MarEx 16 by Maritime Executive Magazine

Third Quarter 2006

William L. Guice IV

James A. Harkness

Larry T. Rigdon

Rigdon Marine ANWR: ON HOLD BUT NOT FORGOTTEN

LNG: WHITE KNIGHT TO THE RESCUE

Richard M. Currence, Jr.

Karl Senner, Inc…When Only The Best Will Do

The Platform Supply Vessel Bourbon is one of ten vessels owned by Rigdon Marine. Each PSV vessel is equipped with the following propulsion systems provided by Karl Senner, Inc:

REINTJES MARINE GEARBOXES

Two (2) STEERPROP SP20 Azimuthing Propulsors

BERG PROPULSION

Two (2) BERG Propulsion SP 12S Bow Thrusters The STEERPROP Azimuthing Propulsors and BERG Bow Thrusters are driven by AC electric motors provided by Alstom.

STEERPROP AZIMUTH PROPULSORS

CONTROLLABLE PITCH PROPELLERS AND BOW THRUSTERS REXROTH BOSCH GROUP

OWNER: Rigdon Marine, Houston, Texas SHIPYARD: Bender Shipbuilding & Repair Co, Inc., Mobile, Alabama SALES, PARTS, SERVICE 500 – 20,000 H.P.

WEST COAST Karl Senner, Inc. 12302 42nd Drive S.E. Everett, WA 98208 Mr. Whitney Ducker Tel: (425) 338-3344

NEW ORLEANS Karl Senner, Inc. 25 W. Third St. Kenner, LA 70062 Tel: (504) 469-4000 Fax: (504) 464-7528

Contents EDITORIAL: The Buck Stops Here Thoughts From the New Managing Editor

WASHINGTON INSIDER by Joseph Keefe

KEN DAWSON: A Vessel Manager's Epic Journey Up the Hawse Pipe by Joseph Keefe

Art Director evan@maritime-executive.com

CASE STUDY: RIGDON MARINE Thinking Forward Into the Next Generation by Tony Munoz

John J. Oâ&#x20AC;&#x2122;Connell, Jr.

EXECUTIVE INTERVIEW: LARRY RIGDON President & CEO, Rigdon Marine Corporation by Tony Munoz

Tony Munoz Editor-in-Chief tonymunoz@maritime-executive.com

Joseph A. Keefe Managing Editor jkeefe@maritime-executive.com

Evan Naylor

Senior Copy Editor harvardjo@maritime-executive.com

A NEW ERA In Offshore Aviation by MarEx Staff 32 Brett Keil Senior Vice President Sales & Marketing bkeil@maritime-executive.com

Elizabeth Cash Sales Administrator Elizabeth@maritime-executive.com

Jason Monge-Sandoz Circulation Manager Jason@maritime-executive.com

MARITIME SECURITY: Simply Doing More With Less North Carolina State Ports Authority Forges Ahead by Joseph Keefe

ANWR: ON HOLD BUT NOT FORGOTTEN by MarEx Staff 44 SHIPBOARD FIRE FIGHTING: Challenging the Worst Case Scenario at MITAGS

by MarEx Staff

The Maritime Executive, LLC (ISSN 1096-2751) 3200 S. Andrews Avenue, Ste. 207 Fort Lauderdale, FL 33316 Telephone: (866) 884 9034

by Tony Marino

LNG TO THE RESCUE: Local Politics Battle Common Sense

Published by TM Marketing Group, LLC

MarEx Editorial

Congratulations on reading this issue of The Maritime Executive!

Joseph Keefe Managing Editor

The Maritime Executive

This magazine continues its unique brand of creativity and journalistic excellence for which we have become well-known over these past nine years. Unlike the previous fifteen print editions, this issue represents a new beginning for our publishing staff and for me as well. Our reputation has been built on in-depth investigative features and hard-nose reporting. Building on that record, MarEx will finish this year with two exciting and informative editions and then embark on an aggressive and ambitious publishing schedule in 2007. From now on, “The buck stops here!” I have been given the helm of this innovative publication. Drawing upon nine years of experience in journalism and publishing, I will work my craft for our editor-in-chief and publisher, Tony Munoz. His trust is something that I do not take lightly, and I assure you that it was not handed over easily. I promise our readers and advertisers the same cutting-edge material you’ve come to expect – and much more. Our magazine has not, and will not, forget the maritime market we serve. The input, expertise and advice of the maritime industry’s executives and managers will always be at the heart of everything we write, report and produce. Beyond this, the MarEx editorial team has many years of relevant experience at sea and ashore and still many more countless years of investigative reporting. Let’s be clear: We’re not looking to join that stack of trade magazines sitting in the waiting rooms of your offices. And if you do decide to stick a copy of MarEx out there, count on it being slipped into the briefcase of one of your vendors as they leave your facilities. Perhaps you should order a few more for your staff. Starting with this edition, MarEx will be required reading for you, your executives and managers – and for those employees aspiring to a position in upper management. Each issue of MarEx will go beyond the usual monotony of press release-oriented editorial copy seen in numerous publications each month. Our magazine benchmarks its editorial work by providing a unique case study in the operations of a major maritime company and then explores the decisionmaking process of that company’s chief executive through a comprehensive interview. We are no different than any other business because we too maintain our existence by making a profit. However, we have always insisted that there be a strict firewall between editorial content and advertisers. With the highest journalistic integrity in mind, we want our readership to know that our articles have not been compromised. While you may not always agree with one of our investigative pieces, you can always count on the fact that the story was not hijacked by the highest bidder. Furthermore, you can rest assured we will do everything within our power to make certain that both sides are heard. To our advertisers, if you’re trying to get your product or service in front of executive decision-makers, I can say as a former outsider that there is no better vehicle than The Maritime Executive. Over the years, our journalism has awakened the industry. We know because we’ve heard from you time and again. While there has been a lot of criticism, there has been a lot more praise. And that is what makes the job worthwhile – knowing that, in both cases, you’ve hit a nerve. Additionally, I would like to thank the tens of thousands of weekly MarEx Online Newsletter readers for their loyalty, comments and dedication. Being the most widely read maritime e-newsletter in the world requires, each week, relentless research and a full-time commitment. As the Managing Editor, I invite you to share your comments, questions and suggestions. You may contact me at jkeefe@maritime-executive.com. Our publication’s slogan is “Journalism with Distinction, Integrity and Value,” and once you begin reading this magazine, I promise that you will always be a subscriber.

People who know Crowley know it takes more than a little ice to break our spirit.

In the summer of 1975, Crowley Maritime Corporation was

It was slow, arduous work, but all 160,000 tons of cargo

about to embark on the biggest sealift in history. It was

made it safely to their destination.

also the year when Alaska would experience the worst arctic ice conditions of the century. 47 Crowley barges were being cautiously towed from Anchorage up to the North Slope for the Trans-Alaskan Pipeline project. Arctic ice usually retreats for six weeks every summer,

This is just one example of the perseverance of Crowley people. For over 50 years, we’ve been delivering muchneeded fuel and cargo to remote villages in Alaska. We pioneered a way to install five massive oil exploration platforms in the middle of Lake Maracaibo in

but this year it never happened. The deter-

Venezuela. And when Hurricane Georges

mined fleet was forced to a standstill.

devastated Puerto Rico in 1998, we got our

Finally, after two months of waiting, the ice

port facilities up and running the very next

flows momentarily retreated. The Crowley

day to bring in critical relief supplies. But

crews immediately forged ahead. When the ice began to close in once again, it took four tugs to force each barge through.

Crowley. One exceptional company – run by one dedicated family for over 100 years.

that’s just the tip of the iceberg. To find out more, call 1-800-564-9251. Or visit us at www.mycrowley.com

Liner Shipping • Worldwide Logistics • Petroleum & Chemical Transportation • Alaska Fuel Sales & Distribution • Energy Support • Project Management • Ship Assist & Escort • Ship Management • Ocean Towing & Transportation • Salvage & Emergency Response © Crowley Maritime Corporation, 2005

CROWLEY is a registered trademark of Crowley Maritime Corporation

WASHINGTON INSIDER

Washington Insider By Joseph A. Keefe, Managing Editor

The destruction wrought by Hurricanes Katrina and Rita to the offshore oil and gas infrastructure and oil refineries in the U.S. Gulf of Mexico will always be remembered as a watershed event for America’s vulnerable energy supply lines. Beyond this, the catastrophic effect of the storm surge on Louisiana’s fragile wetlands has yet to be assessed and, without question, the final financial tally will be staggering, further heightening the urgency for the state of Louisiana to address the problem of its rapidly eroding coastline. The 2005 hurricanes also brought to the forefront a number of other issues for the maritime community, not the least of which are the future of the Jones Act and the way in which the United States prepares for similar events of this magnitude. Not all of it is good news.

Hurricanes, Ghost Ships and Reefing

There are a number of projects underway to slow, stop and hopefully reverse the loss of precious wetlands and commercially viable coastline. One possible way to help accomplish these goals in Louisiana, according to various studies, would be to create artificial reefs to prevent the loss of beaches and other land masses. In the Rand Corporation’s 2001 “Disposal Options for Ships,” the use of obsolete vessels for reefing the coastline 4

The Maritime Executive

was discussed. And in the latter part of 2002, a MARAD plan in coordination with the U.S. Army Corps of Engineers was floated for the “Sportsman’s Paradise.” Initially presented to the Breaux Task Force, the MARAD plan was a visionary effort to sink up to 100 vessels in the wetlands of Louisiana’s St. Bernard parish, beginning with a one-ship pilot program to test the concept. Working in conjunction with the U.S. Army Corps of Engineers, the program was designed to see if the sunken vessel could assist Louisiana in addressing its barrier island erosion problems. The idea had merit, at least as a conceptual model, following similar guidelines and procedures for an already established artificial reefing program. Unfortunately, the plan was poorly explained to the public as a result of faulty dissemination in the press, and the reefing concept was virtually “dead on arrival” in Louisiana. Of course, MARAD Administrator William Schubert had no intention of sinking toxic, contaminated, or unclean vessels in the swamps of the Sportsman’s Paradise. But local residents, fed only snippets of the plan, couldn’t help but conjure up visions of a watery junkyard off the coastline. The idea that Louisiana’s St. Bernard parish would soon resemble Airline

Highway between the New Orleans airport and the French Quarter on the day after Mardi Gras was just too much to stomach. At the time, MARAD spokesperson Robyn Boerstling insisted that “MARAD continues to pursue the Louisiana proposal with the U.S. Army Corps of Engineers.” She went on to say that MARAD hopes to help and participate in local efforts to save coastal Louisiana from erosion problems. Fast forward to Autumn 2006: The flood waters from Katrina have long since receded or been pumped out, levees repaired to at least to a temporary standard, and the cleanup is well underway. So is the second-guessing of local, state, and Federal agencies over how such a tragedy could have been prevented. Calls to the U.S. Army Corps of Engineers (USACE) offices in New Orleans and Vicksberg elicited various responses, mostly confirming the negative effect of Katrina on the coastal erosion problems there. So the question begs to be answered: could the artificial reefing plan championed by MARAD so long ago, have been helpful in lessening the terrible effects of Katrina? We may never know the answer. Recent EPA studies are indicating that previously held theories in U.S. Navy risk assessment models (supporting their plans to sink ships for use as artificial reefs) may be flawed. And, since MARAD has shown interest in reefing their obsolete hulls (assuming that EPA approvals), this may not bode well for the resurrection of this ambitious plan. Julie Z. LeBlanc, Senior Project Manager for the Coastal Wetlands Planning, Protection, and Restoration Act (CWPPRA), says that there are no active conversations taking place that would call for discussion of using obsolete vessels for reefing. A large percentage of the Coast Wetlands Planning, Protection, and Restoration projects involve land restoration, dike/ levee construction, and other similar endeavors, and LeBlanc says that “artificial reefs using ships might have minimized damage from hurricane Katrina,

WASHINGTON INSIDER

the transfer of invasive species into other but only that.” Further, she asserted, rently moored, instead of where it could waters during the towing process. The “Artificial reefs might have major posibe providing relief from such an eventucontroversial program is not without its tive impact only in the case of a category ality. It’s an option worth exploring. detractors and a recent report prepared one or two hurricane.” for the US government indicates that It’s ironic that the most vocal opposiDHS and FEMA: paint and hull coatings are also being tion to the artificial reefing plan centered Common Sense peeled away from these ships during the on environmental worries about what With the brutal 2005 hurricane season “scrubbing” operation. The disclosures kind of chemicals and toxins might firmly ensconced in U.S. history, it’s way well illustrate the difficulties in satisfying eventually leach out of the sunken vespast time to be beating up on people such as former FEMA sels from their planned director Michael D. watery graves. The aerThe flood waters from Katrina have long since Brown. As Homeland ial footage of polluted Security Secretary waters creeping through receded or been pumped out, levees repaired to at least to a temporary standard, and the cleanup Michael Chertoff goes the streets of New about the unenviable Orleans in the wake of is well underway. So is the second-guessing of task of rebuilding the Katrina may very well local, state, and Federal agencies over how such DHS and FEMA, the give those opposed to a tragedy could have been prevented. decisions regarding the reefing plan some who to put in charge pause. Which scenario of what will make all of the difference. would have been worse? a wide range of environmental requireThis much should be fully transparent The use of obsolete vessels as a methments while fulfilling Congressional to everyone by now. mandates to dispose of the decaying od to create artificial reefs for the purWhen Coast Guard Vice Admiral and potentially dangerous hulls. It was pose of arresting coastal erosion is still Thad Allen was appointed to replace unclear as to how MARAD would proan evolving science. Will such a project Michael Brown as the Head of Federal yield discernible results? What is certain ceed with future planned ship disposals response to hurricane Katrina, FEMA is that the coastline of Louisiana is losin the face of the new information. Both took a badly needed step in the right MARAD and the Coast Guard said that ing approximately 25 to 35 square miles direction. Allen’s subsequent appointthey would continue to work together to each year (source: www.lacoast.gov). It is resolve the issue. also true that MARAD has the ships and ment to head the United States Coast Today, MARAD continues to look the mandate from Congress to dispose Guard was ample testimony to the beyond the option of scrapping and / of these vessels and this might be a good wisdom of putting him in charge of a or recycling and has been exploring the time for both parties to get together foundering response effort. Later, the intentional sinking of obsolete vessels to again to see if they can help solve each appointment of professional, career create artificial reefs. In May of this year, other’s problems. fire fighter R. David Paulison as Acting the ORISKANY, a veteran of the Korean Already, MARAD has missed the Director of FEMA, further shored up and Vietnam wars, was sunk about Sept. 30 deadline imposed by Congress flagging morale at the beleaguered 24 miles southeast of Pensacola. The in 2002 to remove all unwanted, obsolete agency and helped to start the process 888-foot ship is now an artificial reef, ships from the nation’s three ghost fleets, of repairing damaged relations with a attracting divers from around the world. located in Beaumont, TX and Suisun host of parties in any number of states. But the preparations involved with the Bay, CA. According to the Agency’s 2005 According to FEMA’s own descriptions, preparation of the vessel for its eventual Annual Report to Congress, MARAD Mr. Paulison has previously adminsinking were expensive. Coming up had exceeded its ship disposal goal of 15 istered a broad range of programs with the money to clean each and every during 2005; awarding a total of 20 condesigned to strengthen State and comhull for inclusion into an artificial reeftracts. This is not a bad record, especially munity emergency preparedness in considering that Congress provided just order to reduce loss of life and property ing plan could run into the millions of $19.5 million for the task during fiscal due to disaster. He administered first dollars. Still, another retired vessel, the year 2005. responder grant programs totaling more former USNS HOYT S. VANDENBERG MARAD’s progress with the ship than $1 billion and oversaw more than is being considered by another Florida disposal program has not been without 350 employees. He was also responsible coastal area for the same purpose. its difficulties. A new interagency agreefor training Federal, State, and local The concept of sinking vessels to creemergency managers and first respondment with the US Coast Guard calls for ate artificial reefs is complicated, but the MARAD to clean the hulls of vessels next hurricane could very well sink the ers, and for conducting a nationwide destined for removal in order to prevent remaining “Ghost Fleet” where it is curprogram of exercises. The Maritime Executive 5

Seacoast Electronics salutes

Rigdon Marine

WASHINGTON INSIDER

The trend in hiring now being observed at FEMA is an encouraging sign. Ensuring that disaster preparedness and response managers actually have a clue as to what they are being asked to do is a critical component of the puzzle. And this cannot be accomplished by installing political cronies in positions that do not match their skill sets. Fortunately, we can have it both ways. The ranks of the U.S. Coast Guard are a good place to start. Retired U.S. Coast Guard Commandant Admiral James Loy, who spent time as a Deputy Homeland Security Secretary and as head of the TSA after his retirement from the Coast Guard, is another good example. Nowadays, Loy is a Senior Counselor at the Cohen Group, a Washington-based consulting group. There are a lot of people, including this writer, who would be more comfortable seeing Admiral Loy as Homeland Security Secretary, as opposed to in the occasional sound bite on CNN. Security and emergency management issues belong in the hands of career professionals, not political appointees. Only then will we see substantial dividends in preparation for and response to future crises.

Jones Act Waivers: Multiple Crises Create Another Crack in the Dam Global technology solutions for today’s waterborne commerce and defense.

