October 3, 1997
(Industry, Trade and Technology)

Marystown Shipyard sold to major U.S. company

Premier Brian Tobin announced today that the Marystown Shipyard has been sold to an American corporation with a dominant position in the drilling rig market. Marystown Shipyard Limited, including the Cowhead facility, has been purchased by Friede Goldman International Inc. of Jackson, Mississippi. Premier Tobin made the announcement with company officials and representatives of the shipyard's management and union at a ceremony in Marystown.

Friede Goldman International Inc. is a leader in the design, fabrication, retrofit, and repair of offshore drilling rigs, including jackups, submersibles, semisubmersibles and drillships, and has entered the emerging market for conversion of offshore drilling units and tankers into deepwater floating production, storage and offloading vessels. In the last seven years, the company has completed 47 offshore drilling rig conversion or retrofit projects.

Premier Tobin said the sale of the Marystown Shipyard and its assets to Friede Goldman International Inc. makes sense for both parties. He said: "In recent years, government has been committed to the turnaround and divestiture of this facility. We believe that Crown-owned corporations can be more effectively operated by the private sector. Strong markets in the international marine and metal fabrication sectors, combined with improved management, work practices and productivity at Marystown Shipyard, represents continued growth for the Burin Peninsula and a bright future for its residents."

Richard Marler, Vice President and Chief Operating Officer of Friede Goldman International Inc., said that purchasing the Marystown Shipyard is part of an expansion process to meet the increased demand for its services. He said: "The level of worldwide offshore drilling activity has increased substantially over the last two years. We believe that the capabilities and expertise we have witnessed at Marystown will provide us with competitive advantages in the conversion, retrofit and repair servicing for offshore drilling rigs. We intend to have this facility become an immediate part of our growth strategy to capture work associated with the conversion and new building of offshore drilling rigs."

As part of the agreement, FGII will commit to maintain a minimum of 1,200,000 person hours of work at Marystown over each of the next three years. FGII has also committed to immediate improvements at the facilities and a capital program of $5 to $15 million over the next few years. As part of its business plan for facilities at Marystown, FGII will be expanding from conversion and retrofit to the building of new offshore drilling rigs.

Contact: John Doody, Director of Communications, (709) 685-0152

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TERMS OF AGREEMENT

• FGII will commit to maintain a minimum of 1,200,000 person hours of work at Marystown over the next three years or pay a penalty of $10,000,000, $5,000,000 and $5,000,000 respectively for any year in which this minimum level of employment is not achieved.

• FGII will commit to refrain from removing any of existing assets from Marystown for a minimum period of five years.

• FGII will make immediate improvements to facilities in Marystown and invest $5 to $15 million to implement a capital improvement program as part of its business plan.

• Government will provide a commitment to FGII that it will not make any investment in a competing facility.

• Government will provide an indemnity to FGII for any existing environmental damage at the facilities in Marystown.

• FGII will be granted EDGE designation for the elements of its operation which do not compete with other non-EDGE firms in Newfoundland and Labrador.

BRIEF HISTORY OF MARYSTOWN SHIPYARD

• Incorporated in 1966 to establish a shipyard at Marystown, primarily to serve the needs of the Newfoundland fishing industry.

• Management of yard contracted to a number of private operations until 1972, when government appointed its own Board of Directors.

• Up to 1976 constructed one tug and 18 fishing vessels.

• In mid 1970s, signed a contract to build two tugs and seven offshore vessels for two Norwegian companies. Severe losses were incurred and culminated in a Royal Commission to review the shipyard operation in 1980.

• Shipyard performed relatively well over the next decade. Added an oil rig service facility at Cow Head to its operation, funded from the Burin Peninsula Development Fund in mid 1980s.

• Vinland Industries formed in 1986 in partnership with Kvaerner Rosenberg to secure offshore opportunities.

• Major expansion completed at Cow Head with funding of $40 million from Offshore Development Fund in early 1990s.

• Shipyard unsuccessful in getting mechanical outfitting contract in 1993 for Hibernia and Kvaerner discontinued its presence in Vinland Industries, largely in response to this.

• Shipyard awarded drilling modules contract for Hibernia in late 1993 but following problems with the contract, a major portion of the work was removed from the yard in late 1994. Significant losses were incurred on the project.

• In May 1994, MSL signed a contract to build two supply vessels for Maersk to be used in the Hibernia project. Losses were also incurred on this project, due to several factors, including losses on foreign exchange and less than optimum productivity and planning.

• In late 1994, a new Board of Directors for the yard was appointed by then Premier Wells and given a mandate to turn the yard into a commercially oriented operation.

• Board of Directors implemented major changes in management and negotiated union contracts, which resulted in the yard becoming more competitive. Throughout 1996 and 1997, the yard was successful in getting major shipbuilding and fabrication contracts from such companies as NTL, AMFELS and HAM Marine.

• In early 1997, a comprehensive divestiture package was prepared and distributed to several major players in the international steel fabrication sector. Interest was shown in the facility by a number of large fabricators. Following direct experience with the yard's capabilities through a contract for the fabrication of oil rig components, the parent company of HAM Marine, Friede Goldman International, expressed an interest in purchasing the yard in June 1997 and put forward a firm proposal by the end of the summer.