Gulf Island Fabrication, a Houston-based oil service company with hundreds of employees at its Houma facility, turned a first-quarter profit with the help of a $10 million federal stimulus loan, company filings show.
The publicly traded company, which has struggled financially amid a six-year Gulf of Mexico oil bust, received the maximum $10 million from the Paycheck Protection Program.
“The impact of COVID-19 on the global economy and our industry as well as the related decline in oil prices has created significant uncertainty for our business and operations,” Richard Heo, Gulf Island’s president and CEO, said in a news release Wednesday on the company’s first-quarter earnings.
“In this challenging and uncertain time, the PPP Loan proceeds provide necessary liquidity to defray payroll and benefit costs, including maximizing our ability to retain our workforce, execute our current backlog and compete for new project awards,” Heo said. “We have already used a portion of the borrowed funds to return a number of employees we had furloughed at the onset of the pandemic and we have retained additional employees we would have had to furlough or terminate without such funds.”
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The action comes as industry groups, including the Louisiana Oil and Gas Association, lobby for state and federal aid to help companies hit hard by the pandemic. A decline in demand has sparked a global crude glut and caused oil prices to plummet, causing work slowdowns and layoffs in Louisiana and elsewhere in the oil patch.
The company on Wednesday reported a net income of $5.9 million for the first three months of the year.
The performance was buoyed by a one-time injection of $10 million from the settlement of a contract dispute for a previously completed project and cuts to executive pay amid the downturn, the company reported.
Gulf Island, which builds ships, oilfield platforms and other industrial structures, employed 944 people as of Dec. 31, according to an annual report filed with the U.S. Securities and Exchange Commission. Most of the employees work at the company’s Houma shipyard and fabrication facilities, making Gulf Island one of Houma-Thibodaux’s largest employers.
The taxpayer-funded Paycheck Protection Program has come under fire from small businesses, members of Congress and others who contend the money was never meant for large, publicly traded companies, which raise money by selling stock and often have access to loans or credit from banks.
At the end of trading Thursday, Gulf Island’s market capitalization, or the total value of its stock, was more than $46 million.
Congress approved $349 billion for the program in March as part of a $2 trillion stimulus package in response to the coronavirus pandemic, which has wreaked havoc on the U.S. economy. After the business loans ran out in 13 days, Congress added another $310 billion to the program late last month.
The money can be repaid at 1% interest over two years. The federal government will forgive all or part of the loan if it is used to cover payroll and other specified costs required to keep the business operating amid the pandemic.
Playing by the rules
Several publicly traded companies have returned the loans amid criticism the money was intended for smaller businesses. The Washington Post reported Tuesday that the Treasury Department has asked public companies to return PPP loans by May 14 under the threat of financial penalties, saying they weren’t the intended recipients.
Some companies have challenged that, contending the initial rules made them eligible for the loans.
A phone message and email to Gulf Island’s Houston headquarters seeking comment about the issue were not returned Thursday.
More: Companies face harder time getting government-backed loans meant for small businesses hurt by coronavirus
The U.S. Small Business Administration, which is administering the program, issued guidance April 23 that would tighten the rules for many publicly traded companies.
“Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere, ... borrowers still must certify in good faith that their PPP loan request is necessary,” an SBA fact sheet says. “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.
“For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.”
The SBA says it will consider any company that applied for a PPP loan before the guidance was issued repaid the money in full by Thursday as having made the required certification in good faith.
More: Confused by the federal government's small business loan program? You're not alone.
Making the loan
Gulf Island secured its loan from Hancock Whitney Bank on April 17, before the SBA issued the guidance, an SEC filing shows.
The company reported Wednesday that it ended the first quarter with cash and short-term investments totaling $68.6 million and no debt. Its financial statements also show the company reduced a previously secured $40 million line of credit to $30 million.
“The company must maintain a strong balance sheet and liquidity position to execute its backlog and compete for new project awards,” the company says in its news release. “As noted, in April 2020, the company entered into a PPP Loan to be used primarily for payroll and benefit costs.”
The company reported a work backlog as of March 31 of $500.3 million, including $471.1 million for its Shipyard Division.
Gulf Island’s stock, which trades on the NASDAQ exchange under the symbol GIFI, closed trading Thursday at $3.05 a share. That’s down from its 52-week high of $8.91 and more than $20 a share in mid-2014, before the Gulf of Mexico oil bust began.
Houma Courier Executive Editor Keith Magill can be reached at 857-2201 or keith.magill@houmatoday.com. Follow him on Twitter @CourierEditor.
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