal continues to drive superior performance in the in-
dustry. Its ability to control in-house design and quality along with
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a skilled workforce ensures its on-time and on-budget deliveries.

Austal’s financial strength and sound management team will keep
it at the forefront of the industry for a long time to come.
Sea Transport
Another leader in the fast-boat market is Queensland-based Sea
Transport Corporation, a naval architecture and design consul-
tancy founded by Stuart Ballantyne in 1976. One of the secrets
behind Sea Transport’s success is its investment in people. Its
strategy is built, in part, upon a commitment to developing a
staff that has spent between nine and twelve months working
on vessels at sea, thereby adding a vital depth of experience to
their qualifications. This factor, combined with ongoing training
and technology updating by way of seminars and conferences,
produces a highly efficient and professional team able to analyze
and quantify all facets of ship design, construction and operation.
“Sea Transport Corporation prides itself as designers with ‘real
experience’ and has gained an impressive record for designing
innovative and commercially unbeatable shallow-draft vessels with
designs now in 45 countries,” said Ballantyne.
Austal’s landmark 127-meter high-speed vehicle ferry “Benchijigua Express” 49
– designed and built in Australia – was the first Austal vessel to feature the In September of 2010, Dennise Trajano, Chairman of Archi-
company’s innovative trimaran hullform. Since delivery to Spain’s Canary pelago Philippine Ferry Corporation, announced that financing
Islands in 2005, the vessel has demonstrated significant advantages over
traditional high-speed craft in terms of superior passenger comfort and
was approved for 10 medium-speed ROPAX catamarans. The
reduced seasickness along the notoriously rough route. design was created by Sea Transport Corporation. “This heralded
Project1 12/11/04 11:59 am Page 1 the arrival of the country’s first brand new ROPAX ferries and a

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new safety standard in local ferries,” stated Ballantyne. The new Competing With Steel Ships
design is a 50m x 17m x 1.8m draft, quadruple screw, 16-knot Leadership in the construction of high-speed aluminum ves-
ROPAX catamaran for trucks, buses, cars and up to 500 passen- sels could bode well for Australian boatbuilders during the next
gers that complies with the latest standards of damaged stability decade. The recently published Australian Defense Capability
criteria, lifesaving and firefighting equipment. The vessels are Plan details significant strategic growth for the Royal Australian
expected to commence construction shortly, and the first will be Navy through 2030. This includes the addition of 43 different
in service by the middle of 2011 with the following vessels arriv- vessels including submarines, Air Warfare Destroyers, Multi-Role
ing at two-month intervals. Vessels and Future Frigates. But it does pose questions for the
existing industry because naval shipbuilders in Australia do not
Finding the Right People have sufficient infrastructure to support the steel construction
While much has been written about the technological marvels initiatives. The Australian shipbuilding industry has for many
of modern high-speed watercraft, too little attention is paid to years been competitively priced for aluminum vessels but not for
actually operating these complex vessels. The most important part the construction of steel hulls. Steel hull shipbuilding continues to
of the operation is undoubtedly the proper selection of the key flow to less expensive countries like China, where labor is cheap
people who will be at the controls. The Captain, Port Engineer, and the technical construction is simple. The industry challenge
Control Systems Engineer and Chief Engineer are just some of now may be how to incorporate the learning from the high-speed
the people that are essential to making the operation work well. aluminum craft business into an opportunity to take part (or all)
“You cannot run these sophisticated and complex vessels like of the steel shipbuilding needs for Australia’s future. That would
a bus,” said Clark Dodge, President of CED Consulting LLC, be a real coup.
who has a lifetime of experience with fast-craft operation. And In the mystical land Down Under, anything is possible, but one
50
he is right. The men and women who operate these vessels have thing is certain: If you’re in the market for a high-speed alumi-
a significant responsibility with regard to operations, rules of the num boat, you’ve come to the right place. MarEx
road, and passenger and crew safety – to name but a few of the
more important issues. “We really need to pay more attention to Robert Spicer, who holds a Chief Engineer’s license, is studying
the selection and training qualification process,” said Dodge. for his Doctor of Education degree in organizational learning.
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52
The demand for broadband