240 Talleyrand Avenue • Jacksonville, FL 32202 800-275-7322 toll free • 904-355-0343 www.seaserve.com

Jones Act waivers granted by President Bush to facilitate seamless petroleum deliveries in the wake of hurricanes Katrina and Rita went largely unchallenged because of the scope and magnitude of the circumstances caused by the body blow suffered by the petrochemical and refining industries in the U.S. Gulf Coast. The temporary waiver that had been extended to allow foreign flag vessels to carry petroleum and refined products, including petroleum released from the Strategic Petroleum Reserve until 24 October 2005, has since expired and was not renewed. The waivers were not initially surprising, but the extension of the waivers past the period where the U.S. flag shipping industry deemed it truly necessary elicited a growing cacophony of complaints. Rep. James Oberstar (D-MN) has said that the Jones Act should be circumvented on a case-bycase basis to alleviate temporary shortages of U.S. flag tankers. He further asserted that the 1990 pact between MARAD, the Department of Energy, and the U.S. Customs Service stipulates that foreign flag tonnage would be utilized only when an actual or imminent supply shortage is at hand. The extension of the first Jones Act Waiver, originally issued in the immediate wake of Hurricane Katrina, rankled the U.S. flag shipping community. All things being fair, and given the relatively few waivers (READ: foreign flag voyages lifting U.S. domestic cargoes) actually granted, it seems logical that Jones Act Waivers be considered on an “as-needed” basis, one at a time, and each considered on its individual merits. To do otherwise makes a mockery of U.S. law and further erodes the viability of the U.S. Merchant Marine at a time when it can least afford it. MarEx

The Maritime Executive

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Executive Achievement

KEN DAWSON

A VESSEL MANAGER'S Epic Journey Up the Hawse Pipe The distance from Magnolia, Mississippi to the Gulf of Mexico is actually quite small. You can get there in about two hours, primarily by following I-55 for most of the way. For Ken Dawson, who grew up in that small town, the trip was decidedly more arduous. Aspiring to the wheelhouse view of a large ocean-going vessel did not make the journey any easier, especially at a time and in an industry where diversity was anything but official policy and usually the exception rather than the rule. But make it he did, and how he got there is the best part of the story. When Larry Rigdon, President and CEO of Rigdon Marine, calls Ken “a fine example of the type of professional mariner that has joined Rigdon Marine,” he isn’t just spouting platitudes. The first Vessel Manager of Rigdon Marine has a long and distinguished resume. In fact, Ken Dawson has served in virtually every capacity possible in the offshore marine industry. By doing so, he has redefined the concept of “working one’s way up the hawse pipe.” Well before “dual-license” qualifications for mariners became an attractive commodity, Ken recognized the need to gain competence both above and below the deck. His U.S. Coast Guard certification as Master belies the long hours he spent toiling in the engine room on his way up. 8

The Maritime Executive

Looking back, Ken credits that mechanical experience as the foundation of his success on deck. Candidly, he firmly believes that “a Captain who doesn’t understand the engine room will find himself at the mercy of the Chief Engineer. The ability to lend a hand in times of trouble is absolutely critical.” More importantly, being able to comprehend a particular mechanical difficulty has served Dawson well, especially when difficult decisions need to be made on deck. In this way, it would not be an understatement to say that Dawson has been a trendsetter and that this has given those tasked with hiring qualified crews for any type of marine platform an enviable model to emulate. It might be tempting for the casual observer to dismiss Dawson’s accomplishments as standard and logical examples of a competent career path. Knowledgeable industry observers know this is anything but the case. In reality, Ken’s arrival as one of the most respected marine professionals and technical managers in the industry is a remarkable achievement. He earned his first Captain’s endorsement from the U.S. Coast Guard in November of 1979. At the tender age of 21, he surprised many by his rapid ascent, especially those not used to seeing a minority officer, never mind a Captain, on ANY marine vessel. Ken’s own tendency is to play down this part of the story,

Executive Achievement but even he admits that during the period from 1975 through 1980 “It was a bit of a struggle. After that, it got progressively better. I told people to see me for the job I was doing and not what I looked like.” For his part, he stayed aggressive and always tried to learn more. The results speak for themselves. Breaking barriers is rarely a pleasant task for anyone. Ken consistently made it look easy, and those who know him best say that he continues to do so on a daily basis. For the most part, Dawson’s marine expertise is self-learned. Emerging from high school and immediately looking for a job, he applied his knowledge, derived from courses in nautical science and diesel mechanics, directly to his first trip at sea on a 150-foot Chromalloy drilling fluids mud-supply boat. It was immediately apparent that the work suited him and the fact that he wasn’t seasick like half of the other “rookies” was an added bonus. Beyond this, he found that he actually knew a bit more than most of the other guys coming directly “out of the bayou.” The rope splicing and navigation skills he learned in his high school classes came in handy early and often. His fascination with the plethora of machinery in the engine room, however, led him below deck. In those days, it wasn’t necessary on certain tonnage boats to possess a license to operate certain equipment. Accordingly, Ken moved up very quickly to the position of Engineer. Studying primarily on his own and with the help of some homestudy courses, Dawson made the decision to move back to the deck department. Since the offshore firms were gradually beginning to build bigger and higher tonnage boats, the opportunity (and the need) for advanced licenses was obvious. Within a year, he again upgraded his certifications, first from Ordinary Seaman to Able Seaman, and from there he began his quest to rise to

From deckhand to Captain in four short years: a meteoric rise by any standard …it was ultimately this kind of versatility and “can-do” attitude that got him noticed… Master. In 1978, he became a licensed Mate. Just one year later, he earned his first Master’s ticket. From deckhand to Captain in four short years: a meteoric rise by any standard. Dawson has seen his share of adversity. His biggest challenge came in the early 1980s when the oil fields were going “bad” and layoffs dominated the marine employment sector. Dawson did not escape this fate and was faced with the limited prospect of securing other employment in the offshore marine industry. He bought a shrimp boat and attempted to eke out a living in this way. This lasted only one season. The work was backbreaking, and he found that breaking even financially was by no means an easy task. Looking back, he chuckles and wryly admits, “I thought shrimping would be a lot easier than it was.” Still, he does not consider the time or experience wasted and came away with a newfound respect for hardworking shrimpers. When the offshore marine employment picture began to improve, Dawson made one of the hardest decisions of his life. In order to get back on board the boats, he was forced to start again at the bottom as a deckhand. Within eight months, however, he had clawed his way back to the Captain’s position.

Looking back on this difficult period, he laments, “The downsizing cost the marine business a lot of good people. In fact, a lot of good black sailors found it doubly difficult to come back after the layoffs.” When Ken made the move from Master to shoreside manager, the transition was not nearly as difficult as his quantum leap to the Captain’s chair. By this time, he had earned the unwavering respect of his shipmates. Professionally and personally, his willingness to learn and help out at all levels had always been the hallmark of his work and his success. At Chromalloy, he gladly switched between the tugboats and supply boats, as necessary, when the circumstances required. Not all Captains were so cooperative, but it was ultimately this kind of versatility and “can-do” attitude that got him noticed by upper management. Rigdon’s Senior Vice President, Richard Currence, was more specific: “I literally watched Ken teach himself how to handle our new class of vessels – even when he had no prior ZDrive experience.” Dawson is quick to point out that moving ashore to a role that required managing some of his former seagoing peers might not have been so easy had he been initially forced to go to a different firm where his skills and work ethic were unknown quantities. But Currence, who perhaps works closer with Ken than anyone else, quickly points out, “At Rigdon Marine, this advantage did not exist, but Ken has nevertheless been highly successful here and we have found that the boat crews he supervises have a natural gravitation to him.” Dawson’s maritime career has spanned thirty years, starting with those early days at Chromalloy and eventually winding up at Tidewater Marine where he first met Larry Rigdon. As a Safety Captain at Tidewater in 1995, Dawson showed the intestinal fortitude to shut down The Maritime Executive 9

Executive Achievement an entire marine operation because he deemed the situation unsafe. The loss of revenue – time being money in the marine business – earned him a trip to the head office to explain his actions. Rigdon came to respect that kind of attitude and courage, and a special relationship, which endures even today, was born. Later, and partly as a function of Larry Rigdon’s recommendation, Dawson was hired by Four Star Marine, a minority owned boat company. The head of that firm, Leroy Williams, allowed him to run the company as he saw fit. Four Star lasted six years, but those six years were an invaluable part of Dawson’s development as a manager. Ken has never forgotten it and still credits Williams for a large portion of his professional success. As frequently happens in life, when one door closes, another opens wide to present other opportunities. As Four Star wound down its operations, an upstart firm called Rigdon Marine was coming to life. Rigdon and Dawson were reunited there, and Dawson continues to remain a critical component in the rapid growth of this emerging force in the offshore platform support industry. It took a while to catch up with Ken Dawson for the purpose of putting together background information for this piece. It is abundantly clear that his management position is anything but ceremonial and that the chair in his office is not receiving a great deal of wear and tear. Last year, as the Gulf was being pounded by an unprecedented storm season, Dawson spent a great deal of his time ensuring that Rigdon’s marine fleet (and their customers, as well) remained safe from the hurricanes that destroyed much of the region. This involved the establishment of reliable and redundant communications, the evacuation of rigs, the establishment of logistics for safe harbor, and ensuring that all vessels had adequate fuel, water, and stores 10

The Maritime Executive

It is abundantly clear that his management position is anything but ceremonial and that the chair in his office is not receiving a great deal of wear and tear. to ride out any eventuality. It also included the evacuation of marine vessels and/or direct tonnage to run to safer waters. To say that Kenny Dawson, Marine Superintendent, is a man on the go would not do justice to the real story. In addition to Ken’s overall responsibilities for the day-to-day operation of a number Rigdon Marine’s vessels and marine personnel, Dawson also acts as the Company Security Officer (CSO). In a post-9/11 world, he knows that this latter responsibility may well become his most important and difficult challenge. With marine vessels not just located in the U.S. Gulf of Mexico, but as far reaching as the Middle East and West Africa, security has become job one at Rigdon Marine. When asked what he thought the future held for him, Dawson pointed to the task of ensuring the safe and secure condition of a rapidly expanding fleet. While not discounting the critical importance of solid maintenance and repair, and marine operations, he made it clear that the latter tasks would be impossible to accomplish without first ensuring the former. At Rigdon Marine, the mention of Ken Dawson’s name evokes many things: pioneer, trend-setter, breaker

of barriers, exceptionally competent mariner, skilled manager, and a host of other superlatives. When he’s not working tireless hours at his job, he provides industry advice and recommendations to the U.S. Coast Guard as a member of both the Merchant Marine Personnel Advisory Committee (MERPAC) and the National Offshore Safety Advisory Committee (NOSAC). It would not be much of an exaggeration to say that Dawson is one of the hardest workers on the seven seas. Richard Currence summed up best the essence of what makes Ken Dawson tick: “The obvious early challenges ultimately prepared Ken well for what was to follow. Ken has never shied away from challenges, no matter what they might be: new technology, the demands of a startup company, or the uncharted waters of new responsibilities such as fleet security.” Looking back thirty-odd years to Ken’s first uncertain trip down to an unfriendly waterfront, it is no wonder that, today, he embraces the difficult problems. On May 21, 2005, the long road from Magnolia, Mississippi brought Ken Dawson to Bender Shipyards where Ken’s wife, Flossie Dawson, christened Rigdon’s ninth delivery of a new class of ten platform support vessels, the M/V TOULOUSE. Ken later remarked, “I never thought we’d have the chance to do something like this. I can’t thank Larry Rigdon enough for this opportunity.” Larry Rigdon would probably respond that the honor and pleasure were well-deserved and perhaps long overdue. Today, far removed from the pleasantries of ceremonial honors, Ken continues to attend to the work of Rigdon Marine. His marine license remains fully up-to-date and compliant because those who know him best are not surprised that, occasionally, Ken likes to get back out to his first love: running the boats and smelling the musty salt air. MarEx

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MarEx Case Study: Rigdon Marine

Rigdon THINKING

FORWARD

Into the Next Generation

RIGDON M A R I N E

The Maritime Executive

Case Study:

The Maritime Executive 13

MarEx Case Study: Rigdon Marine

Marine

MarEx Case Study: Rigdon Marine

In the oil industry, fortunes are made and lost through the mere fluctuation of prices on world markets. It wasn’t that long ago that the average price of a barrel of crude oil was less than the cost of a take-out dinner. But those days are far behind us. A fluctuation in the price of crude oil can influence automobile sales, holiday travel decisions, interest rates, stock market trends and the Gross National Product of industrialized nations, whether they are net importers or exporters. Petroleum shapes the geopolitical landscape and wars are being fought over it. Yet its sheer magnitude has every government on the planet engaged in strategic decisionmaking policies regarding its extraction, transportation and consumption. In spite of its impact on geopolitics, world economies and the incomes of ordinary people, little has been done to spur the growth of energy alternatives. It is an inescapable fact that in our lifetime petroleum will affect every aspect of our daily lives and the entire spectrum of forces in which the world exists. As we previously said: fortunes are made and lost with the vicissitudes of the petroleum markets. When I first met Larry Rigdon in the mid-1990s, he was a top executive with a global offshore energy support company. He managed operations in the U.S., Southeast Asia, the Middle East and the Former Soviet Union for a company with revenues of $460 million generated from towing supply vessels, tugboats, crew boats and utility boats. He was also responsible for a sea staff of 2,700 personnel, 205 shore-based employees, and 22 marine architects and engineers at 12 offices worldwide. We bring this to your attention because every financially responsible company, private or public, diligently plans its future based on competitive trends. Many of us in the maritime industry had naturally assumed that Rigdon, as executive vice president of a global offshore marine company, was next in line for the coveted position of chairman, chief executive officer and president. Obviously he did too, because when the position was offered to another executive, Larry was retired early by Tidewater because now there were too many bulls in the pen. However, six or so months later, it came to our attention that Larry had been offered the chief operating officer position at another leading offshore support company. When I finally caught up with him to offer our congratulations, he informed me that he decided not to accept the COO position and planned instead to start a new offshore marine support company, which he appropriately named Rigdon Marine, LLC. 14

The Maritime Executive

I had to question his decision and asked why he would jeopardize a lifetime of acquired equity on the uncertainties of the offshore energy support industry, especially in the U.S. Gulf of Mexico, a notorious bone-yard of companies and broken dreams. Without hesitation, he said he had a vision for a next-generation offshore support vessel—one that would revolutionize the industry. Revolutionizing the prime capital asset of any industry means risk. So I again questioned: Is the vision of an unproven ship worth the risk? Rigdon’s answer was very clear and straightforward: Imagine an offshore vessel that was faster, burned less fuel and could carry more payload than a vessel one and a half times its size. Imagine a vessel that did not use traditional engines, which require long drive shafts running through the cargo hull, and utilized that saved space for additional cargo. Imagine offloading cargo next to a work platform and remaining stationary, even in high seas, through redundant operating systems. Imagine saving your client $1 million in fuel costs each year. And in an industry where vessels are built helterskelter, imagine contracting a series of boats, until there were ten, which would reduce the per-unit cost of construction, design and engineering. Rigdon’s analysis was hard to dispute. Besides, I already knew the answer: When a lifetime of preparation, expertise and knowledge meets opportunity, the margin for error is greatly reduced, and success has little to do with luck. Rigdon was not only right about his boats’ filling an essential niche, but his timing was impeccable. Over the past four years he has proven to an industry which has long resisted change that forward thinking and an innovative vision can move mountains, create revolutions and transform worlds. Today, Rigdon Marine Corporation’s ten GPA 640 platform support vessels are fully employed in the U.S. oil patch, and they have been met with acclaim by marine service buyers. As Rigdon imagined, his captains, crews and engineers move between the ships without the need to relearn the nuances of various technologies. More importantly, he has built a corporate culture based upon his own principles and management style, and his employees have taken ownership of his vision of the future. The road to success

However, the road to operating and financial success has not been without its detractors and those hell-bent on turning Rigdon’s dream into a nightmare. Building ten next-generation boats to service the offshore energy industry is an extremely expensive venture. In fact, those ten boats cost somewhere in the neighborhood of $120 million. If the truth be known, it was not Rigdon’s original intent to actually own the boats but rather to lease them from an owner under the Foreign Lease Financing

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While governmental subsidies for U.S. shipowners ended almost a decade before, the Jones Act did not. In fact, U.S. cabotage laws have been in effect since before the U.S. Constitution was signed by the Founding Fathers. Even the Thirteen Colonies desired some form of homeland security and adamantly enforced cabotage in colonial waters. Over the years, Congress has continued to reinforce its position with numerous acts of cabotage affirmation through new legislation. The modern-day affirmation of cabotage was the Merchant Marine Act of 1920, section 7, which ultimately became known as the Jones Act in honor of Senator Wesley Jones (R-Washington). Since its enactment, it has remained the most revered piece of legislation for the U.S. Merchant Marine and U.S. vessel operators. Enter Groupe Bourbon, a French conglomerate with interests in sugar manufacturing and retail malls, which also owned a small fleet of marine vessels. Rigdon met with the company’s executives in Paris to discuss the concept for his next-generation vessel and the reasons why it would succeed in the volatile U.S. oil patch. The French already knew of Rigdon’s management style and appreciated the cutting-edge technologies incorporated into the GPA 640 FS #4 P TRUNK

Amendment authorized by Congress and implemented by the U.S. Coast Guard. It was not that many years ago that U.S. shipyards were only sporadically building commercial vessels. The 1986 Tax Reform Act had critically wounded the U.S. maritime industry, and the termination of the ‘OperatingDifferential Subsidy’ in 1996 meant the end of the road for the “bluewater” U.S. merchant marine fleet. The once proud American merchant marine fleet that sailed the four corners of the earth for over two centuries passed away with barely a whimper. Suddenly U.S. shipyards had no business, and they too began closing their doors. Those that did survive built a few tugboats and a few barges and scratched out a meager existence. The Lease Financing Amendment was intended to stimulate the slumping U.S. shipbuilding industry. Since American financial institutions had proven to be tightfisted in maritime matters, the new legislation opened the door for foreign capital to enter the U.S. in hopes of creating jobs and generating shipyard activity. Rigdon, armed with a vision, decided to take advantage of the new foreign capital provision to build his Jones Act vessels.

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The Maritime Executive 15

MarEx Case Study: Rigdon Marine

…Rigdon understood a niche market was opening and quickly becoming available. What he envisioned was a medium sized vessel that was faster, more fuel conscious, and could deliver more mud, pipe, casings, and supplies at lower chartering costs.

MarEx Case Study: Rigdon Marine platform support vessel (PSV). More importantly, a wellresearched vessel database revealed the majority of boats operating in the Gulf were first-generation traditional equipment, which were getting far past their prime. Rigdon consummated an agreement with Groupe Bourbon and began refining architectural design details with Guido Perla, the renowned naval architect and chairman of Guido Perla and Associates in Seattle, Washington. A critical component of the GPA 640 is its hull hydrodynamics, and Perla had already built some of the most sophisticated tuna vessels in the world, which were fast, fuel-efficient, and capable of transporting huge cargoes. Bender Shipyards of Mobile, Alabama would build the ships, and Rigdon began assembling staff to oversee the construction. Enter the Offshore Marine Services Association (OMSA) and its powerful members, some of whom are the largest offshore operators in the world. Why did Rigdon pose a threat? If his sales efforts fell short of expectations and he could not make the lease payments, the ships simply would have been shifted into other markets by their owner. But the Rigdon-Groupe Bourbon deal was attacked because the French were becoming very interested in the offshore marine industry worldwide. Ultimately, the U.S. Coast Guard declared Groupe Bourbon could not change its corporate revenue structure for the length of the Rigdon lease period, which was five years. Not a company on the planet would agree to this caveat. But the attack by OMSA, its members and Representative Gene Taylor (4th District, MS) became a derogatory and vicious mud-slinging campaign against Rigdon, who had done nothing more than use a valid clause in the law to create a business and jobs, which was the original intent of the amendment. In the end, plan B was put into effect and Rigdon became the mortgagee of the ten vessels. The lawsuit by OMSA against Rigdon was stayed and eventually dropped early in 2006. 16

The Maritime Executive

During the building of the GPA 640s, the energy markets heated up; the U.S. Gulf of Mexico was ravaged by a barrage of hurricanes, which had a destructive impact on the oil patch infrastructure, and Rigdon’s vessel equity skyrocketed. On January 18, 2006, Rigdon announced the restructuring of his Limited Liability Company into a U.S. corporation. With a $170 million credit facility from a group of European banks, led by DVB Bank, the Rigdon Marine Corporation (RMC) announced its intention to build a new series of ten GPA 654 vessels, which will be completed by 2008 and will double the size of the company’s fleet. The founder of Sony, Akio Morita, once said, “I have always believed that the company name is the life of an enterprise. It carries responsibility and guarantees the quality of the product.” Today, the Rigdon Marine Corporation means a forward-thinking company with a growing fleet of next-generation vessels, and the oil and gas industry is paying attention. Larry Rigdon personifies the adage that the future rewards those who follow their dreams and visions and, if we can listen, the impossible happens and worlds become transformed. Today, the Rigdon Marine fleet of GPA 640s consists of the M/V Orleans, M/V Royal, M/V Bourbon, M/V Chartres, M/V Iberville, M/V Bienville, M/V Conti, M/V St. Louis, M/V Toulouse and the M/V Esplanade. Building the GPA 654s

With his company financially restructured, a portfolio of ten high-valued assets in full deployment and a team of seasoned professionals managing the day-to-day operations, you would think Larry Rigdon would dust off his golf clubs and spend his days languishing on the veranda overlooking the fairways at his favorite country club. But Rigdon understood that more modern vessels were needed in the offshore energy markets. Rigdon projected approximately 100 supply vessels built in the 1970s and 1980s were becoming obsolete, and building another ten vessels for his fleet would hardly put a dent in the looming demand. While most operating companies investigated vessel demand for the ultra-deep waters, Rigdon focused on the increased activity by energy companies on the continental shelf. He again worked closely with Guido Perla on the vessel design because of the success of the GPA 640s. Bollinger Shipyards of Lockport, Louisiana was contracted to build the smaller 190-foot vessel, which Rigdon refers to as the “Rigdon 4000.” These vessels will have a

The Maritime Executive 17

MarEx Case Study: Rigdon Marine

Another necessary factor to offer the best vessels in the industry was building the boats to the strictest standards of redundancy, which would help obtain certification as a Class 2 dynamic positioning (DP-2) system.

