Teledyne sinks to new depths in search of oil and gas.

Looking to drive up profits, Teledyne Technologies Inc. has its eye firmly on the sea floor.

The Los Angeles-based maker of electronic components, aircraft engines and other devices has just acquired two companies that manufacture sensors used to search for underwater gas and oil fields.

The moves position the company as the only large player in a small and fragmented industry--but one expected to grow sharply as known energy reserves are tapped out and demands grow for new ones.

"We saw an opportunity to grow into a market where there's no gorilla," said Jason VanWees, director of business development at Teledyne. "We're hoping to be that gorilla."

Teledyne, which already has a geophysical instruments unit, just bought Benthos Inc., a North Falmouth, Mass., maker of acoustic sensors, for $41 million. Last month it spent $37 million to purchase San Diego-based RD Instruments Inc., which uses Doppler radar to track and produce 3-D maps of water flow.

Both companies produce the kind of technology needed to explore deeper offshore zones. They also give Teledyne, along with its existing geophysical instruments unit, an array of technology used in about every step of offshore oil and natural gas exploration and production.

Energy companies building new offshore oil drilling platforms employ acoustic sensors to find oil and gas fields and place platforms, while the acoustic Doppler technology can map water currents during rig construction and underwater repair.

"Life is a lot more difficult for the oil industry because the easy reserves have been found and consumed a long time ago," said Fadel Gheit, senior energy analyst at Oppenheimer & Co. in New York. "So this is going to be incredibly important and valuable technology in the future."

Acoustics

Teledyne also makes instruments and environmental sensors used for pollution detection and cleanup, as well as testing services for aerospace and defense technology. Other divisions provide system engineering work for defense, space and environmental customers. The company also manufactures aircraft engines, hydrogen gas generators and fuel cell energy power systems.

Teledyne's electronics and communications segment, which includes geophysical instruments, had third-quarter revenue of $178.9 million, up 15.3 percent from the like period a year earlier. Overall, Teledyne posted revenue of $295.3 million.

It's now counting on the electronics and communications segment to help drive growth.

Both RD and Benthos specialize in products that send sound waves to the ocean floor. As they bounce back, they are picked up by ultra-sensitive underwater microphones, while computers translate the data into 3-D maps of the ocean currents, undersea objects or geological layers.

The technologies are in greater demand as undersea exploration and drilling for oil and natural gas has gone deeper, particularly in the Gulf of Mexico, where drilling 10,000 feet under water has turned up large oil and gas fields.

"The industry is significantly increasing our capital expenditure in frontier play, to replace the reserves we're extracting," said Hal Washburn, chief executive of Breitburn Energy Corp., a Los Angeles-based subsidiary of Provident Energy Trust in Calgary, Alberta. "If you're in ultra-deep water in the Gulf of Mexico, you can easily spend $100 million drilling a single exploratory well and still come up dry. So any technology we can deploy that will reduce that risk or the expenditure, We'll buy."

The products are also being used to inspect and repair the Gulf Coast oil and gas platforms and pipelines that were badly damaged in the recent hurricanes.

Publicly traded Benthos had net income of $674,000 in 2004, up 18 percent from the prior year, while its revenues were up 17 percent, to $19.9 million. Its undersea instruments segment accounted for about two-thirds of its revenue last year, with the segment sales expected to reach $18 million alone this year. Privately held RD Instruments had sales of $27 million last year.

Energy companies are pouring billions of dollars every year into exploration and building oil and gas production platforms, pipelines and terminals off the coastal waters of the U.S. About a third of domestic oil and gas production comes from these areas, according to the National Ocean Industries Association.

"It doesn't matter where in the world it is, acoustics are used everywhere for the engineers or geologists to decide where it's feasible to drill," Gheit said.

Teledyne Technologies Inc.
AT A GLANCE

* 25 subsidiaries in U.S., Canada, U.K.,
Germany, Mexico, L.A. County

* 6,600 employees

* Produced the first ultra-light titanium
bicycle in 1974

* Makes metallic "stacks" that power fuel cell
vehicles

* Produces underwater microphones that
pinpoint oil deposits under the sea

Source: Business Journal research

MATT MYERHOFF Staff Reporter