services aboard ships is booming Cruising With Broadband

The cruise market was the first to adapt VSAT (Very Small
as the cost comes down. Aperture Terminal) to serve passengers with services that
are now being adopted by merchant vessels for economy
Unlike most sectors of the shipping industry, and efficiency and also for crew welfare. Low-cost broadband
orders for satellite communications (satcom) equipment and ser- calls – 10 to 20 cents a minute using VOIP (Voice Over Internet
vices are on the rise. Major contracts awarded in the past several Protocol) versus previous phone charges of $2 to $3 a minute –
months further wired the oceans to meet the growing demand can be made to family and friends back home. Inbound telephone
for broadband. What happened in full-service land-based offices numbers posted on the ship company’s Web site via a toll-free
15 years ago is happening with maritime satcom on ships today. 800 number ring onto the ship. “That has changed crew welfare
Only a satellite system can bring broadband on-the-move access tremendously,” said Eric Sung, CEO of Intellian Technologies
to most ships, and there are many options for companies looking USA in Irvine, Calif. and CEO of its parent, Intellian Technolo-
for satellite solutions. gies Inc., headquartered in South Korea.
MarEx_41.indd 52 11/8/10 12:32 PM

Wiring the Oceans
Wiring the Oceans: By Art Garcia
SatCom Comes of Age

Many passenger ships have automated teller lian, founded six years ago, has seen its revenues
machines (ATMs) while vendor and casino in 2010 grow by over 80 percent from the prior
transactions move across the VSAT link for credit year. The company does not reveal dollar figures.
card authorization and verification. In the past The outlook for the maker of marine antennas is
five years there’s been an evolution of cell towers “very strong,” said Sung, who predicted revenue
on cruise ships so passengers and crew can use growth of 70 percent to 100 percent in 2011.
their own cell phones at sea, a seamless system The satcom market “definitely” is moving
that allows callers to receive their phone charges towards broadband technology, affirmed Susan
directly from their cell-phone provider. “A Agemy, Vice President for Product Engineering
number of vessels are putting in Internet kiosks at Miramar, Fla.-based MTN Satellite Communi-
as work stations for crew members to catch up cations. The decision facing fleet owners is which
on their e-mail or send messages home or make technology to adopt – the Iridium OpenPort
their own planning arrangements,” Sung said. solution, FleetBroadband or one of the flavors of
“That makes it a lot easier to keep the crew happy VSAT available. Then comes the choice of mini-
53
and connected to the family. Some ships operate or standard VSAT product. “The larger shipping
with two VSAT systems, one for vessel operations companies are making that decision now,” she
or mission-critical functions, the other for crew said, with some having chosen to go with pay-by-
welfare and morale.” the-minute services such as Iridium OpenPort or
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Wiring the Oceans
to a specific capacity level. “Other companies that are more IT

savvy are going more towards the VSAT always-on connection,
where there are no pay-by-use fees,” she added. “There is a fixed
monthly fee for a circuit size, and they pump as much voice and
data as they see fit.”
Becoming Affordable
In the past, communications to ships were expensive and reserved
for essential business operations and safety. “But today, because
it’s less expensive and we’re also able to offer more capacity –
and that’s the key, greater bandwidth – it means all of a sudden
there are more applications that can be offered to, not just the
operator or the ship’s officers, but also the crew, one-way and
two-way,” said Andy Frost, Vice President of Marketing and
Business Development for GE Satcom, a wholly owned subsid-
iary of General Electric based in Stuttgart, Germany.
GE Satcom offers telephony, Internet access, e-mail and video
conferencing “all at a fraction of the cost compared with the past,”
Frost added. “We can do all that and deliver daily TV content so
the crew keeps in touch with current affairs and sports develop-
ments as they happen, rather than waiting for the next time they
54
reach port.” An important new element built into broadband tech-
nology for crew welfare is medical support. An injured crewman or
passenger can receive access to a high level of medical personnel “Satcom has really become a must-have item on a commercial
or medical technology by sending photos or images and receiving vessel,” contended Paul Comyns, Intellian’s Vice President of
medical advice through video or audio transmission. Global Marketing. “It’s nearly a required element for operating a
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MarEx_41.indd 55 1:39 PM
Wiring the Oceans
ship at sea so having that level of communications with voice and