MarEx Case Study: Rigdon Marine

smaller hull than the GPA 640, but will be capable of carrying 4,000 barrels of liquid drilling fluid or liquid mud in oval self-cleaning tanks and 5,500 cubic feet of dry bulk materials. In keeping with the proven technology of the 210-foot GPA 640s, the GPA 654 diesel-electric propulsion vessels will also have ABS Class DP-2 station-keeping systems. The ships will be delivered throughout 2008. Corporate Directors

Richard Currence, Jr. – Senior Vice President In December 2005 Richard was elected to the position of Senior Vice President. He has oversight responsibility for Rigdon Marine’s operations, technical services and vessel construction programs. He has over sixteen years of experience in offshore vessel operations, marketing and construction. Richard began working with Larry Rigdon in 2002 prior to the formation of Rigdon Marine and subsequently held the position of Construction Manager and Vice President of Operations. Richard attended Wake Forest University in Winston-Salem, NC and completed the Harvard Business School Advanced Management Program in the spring of 2006. James (Jay) A. Harkness – Vice President& Chief Financial Officer Jay manages Rigdon’s day-to-day financial activities; counsels senior management regarding fiscal control and profitability; prepares, presents and interprets financial reports, and adheres to tax laws and regulatory compliance. He also directs and analyzes general economic, business and financial conditions and their impact on the company’s policies and operations. Jay is a graduate of Washburn University and received a Master of Business Administration degree from Our Lady of the Lake University. William (Billy) Guice IV – Vice President, Sales & Marketing Billy is responsible for domestic and international sales, brokerage, marketing and business development, advertising and website management. He has ten years of experience in the marine service and shipbuilding industry, where he was involved in production and project management. Billy is a Lieutenant (Junior Grade) in the U.S. Navy Reserve, a graduate of Washington & Lee University, and has a Master’s degree in Business Administration from Millsaps College. 18

The Maritime Executive

John Teague – Vice President of Operations John is responsible for Rigdon’s daily vessel operations and has oversight responsibility for quality systems and purchasing. He has over twenty-six years of experience in management and executive-level positions in the offshore marine industry with major international public companies, including bottom-line responsibility for divisions up to $75 million in revenue. John is a graduate of Southern Methodist University. Nathan Guice – Vice President, Crew Boat Operations & Business Development Nathan is responsible for management and supervision of the Crew Boat & Fast Supply Division. He will also be involved with the business development and marketing of the RMC fleet of vessels and services. He has over nine years’ experience in the offshore vessel industry, including domestic and international sales and general management positions. Nathan has just returned from a two-year overseas assignment. He is a graduate of Millsaps College and has an MBA from Tulane. Steve Brunswick – Vice President, Administration Steve is responsible for human resources, training, payroll, vessel crewing and employee benefits. He is a third-generation mariner with over twenty-four years of experience. Steve holds a U.S. Coast Guard Master’s license and is a certified security trainer and first-aid instructor. He graduated from the University of Phoenix in New Orleans. MarEx

Reviewing the Rigdon Marine Corporation Website: The company’s state-of-the-art website can be viewed at www. rigdonmarine.com. The website is not only stylish in its colors and easy navigational prompts, but it is full of information including Key Personnel Profiles, vessel information and news releases. The site also boasts a photo gallery, and its look and feel can be changed by the insertion of new photos into the header. The site was developed by the Public Relations and Advertising Farm of Fort Lauderdale, Florida. www.pr-ad-farm.com

GPA Designing the Next Generation Naval Architectural Design & Construction of Next Generation Platform Support Vessels THE GPA SERIES of diesel-electric, dynamic-positioning PSVs are providing customers with the capability to transport more pay-load cargoes while saving fuel cost. Innovative constructibility solutions have also ensured that the designs can be built more cost effectively than competing designs. The GPA vessels work for some of the largest energy companies throughout Asia, West Africa, South America, Mexico, and the U.S. Gulf of Mexico. Eighteen (18) GPA 670 PSVs are being delivered by the Zhejiang Shipyard in China for BOURBON Offshore. The 670s are 73-meter, 3230 dwt, dieselelectric, DP-2 certiﬁed vessels that are capable of carrying 255 cubic meters of bulk material and 1,072 cubic meters of liquid mud in self cleaning oval tanks.

Ten (10) GPA 640 PSVs were delivered by Bender Shipyards in Mobile, Alabama for Rigdon Marine. The 640s are 64 meter, 2285 dwt, dieselelectric, DP-2 certiﬁed vessels that are capable of carrying 202 cubic meters of bulk material and 802 cubic meters of liquid mud in self-cleaning oval tanks.

Ten (10) GPA 654 PSVs are being delivered by Bollinger Shipyards in Lockport, Louisiana for Rigdon Marine. The 654s are 58-meter, 1650 dwt, diesel-electric, DP-2 certiﬁed vessels that are capable of carrying 144 cubic meters of bulk material and 652 cubic meters of liquid mud in self-cleaning oval tanks.

Ten (10) GPA 654M PSVs are being delivered by Dayang Shipyards in China for BOURBON Offshore.The 654Ms are 58-meter, 1575 dwt, diesel-electric, DP-2 certiﬁed vessels that are capable of carrying 144 cubic meters of bulk material and 652 cubic meters of liquid mud in self-cleaning oval tanks.

Twenty-Six (26) GPA 254 AHTS are being delivered by Dayang Shipyards in China for BOURBON Offshore. The 254s are 58-meter, 80mt bollard pull, 1457 dwt, diesel-electric, DP-2 certiﬁed vessels that are capable of carrying 144 cubic meters of bulk material and 652 cubic meters of liquid mud in selfcleaning oval tanks. Guido Perla and Associates, Inc. was founded in 1979 and is recognized worldwide as a leading Naval Architect. In 2004, GPA opened a satellite ofﬁce in Shanghai to help support its expanding business.

NAVAL ARCHITECTS, MARINE, MECHANICAL & ELECTRICAL ENGINEERS

Designing the Next Generation Guido Perla & Associates 701 Fifth Avenue, Suite 1200 Seattle, Washington 98104 Telephone: 206 678-1515

Guido Perla & Associates - Shanghai 1701 Beijing W. Rd., Suite 1004 Shanghai 200040, PRC Telephone: + 86 21 6288 5959 Telephone: + 1 206 388 3847

President & CEO,

MarEx: Larry, the last time we worked together on a Maritime Executive Magazine edition, you were with Tidewater Inc. and the magazine was featuring William C. O’Malley, Chairman, President and Chief Executive Officer of that company. At the time I think you were Executive Vice President of Tidewater and appeared destined to spend the balance of your career with them. It seems your life has changed dramatically over the past few years. Can you give me a quick update? Rigdon: Tony, my life has changed dramatically and I am thankful that it has been a very positive change for me and my family. Without doubt, Tidewater Inc. is one of the great franchises in the offshore marine support business and, without doubt, I was focused on being the next CEO of that company the last time we worked on this magazine together. However, life is about change. My life has definitely changed, and I have survived and prospered after leaving an organization that I devoted ten years of my career toward advancing. MarEx: Being an Executive Vice President at the leading international offshore marine support company provided you 20

The Maritime Executive

Marine Corporation

Rigdon

Executive Interview: Larry Rigdon

Interview with Larry T. Rigdon

with the leadership experience to manage a multi-billion dollar organization. What led you into the ultra-deep waters of entrepreneurial ownership and start-up of a capital intensive business in the energy support industry? Rigdon: In 2001 Tidewater set up an internal competition for its next CEO and future Chairman position. In the end, I was not successful in achieving this position. The executive who won this competition, Dean Taylor, decided that I should not remain in the organization, but Tidewater treated me well and was kind enough to allow me a bridge into retirement. MarEx: So now you’re a man without a company. Did you actually consider retirement or were you eager to explore the job market? Rigdon: I did try retirement for a couple of months but decided it wasn’t healthy for me or my family. While employment alternatives did present themselves, I always wanted to become an entrepreneur and own a business. Since I spent a lifetime in the marine business I decided that the offshore industry was my best opportunity for success as an entrepreneur.

MarEx: The capitalization of building offshore boats is an

expensive endeavor, and the U.S. Gulf of Mexico is known for its vicious swings in oil and gas production. Why take the risk with your life savings? Rigdon: On a personal basis, I was privileged that Tidewater treated me well and I had a retirement income available to me. While my wife and I were certainly comfortable, we jointly decided that we were in the ideal position to take a risk. Our children were educated; they were independent, and we had a monthly income for life, thanks to Tidewater. Why not take a chance? MarEx: With the joint family decision to take on the heavily capitalized offshore boat industry behind you, where did you see your new company fitting into the market? What was your business plan? Rigdon: First, I did feel that there was a market niche available, and I had been developing concepts and requirements for some new vessel designs targeted at that market niche. However, before I could build any of these vessels, I needed to explore the financial markets for capitalization. The financial community consistently advised me that, if I intended to seek the millions of dollars required to build offshore vessels, I would find it just as difficult to raise a few million dollars as a hundred million dollars. The advice of the investment community was to shoot for the moon and raise enough money to have an organization that could be truly competitive in the Gulf of Mexico market. My investigation of financing sources ultimately led me to a French concern named Groupe Bourbon, now renamed simply BOURBON. Their primary business at the time was in retail shopping malls on several islands in the Indian Ocean and in Vietnam. However, they also owned SURF, a small but well-thought-of offshore marine support company operating primarily in West Africa. While I only knew SURF by reputation, my research found that the organization was financially solid and its approach to business investment was progressive. Eventually, I met with the key BOURBON executives in the spring of 2002 and discussed the Gulf of Mexico market and my vessel design, my business model, and the potential Jones Act issues involved with foreign investment in U.S. flag vessels. From the initial meeting, we established a plan and began working towards a mutual relationship and construction financing for eight to ten technologically advanced boats of my design. It was agreed that the construction financing would ultimately be turned into longterm lease financing under the Foreign Lease Financing Amendment to the Jones Act, which was passed in 1996. MarEx: Was this the 1996 Jones Act amendment that allowed a foreign entity to establish a U.S. leasing company, 100 percent foreign-owned, which could own Jones Act ves-

sels eligible for coastwise trade, provided they were demised chartered to a U.S. citizen for a minimum of three years and ownership by the leasing company was only for investment purposes? Rigdon: Yes, the ownership by the leasing company was to be for investment purposes only and not for control of the vessels operating in the U.S. trade. Under the precise provision of the law, the investment fit extremely well for BOURBON. They had ample capital to invest and believed strongly in the growth of the offshore markets worldwide. They also wanted to build and own modern new-generation offshore vessels. MarEx: So it sounds like BOURBON put up all the money. Where was your exposure? Rigdon: BOURBON reviewed the ship design and liked what they saw as a solid investment, so they invested in the construction of the ten GPA 640 vessels. I was required to put up all the startup and working capital for the business operations and entry of the vessels into the Gulf of Mexico Jones Act trade. Upon final construction of each of the ten vessels, BOURBON would take ownership of the vessel as the registered owner and then lease it to Rigdon Marine, a U.S. company. They would have the investment risk and reward of owning the vessels. On the other hand, I took on all the other associated risks of marketing and operating the vessels, including establishing offices, marketing a new business, hiring crews and operations personnel, and paying all the vessel operating costs. As with any lease transaction, I was responsible for and assumed all risks of providing the startup capital and working capital requirements while the lessee put up the capital for the ownership of the vessels. MarEx: Essentially, you were responsible for all the working capital requirements on the ten vessels and all costs associated with marketing and operating them in the U.S. If you failed to meet the terms of the lease agreement with the French, they could remove these platform support vessels from your organization, which would leave Rigdon without operating assets. Correct? Rigdon: Yes. I had significant financial exposure, and it was growing every day as the vessels were being built and began operations. With that being said, I also saw an attractive opportunity for Rigdon Marine to earn a profit by leasing and operating ten technologically advanced vessels in the Jones Act trade. Furthermore, BOURBONâ&#x20AC;&#x2122;s capitalization of these vessels allowed my company to have a much larger fleet than I would have otherwise had under other financing alternatives. I believe that was the original intent of the foreign lease financing law. It was meant to allow U.S. citizens to find capital outside the United States and to build American marine businesses that were controlled by U.S. citizens The Maritime Executive 21

Executive Interview: Larry Rigdon

Executive Interview

Executive Interview: Larry Rigdon

Executive Interview and would employ U.S citizens. It also was meant to create and expand ship construction activities in U.S. shipyards. In the case of the Rigdon Marine and BOURBON transaction, the law worked perfectly and according to its original intent. The problem was that the offshore service vessel industry did not like the new competition. MarEx: We’re confused. If the ten vessels were constructed and leased to Rigdon pursuant to the 1996 amendment to the Jones Act, why was there so much commotion over Rigdon’s supposed subversion of the Jones Act within the offshore community and its lobby organization, the Offshore Marine Services Association (OMSA)? Did not Rigdon and BOURBON hire legal counsel to review every aspect of complete compliance with the law? Rigdon: Yes, and yes! There was no secret that we intended to use the foreign lease financing law to build and manage offshore vessels as an American company. In fact, we went to the U.S. Coast Guard, very early in the process, and disclosed our plans. That might have been a mistake on my part. Our competitors’ position, which became the official position of OMSA, was that it was never the intent of the legislation, regardless of the letter of the law, to be used in the manner in which Rigdon and BOURBON were using it. That was their interpretation. MarEx: Please elaborate. It is apparent that the opposition to Rigdon has complex undertones? Rigdon: I think the undertones were not complex; they were simply competitive. First, my competition was not happy to see any new start-up company in the industry, and I believe they did not like my decision to reenter the Gulf market. More importantly, BOURBON had announced its intention to grow its international offshore business and become a more capable competitor to the larger members of OMSA. These issues combined created an atmosphere of concern. The competitors wanted to make it impossible for Rigdon to become operational, and they wanted to prevent BOURBON from having any presence in the U.S. market, even as a lessor of vessels under the foreign lease financing law. OMSA was certainly within its rights to ask the U.S. Coast Guard to review our deal and to lobby Congress to change the law. After our first vessel was delivered in May 2004, OMSA did manage to further amend the 1996 foreign lease financing amendment. But by that time there were other issues involved. BP, which was a major client of several of the key OMSA members, was also using the law to build double-hull tankers for the U.S. West Coast petroleum trade. OMSA was faced with a dilemma. They wanted to change the law through legislative amendment and thereby prevent Rigdon and BOURBON from using the 1996 Foreign Lease Financing Law. At the same time they 22

The Maritime Executive

also wanted to protect the bigger players’, such as BP’s, right to use the law. The odd result is a 2004 amendment that turns the original foreign lease financing amendment of 1996, comprised of a few short paragraphs, into an amendment that is well over three pages in length. This long and complex amendment was crafted to prevent Rigdon and BOURBON from using foreign lease financing while allowing the large and politically influential companies (which were customers of the companies that controlled OMSA through its Board of Directors) to take full advantage of it. MarEx: While you’re not an attorney, and we don’t intend to ask a legal question, how does one company have the right to use a law that precludes another company’s rights? Doesn’t the U.S Constitution guarantee equal representation under the law? Rigdon: Well, this is not a legal question; it is a political question. Remember that politics is just like watching sausage being made: it’s not very pretty. OMSA didn’t want to make BP unhappy, amongst others, so the law was written to protect them. This is totally legal; legislation that benefits one group of competitors to the detriment of others is just part of the political system. Amendments to the Jones Act law are filled with peculiar provisions which benefit some companies at the expense of others. Most often Jones Act issues are about whose ox is being gored, not about equality or fairness for all! Working together in the political process to change, influence or pass laws that benefit an industry group is one of the exceptions to the general prohibition against competitor companies acting in concert. The political process in this case allowed OMSA and the competitor companies to act in full concert to pass a law targeted at other competitors without violating any anti-competition law. It may seem strange and un-American, but it is true. MarEx: Would Rigdon have received the same type of opposition from OMSA and its members had BOURBON been strictly a retail mall operator? Rigdon: No, probably not. BOURBON was in bulk shipping, tugboat harbor services, and owned a small but growing player in the offshore supply boat business. BOURBON was and is quickly expanding its competitive position with the larger U.S. offshore vessel companies in many foreign markets. The major U.S. players and major OMSA members obviously viewed any expansion by BOURBON to be a negative. MarEx: Based on BOURBON’s involvement in the shipping industry, wasn’t there a caveat to the 1996 amendment to the Jones Act that disallowed foreign shipping concerns from participating in lend-lease deals? Rigdon: No, the law as written did not prevent a foreign shipping company from owning and then leasing vessels into the U.S. Jones Act trade.

…the foreign lease financing law… was meant to allow U.S. citizens to find capital outside the United States and to build American marine businesses that were controlled by U.S. citizens and would employ U.S citizens. It also was meant to create and expand ship construction activities in U.S. shipyards.

