Gulf Island Fabrication Inc.’s record $312 million in 2006 revenues combined with a sizable backlog of projects will allow the offshore drilling platform fabricator to spend $43 million on facility improvements and expansion this year – the biggest budget ever for the offshore rig maker.

Gulf Island started bucking typical performances in 2006 during the first quarter, said CEO Kerry Chauvin, when the newly acquired Gulf Marine Fabricators started turning a profit during its second month under the GIFI umbrella.

Gulf Island purchased the Corpus Christi, Texas-based deep-water fabricator in January 2006 as a move into the trend toward deepwater oil and gas projects.

“Our company ended the year with a great balance sheet – with no debt and cash in the bank – and that’s always a good position,” said Chauvin. “We hope to take that forward. We are going to spend a significant amount in capital expenditures in 2007 to add capacity and upgrade our equipment to be more efficient.”

Gulf Marine was unprofitable for several years, but a sizable contract fabricating the topsides of a large floating platform for Chevron’s Tahiti project helped the company rebound, Chauvin said.

Gulf Island inherited the Tahiti-project contract, Chevron’s $3.5- billion floating crude oil and natural gas production facility about 190 miles southwest of New Orleans in 4,000 feet of water in the Gulf of Mexico, by buying Gulf Marine.

“We were very fortunate. Normally it takes six to eight months before you would turn a profit,” said Chauvin. “Considering the organization had not been profitable for several years before, we did turn Gulf Marine around earlier than expected … which was very good for us. The year ended up being a record year for us with more than $300 million in revenues.”

Chauvin feels Gulf Island is still transitioning from the acquisition and two “cumbersome legacy projects.” It’s also still reeling from the 2005 storms.

“We still have some (legacy) projects going into 2007 … that are still feeling the effects of the hurricane,” Chauvin said. “The increased labor costs and the increased material costs because of hurricane damage, things like steel and … some sub-contracted services like electrical have increased significantly since the storm.”

Chauvin would not discuss the two projects other than saying they were bid before hurricanes Katrina and Rita, contracted at a fixed price and will be completed within the next three months.

“So going into the first quarter, we did have some lower margins than we’d like to see. But once these legacy projects are gone, we hope we are more profitable and we’ll get to more normal levels than what we’ve seen in two or three years,” he said.

Chauvin said the company has a backlog of nearly $400 million of work, and its infrastructure improvements include a $25 million, 650-foot graving dock at Gulf Marine.

“Instead of a floating dry dock, this is essentially a dry dock. But you build a big hole in the ground and you build a structure in it and at the end you flood it and move the wall and then float it out,” Chauvin said. “It will be a significant investment for our company for 2007.”

High oil and gas prices have led to more company projects, said Chauvin.

“Sometimes the increasing on the cost side has stopped some projects going forward so you have positives and you have negatives,” he said. “I guess they just weigh out. You have to see what happens but by and large yes, there are more projects that have come out because of the higher oil and gas prices.”

(C) 2007 New Orleans CityBusiness.

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