data or e-mail connectivity has really made it so much easier for
vessels to operate with special tracking, vessel monitoring, engine
and spare parts management.” As electronic links tighten between
ships and shore, commercial vessels and cruise lines are able to
maintain constant contact with their home office operations to re-
ceive instructions, report weather changes and exchange real-time
information on everything from fuel optimization and weather
routing to ship position and available cargo.
Satcom is not at a breakthrough point with a flood of new
technologies, but it is at a level where broadband is “becom-
ing affordable,” noted Tore Morten Olsen, CEO of Marlink, an users efficiently manage costs.
Oslo-based global provider of voice and data solutions, who has “The whole satcom market is at a very pivotal point,” observed
seen prices drop as much as 20 to 30 percent over the past two Peter Broadhurst, Sales and Marketing Director at Sea Tel, which
years. In September Marlink announced a renewed agreement is owned by Cobham PLC, headquartered in Dorset, England.
that significantly expands its contract with A.P. Moller-Maersk, Sea Tel is a TV and VSAT antenna manufacturer that figures
one of the world’s largest shipping lines. In partnership with it has about 35,000 marine antennas in the field and claims 85
Vizada, an independent provider of global satellite communi- percent of the antenna market for the cruise industry. Four to six
cations services, Marlink will provide FleetBroadband airtime cruise ships are launched yearly “and we generally get all the sys-
services to an additional 200 vessels. The deal brings to 370 the tems on those ships,” he said. “There’s a lot of change happening.
number of A.P. Moller-Maersk vessels sailing with the service. There are new service offerings to end users and new antenna
56
In October, Marlink debuted a new Access Controller system manufacturer entrants,” he continued. “Ka-band is the big talk,
that enables seamless and cost-effective management of a ship’s and a number of Ka-band satellite operators will be launching
onboard satcom network. Compact and lightweight, the system satellites over the next few years. We can see a trend, definitely,
can be installed on any vessel to make switching between VSAT, towards smaller, low-cost antennas, and we can see a trend to-
OpenPort or FleetBroadband systems quick and easy, helping wards more bandwidth requirements by the end user.”
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Wiring the Oceans
Bottom-Line Impact trade volume beginning to pick up. He predicts a slow recovery
It’s how satcom brings profitability to shipping companies that
and looks for consolidation among satcom companies, with some
failing and others being swept up by mergers and acquisitions.
will dictate how fast VSAT and other communications systems
are adopted into commercial shipping. “Price pressure has been
“It’s going to be a slow recovery, like all the economists ashore
are saying, but it does seem that the trend is improving,” he said.
considerable,” Sea Tel’s Broadhurst noted, “from pushing back
on us and us pushing back on our suppliers and shipping compa-
“The next 24 months is the period in which I expect the majority
nies pushing back and demanding the lowest price. Price pressure
of satcom consolidations to be done.”
Business overall at Denmark’s Thrane & Thrane is doing “very
through a recession is probably the hardest thing. I expect margin
erosion just about all the way down the value chain.” Although
well. We’re doing fine,” said Jens Ewerling, Product Line Manager
for the company’s maritime satcom operations. “The commercial
the industry has been hit hard in the recession, Broadhurst sees
shipping business has been picking up for
the past three to four months,” he reported.

“There was a slight slump, a bump in the
road for 2009 and maybe a little bit into
2010, but it wasn’t that bad for us. The
business didn’t collapse by like half. We got
through it quite well, driven by a huge surge
Visit us at the in demand for Inmarsat broadband termi-
nals. Our business with FleetBroadband has
International tripled in a year.”
Work Boat Show Thrane & Thrane is more than a satellite
58
company; it also makes GMDSS (Global
Dec. 1-3 Maritime Distress and Safety) System 6000
2010 consoles for large ships of all sizes. The
units will be on the market in the first quar-
Booth 2855 ter of 2011. “We have a flurry of new prod-
ucts coming,” Ewerling said. The System
Full Service Splicing Facilities
6000 integrates an entire communications
Wire Rope Lubricants Chain/ console containing everything needed by a