MarEx: Besides Rigdon Marine and BP, was this law being used by other foreign companies? Rigdon:The 1996 amendment to the Jones Act was used by a number of foreign companies. But in the offshore oil industry, Nabors Industries, a publicly traded company that was primarily in the oil drilling business, was the only company that had used the law. Nabors owned Sea Mar Marine, an offshore vessel service company. After Nabors became a Bermuda-based company for tax purposes to avoid a significant amount of U.S. corporate income taxes, it was able to use the 1996 amendment to its advantage. Once Nabors became a foreign corporation, the 1996 lease finance amendment allowed it to continue owning the Sea Mar fleet through a new U.S. leasing company established to lease the vessels to a new independent U.S. vessel-operating company. The Nabors transaction was controversial due to the significant U.S. tax reduction that they achieved by inverting to Bermuda and due to the use of the 1996 foreign lease financing amendment. As the largest land drilling company in the world, Nabors certainly had the best lawyers to ensure that they complied with all existing laws. The U.S. Coast Guard investigated and approved the Nabors/Sea Mar leasing transaction. With Rigdon and BOURBON prepared to use this same law, OMSA and the major industry competitors decided that they had to fight to change it. MarEx: When the Rigdon-OMSA affair was being played out in the media, the “unofficial” interpretation of a foreign company’s ability to fund a lease finance deal was that no more than 50 percent of its total consolidated revenue could be derived from waterborne shipping activities. Is this true? Rigdon: The U.S. Coast Guard had not issued final regulations to implement the 1996 law by May 2004, and that was a problem. Interestingly, the U.S. Coast Guard just issued proposed regulations for the August 2004 amendment to the foreign lease financing legislation in February 2006, and I do not believe final regulations have been issued. After Nabors used the 1996 law and I expressed interest in it, political pressure started to build on the U.S.

Coast Guard to implement restrictive regulations. While OMSA pursued an amendment to the 1996 law during 2003 and 2004, OMSA and other Jones Act “supporters” also worked to influence the U.S. Coast Guard to provide broad and highly restrictive implementing regulations that would limit the ability of companies to use the 1996 law to build boats to work in U.S. waters. Finally, in the spring of 2004, the Coast Guard issued a draft implementation provision that stated that foreign companies leasing vessels to a U.S. company could not derive more than 50 percent of their consolidated revenue from vessel operations. This was meant to be a bright line provision that would prevent foreign shipping concerns from controlling U.S. marine companies and vessels in the Jones Act trades. MarEx: Well, the new provision could not impact the Rigdon-BOURBON agreement because waterborne commerce wasn’t much more than 25 percent of BOURBON’s consolidated revenue in 2003, according to their annual report. Correct? Rigdon: You are correct. However, this had become a political issue, and early 2004 had become a very stressful time at Rigdon. Our first vessel was nearing completion, and our costs and investment were increasing dramatically. Throughout 2002 and 2003, we had continually asked the U.S. Coast Guard if they intended to issue the Vessel Certificate of Documentation for coastwise trade under the foreign lease financing provision of 1996 to BOURBON. The Coast Guard resisted giving us an answer by claiming that the issue was not “ripe” for a decision since the vessels were still under construction. In April 2004, our first vessel was ready to be christened and delivered by the shipyard. Meanwhile, the opposition was heavily lobbying Congress and the Coast Guard to change the law or issue highly restrictive regulations. Unfortunately, they were beginning to make political headway. Finally, the Coast Guard ruled that BOURBON’s U.S. leasing company would only be issued the Vessel Certificate of Documentation for the first Rigdon vessel with Jones Act privileges if the publicly traded corporate The Maritime Executive 23

Executive Interview: Larry Rigdon

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Executive Interview

Executive Interview: Larry Rigdon

Executive Interview parent company in France, BOURBON, certified that it would make no changes in the company structure that would result in its marine or shipping revenue exceeding 50 percent of its consolidated revenue during the required three-year initial term of each lease for each and every Rigdon vessel. This would have meant that BOURBON would be locking itself into a difficult corporate position well into 2008 if they made the pledge that the U.S. Coast Guard demanded. MarEx: It’s impossible for a publicly traded company, whether in the U.S. or Europe, to issue a certified statement of this nature or to make such a representation. Rigdon: Yes. What the U.S. Coast Guard was telling BOURBON was: You cannot buy another marine business, or sell or reduce your retail businesses, or change the basic components of your business for at least a four-year period. Effectively, the U.S. Coast Guard foreclosed lease financing to BOURBON and Rigdon unless we chose to litigate the matter. Litigation was a possibility from a legal perspective because the U.S Coast Guard was asking for a requirement that was not in law. Practically, litigation was not possible. Rigdon Marine had ships delivering and expenses running. Without a Certificate of Documentation for the Jones Act trade, we could not work our vessels during the litigation process, and that would have been an extended process. Rigdon Marine would have expended its operating capital long before the litigation would have been completed. We could have won the litigation battle and lost the war – we would have been out of business. MarEx: Well, OMSA and its members prevailed politically! So what did you do? Rigdon: Yes, OMSA won the political battle. It is interesting that during this very political period, more than one of our competitors approached Rigdon Marine to buy out our construction contracts. They were even generous enough to offer a small premium to “reimburse me for my time and effort.” During this same period the argument was being made politically that the Rigdon Marine vessels were not needed in the marketplace. It was a stressful, but interesting period! Fortunately, from the beginning we anticipated our deal could become a political issue and there could be a sea change in the law. In the original leasing and construction agreements, we incorporated a provision that if lease financing was not available to Rigdon Marine, then the French would provide mortgage financing to us. BOURBON complied fully with their commitment. The vessels were documented in the name of Rigdon Marine as owner, and BOURBON was given a first mortgage secured by the vessels. 24

The Maritime Executive

MarEx: What’s the difference, lease financing or mortgage

financing? BOURBON, a foreign entity, is still involved with U.S. Jones Act vessels? Rigdon: Under lease financing, the French would have owned the vessel and leased it back to Rigdon. I would have provided the crews, management, and all the other expenses to market and operate that vessel in the U.S. trade. Under mortgage financing, Rigdon Marine owns the vessels and has an obligation to repay a loan. No different than owning a home or any other financed asset. Of course, Rigdon Marine still had all the obligations and responsibilities for the startup costs and working capital under the mortgage financing alternative, and the ships are pledged as collateral to the mortgage holder. MarEx: Did OMSA have an issue with mortgage financing? Rigdon: Of course OMSA and its Board of Directors had a problem with the Rigdon Marine vessels operating in the U.S. Jones Act trade. However, the U.S. Coast Guard did NOT have an issue with the mortgage financing. They viewed Rigdon as the owner of the vessel; BOURBON was the mortgage holder, and the U.S. Coast Guard processed our paperwork and issued a Certificate of Documentation for our vessels to operate in the U.S. trade. MarEx: Well, Rigdon is home-free now! You have 100 percent ownership and control of 10 new platform support vessels. Congratulations! Rigdon: You would think so, but not so fast. The objections put forth by OMSA concerning our lease financing program did not stop when we obtained mortgage financing. OMSA’s immediate response was that the mortgage financing was not commercial, and the new deal clearly demonstrated that BOURBON had complete control of Rigdon. Of course, that was not the case as clearly demonstrated by one of the most thorough and complete investigations of any transaction by the U.S. Coast Guard before the Vessel Certificates of Documentation were issued to Rigdon Marine. But OMSA would not give up. In fact, they eventually filed a lawsuit challenging the U.S. Coast Guard’s implementation and interpretation of the law as it pertained to Rigdon Marine and BOURBON. The lawsuit was called a “Hobbs Action,” which is very rare. It allows anyone to challenge the government concerning the interpretation and application of laws and regulations. The end result was OMSA withdrew the lawsuit rather than face a nearly certain defeat that would establish a precedent that could be used by others in the future using foreign mortgage financing. In addition, by the time the Hobbs Action was dismissed, OMSA had spent well over $1 million fighting Rigdon Marine and Sea Mar/Nabors over the foreign lease financing and foreign mortgage financing. At the end of the day, OMSA did our company a favor.

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Executive Interview: Larry Rigdon

Executive Interview Under the lease scenario, we would have built no equity in the value of the vessels. As mortgagee, Rigdon Marine has the liability for the loan secured by the vessels but also accrues any appreciation in their value. Since our vessels were built at a fixed price, when steel prices skyrocketed, major equipment costs escalated and shipyard labor and related costs went up, the vessels increased in value significantly, and the accrued value went to Rigdon because we owned the vessels. MarEx: Let’s talk about the GPA 640 vessels. Is it unique to build a “class” of vessel in the offshore industry? Rigdon: While it’s not common to build a new class of vessel, it has happened in recent memory. In 1998 a fellow named Al Gonsolin, who was the founder and who built the Sea Mar offshore supply vessel company, ordered ten offshore vessels from Halter Marine built to a single joint design between himself and Halter Marine. He was able to get a very good price for Sea Mar from the shipyard because he committed to a series of ten vessels. The vessel engineering was done once, and the learning curve resulting from building each successive vessel improved as the project progressed. It was a very good approach to building platform support vessels, and I felt it should be imitated and duplicated. MarEx: Without giving away proprietary information, please tell us why you decided to build an advanced midrange vessel rather than follow the trend to larger deepwater vessels? Rigdon: Edison Chouest Offshore, a privately held company and the major player in the deepwater market, has built a very large and successful deepwater vessel fleet. Chouest owns the deepwater market niche. At the other end of the market, there has only been a handful of smaller modern vessels and a handful of modern mid-range vessels that have been built. However, no company had built a small or medium-sized vessel utilizing new available technologies. So I went to Guido Perla, one of the top naval architects in the world, because of his incredibly efficient boat designs. He had designed successful tuna seiner fishing vessels with hull-lines that were considered very efficient and easy to construct. In the tuna fishing business, the seiner boats go light-ship to the fishing grounds and want to get there very quickly; and when the fishermen fill the boat with fish, they want to get to port very quickly with a full load. Low fuel consumption is critical for both legs of the fishing voyage. For the offshore oil industry, it’s the same voyage profile and efficiency goal, except the loaded and light legs of the voyage are reversed. As a result, I felt that there was virtually no risk in applying Perla’s proved tuna hull designs to the offshore industry. These hull lines had already proven their efficiency for speed, fuel economy and crew comfort, and 26

The Maritime Executive

they were viewed as easy and cost-effective to construct by the shipyard industry. I was convinced that a technologically advanced midrange vessel that provided improved efficiency and cost reduction to the customer was sure to be a winner. MarEx: It is said that Rigdon owns half of the diesel-electric platform support vessels in the GOM. Is diesel-electric a new technology for the offshore industry? Rigdon: I had done a lot of research on diesel-electric propulsion systems, and I had a good knowledge of them. As far as I was concerned, these propulsion systems were the next evolution in platform support vessels. There were already a number of diesel-electric boats being built in Europe, but they were much larger and more sophisticated boats than here in the U.S. The technology was rapidly dropping in cost, and I was convinced this type of propulsion could be brought into mid-range ships for the Gulf of Mexico. More importantly, when you build diesel-electric vessels the cost to get to Dynamic Positioning Class-2 certification, which means that you have redundant controls and machinery that allow the vessel to maintain station without human intervention, is relatively simple and costeffective to achieve. The ability to build diesel-electric total redundancy into a ship is more efficient and cost-effective than the traditional direct drive, diesel through reduction gear control systems. While the initial cost in the technology might have been a little more expensive, when you bring a vessel to DP-2 standards the costs become very similar. The diesel-electric had lots of operating advantages, such as lower fuel consumption due to the advanced power management system, better station-keeping, and more redundancy and operating flexibility. And when you include the requirement of DP Class 2, diesel electric was the obvious solution. MarEx: Reviewing the GPA 640 specification sheet, by employing diesel-electric in the boat, space is saved in the hull to carry more cargo to the rigs, which is the purpose of your business. Please explain how diesel-electric saves space for cargoes? Rigdon: That’s correct. The old traditional direct-drive vessels have the engine room aft, and that takes up additional space and makes it harder to trim or balance the vessel for best operation. In modern vessels with the engine room forward, trimming the vessel is much easier, but the vessel requires long shaft-alleys to accommodate long shafts from the engines forward back to the reduction gears in the aft of a vessel. With diesel-electric you can put the engine room forward to best balance the ship, and the tanks can be nested very closely to maximize their size. This is possible because you don’t have to accommodate the shaft-alley

With diesel-electric you can put the engine room forward to best balance the ship, and the tanks can be nested very closely to maximize their size. …you don’t have to accommodate the shaft-alley required by the direct-drive vessel design. In dieselelectric configurations, you’re running electric wires around the cargo tanks. …

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required by the direct-drive vessel design. In diesel-electric configurations, you’re simply running electric wires, which are flexible, around the cargo tanks. So you can maximize the cargo tanks and the cargo block in a ship when it’s designed from the ground up to diesel-electric standards. MarEx: The dynamic positioning systems get a lot of play when discussing technologically advanced boats. Is there that great a difference between DP, DP-1, DP-2 and DP-3 systems? Rigdon: First, you must have a little history of the evolution of dynamic positioning (DP) systems to understand the difference. When we started building the GPA 640s, there were very few Dynamic Positioning Class-2 vessels in the Gulf of Mexico. In fact, with the building of our vessels, we nearly doubled the number of DP Class-2 vessels in the GOM at that time. There are a number of vessels that were called DP-0. DP-0 is nothing more than a DP system controlling the positioning of the vessel without any of the other safety and redundancy aspects of DP systems built into the vessel. There are also DP-1 vessels with certification by a classification society, such as the American Bureau of Shipping (ABS). This means that the vessel has the basic level of redundancy requirements built into the vessel. To be sure, class ABS-certified DP-1 vessels are becoming the minimum standard in the industry. DP-2 is a significant step up from DP-1 and requires full redundancy of all the propulsion systems and related control systems. As a result, if there is a failure at any single point in the vessel propulsion or related control systems, the ship will automatically compensate and remain safely on station. The DP-2 systems go a long way toward assuring safety when the vessel is stationed at an offshore facility discharging cargo. MarEx: Are older OSVs or PSVs obsolete without DP systems? Can they be retrofitted to meet the requirement of a DP system? Rigdon: Yes, old OSVs and PSVs without certified DP systems are becoming endangered. They are still working, but the customer wants the safety and redundancy offered

Left: Guido Perla, right: Larry Rigdon

by proper DP vessels. From a crew standpoint, DP vessels significantly reduce stress and related fatigue for the vessel officers, further enhancing safety. Retrofitting an older ship is a possibility, but it’s very costly. To move a certified DP-1 vessel to DP-2 standards could cost as much as $1.0 million to $1.5 million for the upgrade. Upgrading an old vessel without any DP certification is basically cost-prohibitive. MarEx: Is the offshore industry moving to DP-2 standards for safety and redundancy at rigs? Rigdon: Most of the newbuilds are being equipped for DP-2 certification, and many of the PSVs built in the last five years have been upgraded, at a significant cost, to meet those standards. Client requirements for deepwater today are DP-2 preferred and DP-1 required. Eventually, when there is more DP-2 tonnage available, we will likely see the DP-2 certification required by some customers. MarEx: Will competitors constantly push the DP envelope and take the standards to DP-3? Rigdon: No. The difference between DP-2 and DP-3 is not that significant. The main difference is the ship would require segregated engine spaces for the main generators or drive engines and for all thrusters so that you have two independent, redundant and separated systems. Truthfully, it’s not something that contributes that much more to the safety of the ship to justify the cost for an OSV. Of course, for some specialized construction or drilling applications, DP-3 does have a place. MarEx: Today, the world is right for Rigdon Marine. You have ten ships fully employed, a talented team of employees, and the GOM is once again vibrant with work and fossil fuel production. It’s been a tough four years of being bumped around in a political fight with your competitors. Your personal wealth was exposed, and there was enormous stress involved with establishing a new company, which is operating now with great efficiency. Why not relax and take a year off and enjoy the fruits of your labor? Why begin the whole process over again and build another ten vessels? Rigdon: Well, there are a number of reasons why Rigdon Marine wants and needs to build additional modern vessels. First, we believe that the offshore oil industry needs The Maritime Executive 27

Executive Interview: Larry Rigdon

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Executive Interview

Executive Interview: Larry Rigdon

Executive Interview additional modern vessels for the long term in the Gulf of Mexico. We see good demand for additional well-designed and efficient, modern PSVs. There are still over 100 supply vessels built in the late 1970s and early 1980s working in the Gulf of Mexico. These old, small vessels are technologically obsolete, and most customers charter them only when modern vessels are not available for their requirements. Our customers have come to understand that modern vessels provide an entirely new level of cost efficiency and safety for their operations and want modern vessels to serve their needs. Second, the complexities, regulations, and compliance with customer demands continue to grow, and I believe a larger fleet and a larger staff will allow Rigdon Marine to become more competitive. We serve some of the most demanding customers in the Gulf of Mexico, and we have to engage in effective continuous improvement to meet their expectations. There is a requirement to be of adequate size to serve the demanding customer well. Third, we see a market segment that is not being addressed by the industry. The recent new vessel building trend for the Gulf of Mexico has been primarily focused on very large vessels for the deepwater market. While the deepwater market is definitely growing, the production activities in the Gulf of Mexico are going to go on for years to come. In addition, there are strong indications that many deep wells will be drilled on the continental shelf in the Gulf of Mexico. Continued success with deep wells on the shelf could generate a renaissance for the shallow water activity in the Gulf of Mexico. Frankly, the decision to build an additional ten PSVs was actually an easy one to make and was just an extension of our original strategy. MarEx: The GPA 640 medium-size vessel allows the company access to deepwater operations and near-shore operations in the GOM. Why build the smaller GPA 654 platform support vessel design? Rigdon: The GPA 640 hit a sweet spot in the market. The design has proven to be competitive with 240-foot PSVs in the deepwater market, and our lower capital cost to build these vessels allowed us to work on the shelf and make a decent return. However, we decided that building another ten GPA 640 vessels would not be the best investment for Rigdon Marine at this time. Instead we focused on meeting the long-term needs of our customers on the shelf, including the drilling of very deep wells. In addition, we wanted a vessel that was capable of meeting the demands of production operations any-where in the Gulf of Mexico, including in deepwater, and a vessel that could work jointly with and complement a very large PSV to support deepwater drilling operations. As a result, the new vessel design that we refer to as the 28

The Maritime Executive

Rigdon 4000 was conceived by Rigdon Marine and developed and engineered by Guido Perla & Associates, Inc. Even though the Rigdon 4000 will have smaller hull dimensions than the GPA 640, its key cargo capacities of 4,000 barrels of liquid drilling fluid or liquid mud in oval, self-cleaning tanks and 5,500 cubic feet of dry bulk material compares very well to the 5,150 barrels of liquid mud and 7,135 cubic feet of bulk material carried by the larger GPA 640. In keeping with the technology used in the GPA 640, the Rigdon 4000 will have diesel-electric propulsion and will have a classed DP-2 station-keeping system. To get the very high cargo capacities in a smaller hull, we placed the engine room on the main deck level of the vessel. This change from the tradition allowed us to dedicate virtually the entire reach of the hull to cargo. Of course, we again selected Guido Perla & Associates, Inc. to develop the GPA 654 design for Rigdon Marine. When you have had a successful collaboration with a marine architect, such as we had with Guido Perla on the GPA 640 PSV, you certainly want to continue such a valuable relationship. MarEx: Even though the Rigdon 4000 is a smaller vessel, with the significant increase in shipyard costs and the costs of all the major machinery and equipment, you are talking about an additional commitment of more than $100 million. How are you able to finance this significant expansion so soon after your initial ten vessels were delivered and began working? Rigdon: After we made the decision that we wanted to build the Rigdon 4000, we had to find the funds for this expansion. Fortunately, our timing in building our original ten GPA 640 vessels was nearly perfect. We contracted for these original vessels at Bender Shipbuilding & Repair, Inc. in November 2002 at a fixed delivery price. Bender built an excellent vessel to European standards for Rigdon Marine and delivered all ten vessels by August 2005, on time and on budget. In 2004, steel prices began a relentless climb and, as you said, the costs of all the major ship machinery and equipment has escalated in price. As a result of this price inflation, we believe â&#x20AC;&#x201C; and the market has indicated â&#x20AC;&#x201C; that it would cost in excess of $17 million to build a GPA 640 today. This means that Rigdon Marine is holding assets that are worth significantly more than they cost us to build. The increase in the value of our original fleet of ten vessels served as the basis for a major refinancing of our existing debt structure. Rigdon Marine was also benefiting from the dramatic improvement in the market for our vessel services. Our cash flow from operations was up and still growing. Further, we were able to sign long-term contracts for some of our vessels, thereby guaranteeing a portion of the debt repayment capability. Finally, to provide fur-

We contracted for these original vessels at Bender Shipbuilding & Repair, Inc. in November 2002 at a fixed delivery price. Bender built an excellent vessel to European standards for Rigdon Marine and delivered all ten vessels by August 2005, on time and on budget.

