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Deep Down, Inc. (DPDW-OTC QB) |
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September 10, 2012 Issue |
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The Most Powerful Name In Corporate News and Information |
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CURRENT ISSUE | COVER ARCHIVES | INDEX | CONTACT | FINANCIALS | SERVICES | HOME PAGE |
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As the “Glue” of the Sub-Sea Business, Oilfield Services Company, Deep Down, Inc. is Providing more Complex Deepwater and Ultra-Deepwater Oil Production Distribution Systems Support Services and Technologies used Between the Platform and the Wellhead to Companies Worldwide that have Been Around 50 to 100 Years |
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Company Profile:
www.deepdowncorp.com |
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Interview conducted by: Lynn Fosse, Senior Editor, CEOCFO Magazine, Published – September 10, 2012
Mr. Smith: When an oil company develops a sub-sea field, there is an inner connection system called a sub-sea distribution system. Installation contractors have to install that system. Deep Down has been instrumental in working for the installation contractors and the operators of the distribution system. Deep Down has managed over 50 installations. Through these installations, management has learned special tricks of the trade to solve most problems that have developed in this critical part of the industry. Deep Down has always been there to provide a solution. Those solutions have become product lines for the future. We have been called the “glue” of the sub-sea business because we typically “glue” some of the missing links together to help projects run more smoothly. We have a mixture of engineering, project management, sub-sea products and services that work for the operators, the installers, OEMs, and installation contractors. There has been quite an interesting mix and that is what we do.
Mr. Smith: Years ago, everything on the sea floor was connected with hoses. Those hoses would fail in five to ten years. There was a large gap in the reliability that operators wanted and what the hardware would provide. Employees of Deep Down, working for the different companies involved in the offshore production of oil and gas, were instrumental in the development of the steel tube umbilical. Many skeptics said the steel tube umbilicals would not work over hoses. When the Steel Flying Lead was introduced, we were there. That Steel Flying Lead has helped increase the reliability of the entire sub-sea system. Another innovation was when umbilicals were pulled into the platforms from boats, we developed a bend stiffener. We had Remote Operating Vehicles (ROVs) on our vessels and no divers, so we had to have a separate vessel out there with divers and I said that is ridiculous. Let us develop a device we call the bend stiffener latcher that locks the bend stiffener in with an ROV and eliminate divers. Those are some of the examples.
Mr. Smith: My mentor, when I worked for Ocean Drilling and Exploration Company (ODECO), told me that working in the offshore business is 20% knowledge and 80% getting along with others. I have to say that some of the new innovations still fall within the 80% rule where 20% is technology and 80% is either experience or a combination of multiple experiences. It is more of an experience balance than it is a technical balance but that technical percentage is going up every thousand feet of water. When you get into for example, five thousand feet, it is 30/70. Six thousand feet is 40/60, to the point now where technology in ten thousand feet of water is probably flipped over and is more technology and science but less experience. It is probably 70/30 now.
Mr. Smith: We do and everybody pinches me every time I bring it up because we have a patent pending on a sub-sea nuclear power plant. The sub-sea nuclear power plant is going to do all sorts of different things, but we are not focusing on that type of thing. You will end up reading about it from some multibillion-dollar company that will end up developing it, which is why we are going to try to patent this process to protect our idea. It was not the billion dollar companies, it was us.
Mr. Smith: Essentially, we have one business unit that provides several different service and product categories. The largest service provided is associated with umbilicals and flying leads used in the distribution system for the production of oil and gas. Over the last several years, we have expanded our services to include products such as hardware associated with the installation, connection of umbilicals and flying leads that provides the customers with a quicker and safer installation solution. We expanded into the ROV services and tooling market and the specialized subsea buoyancy products, which provided us with expanded services, work to our customers. Through our experience in handling umbilicals and flying leads, we have developed a large modular carousel used to store, transport and install umbilicals and flying leads. Our mix is about where we want it, but as demand grows for our products, this mix could shift.
CEOCFO: What is the geographic reach for you? Mr. Smith: Traditionally, our market was in the Gulf of Mexico with the occasional international project. However, as the global market continued to expand into deeper waters we have been providing our services and products more and more to the international areas, particularly West Africa, South East Asia, Brazil with increased demand in the deeper waters of the Gulf of Mexico. We service the global market from our main facility located in Houston, Texas.
CEOCFO: What is the competitive landscape? Mr. Smith: That is complicated. Our competitors are also our clients and we have to maintain a friendly relationship with them because we do not want to shoot ourselves in the foot. Our competitors are the large OEMs that build control systems and trees. Our true competitors are some very small testing companies.
Mr. Smith: When I ask somebody if they have ever heard of Deep Down and they say yes, well they have been doing things in greater than six thousand feet of water. If they do not know Deep Down, I ask them if they have worked in six thousand feet of water before. If they tell me no, I say that is why you do not know Deep Down. The people that are in deep water know about us.
Mr. Butler: We had a very good second quarter and expect to have a very good year. We are a service company rather than a manufacturing company, and our backlog orders generally represent purchase orders or contracts that we have in house and it has almost doubled from what it was at the start of the first quarter. Our business looks very good now and it looks very good for several months. We see the Gulf of Mexico making commitments to moving rigs down over the next couple of years, so we actually see our home based operation growing as well, so right now it looks very good.
CEOCFO: Are you working on any new technologies or products that could have an impact on your business in the near future? Mr. Smith: We were issued a patent last summer for a product we have been working on for four years, our non-helical umbilical patent. We are in a process of setting up a mobile steel tube umbilical manufacturing facility at our plant in Houston to allow us to build steel tube umbilicals that are five and six miles long. This should substantially increase our market share in the niche market for subsea distribution systems. Many of the companies are getting excited about this possibility mainly because market research indicates that there are approximately $21 billion of umbilicals that need to be built to address global demand in the next five years. The current umbilical manufacturers do not have the capacity to build enough of them in this period. With our new-patented technology for umbilicals and the strong demand, we expect to significantly increase our business in this area.
Mr. Butler: We are a small public company that has survived going through the financial collapse of Wall Street, along with a governmental moratorium on most of the operations in the Gulf of Mexico. Our market cap on our stock is about half of our net worth today, so I think we provided a really good opportunity for the investment market. We did a reverse stock split in mid July of one for twenty shares. We now have a little over ten million shares outstanding and our stock is $1.50. The company has gone through tough times and has returned to profitability this year.
Mr. Smith: The last three years in this industry has been very difficult and of course we have an economy that has been tough, but the price of oil has maintained between $75 and $100. Clearly, the major discoveries in the deep-water area, which is the future of this industry, are beginning start, so we are a very small company with virtually no real competition but a lot of new technology and all the majors rely and depend on us. We think we have an opportunity to grow at a very rapid rate over the next several years. We need to be careful though because making acquisitions can be complicated. Right now, we want to be lean and mean and grow internally with our products and such. I think you will see a tremendous growth over the next five years in this company.
Mr. Smith:
Many people are migrating towards us. We have a very strong engineering and
innovation team, and the customers are starting to recognize in the ultra
deep water you just cannot develop things fast enough, and some of the
really large companies are overly encumbered. They are looking towards us to
do more and more, and provide them with our innovative solutions. Now that
we are larger and have increased capabilities, we have the ability to do
more than we used to and that is what is opening the doors for us.
Previously, customers were not going to give us a $10 million order because
they did not think we could produce it, but now they are not worried about
that and we are starting to get more of those opportunities. |
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What makes us unique is we are a small company and we are doing business for all the big companies that have been around for fifty to a hundred years. We have all the technologies that tie the work together. - Ronald E. Smith |
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