Towing Hawsers ATB Pin Grease Anchor Chain commercial vessel of more than 300 tons,
Push Cables Wire Rope Dressing Tow Plates for which a GMDSS is mandatory.
Face Wires Kenters The company has a 120-page product
Hardware catalog that includes a positioning device
Anchor Swivels
Rope Wide Mouth - that transmits the position of a vessel back to
Defiance® Brand Towing Shackles Other Marine shore over satellite and is price-tagged from
Tug Assist Lines Hawser Thimbles Products $2,000. A broadband system can run up to
Hawsers Marine Hardware $50,000 “and everything in between,” Ewer-
Samson Rope Dist. ling said. Consoles, “allowing for there being
a million different versions,” cost in the area
One call gets you quick delivery of $20,000 for smaller units, with large ones
from our warehouses in New York, priced between $35,000 and $40,000.
New Orleans and Houston port areas. There has been a renewed interest in the
maritime satcom industry with the broader
availability of broadband. “Until two-and-
a-half years ago there really was only very,
very narrow band services, unless you spent
an absolute fortune on VSAT,” Ewerling
pointed out. “But it’s all consolidating now,
all going toward broadband. Three to five
years ago, an antenna for broadband at sea
To view our complete catalogue of products, go to cost $70,000 to $100,000 plus a hefty tab
www.atlantic-group.com for a satellite link. Today, you can buy a
terminal for around $6,000 for the smallest
ATLANTIC CORDAGE one,” Ewerling said. “It’s become a totally
35 Mileed Way, Avenel, New Jersey 07001 different ballgame.” MarEx
Phone: 732-574-0700 • Fax: 732-574-9191

E-mail: sales@atlantic-group.com Art Garcia is a West Coast-based writer
and journalist.
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MarEx_41.indd 59 11/8/10 1:40 PM

The Shipbroker’s Art By Barry Parker
60
“Fixed assets” are not always fixed. Unlike most capital equipment listed
on company balance sheets, ships and boats can be easily moved geographically in
search of better financial returns. Their mobile nature makes them likely to change
hands more often and between parties who are unrelated and geographically distant.
Moreover, because the maritime business is so fragmented, with hundreds if not thou-
sands of participants in the major sectors, it’s impossible for one person to know what
everybody else is doing.
Into this vacuum of insufficient information flow and geographic distance steps the
intermediary, more colloquially called a shipbroker, or vessel sale and purchase (S&P)
broker. The international network of S&P brokers provides the glue that enables
buyers and sellers to transact their deals – sometimes locally, but more often globally.
MarEx_41.indd 60 11/8/10 12:34 PM

the Shipbroker’s Art
Reaching across the
globe to bring buyer provides educational services (along with contractual forms for
handling actual sales), offered the following: “Thousands of
and seller together, ships change hands every year, although their prices are hugely
governed by the laws of supply and demand. The S&P broker has
today’s shipbroker a good idea of the current position in the trade cycle and whether
prices are likely to harden or to fall in the short term. This is noto-
has a lot to offer. riously difficult to establish, and a good S&P broker is a success-
ful analyst, researcher, valuer and shipping market ‘futurologist.’”
Among listed companies, workboat behemoth Tidewater
Marcon International (based outside Seattle) and Ocean Marine (NYSE: TDW) proudly points to its strategy of “continually
Brokerage (based in Schriever, Louisiana), for example, connect acquiring new, and disposing of mature, vessels.” Such strategic
their clients with worldwide markets. In conversations with Mar- vessel sales have generated $665 million in proceeds (and $276
con’s Bob Beegle and Ocean Marine’s Steve Kokinos, both were million of pretax profits) for Tidewater over the past decade. Ex-
quick to dispel the notion that their shops served only narrow ecutive Vice President Stephen Dick, who is responsible for vessel
interests. Kokinos said that Ocean Marine handled everything sales at Tidewater, told MarEx, “When we sell vessels, it’s at the
from oilfield and fishing vessels to passenger and cargo ships. He end of the useful life that we have for the vessel; the vessels may
told MarEx, “We’ve been reselling vessels in the non-domestic well have remaining economic life. Almost without exception, they
market for the past 18 years and have a wide network of foreign are sold out of the offshore business – for example, for use as
buyers throughout the world.” Beegle, who founded Marcon in towing vessels. Recently we sold boats to Nigeria, which are now
1981, covers the towing, offshore petroleum, research and marine used as security vessels.”
construction markets, supplemented by “a dabble here and a
61
dabble there as the market requires.” Technology vs. the Human Factor
Communications and computers have advanced dramatically in
Part Broker, Part Seer the past three decades. Yet despite changing technologies, the sale
Brokers wear many hats. The Baltic and International Maritime of vessels remains a very personal business. Marcon’s Beegle put
Council (BIMCO), an international trade association which it very succinctly, “Personal relationships are the key and still the