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ther funding and to obtain takeout financing for the ten Rigdon 4000 vessels now under construction, Rigdon Marine also sold some equity in the Company to reduce our overall financial leverage. Rigdon Marine is now owned by me and the employees of the Company, and we have two outside investors. A family from the U.S. West Coast is an investor through their marine investment company, and BOURBON purchased equity within the limits imposed under the Jones Act for foreign investors in a Jones Act-qualified U.S. company. With this refinancing, we ended the controversy surrounding the Company. Our financing in now provided by four European banks with DVB Bank of Rotterdam acting as the lead bank. MarEx: I am sure that you are pleased to have the foreign financing controversy behind you. So, moving on, who is building your Rigdon 4000 PSVs and when will they be delivered? Rigdon: Bollinger Shipyards has been contracted for the construction of the ten Rigdon 4000 PSVs at their shipyard in Lockport, Louisiana, southwest of New Orleans. Hurricane Katrina impacted this yard, but more importantly it impacted the work force that was employed at this yard. As a result, Bollinger is running about a month behind the original construction schedule. We anticipate receiving the first Rigdon 4000 in April 2007 and expect the final vessel in the fall of 2008. We are impressed with the quality of the Bollinger work, just as we were with the quality of the Bender 640 PSVs. We are excited about accepting our first Rigdon 4000 in just a few months. MarEx: I am intrigued that you chose to build the smaller vessels. Isn’t the shelf a more competitive market? Rigdon: Well, I feel strongly that the old supply vessels will be leaving the market in just the next few years. All of the old vessels built in the late 1970s and early 1980s were built under regulations that allowed the crew size and crew licensing requirements to be minimized. However, these regulations resulted in the vessels being constructed to designs that do not allow these vessels to be rebuilt and upgraded to become competitive with

modern vessels. Some old vessels have been lengthened and larger cargo areas inserted in the vessels, but this lengthening does not make the vessel competitive with a modern vessel. At best, lengthening the vessel will increase its economic life by a few years. The lengthened vessels are still not DP-2 certified and have old machinery and equipment to maintain. The design and construction of the old vessels also result in the periodic drydocking and major equipment maintenance cost being very high. These vessels must be drydocked twice in a five-year period, and each progressive inspection by the classification society and U.S. Coast Guard becomes more intrusive and thorough. It can easily cost $750,000 to well over $1,000,000 to drydock and perform minimum maintenance on one of these old ladies. The owners must constantly balance the cost to drydock and maintain the vessel against the expected remaining limited economic life of the vessel. In addition, the operating costs for old vessels are growing much faster than for modern vessels. Finding the necessary replacement parts and equipment to keep 25-to-35-year-old equipment running can be a challenge and can be costly. Replacing the old equipment with new when the vessel only has a few potential years of life remaining is generally not a wise investment. The result is often an old vessel that has become unreliable and not capable of meeting the customer’s current needs and requirements. Further, these old vessels obviously have old accommodations and crew facilities. The crew comforts on these old vessels are just not equal to those available on a clean, modern vessel. The result for the owners of the old vessels is a dramatically smaller pool of mariners that will choose to serve aboard the old vessels when the mariners can move to a company with new, modern vessels that are reliable and comfortable. Finally, as I said earlier, most customers do not want to charter the old vessels if modern vessels are available, even when the new and more efficient vessels will cost substantially more. I believe the market has permanently changed in this regard, and the old vessels will leave the market The Maritime Executive 29

Executive Interview: Larry Rigdon

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Executive Interview

Executive Interview: Larry Rigdon

Executive Interview over the next few years. MarEx: You mentioned that some mariners do not want to work on the older vessels. I understand also that there is a shortage of qualified mariners impacting U.S. vessel operators, and while many industry organizations, such as SOCP and MERPAC, have been addressing these issues on a national level, the lack of manpower seems to be an immediate problem in the U.S. Gulf of Mexico. First, is there a lack of qualified marine personnel in the Gulf and, if so, what is the industry doing to address the problem? Rigdon: Currently, in the Gulf of Mexico, qualified mariners are in short supply. Experienced and qualified mariners can choose their employer and can generally choose the type of vessel they want to work on. To develop more personnel in our industry, most of the companies in the Gulf of Mexico are now paying for licensing training for their personnel and for any specialized training required for the equipment and systems on their vessels. Rigdon Marine has been fortunate and we have not had significant problems attracting and retaining quality mariners. We are working hard to pay competitive wages and provide a comprehensive benefits package. In addition, we pay a bonus every six months that is based upon our overall safety and environmental performance and upon our financial results, which have been good. Of course, our new high-tech vessels with comfortable crew accommodations have been a positive for attracting vessel personnel. And we do pay for training and development of our people. MarEx:Well, we have covered a lot of ground, but I have a few final questions for you on the strategic direction for Rigdon Marine. First, over the past several years the oil companies have been investing heavily in the ultra-deepwater. Does your company have plans to enter this market? Rigdon: Tony, we have been asked by many of our customers to build a large diesel-electric vessel for the ultra-deepwater. However, we have not been successful in obtaining a firm, fixed term contract that would allow us to make the significant financial commitment to build such a large deepwater PSV. Rigdon Marine wants to meet the needs of our customers, and a large deepwater PSV would allow us to meet those needs. But frankly, it is difficult for smaller companies, and even some larger companies, to commit to building vessels that will cost near $35 million each, on speculation. We are working on a proprietary design for a large PSV and I anticipate that we will eventually build a few very large vessels for deepwater. However, it may just take us a few years to get to the financial position to be able to make a speculative bet on building large deepwater vessels. MarEx:We have heard through the grapevine that Rigdon Marine is now building crewboats. Will these boats be some30

The Maritime ExecutivE

thing unique and different?

Rigdon:You should not believe everything that you

hear, but I will admit that we are looking very seriously at building a crewboat business. We certainly anticipate building crewboats and fast aluminum supply vessels that are larger and more capable than the typical aluminum vessels. We would even consider an acquisition of a quality crewboat company if such a company were to come on the market. MarEx: OK, I think I have worn you out, but I have one last question. After over thirty-plus years in the industry and after fighting through the trials and tribulations of building a world-class company, are you contemplating retiring or selling the company? Or will you consider taking the company public? Rigdon: I do get that question a lot from numerous sources. First of all, my intent is to build a valuable business by providing our customers with safe and efficient vessel transportation services with modern vessels. I want to build this business for the long term and staff the business with bright, capable personnel who can run this company when I decide to retire from the day-to-day activities of the company. I have already had offers from qualified buyers of the business. However, it is safe to say that I am not a motivated seller. I learned a long time ago that you should never say never, but it would take a very strong purchase offer to get any interest from me, my management team and the Rigdon Marine Board of Directors. We are not motivated to sell the business. We see value in remaining a private company. If the current strong market continues for a few short years, our debt would be paid down to a very comfortable level, and we could pay a substantial annual dividend to our shareholders. Working our way into this desirable position is certainly a great and worthwhile goal. On the other hand, if we decide we need to expand the business faster than our current capital structure and cash flow can support, we may decide to go to the private placement market or directly to the public markets to obtain more capital to fund our growth. We would not be prudent if we were not taking all the steps necessary to eventually go public, but it is not necessarily our goal to be publicly traded with all of the financial disclosure and legal requirements that are entailed in being a public company. Simply put, I want to have all options open to Rigdon Marine, its employees and owners. To have options, we must first build and maintain a business that is solidly profitable and growing at a prudent and sustainable rate. MarEx: Well, thank you for your candor. We wish you and Rigdon Marine the best in reaching your goals. MarEx

MarEx: Offshore Energy Support

A New

Era in

Offshore Aviation

n 1947, Kerr-McGee drilled its first well from a fixed offshore platform in the U.S. Gulf of Mexico (GOM). Since that time, the GOM has grown to include approximately 4,000 oil rigs, of which 850 are manned. Today’s GOM oil and gas production is supported by thousands of offshore support boats and crew boats that ply the waterways, and by hundreds of helicopters that cruise across the skies.

In the early days of the GOM, offshore platform crews stayed aboard for long periods of time. Unfortunately, this was quite unattractive to potential workers. However, with the advent of the helicopter, crews could be rotated. In fact, crews could reach a drilling platform in one hour by air, rather than ten hours by boat. During the 60s and 70s, oil crews in the GOM became highly mobile, often traveling cross-country by commercial air to spend two weeks on an offshore oil platform before returning home. Helicopters made rig access less arduous and pushed the offshore industry to new heights of productivity. Throughout the years, the GOM has been known for its vicious production swings, which were mainly due to global oil gluts. These vicissitudes of the oil market have adversely impacted many of the domestic energy support companies. The support companies that did survive did so because they had the financial wherewithal to follow crude oil production around the world. Fast forward to today: The days of oil gluts on the world market are over. The difference between today and the energy crisis of the 20th Century is that the world now consumes all of the oil it produces. It’s easy to attribute this

The Maritime Executive

to China and India, but the fact remains that the U.S. consumes 25 percent of the world’s oil and gas production and derives 85 percent of its energy from fossil fuels. The political instability in major petroleum production areas of the world has suddenly refocused the United States to develop its domestic energy production. Oil analysts are projecting that the notoriously volatile GOM market is about to embark on a period of long-term stability and investment. Moreover, the U.S. Minerals Management Service (MMS) recently estimated that 76 billion barrels of recoverable oil and 406.1 trillion cubic feet of gas exist in the U.S. Outer Continental Shelf (OCS). Further, in 2007, the federal moratorium on U.S. coastal exploration and drilling will expire and the immediate beneficiary of the domestic energy renaissance will most likely be the Eastern Planning Area of the GOM. While its oil and gas production might take years to bear fruit, energy support companies will be immediately employed for exploration and drilling activities. In fact, proactive support organizations have already begun investing in new technologies and equipment.

MarEx: Offshore Energy Support

“We’ve made a significant commitment and investment to upgrade our fleet of helicopters,” said Ed Washecka, CEO of Era Helicopters. “We are in the process of adding 20 AW139s, along with other aircraft, to our fleet. The fleet rejuvenation will strategically position the company for the future.” Era Helicopters is an interesting case study in mergers. SEACOR Holdings, a global provider of marine support and transportation services, had an interest in the offshore aviation industry because it complimented its core of businesses. Ed Washecka, an executive for the company, was tasked with providing the Board of Directors with an analysis of the offshore aviation industry and list of potential candidates for purchase. Remember, we’re talking about the U.S. GOM, and during the latter 90s’ and turn of the century, oil production in the GOM was soft again and profits were dismal. Therefore, not much materialized with its acquisition pursuits.

SEACOR Acquires Tex-Air However, Washecka and a small single-engine operator, Tex-Air, maintained an open dialog. Tex-Air was facing

financial pressure due to the flat energy market. The company was deemed ripe for acquisition. SEACOR put a small infusion of cash into the company, but soon realized an outright acquisition made the most sense for the company and its employees. In 2001, at the right price, and as good fortune would have it, at the right time, Tex-Air became an operating asset of SEACOR. In 2004, the multi-national drilling conglomerate, Rowan Companies, put its aviation division up for sale. At that time, Era Aviation had fixed-wing aircraft, offered flightseeing tours in Alaska, and supported the U.S. Forestry Department fighting fires in the Western United States. While these businesses were of passing interest to SEACOR, the company’s North Slope energy support operations and its strategic air bases throughout the GOM were exactly the integration the company needed to become an aviation powerhouse. “Era was an established company with lots of maintenance approvals and operating experience,” says Neill Osborne, President of Era Helicopters. “Tex-Air was a small operation and its merger with the prominent Era organization was an excellent marriage.” The Maritime Executive 33

MarEx: Offshore Energy Support

Era operated medium twin-engine helicopters and Tex-Air flew mostly singleengine craft, and the merger was a balanced integration without too much bloodshed amongst the ranks of the employees. However, the fixed-wing operation was sold-off almost immediately. “The merger was the finest survival picture for Era. The Rowan Board had made a decision to divest itself from Era, and simply turned off the spigot of investments in the company,” added Jim Shugart, Executive Vice-President and General Manager of Era. “During the year before the merger, we lost market share because Rowan didn’t buy the required aircraft that many of our customers needed. SEACOR’s purchase of Era breathed new life into the company and its employees.” Era Helicopters was founded in 1948, and its perennial name recognition and reputation made eliminating the Tex-Air brand an obvious tactical marketing decision. Neill Osborne and Jim Shugart, the two savvy aviation executives based in Lake Charles, Louisiana, now had the personnel and equipment required to compete against its two lager rivals. Era now boasts 125 helicopters, 550 employees, 12 GOM bases, an Alaskan operation, and a foreign fire fighting operation based in Spain.

Era Called to Action by U.S. Coast Guard During the recent rash of hurricanes that ravaged the Gulf Coast, Era was called upon by the U.S. Coast Guard in Baton Rouge, Louisiana to assist in fly-over operations in the battered region. The company assigned 10 medium 34

The Maritime Executive

and small helicopters to fly command personnel over 4,000 scattered oil rigs and 33,000 miles of Gulf pipelines. The assignment included working with the Environmental Protection Agency (EPA) and assisting the agency with its oil spill response coordination. “The U.S. Coast Guard contract was in place prior to the hurricanes. No one could have possibly foreseen its implementation would take place during the catastrophic events that impacted the Gulf Coast last year,” says Osborne. “We had to establish air bases in areas where there had been no previous aviation activity. These missions for the Coast Guard and the EPA were in conjunction with first responders and the emergency events.” “We were fortunate in the fact that our flightseeing operations in Alaska had concluded,” added Shugart. “We repositioned 14 aircraft and their crews into the Gulf for the emergency operations. While other companies scrambled to find additional aircraft or to get emergency government contracts, Era was strategically aligned with the government and was able to provide critical aerial missions.” The heartbeat of Era’s command center is located in Lake Charles, Louisiana, where a highly sophisticated computerized ‘Flight Following’ monitors all of its aircraft during missions. Era pilots login their flight plans, which includes departure times, destination, estimated time of arrival, passenger count, and fuel consumption. These flight plans are then updated every fifteen minutes and

2964

professionals recruited between 2007 and 2010,

euro rscg compagnie Photo rights : Bourbon

Committed to the core, dedicated to you.

MarEx: Offshore Energy Support

The heartbeat of Era’s command center is located in Lake Charles, Louisiana, where a highly sophisticated computerized ‘Flight Following’ system monitors all of its aircraft during missions.

Top: Sky Connect Iridium/GPS Tracking System (Moving Map). Center: Maintenance hanger Bottom: Jim Shugart, Executive Vice-President and General Manager of Era.

The Maritime Executive

are closed out when the pilots call in their landing time. In addition, Era provides its customers with a ‘Sky Connect Iridium/GPS Tracking System, which it brands the ‘Moving Map.’ Clients can access a specialized website that allows a visual depiction of aircraft assigned to them at their rigs and Era bases in the Gulf. A customer can also see the aircraft’s fuel and fuel range, which is displayed as a circle around the aircraft, and they can get updated weather information from a direct satellite feed. All of this is continually updated for the client every 60 seconds. In 2005 Era carried approximately 175,000 passengers while flying nearly 6 million miles and accumulating 53,000 hours of flight. The ‘Moving Map’ alleviates the time spent by Era’s dispatch center updating customers with routine information. Era is also an approved service and maintenance center for Eurocopter, Bell Helicopter, and Sikorsky. Its maintenance department operates a computerized tracking system for maintenance records and replacement parts, and the company is equipped to perform immediate unscheduled maintenance repairs, as well manufacturer scheduled maintenance inspections. The company employs Airframe and Powerplant (A&P) certified maintenance technicians that conduct aircraft inspections, repairs, avionic overhauls, non-destructive dynamic component testing, engine and component inspections, aircraft modifications, customer interior configurations, and exterior painting of all company aircraft. Era owns its own modern offshore and onshore fuel facilities, with updated dual filtering systems that ensure clean quality fuel, ‘go/no-go’ monitoring, spill containment and emergency shut-off fuel systems. Furthermore, the company has played a significant role in the development of FAA-approved auxiliary fuel tank systems, which is one of the 50 Supplemental Type Certificates owned by the company. Since the passage of the Outer Continental Shelf Act 50 year ago, there has been a sea-change in innovative technologies that have allowed energy companies to venture into deeper waters in search of oil and gas. Since 2002, the energy industry announced seven new major discoveries in the ultra-deep waters (7,500 feet or greater) of the GOM. However, this presents an even greater challenge for energy companies, support companies, and the governmental agencies that are tasked with OCS oversight. Era’s purchase of 20 “long-range” Bell/Agusta AW139s, which have accommodations for 15 passengers and a maximum range of 459 miles at speeds of 150 miles per hour, will undoubtedly position the company for the ultra-deep OCS and as a leader in offshore aviation technology. For more information on Era Helicopters, visit their website at www.erahelicopters.com. MarEx

A New Era in Offshore Aviation

After nearly six decades of operation, Era remains at the forefront of the oil and gas support industry with the most technologically advanced helicopter fleet. Throughout its history, Era has made significant contributions in the development of safe operational techniques in the most demanding conditions of wind, weather, and terrain. Era customers can rest assured each mission is backed by pilots, maintenance technicians, and support personnel committed to the highest standards of safety and service excellence.

