TransMontaigne Inc.

370 17th Street, Suite 2750
Denver, Colorado 80202
U.S.A.
(303) 626-8200
Fax: (303) 626-8228

Public Company
Incorporated : 1995 as TransMontaigne Oil Company
Employees : 566
Sales : $1.96 billion (1998)
Stock Exchanges : American
Ticker Symbol : TMG
NAIC : 42271 Petroleum Bulk Stations and Terminals; 213112 Support Activities for Oil & Gas Field Operations; 486210 Pipeline Transportation, Natural Gas; 486910 Pipeline Transportation, Gasoline & Other Refined Petroleum Products

Denver-based TransMontaigne Inc. is a holding company that pursues business opportunities in the downstream sector of the petroleum industry. TransMontaigne’s principal operating subsidiaries engage in pipelining, terminaling, storing, processing, and marketing refined petroleum products, chemicals, bulk liquids, natural gas, and crude oil in the mid-continent region of the United States, and in natural gas gathering and processing in the Rocky Mountain region. The company’s subsidiary TransMontaigne Transportation Services owns and operates approximately 790 miles of pipeline and 31 terminal, storage, and delivery facilities in 19 states with a combined storage capacity of about 15 million barrels. Its three natural gas gathering and processing facilities are capable of combined throughput of approximately 94 million cubic feet of natural gas per day over 2,800 miles of pipeline. The company owns the NORCO, the Razorback, and the CETEX pipelines.

The Merger of a Private and a Public Company

Formed in 1977, the principal predecessor of TransMontaigne was a petroleum services firm based in Arkansas and run by Cortlandt Dietler, the company’s first CEO. Unfortunately, little information covering this period of the company’s history is available. In April 1995, management and certain institutional stockholders, led by Dietler, acquired control of the firm through a reverse merger in which the company’s name became TransMontaigne Oil Company (later TransMontaigne Inc.). New management came on board and modernized the company at a cost of more than $20 million.

A little more than a year later, with annual revenues in excess of $300 million, TransMontaigne purchased Sheffield Exploration Company, a small exploration and production-focused public company based in Denver, via a paper trade that offered an efficient and low-cost means of going public. Sheffield had seen considerable growth in 1992 during a period of unstable gas prices as a result of its drilling operations in south Texas, a few select acquisitions in the Williston Basin (located in North Dakota and Montana), and revenue from its North Dakota gas processing plant, which had a throughput of 5.2 million cubic feet a day. In 1993, after purchasing a gas storage facility in Kansas, 11 gas gathering systems in Kansas and Oklahoma, and a processing plant in Oklahoma for $3.7 million, Sheffield doubled its capital investment budget to $1 million. After the 1996 merger with TransMontaigne, Sheffield became the sole surviving corporation, although 93 percent of the resulting TransMontaigne Oil Company was owned by the stockholders of the original TransMontaigne. The company sold off Sheffield’s E & P assets and held onto its midstream operations in the Williston Basin. The new TransMontaigne began public trading in June 1996 with an initial offering of 3,500 shares. During the company’s first year of operation, revenues increased to $533 million.

Outsourcing and Expansion: Mid• to Late 1990s

TransMontaigne’s strategy involved capitalizing on the trend to outsource in the energy industry, doing for other companies what they no longer wanted to do for themselves. The company began acquiring pipelines, terminals, and storage facilities, then updating them to improve efficiency, lower costs, and boost throughput. In December 1996, Bear Paw Energy, a subsidiary of TransMontaigne, acquired the Koch Industries’ Grasslands Facilities natural gas gathering, transmission, and certain processing plants, including about 2,500 miles of pipeline with a combined throughout capacity of 75 million cubic feet per day. The facilities, costing $71 million in cash, were located between TransMontaigne’s existing North Dakota and Montana facilities and complemented the company’s current activities in those states’ Williston basin. They enabled the company to provide a complete service package to producers in North Dakota and Montana as well as to end-users of natural gas and natural gas liquids.

Other additions quickly followed. In February 1997, the company bought Mobil’s Indiana fuel products terminal which connected to TransMontaigne’s NORCO Pipeline and, through it, to several other Midwestern pipelines. This acquisition increased TransMontaigne’s tank capacity by 1.2 barrels. At the same time, the company opened another 200,000-barrel terminal in South Bend, which also linked up to NORCO. Later in 1997, TransMontaigne completed the expansion and modernization of its Little Rock, Arkansas refined petroleum products truck terminal complex, which connected directly to the Texas Gulf Coast-originating TEPPCO pipeline. In November, it increased its systemwide tank storage capacity by nearly 70 percent with the purchase of the Houston-based Independent Terminal and Pipeline Co. The ITAPCO acquisition, which cost TransMontaigne about $32 million in common stock, was merged into its TransMontaigne Terminaling Inc. subsidiary. The terminal included 17 bulk liquid storage and distribution terminals located in eight states with a total tank capacity in excess of 3.3 million barrels. It brought the company’s terminal and storage facilities to 27 and its tank capacity to 8.2 million barrels.

Prior to the acquisition of the ITAPCO Terminal Corporations and the Grasslands Facilities, TransMontaigne’s revenues derived from its logistical petroleum services operating business segment, which consisted primarily of transporting, storing, terminaling, supplying, distributing, and from marketing refined petroleum products and to a lesser extent crude oil. Following ITAPCO, storage and terminaling of chemicals and other bulk liquids became a component of the company’s logistical petroleum operating business segment. Natural gas services had earlier become a separate operating business segment with the addition of the Grasslands Facility. Along with these changes, the company’s revenue increased significantly, reaching slightly more than $1 billion in 1997.