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most important factor in business.” His thoughts were echoed recounted a story about Marcon’s role as a buffer. He said two
by Ocean Marine’s Kokinos, a one-time commercial fisherman: principals started on a direct deal but in midstream came to Mar-
“Interpersonal relationships with both buyers and sellers are a con. “They found that they would not, or could not, talk to each
must to be both competitive and successful.” other.” He explained that the deal was done, “but otherwise it
Technology does play an important role. “It’s helpful in getting would have been dead.” He described a similar negotiation where
our message out – what kinds of equipment we have for sale, the buyer and seller were “just across the river from each other,
who we are – and in communicating with clients we might not and they knew the equipment that the other always had for sale.”
otherwise be able to reach,” Kokinos explained. Beegle acknowl- He joked, “Even though we regularly inspected and appraised it,
edged technology’s importance but cautioned, “It’s only a tool to they probably knew more about it than we did. We were asked to
be used as a convenience for both the broker and the client.” act as the broker in the purchase, which we did successfully.”
Though BIMCO and broker organizations focus on the
mechanical aspects of the shipbrokers’ art, what separates a tech- Asset Player or Growth Player?
nically competent broker from the consummate professional is a Companies in the deepsea shipping trades are continuously
good feel for psychology along with insight into the buyer’s and buying and selling tankers, bulk carriers and containerships –
seller’s real motivations. Marcon’s Beegle elaborated, “In some much like Tidewater’s transactions. International tanker giant
of the sales that we handled, the rewards to the buyer or seller Tsakos Energy Navigation (NYSE:TNP), listed since the early
were not just revenue but also keeping a valuable asset outside the 1990s, is quick to acknowledge that vessel sales are a regular
hands of a competitor.” He cited company prestige as another contributor to its profits. It reckoned, as of mid-2010, that “total
motivator which has fueled deals. When asked about the use of capital gains since 2004 have been close to $260 million.” Dale
brokers, Tidewater’s Stephen Dick stated, “We have no problem Ploughman, CEO of Seanergy Maritime Corp. (Nasdaq: SHIP),
dealing with brokers. If we know the other party well, we may told MarEx: “The buying of ships for a fledgling company like
62
deal directly. Many times the sellers will prefer to put their equip- Seanergy is very important and, being in the public sector, the
ment in the hands of a broker.” price-to-EBITDA ratio is important to the investor and becomes
The intermediary can facilitate deals in ways that go far beyond one of the focal points when analyzing the acquisition of a
passing offers back and forth. Beegle said that brokers can pro- particular target.” Ploughman, with decades of top management
vide “distance and diplomacy between the buyers and sellers” and experience, added, “The selling of a ship depends on the com-
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9/25/09 12:34 AM
11:46:32 PM
pany’s overall strategy: Is it an asset player or is it a long-term Fearnleys, based in Oslo, provides an example of how ship
growth player?” brokerage is integrated into multiple business units conducted
Shipbrokers’ access to capital markets and private institu- through a full-service worldwide office network. When it was
tional money has helped facilitate asset transactions. Ploughman founded in 1869, its competitive advantage came from an
offered a principal’s viewpoint, where financial considerations “earlier adopter” strategy: utilizing the new Oslo-to-London
influence company strategies: “Seanergy is a long-term growth telegraph cable. A century and half later, its ship sales profes-
player and as such will hold on to its ships and generate its sionals sit alongside tanker, gas carrier and dry cargo brokers,
profits through trading. However, Seanergy will also keep close whose market coverage will include interaction with its far-flung
watch on the S&P market, and if the market is such that it can offices. Fearnleys is also active in the North Sea exploration,
make a substantial profit by selling a particular unit and reinvest- production and supply markets, brokering both charters and
ing the money at a higher return, then this opportunity will be equipment sales.
taken.” Tidewater’s Stephen Dick added, “In addition to the As finance has grown in importance, a number of the ship sale
selling that we discussed, we are also buyers of equipment. It brokers (including Fearnleys, Platou, Clarksons and SSY, along
must be the vintage, style and specification that can fit into our with Poten and McQuilling in the U.S.) have hired in-house
portfolio. If we see a good deal, then we will try to make the teams of bankers. Stephen Dick noted this trend but observed,
acquisition, but it must meet our needs.” “Some of the bigger brokers try to get their finance arms
involved. For us, we generally do our own finance.” Communi-
Full-Service Shops cations tools, worldwide breadth and money sources notwith-
Traditionally, the major broker groups have been headquartered standing, the personal relationships stressed by both Marcon
in London or Oslo; these days they have outposts in shipping and Ocean Marine are vital. Seanergy’s Ploughman told MarEx:
centers across the globe. Two of the biggest brokers in the world, “Deals are done both directly and through brokers. It depends
64
Clarksons and Braemar Seascope, are part of shipping service very much on the circumstances and the deal relationship that
providers listed in London, while a third, EA Gibson, is part of the parties have. A broker can facilitate a deal tremendously if the
the listed Hunting Group (with a business in oil well services). negotiations start to get a little sticky.” MarEx
London-headquartered SSY, established in 1880, is privately
held, as are the Norwegian stalwarts Fearnleys and R.S. Platou. Barry
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Advances in Clean
Marine Propulsion
By Richard Carranza 66
Mention propulsion to someone and they The Natural Gas Solution