337 478 6131 | www.erahelicopters.com 600 Airport Service Road, Lake Charles, LA 70605

a SEACOR company

Maritime Security

Maritime Security: Simply Doing More With Less by Joseph A. Keefe

North Carolina State Ports Authority Forges Ahead

Quietly nestled between the picturesque North Carolina Outer Banks and the swank getaway destinations of Hilton Head Island and Charleston are the two coastal cities that make up the heart of the North Carolina State Ports Authority (NCSPA). According to data supplied by the American Association of Port Authorities (AAPA), the ports of Wilmington and Morehead City rank 65th and 108th, respectively, in terms of total cargo volume compared to other ports nationwide. On the other hand, it just so happens that Wilmington and Morehead City are two of only fifteen strategic military ports in the U.S., as classified by the Department of Defense and the U.S. Maritime Administration. At NCSPA, just under $8 million has Like every other port and marine terbeen received (including Round 5) since minal in North America, the issue of the grant programâ&#x20AC;&#x2122;s inception, just after security has been a high priority item for 9/11. This amounts to approximately the NCSPA in the wake of 9/11 and every one percent of the more than $700 milday since that fateful moment. The ease lion which has been appropriated by the with which security risks are addressed DHS over the life of the program. And and mitigated sometimes depends on in the fifth round of federal grants, only where a port is located, its size, and its 66 port areas were allowed to bid for perceived value in the supply chain. And security money. Morehead City was not so it is for Doug Campen, Director of one of them. Safety and Security at the NCSPA. In the Since the latest round of grants was big picture, neither Wilmington (ranked limited to just 66 seaports, a much 34th in TEU throughput) nor Morehead smaller number than was eligible in City usually warrant more than a passprevious rounds, some smaller and ing glance when talking about total mid-size ports (like Morehead City) commerce, intermodal connectivity or were forced to search elsewhere for supply-chain management. In terms of Doug Campen, Director of Safety and Security security funding â&#x20AC;&#x201C; or do without. The strategic military importance, however, at the NCSPA AAPA further asserts that a minimum annual funding level both locations loom large in DOD planning and logistics of $400 million is necessary to allow compliance with the requirements, especially given their close proximity to the Maritime Transportation Security Act (MTSA). A funding federal Sunny Point Military Ocean Terminal. As a direct level of about $200 million will be the best likely scenario consequence of this reality, security has taken on an even that anyone can hope for in the current fiscal climate. more heightened profile in the Tar Heel State. Marshalling Armed with this apparent reality and pressing forward with the resources to make this commitment an institutional a pragmatic approach to what is even remotely possible to reality is quite another story. accomplish, NCSPA security personnel are getting on with The Department of Homeland Securityâ&#x20AC;&#x2122;s (DHS) fifth round of Port Security Grant Funding has long since come the job at hand. Along the way and through the first five rounds of and gone. Monetary awards have been announced to a myrTSA grants completed so far, the NCSPA has requested iad of ports in support of local security funding. Just before funds totaling almost $23 million. It ultimately received MarEx went to press for this edition, the awards for the sixth approximately 34 percent of this amount or the rough round were being announced. As with any grant program, equivalent of the 31 percent of funding requests that have there are winners and losers, as well as those who are critical of the process, of how the money is spent, and of where been awarded so far nationwide. Arguably, North Carolina has been slightly more fortunate than its peers. But in the it goes. 38

The Maritime Executive

Maritime Security

grand scheme of things and given their status as a combined “militarily strategically important” port of call, then the numbers are not good news. Despite this, Doug Campen reports that the NCSPA has made real strides in “enhancing security, but not necessarily alleviating specific security issues at both ports.” What they have accomplished and how this, has been done, in the face of conditions which the AAPA calls a paucity of funding, may surprise you. The NCSPA’s Security Director is understandably reluctant to engage in conversation about his opinion of whether DHS funding of security, as it relates to the 95,000 miles of U.S. coastline, is adequate. When discussing NCSPA’s security requirements, grant requests and grant funding, he chooses his words carefully. “With having two strategic ports, we do feel that it (the strategic classification) has a benefit, if you want to call it that.” He prefers to be realistic about what can be expected in terms of outside funding, innovative in getting that funding, and pragmatic about how the money is spent. In actual practice, this has proven to be far more important than how much money is actually obtained. Campen’s success in bringing the North Carolina ports into (closer) compliance with the MTSA requirements is, according to him, directly attributable to a multifaceted

approach to security solutions. In a rare moment of levity, he admits that “I hate to give up some of the secrets that have served us well,” but then goes on to provide a handy list of ideas which have done just that: n Early Recognition of the Enormous Task at Hand by the NCSPA Executive Board and Management; n Pragmatic and Realistic Approach to Formulating Grant Requests; n A Unique Local Matching (Local Level) Funding Approach; n Compartmentalization of Job-Specific Tasks Within Grant Requests; n Selling the Port Security Enhancements as an Interactive Tool Not Necessarily Just for the Port. Campen explains that “Right after 9/11, the senior staff and Executive Director of the ports recognized the true need for security and where they thought it was going. At that time, we realized early on how massive and important this was going to be. We truly felt like we were at the forefront of the matter.” Beyond this, there also were two different Security Directors at NCSPA; one in charge of each of the two ports. Senior management quickly made the decision to put just one person in charge of both seaports, as well as the two inland intermodal terminals (Charlotte and Greensboro). The mindset, according to The Maritime Executive 39

Maritime Security …every single grant request submitted by the NCSPA is deliberately specific as to where the money will be spent, on what project, and how much each individual task will cost as a function of the

total grant request. "This is our main secret –

our main key, if you will.…" Campen, “centered on the need for there to be one voice” in the effort to upgrade security and to coordinate all of the administrative efforts to make that possible. Having a realistic approach to security priorities, combined with a healthy sense of realism, has served the NCSPA well. For example, in the 5th round of the port security grants, the NCSPA received just $336,857 of the nearly $142 million awarded to 36 U.S. port zones. By comparison, the behemoth known as the port of Houston received $35.3 million, followed by a combined $34.1 million awarded to the ports of Los Angeles and Long Beach. An “apple-to-apples” or linear comparison here would be a difficult one to attempt, even as the analysis of where the money goes and whether it is well spent ultimately rages on. In Wilmington, it is safe to say that funding for this round hinged on the size of the port and cargo (tonnage) throughput. Unspoken is the reality that this occurs during virtually every one of the DHS fund grant rounds. Doug Campen asserts that understanding these realities and unspoken rules will serve the smaller, lower profile ports well as they go about trying to effect the same level of security enhancements with only a fraction of the funds. He truly speaks from a wealth of experience in this area. The NCSPA operates under the tenet that a failure to properly prepare grant requests is the equivalent of preparing to fail. Simply translated, Doug Campen says that every single grant request submitted by the NCSPA is deliberately specific as to where the money will be spent, on what project, and how much each individual task will cost as a percentage of the total grant request. Campen calls this practice “compartmentalization.” “This is our main secret – our main key, if you will. I think a mistake a lot of ports make is that all they have is a ‘buy’ figure. In essence, the person reviewing that grant might say, ‘I’d like to give them some money, but I don’t know exactly what for.’” As the revamping of security at this port has now shown, the NCSPA may not have been much more successful in securing funds as a result of their requests, but individual projects in their entirety have been funded, completed and, perhaps most importantly, with very little in wasted or 40

The Maritime Executive

poorly spent money. Campen is confident that their continued ability to demonstrate this will serve them well in future grant rounds. From a purely administrative point of view, the final piece to the NCSPA security puzzle to date consists of two key components. First, any funding request made to the federal government was always accompanied by a pledge to match any federal awards with NCSPA funds equaling ten percent of the federal award. (In the next round of grants, Campen says that federal requirements now call for local ports to fund 25% of the total cost of any security project.) Secondly, any port security enhancements are always pitched as an interactive tool, not necessarily just for the use of port personnel. In other words, the concept of providing value to multiple stakeholders while participating in the process – both operationally and monetarily – has been the hallmark of Doug Campen’s port security enhancements. Campen declined to say whether he thought that North Carolina’s innovative “matching” policy might have served as a catalyst for the new federal matching requirements, but clearly the Tar Heel State was ahead of the curve on this one. Campen will be the first to admit that the NCSPA was fortunate to receive the bulk of money necessary to put major security pieces into place such as fencing, cameras, and lighting right up front within the first three rounds of grant awards. Now he says that he can focus on the unfinished tasks that are his “detail pieces” – items like patrol boats, side-scan sonar and facilitating interoperability of communications and radar, to name a few. Away from the administrative side of the equation, the NCSPA has embraced several concepts that it hopes will pay dividends down the road. Perhaps not coincidentally, these concepts closely mimic the mantra pushed by DHS’s frontline maritime defense against terror. We’re talking about the U.S. Coast Guard, of course. Expanding the (maritime) boundaries outward and building an “integrated” command, control and communications system has long been a goal, and lately a visible accomplishment, of the fifth branch of the U.S. Armed

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Maritime Security

Services. The Coast Guard has long asserted that only by pushing the perimeters of our defenses outward and integrating communications between all stakeholders can we adequately protect our borders. The Deepwater Program, designed to modernize and integrate all aspects of the Coast Guard’s equipment and communications, has been the primary vehicle through which they have gone about their many missions. The NCSPA’s approach to this tenet takes on a necessarily lower cost route, but not necessarily a “lower tech” one. Using the Coast Guard’s tried and true formula of “doing more with less,” Doug Campen took a close look at the Port of Wilmington’s vulnerabilities, together with the results of their initial security assessment, and made the decision to, where possible, push the perimeters of the security fences out from their pre-9/11 positions. As the money came in from the federal grant programs, new and extended perimeters were established using the new fencing along with improved lighting and advanced camera technology. Pushing the fences out, Campen asserts, provides better advanced warning of intrusions and also provides the added benefit of reclaiming port property which was previously inaccessible. Step number two, which incorporates to a large degree the funds obtained in Round 5, provides the “integration” piece. Integrating the NCSPA communications, surveillance, detection and scanning equipment into multiple locations for effective monitoring is a top priority for the NCSPA. With the new 800 MHz radios now in place at the ports, NCSPA security personnel can talk not only beyond the wire, but with Raleigh and beyond. Eventually it is hoped that all electronic systems at the ports will be able to be accessed not only remotely onsite, but from one port to the other and in other law enforcement venues. Doug Campen envisions that these high-tech, integrated systems will provide good value for a multiple list of local, state, and federal stakeholders. He may very well be right. It’s not all wine and roses at the NCSPA when it comes to matters of security. Doug Campen has his list of unfulfilled wishes, just like everyone else. Right up at the top is 42

The Maritime Executive

the lack of funding needed to significantly alter the port of Wilmington’s south or main gate configuration. Already identified in the port’s Initial Security Assessment as a main area of concern, the money to reconfigure the traffic patterns to help provide a more secure entrance and exit from the facility is nowhere to be seen. The much-touted Automatic Identification System (AIS), up until now primarily a Coast Guard preserve, appears to be on the way. Campen looks forward to the day when the NCSPA can get a seat at the AIS operational table. No less important to Campen is a Radiological Agent Detection System, which has yet to be funded despite funding requests in Round 5. Campen has managed to get other security upgrades accomplished, however. These include a platform which has biometric capabilities and the ability to scan the new, proposed Transportation Worker Identification Cards, when and if any of these come online. A Mobile Identification trailer is in place and up and running. NCSPA thus becomes one of the first U.S. ports to have the capability of issuing temporary identification cards to personnel (such as crew members) quickly and efficiently and in remote locations around the entire port area. North Carolina’s State Port Authority may very well be the ideal model for other similar-sized entities who are trying to achieve compliance with MSTA directives. At a minimum, the track record at the NCSPA for securing funding and implementing specific security projects is an enviable one. Wilmington and Morehead City are well on their way to achieving a security infrastructure and administrative culture that rival many larger ports, at a fraction of the cost. The lessons learned on the Carolina coastline have the potential to help transform the entire national maritime security effort into a more cost-effective and efficient process. It remains to be seen whether the DHS and TSA will pause long enough to find out how. In the military services, this is often referred to as “Standing Down.” In actual practice, it simply translates to common sense. MarEx

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR)

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR): ON HOLD BUT NOT FORGOTTEN

Other Domestic Energy Supplies Take Center Stage As the Pro-Drilling Lobby Runs Out of Political Capital

More than 18 months ago, the environmental lobby here in the United States was in full panic mode. That much was obvious when the doorbell rang on a rainy, cold January evening. My son announced that someone from something called the Sierra Club was at my front door. I eased open the storm door and stepped outside into the chilly night air. “This is about ANWR, isn’t it?” I said, more as a statement than a question. The lead activist, one of two that had been dispatched to my neighborhood on that dreary evening, reluctantly acknowledged that I was right. She produced a single piece of literature that contained only one message: Drilling is wrong. 44

The Maritime Executive

Photo Courtesy of Seabulk Tankers

We spoke for perhaps twenty minutes, mostly about ANWR but more specifically on the well-founded fears that the 109th Congress would be the best window of opportunity for pro-drilling advocates to finally have their way. But as any presidential candidate will tell you, 18 months is a long time in the world of politics. The U.S. Senate only recently appeared poised to open up ANWR to drilling, but the run-up to the November midterm elections has produced a climate that promises anything but. And Richard Ranger of the American Petroleum Institute (API) concedes, “The prospects for legislation including ANWR don’t look promising. There are several amendments out there, but with no main legislation moving forward there is no significant likelihood of passage in this session.”

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR)

The API’s Ranger, formerly with BP/Alyeska, also says, “ANWR is an important resource that we ought to have access to.” But the recent stronger, more focused and more effective anti-drilling lobby makes this increasingly unlikely, at least any time soon. Assuming that this privilege is granted at some point down the road, the question of what comes next immediately supplants the seemingly endless pro-and-con ANWR arguments that have endured since the waning days of the Carter Administration. After the Arguments – Before the Drilling

It is far too early to conclude that drilling in the Arctic National Wildlife Refuge is a foregone conclusion. It would also not be a very good idea to go to Las Vegas and bet heavily against it. Less than two years ago, the stars finally appeared to be aligned for this controversial adventure to begin. Even then, in the heady days following the reelection of George Bush, the governor of Alaska and the state’s two senators acknowledged that the fight was only half won. The threat of litigation from various environmental interests looms over any future efforts to drill in ANWR, and there are over 50 different permits which will be required to drill, ranging from the Environmental Protection Agency (EPA) to clean air and a host of state and federal regulations. Still, the mood in Anchorage can be described as cautiously optimistic, even in the sloppy wake of BP’s pipeline corrosion woes, which earlier this summer shut down almost one-half of Prudhoe Bay crude oil production. Just last year, Senator Ted Stevens (R-AK) said that the prospect for successful passage of ANWR legislation is “ninety-nine percent.” He may yet have to eat those words. There are ample reasons to look for substantial domestic oil supplies and very few strong ones left to prevent it from happening. Until just this past month, it was also true that the best prospect for success was unfortunately centered in perhaps the most beautiful spot left on earth. Of course, if Chevron’s newly announced oil find in the U.S. Gulf eventually produces anything remotely close to the 15 billion barrels that some analysts say are there, then the oil exploration giants may decide that there are better places than Alaska to focus their attention. Before that

happens, however, there’s the matter of negotiating the minefield known as Louisiana politics. Surprisingly, ANWR has little if anything to do with the price of gasoline at the pump. Crude oil pumped from ANWR will not be inexpensive; it will not come quickly; nor will it ever wean the United States from dependence on foreign oil. These drawbacks have nothing to do with why many drilling proponents feel that the opening of ANWR to drilling is absolutely the right thing to do. Not surprisingly, they are the most common arguments (read: fallacies) used to convince a skeptical U.S. taxpayer that we need to drill, and drill now. Americans are gluttons for instant gratification, and the prospect of massive volumes of Alaskan oil are “just what the doctor ordered” as tensions in the Middle East boil over, BP fixes its pipelines and Hugo Chavez finds new friends to make in all the wrong places. If only it was that simple… There are valid reasons to drill. In fact, many believe that the ANWR fields will yield crude oil in volumes greater than that expressed by the DOE’s “median” estimates. However, a 2001 study conducted by the U.S. Fish and Wildlife Service indicated that there was no economically recoverable oil in the ANWR region. At that time, crude oil prices were ranging from $20 to $24 per barrel. Extrapolating inflationary forces to oil prices in 2006 is difficult, but it is very clear that crude oil prices hovering at or near $65 per barrel will allow for profitable exploration, drilling and delivery of virtually every recoverable barrel in ANWR and its surrounding areas. This fact cannot be disputed. ANWR’s Minimal Effect on Crude Oil Pricing: Maintaining the Status Quo

The first of the estimated 10.4 billion barrels of crude oil which will perhaps someday be extracted from the Arctic National Wildlife Refuge and the surrounding state-owned areas will not hit the spigot for another nine years, possibly longer, depending on the almost certain litigation that will follow expected legislative approvals. In the meantime, the U.S. national economy will have probably endured at least two more cycles of wild price gyrations for gasoline at the pump. Additionally, domestic oil production will have started its downward spiral, and crude oil imports as a percent of domestic consumption will have increased to a new, disconcerting high. Hence, the introduction of new crude oil supplies into the pipeline in 2015 will have little or no effect on world pricing (the DOE estimates a probable net effect of only $0.40 per barrel), nor will it ease our dependence on foreign oil. Who says so? Virtually every major federal, state and private study conducted on the subject in the past five years, that’s who. On the other hand, the 10.4 billion barrels of recoverable oil is a mean estimate, taken as the average between the The Maritime Executive 45

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR)

most pessimistic and optimistic appraisals. This is an important point. Although drilling opponents are loath to admit such a reality, a similar mean range for initial estimates of recoverable crude oil supplies from the North Slope fields has already been exceeded by a large margin, and those fields continue to produce a significant percentage of domestic crude supplies. The North Slope fields are expected to continue to produce at a flat rate until 2009, beyond which they are expected to drop off. And since Prudhoe Bay, a large number of smaller fields have been discovered, whose combined output equals Prudhoe Bay’s. As production from Prudhoe Bay begins to drop off (and it will), the need to replace these domestic sources with others is critical. Fortunately, the perfect vehicle to get this new energy source to market lies just fifty miles beyond the outer edges of ANWR. Replacing existing supplies with a near-certain new field will be markedly easier to set up than was the initiation of the Prudhoe Bay fields and the building of the Trans-Alaska Pipeline System (TAPS). Current throughput on TAPS, according to oil industry sources, will easily support additional shipments during the overlapping years of declining North Slope production and peak ANWR deliveries. The reliability of TAPS, now in doubt after the ongoing pipeline corrosion debacle, is the latest variable to enter the mix. ANWR drilling can, and will, yield substantial supplies of natural gas but, unlike the crude oil which will be produced, there is no natural gas pipeline that yet exists in the vicinity of these fields. Getting this natural resource to market in the lower 48 will be an expensive and laborious task. At this point, Alaskan natural gas from ANWR probably will not, at least for the foreseeable future, compete with existing domestic and imported supplies. In June of last year, Sempra Energy, a California-based energy services company, announced that it had withdrawn from participation in the natural gas projects being proposed in Alaska. The company cited the time consuming political process as one of the primary reasons for its exit. Sempra’s ongoing efforts are currently focused on two North American LNG marine terminals, one in Mexico and the other on the Calcasieu River at Lake Charles, LA. Both have received the required permitting and are proceeding to the construction stage. For now, the use of natural gas found in ANWR will likely be relegated to a supporting role in the exploration and production of crude oil supplies. Until alternative and renewable energy sources can be found, made economically viable and brought to market, the United States is going to need oil. It is convenient to blame the current Republican administration for its failures in establishing a viable alternative energy program but, in all fairness, Bill Clinton didn’t get it done either. Clinton had a full eight years to get it done (Bush has been at it for less than six) and was elected partially with 46