In 1998 TransMontaigne went on to purchase a 225,000-barrel terminal and storage facility in Greenville, Mississippi, from Greenville Republic Terminal Inc., which it consolidated with its two other facilities in the area for a total combined tankage of 550,000 barrels. It also bought a 152,000-barrel Owensboro, Kentucky terminal from Marathon Oil Co. As TransMontaigne acquired, it also upgraded old facilities, frequently automating them so it could run operations with fewer employees than before.

In July 1998, it acquired the Southwest Terminal’s terminaling, storage, and loading facilities at the Port of Brownsville, Texas, from Statia Terminals International N.V. for $6.5 million. Between August and January 1999, it acquired an approximately 20 percent interest in West Shore Pipeline Company in three separate purchases to become the second largest owner of West Shore. The pipeline, whose other owners included Citgo, Marathon, Equilon, Texaco, Amoco, Midwest, Mobil, and Exxon, was a 600-mile system that served about 55 locations, including four refineries, the Milwaukee and Chicago O’Hare airports, and 49 refined petroleum products truck terminals in the upper Midwest and Chicago area.

In the biggest in its series of terminal and other products-related purchases, in October 1998, TransMontaigne moved to double its total annual output of 84 million barrels and boost its assets to more than $800 million by purchasing Louis Dreyfus Energy Corp. for $161 million. The deal nearly doubled TransMontaigne’s ten million barrel storage capacity by adding Louis Dreyfus’s 24 terminals to TransMontaigne’s 32 and expanded the company’s presence into the Southeast. Louis Dreyfus Energy Corp., which was a major shipper on the Colonial pipeline that connected the Houston ship channel and major refining complexes to the New York Harbor, became TransMontaigne Product Services East Inc. Continuing its move eastward, in December TransMontaigne Terminaling Inc., another subsidiary of the company, purchased Sunoco’s petroleum products terminal in Rensselaer, New York, and immediately leased it back to Sunoco.

Company Perspectives

The experienced, entrepreneurial personnel of Trans-Montaigne have propelled it into a dominant position as the refined petroleum products supply and distribution service provider in the four geographic regions in which it is currently active. The addition of new, strategically located facilities will enable TransMontaigne to further expand the supply and distribution network and scope of logistical services that it delivers to its customers, which include all major and independent refining and marketing companies. The procurement and consolidation of significant volumes of petroleum products at primary points of manufacture coupled with a “seamless” delivery system are the key components of TransMontaigne’s corporate focus and capital utilization activities. In an increasingly complex energy market, TransMontaigne meets the needs of its customers, providing the required slate of petroleum products, when needed, where needed, and at the lowest effective cost.

In February 1997, it added a 200,000-barrel terminal in South Bend, also linked up to NORCO. By September 1998, its Transportation Services subsidiary had begun construction on three new facilities: the first phase of an expansion program on its NORCO Pipeline System; an additional 480,000 barrels of refined petroleum product tank storage at the company’s Chicago area facilities; and a refined petroleum products terminal and storage facility north of Peoria, Illinois. The NORCO System connected to all major products pipelines in the mid-continent and to the TEPPCO and Explorer pipelines originating on the Gulf Coast. Through December 1998, TransMontaigne invested approximately $4 million in improvements and expansion of the ITAPCO Terminal and $25 million on its Grasslands facilities. In March 1999, it began plans with Colonial Pipeline Co. to build a barge facility on the Mississippi River that would improve Colonial’s product delivery on that river and the Ohio.

Plans for the Future

The company’s capital expenditure program contributed to a considerable increase in sales. Yet, TransMontaigne’s 1998 profits suffered as a result of sharply higher income taxes that year. While the company’s revenue approached $2 billion and operating income rose to $19.2 million from $9.9 million in 1997, taxes cut the company’s net income 17 percent to $7.64 million from $9.17 million in 1997. In addition, the company’s stock price edged downward to hit an all-time low. Capital expenditures for fiscal 1997 and 1998 totaled approximately $159 million, contributing to a negative cash flow from operations for 1998. That year TransMontaigne entered into a $500 million advance from its credit facility to refinance existing debt, fund the Louis Dreyfus acquisition, and prepare for future expenditures.

The original management and investor group led by Cortlandt Dietler still held about 80 percent of the outstanding shares, or about 50 percent of the company after a public offering in February 1997 that raised $63 million and paid for acquisitions and expansions. Plans for TransMontaigne’s future in early 1999 were based on management’ belief that fundamental structural changes and the trend toward outsourcing in the petroleum industry would continue to create opportunities for the company’s growth as a service business. The gathering, processing, and marketing sector of the natural gas industry was in a consolidation phase, placing added stress on smaller companies to post solid returns. Oil and gas producers, which previously had operated their own natural gas gathering and processing operations, now sought to dispose of their downstream assets and facilities. TransMontaigne pursued its plan of strategic additions and expansion of facilities to improve its competitive position.

Principal Subsidiaries

TransMontaigne Transportation Services Inc.; TransMontaigne Pipeline Inc.; TransMontaigne Terminaling Inc.; Trans-Montaigne Product Services Inc.; TransMontaigne Holding Inc. (65%); Bear Paw Energy Inc.