generally think of jet engines or a 12-cylinder Ferrari. And while Faced with looming deadlines and high compliance costs, natural
propulsion does mean power, it also means pollution, par- gas as an alternative energy source is looking more and more
ticularly when it comes to powering ships. Burning diesel and viable. For one thing, methane (the main ingredient in natural
HFO (Heavy Fuel Oil) creates greenhouse gases, mainly SOx, gas) has the potential to deliver large amounts of energy. During
NOx and CO2, that are emitted into the atmosphere. Propul- complete combustion, fuel plus oxygen are converted to carbon
sion systems, because they require seals and bearings to reduce dioxide and water. The heat derived from combustion propels the
friction, can also leak lube oil into the ocean when seals weaken ship. Compare the heats of combustion (kJ/g) for the following
due to harsh conditions and varying loads. These are among the fuels (approximate values): methane, 55; propane, 50; gasoline,
issues being addressed by the International Maritime Organiza- 47; diesel, 45; and ethanol, 30. Methane delivers more energy
tion (IMO) in its continuing efforts to reduce maritime pollution than any other fuel.
worldwide. The IMO’s Tier III regulations, scheduled to take Moreover, the combustion of natural gas is much cleaner.
effect in 2016, would require dramatic reductions in greenhouse During complete combustion, the only byproducts are carbon
gas emissions from ships, including a massive 80 percent in NOx dioxide (a greenhouse gas) and water, both colorless. Natural
when transiting designated Emission Control Areas. gas is, in fact, a “no sulfur fuel” and can reduce NOx emissions
by up to 90 percent and CO2 by up to 20 percent with little or
no smoke. In the case of incomplete combustion, as occurs with
other fuels, side reactions and other compounds (including car-
GIL
BERT
bon monoxide and elemental carbon) are produced and give off
John W. Gilbert Associates, Inc. black smoke. Diesel has a tendency to produce smoke.
TO N
N AVA
Liquefied natural gas (LNG) can be used as a fuel in ships

OS
because it occupies one-six hundredth the volume of natural gas.

