New line pipe mill getting ready to open in Texas.
In today's business climate, it doesn't take much to put a smile on the faces of men and women in the oil and natural gas pipeline industry. Say the magic words "new plant" and "jobs" and you're practically there.
That's what Gregg Eisenberg, president and CEO of Boomerang Tube LLC met with when he announced earlier this year that funding had been finalized for a new manufacturing plant located on the banks of the Trinity River in Liberty, TX.
The 487,000 square-foot facility (about seven football fields long) is being designed to accommodate oil and gas customers in the United States and Canada needing either welded line pipe or oil country tubular goods (OCTG). The huge size of the plant is necessary to accommodate line speeds that "run much, much faster" than others can manage on their equipment, the veteran pipe maker said.
The plant will be capable of producing 400,000 tons of electric-resistance welded (ERW) OCTG and line pipe annually, equaling about 10% of the current U.S. market for OCTG. The plant is actually a revamped former Allied Tube & Conduit facility which Boomerang bought for $10 million from Triple-S Steel Supply Co. Inc.
According to one report, Eisenberg had to put plans for the company on hold last year amid the recession and financial crisis which caused energy prices to collapse and made capital difficult to obtain. Once oil and natural gas drilling rebounded and the combination of new and proposed duties on Chinese steel tube manufacturers worked to keep them out of the U.S. market, Eisenberg and his new partner were ready to make their big move.
Construction is being financed by Access Industries, a New York-based industrial group, which has committed $200 million for the project that is expected to start up operations later this summer. In a news release, Eisenberg said, "We have great confidence in the future of this business and expect to quickly become a high-quality supplier to the oil and gas sector."
He pointed to the decision last year by the International Trade Commission (ITC) imposing duties on imports from China which he insisted "finally leveled the playing field for our business." Now, "Add the two (duties) together and you effectively put a 50% tariff on imports from China," says Eisenberg.
That ruling also played well with the directors of Access Industries, which cited Chesterfield, MO-based Boomerang's "strong management team" as a key reason for its decision to finance the project. And it didn't hurt that local community leaders were willing to offer a number of incentives, including a tax benefit.
During an interview with P&GJ, Eisenberg--the former chairman and president of Maverick Tube Corp. who left Maverick in 2004 and formed Boomerang in 2006--discussed his business strategy and explained why the ITC decision was so momentous to the pipe sector.
P&GJ: What prompted you to open an OCTG and line pipe mill at this time and location?
Eisenberg: The main catalysts for our market entry were $7 billion in consolidations that occurred in the late 2006 to late 2007 time period; the recent trade actions that have resulted in barring the Chinese from the U.S. market for five years, and the improving demand for OCTG and line pipe products.
P&GJ: What sectors of the energy marketplace are you targeting?
Eisenberg: For our OCTG business, we are targeting the oil and gas drilling sectors. For our line pipe business, we are focused on gathering and distribution of oil and gas.
P&GJ: What is your outlook for drilling over the next few years?
Eisenberg: We have a very optimistic outlook on the future of drilling. Most analysts believe that drilling will improve by about 10-20% over the next two to three years.
P& G J: What makes you optimistic about today's business climate as well as the petroleum industry?
Eisenberg: Certainly, the improved outlook for drilling is a very positive sign for the future. Additionally, the consolidations occurring in the supplier base and the Internal Trade Commission's restriction on Chinese trade improve the outlook of the market and create a more level playing field in the U.S. for Boomerang Tube.
P&GJ: What are the some of the major products and services Boomerang Tube will offer the industry and what do you think will make the plant unique in the OCTG and line pipe sector?
Eisenberg: Once completed, Boomerang will have the only state-of-the-art OCTG and line pipe manufacturing facility built in the United States in last 25 years. This will allow us to offer a wide array of products to our distribution network, along with OCTG and line pipe products. Gathering systems and distribution systems are individual parts of the line pipe market.
P&GJ: Why does Access believe that Boomerang Tube represents a good investment?
Eisenberg: Access believes the investment in Boomerang's new manufacturing facility represents a strong growth opportunity and expects Boomerang to be a platform for additional investments in the North American oil and gas industry. The fact that finally the playing field has been leveled for Boomerang's business with the decision to impose duties on imports from China was an important factor to its decision.
Access has a history of investing in strong management teams, and they were pleased with the management team we put together and our experience in the industry. Finally, Access believes this is the appropriate time in the economic cycle for this investment and believes the investment is well-positioned to benefit from the uptick of the economic recovery.
P&GJ: How important was the ITC's decision on import duties on your decision to move forward and why?
Eisenberg: This decision was very important as it made for a more competitive environment. Before the ITC decision, China held a 32% share of the U.S market with its unfair practices.
P&GJ: What is your short-term business strategy?
Eisenberg: Our short-term business strategy is to first get the manufacturing facility operating quickly and efficiently. We will be developing relationships with customers and focus on short-and long-term profitability for our investors.
P&GJ: What is your previous business experience in the oil and gas business? Who will comprise your management team?
Eisenberg: I am the former CEO of Maverick Tube Corporation. I am fortunate to have compiled a very experienced management staff including Sudhakar Kanthamneni, Chief Operations Officer and Chief Financial Officer Robert Horsfield. Both leaders are very well-respected in the industry. Our collective team at Boomerang has deep experience within the OCTG and line pipe business including plant start-ups, plant construction and equipment installation, among others.
P&GJ: Do you have plans to go public?
Eisenberg: There are no plans to go public at this time.
P&GJ: What incentives, if any, did you receive from local and state community leaders?
Eisenberg: Both city and county leaders have done an outstanding job of creating an environment in Liberty that was very attractive for us. We appreciate their desire to partner in this opportunity. Among the benefits of developing in Liberty, we have been offered training resources for employees, favorable utility considerations and various tax incentives.
P&GJ: How many employees will you be hiring this year and when do you expect to be fully operational?
Eisenberg: We expect to be fully operational in August. We anticipate employing up to 350 people in Liberty, TX and up to 75 people at our St. Louis headquarters. We will have employment information on our website that will help people learn more about employment opportunities.
By Jeff Share/Editor