Seacor (CKH) 2015 Annual Report

posted in: Notes | 0
Source: Seacor Annual Report 2015
Seacor (CKH) CEO Charles Fabrikant says the oil industry is still hungover from excess capacity from the days of $100 oil

I am not prepared, nor am I qualified, to opine as to whether 

the oil price has stabilized, or whether it has another leg down 
and will “test” or pierce the low “tick,” $26.21, recorded in 
February 2016. There is no shortage of opinions as can be 
seen on the cover of this report. The history of forecasting the 
price of oil is littered with articles and headlines trumpeting 
contradictory opinions and incorrect predictions. Choosing the right guru is not easy.

As previously noted, this offshore typhoon was not unexpected. 
A meaningful downturn seemed likely to spawn a welcomed 
opportunity to benefit from our conservative balance sheet. I 
should have kept in mind the adage, “Be careful what you wish 
for, you may get it!” History does repeat. With apologies for 
repeating last year’s letter, today’s depression in the offshore 
marine sector conjures up 1985–1987, the dreariest years of 
the lost decade, 1985–1995. (OPEC’s bickering reminds me of 
the 1974–1977 years.) There are too many shipyards, too many 
operators, too many vessels, and too much debt, the hangover 
from $100 oil and irrational exuberance. There would in all 
likelihood have been considerable excess capacity plaguing 
most of the offshore vessel business even if the price of oil 
were to have remained at a more “respectable” level. Vessels 
(and drilling rigs) now compete for scraps of work. Most are 
living on a subsistence diet. Consolidation of operators and 
equipment is almost certainly inevitable. The question is: 
How much pain will precede it; how long will it take to work 
through the reorganizations? Cancellation of orders for new 
equipment is also almost certain.”
Hoping consolidation improves the excess capacity problem

Based on our experience from 1989–2005, consolidation should lead to improved margins.

Seacor (CKH) CEO Charles Fabrikant says competitors are acting irrationally

“The competition in some regions for jobs has become so keen
that some operators are willing to take multi-year contracts
at day rates that appear, to us, to be below actual running
costs, particularly when factoring in surveys that will have
to be undertaken during the contract term. Our focus is on
cash, but we will not scrounge for business at marginal rates
and take jobs requiring us to offer options that could forego
dollars in the future for pennies today. (Nickels and dimes are
a different story.)”