The Maritime Executive

the enthusiastic support of the various environmental lobbies. The need to develop viable, alternative energy is ongoing. Until this happens, the United States is at a critical crossroads, which requires substantial energy supplies to augment and replace dwindling crude oil supplies from Prudhoe Bay and other ancillary fields. This isn’t going to be cheap oil, and it will be a long time in coming. Absent any other alternatives – and Chevron’s promising new find in the U.S. Gulf may be one – it is clearly the best option among those currently available. Reduced Environmental Footprint/Increased Recovery Probabilities

By any gauge – aside from the most vociferous of the anti-drilling lobbyists – oil exploration in Alaska since the advent of the Prudhoe Bay discoveries has been a relatively clean and safe endeavor. Exhaustive studies have shown little impact on wildlife such as the caribou. The state of Alaska, whose business it should be to know, estimates that caribou herds in Prudhoe Bay have grown tenfold since oil companies began to operate on the North Slope. In fact, the animals actually use TAPS as a wind break in the winter. But this has little relation to what will transpire if drilling is allowed to commence in ANWR. The DOE estimates that an area of just 2,000 acres (slightly larger than that occupied by Dulles Airport) in a total area of 1.5 million acres will be impacted. New oil supplies will be delivered into the existing TAPS, which is already in place, in close proximity to ANWR’s Coastal Plain. Moreover, the advances in oil drilling techniques since the early 1970s are remarkable. The U.S. Fish and

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR) ANWR drilling can, and will, yield substantial supplies of natural gas…there is no natural gas pipeline that yet exists in the vicinity of these fields. Getting this natural resource to the market in the lower forty-eight will be an expensive and laborious task. At this point, most industry observers agree that Alaskan natural gas…will not for the foreseeable future, compete with existing domestic and imported supplies. Wildlife Study conducted in 2001 reports that “new technologies… include better delineation of oil reserves using three-dimensional seismic surveys…and have reduced the number of dry holes; use of temporary ice pads and ice roads for conducting exploratory drilling and construction in the winter.” Using the directional, horizontal drilling techniques that have come into vogue since the commencement of initial Prudhoe Bay drilling will reduce the environmental footprint of ANWR activities to perhaps 10% of that experienced by previous finds in Alaska. The state of Alaska estimates, for example, that the drilling area represented at Prudhoe Bay would have been 64%

smaller had technology now available been applied when the site was first developed. Horizontal drilling means fewer drill sites and, accordingly, fewer pad sites. The very fact that the Trans-Alaska Pipeline is already in place eliminates a huge portion of the potential environmental disturbances, as only a small feeder line will be necessary. The technical advances previously described not only decrease the environmental footprint; they also portend a higher percentage of recoverable oil as a function of the total estimated reserves in ANWR. The American Petroleum Institute, for example, contends that natural gas supplies in the area, which are perhaps not immediately economically viable for delivery to the lower 48, will be used to enhance the recovery of oil in ANWR. When all is said and done, beyond all the rancor and debate, clear of the inevitable litigation which will follow the expected passage of ANWR legislation, is there anyone who doubts that drilling in ANWR’s Coastal Plain will be the most environmentally correct, carefully

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The Maritime Executive 47

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR) Looking abroad, the primary sources for United States scrutinized industrial effort in imports include such (UN)stable countries as Nigeria, history? Sadly, whatever gains Venezuela and Columbia. Beyond this, none of these primarily are realized in terms of environtotalitarian regimes – and other oil-exporting players - are mental safeguards and reduced particularly friendly to the United States and they have environmental impact will never little or no incentive to improve on that behavior. be enough for a certain – albeit small – sector of society that opposes any scope of drilling. How this weighs against even close. The only thing that will ever change American the value of the oil which will ultimately be delivered dependence on foreign oil is the development of renewable, to the American consumer will forever be a subject for alternative energy here at home and a serious effort to prodebate. That debate is rapidly disintegrating into a moot, vide meaningful action in terms of conservation. irrelevant discussion, one which arguably is better spent A comprehensive energy policy – translating to foreign ensuring that the inevitable ANWR drilling is performed respect for our national resolve – ultimately will yield real to the best environmental standards possible. dividends. A robust and continued supply of domestic oil supplies is a necessary part of a broad-based energy policy, which will eventually lead us to the “promised land.” Less National Defense: Ending Foreign Policy Driven by than two years into the current administration’s second Energy Requirements term, we are years away from making this a reality. ANWR Putting a dollar amount on the real value of ANWR oil in is a necessary part – perhaps the only one, until the terms of national defense applications is virtually imposrecent announcement of offshore Gulf Coast successes by sible. Benchmarking the effect of a national determination Chevron and its partners – of the bridge or “transition to secure a substantial and reliable source of energy is not. period,” which will take us where we want to go. Until Like the world’s notion that U.S. resolve for foreign conthen, our foreign policy decisions will continue to be drivflict during the Clinton administration was roughly equiven by the geopolitical power of the oil producers. alent to lobbing guided missiles from 2,000 miles away, OPEC nations can only have the same lack of respect for a country which ravenously consumes 40% of the world’s Shipbuilding: ANWR’s Uncertain Punch energy and yet remains squeamish about desecrating a The enthusiasm of most maritime unions for the pros2,000 acre chunk of land in a virtually unpopulated area pects that ANWR crude oil production will provide the size of South Carolina. And this plays out every day in increased ocean-going employment is tepid. There is some our foreign policy decisions. Governor Frank Murkowski basis for this less-than-rosy attitude, but depending on (R-AK) perhaps put it best when he recently said, “Our how much recoverable oil there is and how quickly it can national security is inextricably linked to our dependence be extracted and delivered from ANWR, there is reason on foreign oil.” for some optimism from domestic shipbuilders. Looking abroad, the primary sources for United States Stuck between the question of how much oil will be imports include such unstable suppliers as Nigeria (always recoverable from ANWR and how soon it can come to ripe for civil war and rife with fraud), Venezuela (bitmarket, potential underwriters of new Jones Act crude ter political divisions create massive internal strife and oil tankers are understandably cautious about dipping strikes) and Colombia (where the main crude oil pipeline their toes into uncertain waters. At the largest and most is damaged with alarming regularity by rebels, interruptexperienced shipbuilding company on the West Coast, ing supplies of crude oil from the interior to the coast). NASSCO’s Director of Marketing, Steve Clarey, declares, Beyond this, none of these primarily totalitarian regimes “We are fairly confident that there will be some newbuilds, – and other oil-exporting players - are particularly friendbut how many is the question.” At a time when Clarey ly to the United States, and they have little or no incentive asserts unequivocally that the collective domestic shipto improve on that behavior. building yards have both “the capacity and the relevant experience” to pick up any foreseeable activity that the It has been argued that anyone who has previously voted market might throw at them, the Jones Act crude oil caragainst drilling in ANWR has blood on their hands in Iraq. rier market appears to be somewhat quiet after a very busy This is a debate which, in the proper context, has real merit. five years. To an extent – yet to be determined by historians – the Cynthia Brown, President of the American Shipbuildwar in Iraq is about oil. It is about maintaining a stable ing Association (ASA), a trade organization that bills supply of energy and expending the sacrifice necessary to itself as representing America’s premier shipbuilders, says ensure that this supply continues until we can wean ourthat there are only two likely shipbuilders for the Alaskan selves from it. To date, we have not even been willing to do crude trades: NASSCO in San Diego and Avondale in that. Oil from ANWR will not do it alone. In fact, it is not 48

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ARCTIC NATIONAL WILDLIFE REFUGE (ANWR)

on to state, “We’ll be ready to build before they’re ready to produce. Typically, a lead time of about 30 to 36 months is necessary.” Even if only a few hulls, at the lower end of the newbuild estimates, come to fruition, the economic impact will be a powerful one. Economic studies by the Bureau of Economic Affairs (BEA) have shown that for every increment of one million dollars spent on shipbuilding, jobs for 9.5 people are created. The BEA data also estimated that another 13.7 people could be employed in other sectors of the economy. With Millennium Class tankers being constructed at prices approaching or exceeding $200 million, the downstream effect is easy to calculate. Photo Courtesy of Seabulk Tankers

Merchant Marine Employment

Louisiana. Both of these companies have recently delivered modern, fully-compliant crude carriers for the Alaskan trades. Brown was less than optimistic at the prospect for additional crude carriers to be built in the near term. According to Brown, there are essentially nine tankers needed to service the current West Coast crude market, and the final vessel in a series built for BP was recently delivered by NASSCO. She and Clarey both agree that ExxonMobil will eventually need to replace a few ships, but this does not appear to be an imminent event. Beyond this, the existing or planned West Coast crude tanker fleet will be a modern one by any standard, with most hulls not scheduled for replacement until well after the first oil starts to flow from ANWR. Projecting the need for additional tankers, should ANWR ever become a reality, is at best an inexact science. Arguably, it is a speculative guessing game. What we do know is this: The first oil from ANWR will come to market no sooner than 2015 and possibly later depending on the inevitable litigation that will be spawned from passage of ANWR legislation. In the meantime, North Slope production will – according to API sources – be flat until 2009, after which it is projected to decline. Determining how many more tankers will be required when ANWR production begins to flow will be predicated on how much oil is actually being delivered and how much of a decline is experienced from North Slope fields. In a worst case scenario, it is entirely possible that ANWR production will merely replace existing North Slope production, in which case the need for additional tonnage will be minimal. Old production forecasts by the oil companies themselves, based on median expected daily output, called for 18 or 19 new hulls to meet ANWR demand. Cynthia Brown and Steve Clarey both feel that these outdated estimates are unlikely to be realized. However, Clarey went

Coinciding with the first barrel of ANWR crude oil that crosses the manifold of a tank vessel in Valdez will come the realization of everyone’s best case scenario: that drilling in ANWR will mean seagoing jobs for America’s merchant mariners. Estimating how many of these jobs will be created, or merely saved, is another matter altogether. Many studies have been undertaken by industry analysts for the purpose of determining the impact of additional oil supplies from Alaska on shipping and seagoing employment. Not everyone is in agreement that there will be a substantial impact. Typically, most unions (representing mariners) vigorously and wholeheartedly support drilling in ANWR’s Coastal Plain. Beyond this, outward enthusiasm extends to only lukewarm optimism, especially for those unions whose contracts are not well represented on West Coast tankers. At the end of the day, most agree that any increase in seagoing employment is a good thing, but there is only a slim chance of this translating into new, sustainable billets for their members. What is clear is that the first oil deliveries from ANWR are at least nine to ten years away. Replacement of current Jones Act crude oil tankers, except in a few select cases, is also many years in the future. While the current climate for domestic shipbuilding is robust, none of this relates to ANWR. At least not yet. For the time being, any hope of increasing American merchant marine employment will rest on other sectors of ocean trade. Local and National Implications: Oil Imports, Tax Revenues and Collaring the Trade Deficit

The impassioned arguments for and against ANWR drilling are many and varied in their angles of approach. The actual numbers related to domestic oil consumption, oil imports, trade deficits and other related statistics are, The Maritime Executive 49

ARCTIC NATIONAL WILDLIFE REFUGE (ANWR) By the time ANWR energy hits the market, …The environmental disaster predicted by drilling opponents will have failed to materialize, and… the technological advances championed by the oil industry are producing an environmental footprint that is just a small fraction of that which characterized the efforts at Prudhoe Bay…any reduction of America’s dependence on foreign oil will be, at best, minor.

however, well known and indisputable. According to API figures, U.S. petroleum imports in August approached 14 million barrels per day, which was roughly equivalent to the same time frame last year. Imports as a percentage of total domestic consumption are up and slowly rising. Current Alaskan crude oil production accounts for less than 20% of total U.S. output and is declining, as is total U.S. output. What does it all mean? Quite simply, domestic consumption continues to climb; domestic production is declining, and petroleum imports are escalating rapidly to fill the gap. As a result, the U.S. trade deficit continues to climb precipitously. From the standpoint of generating tax revenues to reduce a burgeoning federal budget deficit and providing domestic energy supplies to reduce our ever-growing trade deficit, ANWR makes a terrific amount of sense. Increased employment for Americans – the total extent of which remains a matter of debate – would certainly be realized and, along with that, new tax revenues derived from payroll and personal income tax receipts. ANWR is a project and goal which, reduced to its lowest common denominator, makes a great deal of sense for America. Predicting Likely Scenarios and Putting the Fallacies to Bed

Virtually all of the variables necessary for ANWR drilling to finally get started are in place. Production of the first barrel of crude is at least nine years away and final legislative approvals are still not 100% guaranteed. Litigation from the environmental lobby will stall the effort, of course, but the dire economic and energy numbers will only get worse. Prevailing public opinion will eventually carry the day. That could be next year or a decade from now. Only the sudden and miraculous discovery of cheap, readily available, alternative and renewable sources of energy will change things. ANWR drilling will go forward 50

The Maritime Executive

and, by 2020, substantial volumes of crude oil will flow through TAPS. The most important reasons to commence drilling in the geographical area representing just 0.1% of ANWR are both national and local in scope. These reasons include, but are not limited to, the following: n Replacement of lost, waning oil production from other areas, including Prudhoe Bay n Reducing the trade deficit through production of U.S. domestic supplies n Increased employment in the oil, maritime and services sectors n Increased federal and state tax revenues n Maintenance of a modern and environmentally safe merchant fleet n Maintenance of a strong Ready Reserve fleet n Maintenance of a modern shipbuilding industry in the face of reduced naval requirements n Removal or minimization of oil as a political weapon by energy suppliers. By the time ANWR energy hits the market, the halftruths that both sides of the drilling argument don’t want you to know will have been exposed. The environmental disaster predicted by drilling opponents will have failed to materialize, and time will have shown that the technological advances championed by the oil industry are producing an environmental footprint that is just a small fraction of that which characterized the efforts at Prudhoe Bay. On the other side of the equation, the introduction of ANWR oil to the supply equation will not have reduced the price of gasoline at the pump, and any reduction of America’s dependence on foreign oil will be, at best, minor. When drilling does commence in the Arctic National Wildlife Refuge, it will have gone forward because there were numerous compelling reasons to do so. The primary reason to put on the brakes has been shown to be a non-factor, and the quest to find significant volumes of alternative, renewable energy is still nowhere near realization. The only puzzling aspect of this issue is why anyone, anywhere, couldn’t see it coming. MarEx

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SHIPBOARD FIRE FIGHTING

Attempting to navigate through a maze of smoke filled passageways deep within the ship is an incredibly difficult task. …The location of exits, ventilation, and built-in fire systems are all readily available to the crew as they work to contain a fire. As weight is added or shifted within the vessel, a knowledge of vessel stability is also necessary to ensure that the very actions being taken do not create another situation that could cause a loss of the vessel or lives.

SHIPBOARD FIRE FIGHTING Challenging the Worst Case Scenario at MITAGS by Tony MARINO

Photo courtesy of the International Organization of Masters, Mates & Pilots

aritime fires have an incredible potential for catastrophe. In fact, a fire at sea is considered by many to be the worst of all possible dangers. Of the ten most lethal fires in American history, four of them were on ships. These four shipboard fires alone killed a combined total of 2,138 people.

Merchant mariners have a saying, ‘A fire at sea can ruin your whole day.’ This phrase, with its breezy cynicism, covers a true paradox. With water all around, a shipboard fire can quickly become a pernicious and deadly disaster. When a fire does occur, the primary goal of a ship's crew must be to save the ship in order to stay alive. The safest course of action is always to fight the fire until the chance of injury or death becomes a lesser threat than that posed by the fire itself. Smoke from a fire poses another serious problem for merchant seamen. Attempting to navigate through a maze of smoke filled passageways deep within the ship is an incredibly difficult task. Fortunately, professional mariners receive extensive training and have a thorough knowledge of their vessel and its construction. The location of exits, ventilation, and built in fire systems are all

The Maritime Executive

readily available to the crew as they work to contain a fire. As weight is added or shifted within the vessel, a knowledge of vessel stability is also necessary to ensure that the very actions being taken do not create another situation that could cause a loss of the vessel or lives. Cargo manifests, piping diagrams, and a myriad of other related details must also be known to the crew, as there may not be time to search for a blueprint as the fire builds around them. Since shipboard fires are one of the greatest perils a mariner may face, I wanted to learn more about the training programs that are available to help prepare a mariner for such a situation. I joined a group of students that were attending marine safety classes at the Maritime Institute of Technology and Graduate Studies (MITAGS) near Baltimore, Maryland. While most of the students in

attendance were seeking basic fire fighting certification, we were also joined by three mariners that were working towards advanced qualifications. MITAGS transported the class to the Southern Maryland Regional Fire Training Center for an all-day fire fighting session. I joined the eleven students and a team of MITAGS instructors, including Donald Merkle, Jim Clements, and Eric Friend. At the fire fighting facility, we were also joined by seven professional fire fighters, who were led by Fire Chief Steve Augustine. In case you are counting, that is ten professionals overseeing just eleven students. The day began with Chief Augustine orientating the students (who work on Military Sealift Command (MSC) vessels, container ships, and tankers), that the order of the day, above all else, was personal safety. The mariners then began the Continued on page 54

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SHIPBOARD FIRE FIGHTING

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process of donning their PBI fire resistant suits (which are made of organic fiber and polymer), Nomex head coverings, helmets, and gloves. For information, the total cost of properly equipping a fire fighter, including fire retardant boots, can be as high as $4,500. A great deal of time was then spent on one of the most important tools in fire fighting, the Self Contained Breathing Apparatus (SCBA). SCBAs provide respiratory protection while in atmospheres that are considered to be immediately dangerous to life and health. The units can provide self contained breathing times from 35, 45, to 60 minutes. An important life saving feature on all SCBAs are the alarms. These devices are used to help find a downed fire fighter in a smoke filled room or compartment. When a fire fighter has not moved for more than one minute, the alarm becomes activated. To silence the alarm, the fire fighter simply has to move his or her body. Many remember the incident that occurred on September 11th. The sounds that were thought to be cellular phones going off in the World Trade Center towers, were

in fact, the alarm devices of the downed New York City fire fighters’ SCBA units. A fully-equipped shipboard fire fighter must be able to work in all types of confined spaces, some of which may be filled with smoke. ‘The Maze’ is a dark building that was designed to train students to work in complete darkness while negotiating ladders, steps, and windows. MITAGS’ students were sent into ‘The Maze’ in pairs and were instructed on how to use the hose for guidance. Understanding this universal method of using the hose for direction cannot be understated, as it is a lifesaving technique common to all fire fighters. The hose is put together with male and female couplings. Knowing that the male coupling leads to the fire and the female coupling leads to the pump panel, or out of the building, is absolutely critical for survival and passage through the obscurity of smoke. “To effectively fight shipboard fires while underway, we need to train crews with the skills and equipment used by