A
L
RC B
HITECTS
Gilbert Naval Architects Boston

In the 1970s LNG cargo ships were propelled primarily by steam
Naval Architects and Marine Engineers turbines, and the fuel used to generate the steam for propulsion
350 Lincoln Street - Suite 2501 was the LNG cargo itself. In the 1990s there was a paradigm shift
Hingham, MA 02043
in the industry, and LNG ships employed both diesel propulsion
Telephone: 781-740-8193
Facsimile: 781-740-8197 and dual fuel propulsion (engines with the capability to use either
E-mail address: inbox@jwgainc.com
natural gas or diesel). Since the 1990s LNG has supplied the
Website: www.jwgainc.com energy source for the dual fuel electric propulsion system. Despite
MarEx_41.indd 66 11/8/10 12:35 PM

Clean Marine Propulsion
Can LNG-fueled vessels save the planet? time is ripe for LNG to be used by ferries, offshore
support vessels, tugs, and the Coast Guard. Grow-
the fact that the LNG cargo is insulated, heat transfer does occur, ing in popularity on the Baltic and North Seas, today there are 21
thereby resulting in vaporization – methane gas is generated. The vessels operating with LNG fuel and another 25 or so on order.
vapors are either liquefied via cryogenic refrigeration and returned These are all on short sea trading or coastal routes. Using LNG as
to the storage system or collected and used to propel the ship. fuel has big cost benefits and even bigger emissions benefits with
the potential to reduce SOx completely, NOx by 80-85 percent,
Wartsila Ship Power Solutions and CO2 by 20-25 percent.”
Wartsila, a Finnish company, is presently the market leader in While acknowledging that small ship owners are concerned
large industrial maritime propulsion due to its ingenious dual fuel about the availability of LNG, Teo stated that “The supply can be
electric propulsion system that utilizes both natural gas and diesel. secured with many of the LNG terminals located along the U.S.
The system primarily works with natural gas but can be switched coast. There is a huge potential market for new, small-scale LNG
to diesel when necessary. The fuel is sent first to electric genera- distribution systems in the U.S. We have spoken to several termi-
tors. The electricity is then used to drive electric motors, which nals and they are eager to sell their stock as LNG. They prefer not
are linked to the ship’s propulsion shaft. Although the energy to compete with the pipeline gas market.”
transfer undergoes one additional step by using the dual fuel elec-
tric propulsion model, the dual fuel system is preferred because Thordon’s Seawater-Lubricated
the Wartsila engines are highly efficient. Variable frequency drives Stern Tube Bearings
help keep the system operating at its optimum point as load con- On the high seas a ship’s propeller system is often put in peril.
ditions change, which is not possible under traditional fixed-speed Fishing lines and fishing nets can get entangled in the propellers.
motor installations. In other words, the dual fuel system actually If the ship is an ice breaker in the Arctic, then impact with ice can
67
provides higher efficiency. Moreover, the excess electricity is also place stress on the system. The net effect is that bending mo-
portable to other ship services, like cargo pumps. ments are exerted on the shaft that cause the stern tube seals and
Tony Teo of the ship classification society DNV in Houston bearings to fail. Upon failure, lubricating oil is spilled into the sea.
believes that duel fuel electric propulsion utilizing LNG should Governments around the world are concerned about oil releases
be applied to smaller vessels as well as large LNG carriers: “The originating from stern tubes. Oil spills can result in civil and

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MarEx_41.indd 67 11/8/10 12:35 PM

criminal indictments, fines, and even imprisonment. Furthermore,

unscheduled stern tube repairs are costly, both in terms of capital
costs and lost time.
In an effort of circumvent unscheduled stern tube repairs,
Thordon Bearings of Canada offers a seawater-lubricated stern
tube bearing system instead of the traditional oil-lubricated
system. The bearings are made of elastomeric polymer instead of
metal. The seawater is drawn from the ocean, pumped through
the bearings and back into the sea. No oil is required. It should be
noted that seawater-lubricated bearings may be more expensive
than oil-lubricated. Since salt water is highly corrosive, bronze EPD’s Engine Control Room (ECR) for diesel electric propulsion systems.
liners are required as well as corrosion protection for the shaft.

