DeepTech International Inc. History

Address:

7500 Texas Commerce Tower
600 Travis
Houston, Texas 77002
U.S.A.

Telephone: (713) 224-7400
Fax: (713) 224-7574

Public Company
Incorporated: 1989
Employees: 66
Revenues: $55.43 million (1996)
Stock Exchanges: New York
SICs: 4922 Natural Gas Transmission; 1382 Oil & Gas Field Exploration Services

Company History:

DeepTech International Inc. is one of the most promising and highly innovative diversified energy companies working in the Gulf of Mexico. The company, through its subsidiaries, owns facilities and operates services in the fields of oil and gas gathering and transmission, gas processing, oil and gas development, oil and gas engineering services, and geophysical and geological technology. Primarily working in what is called the Flextrend and Deepwater regions of the Gulf, which are water depths between 600 to 1,500 feet and greater than 1,500 feet, respectively, DeepTech is at the forefront of companies that are taking advantage of one of the world's acknowledged new frontiers for oil and gas development.

Origins

DeepTech International was founded by Thomas P. Tatham, who has served as chairman of the board and chief executive officer since the company's inception. With over a quarter of a century of experience in the oil and gas industry, Tatham has been a moving force in oil and gas exploration development. In 1970, Tatham established the Mid-American Oil Company, which he subsequently sold in 1979 to Centrex Corporation for a hefty profit. One year later, Tatham founded the Tatham Corporation, a holding company that acquired the entire assets of Sugar Bowl Gas Corporation, a firm that owned one of the largest and most profitable intrastate pipeline systems throughout Louisiana. After he sold the assets of both Tatham Corporation and Sugar Bowl Gas Corporation in 1983, Tatham decided to spend the majority of time pursuing personal investments in a variety of industries. Yet the oil and gas production and exploration industry remained in his blood, and in 1989 he formed DeepTech International.

During the late 1980s and early 1990s, the deepwater areas of the Gulf of Mexico garnered interest from many American-based oil and gas companies. Of particular interest to the major firms in the industry, including Mobil, Texaco, and Exxon, were the regions known as Flextrend and Deepwater. For the period between 1986 and 1992, these companies devoted billions of dollars from their operating budgets for geophysical analyses, exploratory drillings, and lease acquisitions. The financial commitment made by the major oil and gas companies led to the discovery of large tracts of new oil and gas deposits and immediately established the Flextrend and Deepwater regions in the Gulf of Mexico as one of the world's richest oil and gas provinces.

As the information about the Flextrend and Deepwater areas of the Gulf began to spread within the oil and gas industry, Tatham reasoned that a vertically integrated, independent oil and gas company could become a major influence in the exploration and development of those deepwater areas. When forming DeepTech International, Tatham's strategy was to begin operations in the Flextrend and Deepwater regions only after large expenditures of capital investment had been made by the major oil and gas companies and that most of the risk in exploration and initial drilling had already been undertaken.

Under Tatham's leadership and guidance, DeepTech International began to select highly strategic leasehold acquisitions and development opportunities which could be exploited by innovative technology recently developed within the oil and gas exploration field, such as 3-D seismic data processing, interpretation, and analysis, the design of improved oil and gas pipeline infrastructure, and the employment of alternative deepwater production techniques. By a stroke of good fortune, DeepTech International was at the right place and the right time when the oil and gas industry was experiencing an economic downturn, and many of the major companies were forced to reduce their operations in the field of oil and gas exploration and development.

Expansion and Development in the Early 1990s

Anticipating the formation of DeepTech International, Tatham incorporated Tatham Offshore, Inc., in 1988. When DeepTech International was formed one year later, Tatham Offshore was subsumed as an operating subsidiary under the management and direction of DeepTech. Tatham Offshore is the cornerstone of DeepTech International's operations, engaging in the exploration, development, and production of oil and gas in the Flextrend and Deepwater regions of the Gulf. Tatham Offshore made its first acquisition in a Flextrend region known as Seattle Slew, which had previously been the site of three exploratory drillings by one of the major oil companies, all of which indicated large formations of oil or gas. Tatham Offshore drilled its initial well in the Seattle Slew area in 1991 and commenced production in August 1993. Addition drillings by Tatham Offshore followed quickly upon the Seattle Slew project. Approximately ten miles off the Louisiana coast, the company purchased the Silent Beauty producing field in 60 feet of water, and the Genuine Risk project was started in 370 feet of water approximately 75 miles of the coast of Louisiana.

Leviathan Gas Pipeline Company, Inc. was created in 1993 to provide transportation services for Tatham Offshore, including an extensive natural gas pipeline system. In a very short period of time, Leviathan either constructed or acquired numerous transportation networks that carried oil and gas from Tatham Offshore drillings in the Gulf to sites onshore. Developing a reputation for safety, reliability, and cost-effectiveness, larger oil companies working in the Gulf began to lease portions of Leviathan's growing transportation network. The Green Canyon pipeline gathering system of 66 miles, the Ewing Bank gathering system of seven miles, the Tarpon Transmission Company which operated 40 miles, the Stingray system of 337 miles, and the High Island Offshore gathering system of 202 miles were soon under the management and supervision of Leviathan.

Deepwater Production Systems, Inc., another DeepTech subsidiary, was created during the early 1990s to evaluate, design, and apply highly sophisticated, alternative deepwater production methods for oil and gas reserves. Deepwater Systems designed and constructed the Ewing Bank gathering system, and in 1992 purchased a earlier-model, semisubmersible drilling rig that was extensively refurbished and used by its parent company to drill and complete wells in the Deepwater and Flextrend regions of the Gulf.