The Maritime Executive

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professional fire fighters,” says Glen Paine, Executive Director of the Maritime Institute of Technology and Graduate Studies (MITAGS) and the Pacific Maritime Institute (PMI). “Our students are taught the basic principals and behavior of fire. They learn to handle the hoses and nozzles and how to use portable extinguishers effectively. The use of breathing apparatus and personal protective equipment is also covered.” The MITAGS students then advanced to their next exercise. They were taken to the fire pits for simulated training of an electrical fire, a paint locker fire, and a tanker or engine fire. Each one of these live exercises has a specific method for confronting the fire. The electrical fire requires the fire Continued on page 64

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LNG: TO THE RESCUE

LNG TO THE RESCUE LOCAL POLITICS BATTLE COMMON SENSE; MARITIME COMPONENT WILL BE KEY PART OF NEW FACILITIES Amidst the angst and handwringing over the spiraling cost of crude oil, a surprising White Knight has emerged from the pack of potential energy substitutes. With crude oil hovering in the $60 per barrel range and gasoline and home heating oil prices closely following these trends, liquefied natural gas (LNG) is looming as a very viable energy option. LNG is clean – compared to its crude and black oil cousins convenient for transportation and can be brought to market far quicker than other options. Even the environmentalists have far fewer qualms with this surefire source of plentiful energy. So what’s the problem? In this case, the old adage holds true: If it seems too good to be true, it probably is. A Mad Scramble – The Rush to Build According to the Federal Energy Regulatory Commission (FERC), there are 45 existing and proposed North American LNG terminals on the books today. Only five of these terminals have been constructed, while 23 have already been approved by the various responsible regulatory bodies. Of the approved terminals, only 15 are U.S. facilities. Another 17 await either FERC or Maritime Administration (MARAD)/Coast Guard approval. The players and projects change regularly, and FERC maintains an up-todate Web site to advise of these events. All land-based terminals come under the domain of FERC, while marine/offshore facilities fall under MARAD and USCG. On the face of things, the prospects for bringing additional LNG supplies online in a reasonable period of time seem good. In reality, nothing could be further from the truth. According to Spiro Vassilopoulos, CEO of Port Westward LNG, “Very few, perhaps six or maybe 56

The Maritime Executive

eight of the 40 projects in the proposal or preliminary approval stage at this time, will ever come on line.” Vassilopoulos ought to know. He’s been involved in the LNG start-up business for the past three years and has yet to make it to the “Promised Land.” Aside from the four terminals built in the 1970s, LNG is a “new” industry in the United States. By contrast, the rest of the world (primarily Japan) has been actively importing it for 35 years. In the meantime, domestic crude oil production continues to decline while consumption climbs. There is good news. A virtual bonanza of domestic natural gas awaits a means of transport from the Alaskan North Slope, and the federal government seems to think that at least 15 of the proposed U.S. facilities, consisting of both offshore and land-based terminals, are planned well

enough that approvals have been granted for construction. Unlike crude oil and the refining and marketing business, the Oil Majors don’t necessarily have a better chance of landing an approved permit. In fact, anyone can play in this game. The sticking point for many who would like to get into the action, according to Vassilopoulos, is “raising the $15-20 million necessary to get to the point of a successful permit. Mitigate the high price of getting started and suddenly it’s a more economic proposition, and more competition will result.” However, he adds, “There’s no inside track; everyone is equally tortured.” Anyone who consumes natural gas knows that the price has virtually tripled over the last five years. Vassilopoulos is candid in his belief that the current LNG price/demand situation is temporary

LNG: TO THE RESCUE

and solely driven by world politics. Still, Harold Heinze from Alaska’s Natural Gas Authority maintains that “Gas was extremely cheap and still is.” Both men are unabashed proponents of increased domestic energy production, but both also remain pragmatic about the prospects for its happening any time soon. A Fly in the Ointment Just when you think you have all the answers, an event like Hurricane Katrina comes along and changes everything. More than one week after Katrina roared through the Gulf Coast, approximately 42% of the region’s natural gas output remained out of service. Furthermore, the cumulative loss attributable to the storm was well in excess of 70 billion cubic feet. Even as gasoline and crude oil prices began to ease in the wake of the immediate panic, natural gas prices remained somewhat firm. Now, at a point in the calendar when winter demand for natural gas always begins to ramp up, the vulnerability of the natural gas market and its supply lines becomes much more evident. The predicted increase in domestic demand has spurred an unprecedented rush to build new LNG facilities. Unfortunately, events such as Hurricane Katrina may actually have a negative, boomerang effect on these prospects, including the proposed Gulf Coast facilities. And as Spiro Vassilopoulos has noted many times, “When you talk about LNG, all politics are local.” Roughly translated, this means that without broad local acceptance of a particular facility there will be two prospects for that terminal to be built: slim and none. A good case in point is the Broadwater Terminal in Long Island Sound. The proposed terminal has become a “lightning rod” of fierce local opposition. Senators Clinton and Schumer (D–NY), along with a host of other political candidates in the run-up to November elections, have lined up against the terminal, making it unlikely that the facility will ever be built even if FERC approval was given. As MarEx goes to press, Broadwater is the focus of still more questions about safety and security

according to a newly released U.S. Coast Guard report. Across the country, similar scenarios are playing out, and the “open house” informational events hosted by hopeful oil companies are likely to have little or no effect on this trend. As the Gulf Coast continues to recover from the devastating effects of Katrina, many communities will be again be looking long and hard at the possible ramifications of proposed local facilities. The New LNG Push: How and Why The desired result of increased LNG capacity and better logistics will be, at least from the consumer standpoint, cheaper energy. There is debate as to whether new LNG facilities will do just that. New terminals open up new supply points, but most industry experts say that cheaper LNG as a result is not necessarily a guarantee. Most of these proposed terminals will provide the advantage of the “end run” by bypassing the pipelines on the way to market. And since the law of domestic LNG dictates one price, then the differential will lie directly with transportation prices. West Coast marine terminals make particular sense, especially with the Pacific Basin, Russia and Australia being long on supplies. An added wild card is the South Pars offshore field, located on the Persian Gulf, where the recent direction of Iran’s local politics will have a long-term effect on world LNG prices – not through supply (as has been OPEC’s practice), but instead through pricing discounts. The huge field contains at least 9% of the world’s proven reserves. Clearly, assembling a supply network on all North American coasts, which is not captive to one market, makes a lot of sense. The net effect of reduced pipeline volume throughput with associated pipeline tariffs is unknown. Therefore, ocean transport of LNG beats the pipeline economics when the commodity has to be transported 2,500 miles or more. There are considerable domestic LNG reserves in Alaska, but the economics of bringing it to market in the lower 48 remains a

sticking point. Unlike the Trans-Alaska Pipeline, which ferries crude oil south from the North Slope, no gas pipeline exists to do the same with LNG. Cost e stimates of building such a pipeline range as high as $25 to $30 billion. Faced with that bill and more expedient options on the table, most of which involve foreign sources, many players have opted to tap into plentiful supplies elsewhere and ship it to their proposed terminals that they hope will someday be dotting the coastline of North America. North to Alaska In Juneau, Alaska, Harold Heinze helps to preside over what he calls millions of cubic feet of “stranded gas.” As a board member with the Alaska Natural Gas Development Authority (ANGDA), Heinze is one of seven individuals appointed by the governor to “develop, construct, manage and operate a gas pipeline from the North Slope of Alaska and a spur line to the south-central Alaska natural gas distribution grid.” The goal of ANGDA is to have the pipeline in full production by 2007. Obviously, that’s not going to happen. Progress, although measured, is being made. An October 2005 pipeline agreement reached by the state of Alaska with Conoco-Phillips was followed by the May 10, 2006 contract with Conoco-Phillips, ExxonMobil and BP. The second deal lays out the relationships and obligations of the parties and consists of several hundred pages. The deal still has to be ratified by the Alaska legislature. As MarEx went to press, the legislature wasn’t ready to approve the contract. Alaska has also revised its Petroleum Production Tax, and the downstream effect of this on the current deal is unclear. In the end, says Heinze, it has taken many decades to lock in terms which are not well understood and, because of it, the deal may be unenforceable. Finally, with a lame duck governor in the state house, all bets are once again off until after the November elections and the seating of the new governor in January. Another piece to the puzzle lies

LNG: TO THE RESCUE

directed back to domestic and local consumption. In the end, he cautioned, “An Alaskan project built by the state will be more modest than that which the majors would contemplate.”

with the people of Alaska themselves. They’ll have the opportunity to pass a “reserve tax” for gas on Election Day. If it passes, then the oil companies will probably walk away unless some relief is found. In January, anything is possible. The oil companies could split ranks and cut their own best deal with a new governor and state legislature. Although Alaska has been close to getting the job done on many occasions in the past, these efforts failed, says Heinze, because of a lack of financing. That variable is now gone from the equation because the federal government has since pledged $18 billion in loan guarantees for the purpose of building that pipeline. “We are far better off now than we were several years ago,” says Heinze. Beyond this, he says, “A real federal commitment is now in place. Congress and the President want it done. The willingness of the state of Alaska to participate is also important.” The price of gas also enters the picture. When it was a mere third of what it is today, the slim profit margins still made the risk of building such a pipeline a good bet. At that point, the transportation costs associated with LNG ate up a large portion of the profits. Now, says Heinze, projects – any project involving bringing LNG to market – “needs to be looked at from a global perspective. And that’s exactly what the oil majors have done.” Not discounting the national requirement for increased energy supplies, there 58

The Maritime Executive

is a local urgency to the LNG question in Alaska. With two-thirds of Alaska’s general population now living in the Cook Inlet area, the appetite for energy is doing nothing but growing at a time when Cook Inlet natural gas production is starting to decline. While the attraction of bringing North Slope natural gas to other markets is an ongoing incentive, the spur line to the south-central Alaskan distribution grid is arguably more essential. But Alaska is running out of patience with potential producers and eventually, they’ll need to move forward, with or without them. How that gets done still needs to be decided. Not withstanding the tentative (not yet ratified) deals already in place, Alaska may have to someday “go it alone.” The new gas pipelines could be built using Alaska’s “Permanent Fund,” which contains approximately $30 billion in assets and, in Heinze’s words, constitutes “A Rainy Day Fund for Alaska.” But Alaska is not yet ready to say that inclement weather has arrived. More likely, Alaska, absent action from private initiatives, will use project financing. Basically, it will have to put up some money and borrow the rest. A private terminal would be permitted at the end point. A new trans-Alaska gas pipeline, according to Heinze, would be strictly for export only. While he did not rule out exporting from an LNG facility at Cook Inlet, he indicated that much of this output could be

A Look at One Nascent Project Spiro Vassilopoulos has more than a passing interest in the development of LNG terminals here in North America. His own project, Port Westward LNG, aims to build a facility on in the port of St. Helens, Oregon. Vassilopoulos expects to have Port Westward’s pre-filing application completed and submitted in the first quarter of 2007. Port Westward has spent much of the past couple of years in the process of arranging to either buy or lease land in the Oregon port. With most of that aspect of their work complete, engineering and environmental studies have been undertaken in anticipation of moving forward. “We hope to have our pre-filing done in the very near future, and we look forward to getting under way with all the permitting that is involved,” Vassilopoulos stated. According to Vassilopoulos, Port Westward is the Pacific Northwest’s optimal site for an LNG terminal because of the smaller environmental impact. With few people living next door, it is also the closest proposed site to the main natural gas distribution pipeline, with which any LNG facility needs to connect. The facility’s capacity will be an average of 700 million cubic feet per day, surging to 1.25 billion cubic feet per day. Port Westward’s CEO is reasonably certain that his facility can come on line by the first quarter of 2012 – good news for local energy consumers, but hardly a guarantee in today’s turbo-charged political environment. Vassilopoulos says he has broad-based local support from county, city and state governments; but the project has not been without its detractors, some of whom remain vociferous in their opposition. In response, Vassilopoulos says, “We have the most important permit of all: local acceptance.” In other words, business as Continued on page 60

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LNG: TO THE RESCUE The huge offshore South Pars field, which is located on the Persian Gulf, contains at least 9% of the world’s proven reserves. In general terms then, assembling a supply network on all coasts throughout North America, which is not captive to one market, makes a lot of sense. usual in the rough-and-tumble world of trying to bring LNG to market. Maritime Implications LNG Terminals will eventually built in the United States and all of them will involve some sort of maritime component. The need for additional LNG tonnage, secure berthing facilities, tug escorts and literally hundreds of other pieces to the puzzle will become obvious when these facilities become a reality. What will also become evident is the absence of U.S. flag participation in the waterborne transportation in the equation. Today, not even one US flag LNG vessel is in operation. Furthermore, there are none being built, none on the books and, but for lukewarm enthusiasm for some vague proposals put forth earlier this year, none are being contemplated. LNG carriers make up only one piece of the logistics puzzle though, and virtually every other sector of the US marine services industry will see a favorable impact on operations. The business models for future LNG logistics, which are envisioned by both government and private industry alike, probably have no place for Jones Act traffic. Even Harold Heinze is candid about the prospects for domestic shipments of LNG from the North Slope when, and if, the trans-Alaska gas pipeline is built. “The pipeline would likely be for export only. The need for domestic tonnage would be circumvented via cargo swaps and creative parcel routing.” In other words, U.S. consumers would still capture the logistical benefit of close energy without incurring the artificially high transportation costs of a Jones Act carrier. Make no mistake about it: The LNG building market is hot. At least six LNG 60

The Maritime Executive

ships are currently being built to Lloyd’s Register standards. Lloyd’s Register currently classes about 37% of the LNG fleet worldwide with a total of 104 ships (65 in the existing fleet and another 39 on order). Adding the fleets of the three other major classification societies to the mix translates into a lot of ships. The promise of future terminal construction will only fuel the need for more. A building boom in LNG shipbuilding has pushed the global numbers to more than 200 ships, and shipyard backorders indicate that the 300th vessel will be delivered before the end of the decade. Just eight years ago, only 100 such vessels were plying the LNG trade. The building schedule could pick up even faster, especially if a fair percentage of the 40+ LNG terminals proposed for the North American market can achieve regulatory and local approvals. Korean and Japanese builders are battling to be the leading builders of LNG vessels; each now has delivered more than 60 ships. China is expected to give both a run for their money as its nascent shipbuilding industry gathers steam. Growing worldwide demand, especially in the West, has fueled a more active spot market that is expected to expand to meet demand. Looking Ahead: Good Bets and Likely Trends If, as Spiro Vassilopoulos says, LNG politics are all local, then general trends in the US LNG infrastructure will be fairly predictable. On the East Coast, local opposition to new facilities is ferocious in most places. The prospects for any particular facility to come to fruition are not good in the near term. As a result, the everincreasing demand will translate into still higher energy costs. In contrast, strong opposition to new terminals on the West Coast is still prevalent, but the memory of the Enron/energy debacle has brought a new era of pragmatism to the west coast.

As Harold Heinze says, “People have to make a choice.” On the Gulf Coast, at least until Katrina exacted her measure of devastation from the coastal oil infrastructure, the marketplace was working and working well. Ten of the 15 terminals that had achieved preliminary approval from FERC or USCG/MARAD are located there. A similar number await regulatory approval. Early enthusiasm in the Gulf, however, has been tempered by a rash of failed projects, one notably put (temporarily) to death by the threat of a veto by the governor of Louisiana. Right now, the best bet for augmenting domestic supplies to meet growing demand may be buried in the frozen tundra of the North Slope of Alaska. This is a good thing, says Heinze, because “The introduction of increased domestic LNG supplies will have significant effect on the balance of trade and, more importantly, the security of our domestic supply.” Even if Alaska exports much, if not all, of this LNG, the fact that it emanates from a domestic source will reduce US dependence on foreign energy and lowers the overall trade deficit. More importantly, domestic LNG supplies cannot be used as a geopolitical weapon by other, unfriendly nations. Look for Alaska to move ahead and bring its ample domestic supplies of LNG into play. Initially, this may only mean keeping up with increased local demand, but eventually that LNG will reach foreign and US markets in the form of cargo swaps. The move to ramp up U.S. LNG infrastructure is ongoing and will eventually result in increased, cleaner and possibly cheaper energy supplies. Arguably, the introduction of localized LNG storage and distribution terminals in key US markets is an attractive and more viable alternative to another refinery. Right now, consumers want neither, but eventually they’ll have to choose between the cleaner and cheaper option of local LNG or paying out the lion’s share of their paychecks for gasoline and heating oil. And as Harold Heinze says, “People have to make up their minds.” Their time is up. MarEx

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SHIPBOARD FIRE FIGHTING fighter to “kill” the power and then ground the CO2 extinguisher to the floor or other solid object. The paint locker fire, which has either turpentine or oil-based paint in it, is very dangerous due to the possibility of explosion. In both situations, the class was taught to never turn their back on the fire and to never assume that the fire was out simply because it stopped flaming. The tanker or engine room fire proved to be the most difficult exercise, as it quickly spread due to the windy conditions. This type of fire can easily proliferate and engulf an entire ship. The exercise teaches the students to work in teams (four per team), while using large fire hoses for protection. At a distance, the nozzles appears to be streaming the water at a high level of intensity for saturation. But, as the teams step closer to the fire, they discover that they must use the ‘fog’ method for shielding, as it is absolutely essential that the teams stand side-by-side. If the teams separate in any way, the fire could jump between them, possibly causing injury to the fire fighters, but most certainly losing any progress that had been achieved. The last exercise that the students encountered was the ‘burn building,’ where the hose technique for directional guidance was tested in a real smoke situation. The students were moved into the building, which had all of its windows and doors open to allow familiarity with the two-story environment. In the middle of the room was a bale of coffer-wood on a construction workhorse. With the self contained breathing apparatuses in full deployment, the windows and doors are shut, and the coffer-wood is ignited. Within minutes, black smoke is billowing out through the crevices of the windows and door, while the students make their way through the building using the hose. Remember, there are ten professional fire fighters working with eleven students, so full control is maintained during the entire exercise. MITAGS’ instructors and the professional fire fighters are all certified Emergency Medical Technicians and paramedics. Donald Merkle is also a member of the National Fire Protection Association (NFPA), which was established in 1896 and serves as the world’s leading advocate for fire prevention. The organization is also an authoritative source on public safety. In fact, the NFPA’s 300 codes and standards influence every building, process, service, design, and installation in the United States, as well as numerous other countries. In addition to being compliant with the NFPA standards for training procedures, MITAGS’ fire fighting programs also meet the Occupational Safety and Health Association (OSHA) standards. Additionally, the courses are certified by the U.S. Coast Guard and meet the requirements reflected in the Standards of Training, Certification, and Watchkeeping for Seafarers Code (STCW-95). Confronting a fire raging onboard a ship in the middle of the ocean can do much more than ‘ruin your whole day.’ It could potentially kill or seriously injure everyone in its path. The MITAGS fire fighting program was quite extensive and very detailed. The instructors spent a great deal of time critiquing each student throughout the day regarding their performance and ensuring that they were clear on the proper tactics that are required for fighting fires. I came away with a renewed respect for the unpredictability of fire and for the possible dangers merchant mariners face everyday. To learn more about the Fire Fighting program or other classes offered at MITAGS, please contact Capt. Robert Becker toll-free at (866) 656-5569 or via e-mail at rbecker@mitags.org. You can also visit their web site at www.mitags.org. MarEx 64

The Maritime Executive

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