However, since there is no lubricating oil present, the initial Caterpillar Marine Diesel
investment costs are recouped by lower maintenance costs related Electric Propulsion Engines
to seal maintenance, not to mention stern tube oil costs and the Although natural gas engines have a tremendous advantage when
costs related to oil pollution. we look at emissions, new electric propulsion systems are allowing
“Offering bearing packages with reliability equal to or bet- diesel fuel to maintain a strong position as well. Caterpillar is mak-
ter than an oil and white metal system has made switching to ing significant advancements in the field of diesel electric propul-
pollution-free bearings an easy decision for many ship owners,” sion and increasing the power efficiency relative to traditional
stated Ryan Edmonds, Thordon’s Marketing Coordinator. “Our direct drive diesel systems. In traditional diesel systems, the engine
in-house engineering team and distributor network in over 100 is connected directly to the propulsion line. In the electric propul-
68
countries offer worldwide availability and technical support. sion systems, the engine is connected to an electric generator.
Many ship owners are taking advantage of converting their ships The power is then relayed through a switchboard, transformer, C
with an existing oil-lubricated system to seawater-lubricated frequency converter, electric motor and, ultimately, the propeller. M
Thordon COMPAC bearings that have a predictable wear life and The additional hardware adds about 10 percent energy consump-
a 15-year guarantee for newbuilds.” tion, but Caterpillar’s advanced technology reduces overall fuel
Y
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MarEx_41.indd 68 11/9/10 7:41 AM

MaritimeExecutive_203X276.pdf 1 9/21/10 9:45 AM
CM
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MarEx_41.indd 69 11/8/10 12:35 PM

consumption, increases efficiency and lowers CO2 emissions. zero RPMs when there is little or no thrust requirement. Energy
Caterpillar does this by utilizing an electronic unit injector savings can be as high as 15 percent.
fuel system (EUI) in conjunction with an ADEM™ III governor Diesel electric propulsion is suitable for a very large variety of
(controller). EUI does not rely on the mechanical synchronization applications: workboats, cruise ships, ferries, tankers, ice breakers
of the injectors; rather, it uses electric solenoids to control fuel and warships. Furthermore, special environmental certification
delivery. ADEM III controls the solenoids so that the timing and from organizations like DNV and Lloyd’s Register is avail-
the length of fuel injection are matched perfectly with the speed able, and this can sometimes lead to lower harbor fees at some
and load requirements of the moment. ADEM III also has pro- international ports. Luiz Pustiglione of Caterpillar Marine Power
grammable features such as fuel/air ratio control. EUI, together Systems added, “When we analyze marine construction trends
with ADEM III, allows higher combustion efficiency, lower fuel over the last three years, we see that investment in diesel electric
consumption and reduced emissions. propulsion vessels has doubled while the construction of purely
Ships do not always run at full load or optimum efficiency mechanically propelled vessels has slowed.”
level. Diesel electric propulsion gives the user the ability to run
appropriately sized generators based on the current demand, Toward a Greener Planet
as opposed to simply having a large engine drive a propeller. The future of the maritime industry is sure to see more inspec-
Considering that diesel electric propulsion vessels use multiple tions and regulations as the U.N., IMO and local governments
engines of different sizes, the end user can exploit this combina- unite to make the air and water cleaner. Oil leakage from ship
tion and allow the vessel to operate at its highest efficiency. In machinery and air emissions from propulsion systems will be sig-
addition, the ability to put generators on and off line leads to a nificantly reduced by implementing advanced technologies includ-
double cost benefit: less fuel consumption and less maintenance ing increased use of LNG-fueled engines. Seawater-lubricated
(since the engine is periodically rested). bearings reduce shaft seal maintenance, and electric propulsion
70
Maneuvering and dynamic positioning are essential aspects reduces engine maintenance and fuel consumption – all of which
of the offshore business. In some traditional diesel systems, the save money. Aside from saving the planet, it appears that tougher
engine is full-on at low thrust; low speeds are controlled with pro- environmental regulations can also save the bottom line.
peller pitch. Contrarily, electric propulsion systems apply variable
frequency motors. In other words, electric propulsion provides Richard Carranza is a chemical engineer and MarEx contributor.
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satcom Directory
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include the Sailor FBB FleetBroadBand systems and Furuno and world-class customer service. We serve thousands of ves-
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Datacom is a dynamic Energy, Defense and Maritime communi- Delta Wave Communications, LLC is a mobile satellite service
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72
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Globe Wireless MTN

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Jose Luis Rice Jr.

: President, One-on-One SatCom in a New

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Looking for something bigger?

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The Outlook for Workboat Stocks Todd Hornbeck

MarEx_41.indd 3 11/8/10 12:21 PM

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OPEC at 50 By Michael J. Economides

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The View from Here Is Magnificent