Dover Technology, Inc., a jointly-owned subsidiary of DeepTech International and one of the major oil companies working in the Gulf of Mexico, was also formed during the early 1990s to provide oil and gas exploration technology such as seismic analysis capabilities, interactive seismic data processing and interpretation, and computerized petrophysical analysis. The employment of such 3-D seismic surveys, computerized workstations, and the comprehensive integration of petrophysical and geological data within a modern electronic framework, provided enhanced and extremely accurate analyses of possible placements for exploration and development drillings. Most importantly, these techniques helped to clearly identify high risks and the geological conditions surrounding potential reserves of oil and gas in the Flextrend and Deepwater areas.

Offshore Gas Marketing, Inc., was formed by management at DeepTech International to market and arrange the distribution of oil and gas produced by Tatham Offshore and other companies working in the Gulf. At approximately the same time, Offshore Gas Processors, Inc., was formed to take advantage of the gas processing opportunities provided by Tatham Offshore's gas and oil development drillings and Leviathan's extensive pipeline gathering network. Shortly after their formation, both Offshore Marketing and Offshore Processors entered into numerous agreements to work with oil and gas companies located throughout Texas and Louisiana.

The Mid-1990s

In 1994, Tatham Offshore purchased and renovated a used platform for installation on the Genuine Risk project off the coast of Louisiana. Once the platform was in place, two development wells were drilled which discovered over 240 of oil and gas in each well. The Genuine Risk project began production during the summer of 1994, and another well was drilled the following autumn which was also very successful. The company drilled a discovery well called the Sunday Silence project on the Ewing Bank during the same year, and through a flow test determine a potential rate of 8,741 barrels of oil and 5.4 million cubic feet of gas per day at the site. The discovery was one of the largest finds of the year for Tatham Offshore.

Leviathan Gas Pipeline Company was extremely busy during 1994 finishing the construction details on the Ewing Bank gathering system. In addition to the completion of this project, the company entered into a major agreement with Tenneco Gas Company to form a joint venture for the construction of the Viosca Knoll gathering system. Operating by Leviathan, but jointly owned on a 50--50 basis by the two companies, the 100-mile pipeline system was one of the largest and most sophisticated gathering systems constructed in the Gulf of Mexico for over ten years and was a major development to the Flextrend pipeline system and infrastructure in the region.

In March 1994, Deepwater Production Systems, Inc., formed a joint venture with Reading & Bates Corporation, one of the most influential oil and gas production companies operating in the Gulf of Mexico, to acquire semisubmersible drilling units for renovation and conversion into floating production systems. The agreement stipulated that Deepwater Production Systems would manage all the marketing and business development of the joint venture, while Reading & Bates would manage and supervise the operational aspects of the joint venture. As soon as the joint venture opened for business, it began to offer floating production systems to offshore operators in one of two packages: either for a percentage of the cash flow generated from the properties on which the systems are used or for a simple rental fee.

By 1995, the Viosca Knoll gathering system constructed by Leviathan was transporting approximately 200 million cubic feet of gas per day. In August of the same year, Leviathan began to construct a pipeline for the Poseidon Sour Oil Project, consisting of 200 miles of 16, 20 and 24 inch diameter pipeline. Fully operational by the end of 1995, the pipeline system began transporting more than 400,000 barrels of sour crude oil per day to onshore facilities in Louisiana. Leviathan also began to construct extensive pipeline systems for Tatham Offshore's operations in regions known as Phar Lap-Shallow, Spectacular Bid, and Spend A Buck.

Tatham Offshore experienced mixed success during fiscal 1995. On the one hand, the company's exploration and drilling activities resulting in six new wells. Three of these wells, two located in the Ewing Bank area and one in the Garden Banks region, were extremely successful. Yet at the same time, production from wells on the Genuine Risk property and at the Seattle Slew location were much lower than anticipated. In order to compensate for the decreasing income generated from its disappointing properties, with the help of DeepTech, Tatham Offshore began to infuse more capital into the development of the reserves at the Ewing Bank and Sunday Silence regions of operation.

In the spring of 1995, DeepTech International concluded an agreement with one of the prominent firms working in the field of subsea oil services, Coflex Stena Offshore, to create a joint venture called DeepFlex Production Partners, L.P. DeepFlex Production Partners was formed to take advantage of the growing market for semisubmersibles and to provide supply floating production systems for companies operating in the Deepwater and Flextrend regions of the Gulf. Not long after its creation, the new joint venture was buying up floating production systems, renovating and refitting them, and selling them at a profit.

Although Tatham Offshore had posted a loss of almost $35 million for fiscal 1995, the other subsidiaries of DeepTech International more than compensated for the disappointment. Leviathan, DeepFlex, Dover, Offshore Gas Marketing, and Offshore Gas Processors were all profitable during the year. The company's oil and gas sales totaled over $44 million for the fiscal year ending June 30, 1996, up from $18.7 million for 1995. Management at DeepTech International, still headed by Thomas Tatham, remained confident that the company's Ewing Bank property, and its potential for oil and gas production, along with the growing market for floating production systems in the Gulf of Mexico, will help Tatham Offshore to improve its revenues in the near future and fulfill the potential that industry analysts have for the operations of DeepTech International.

Principal Subsidiaries: Tatham Offshore, Inc.; Leviathan Gas Pipeline Company; Deepwater Production Systems, Inc.; Dover Technology, Inc.; Offshore Gas Marketing, Inc.; Offshore Gas Processors, Inc.; and DeepFlex Production Partners, L.P.

DeepTech International Inc. History

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