Lifting of Oil Moratorium is Good News for Hornets Fans

Back on April 9th Ryan gave you his take on trading Shinn for Chouest, working under the assumption that the announcement of the deal was a mere formality. It’s been over six months since then, and nothing definitive has come out to really reveal who the owner will be at the end of this season.

There were reports the deal would fall through, and then that they agreed to terms. Later it was reported that Chouest was looking for out of state investors. Then again it was said that the deal was off, and now again we are hearing that it’s back on. Read that three more times if you want the full story.

So where does that leave us? Well, we are in a position to make educated guesses about why this is taking so long, and what might cause it to move forward.

Edison Chouest Offshore, Gary Chouest’s company, had a setback shortly after Shinn and Chouest entered negotiations. There was a bit of an oil spill (perhaps you heard?), which led to a moratorium on deep water oil drilling. Edison Offshore describes it’s business as the following on it’s website:

The company owns and operates a growing fleet of new generation offshore service vessels supporting a vast majority of the U.S. Gulf deepwater market, as well as a large independently owned fleet of research vessels. Our high-tech, high-capacity offshore vessels range from 87 feet to 348 feet, and are beyond comparison to any competition.

So you can see why the moratorium and oil spill were cause for concern for Gary Chouest and his company, and why the sale of the team likely took a backseat to more pressing issues. It was expected that the moratorium would cause Edison Chouest to lay off hundreds, if not thousands of workers. They held rallies protesting it, and you can be damn sure that they spent countless greenbacks lobbying to get it repealed. The spill was a big deal for a lot of people, but not many more than Gary Chouest, financially at least.

There was certainly work to be done to clean up and prevent the spill from spreading, but there was no certainty about the economics of it. Nobody knew for sure what far reaching implications this would have on a company whose core business takes place in the Gulf.

Lafourche Parish President, Charlotte Randolph, said Edison Chouest Offshore could lay off as many as 1,000 local workers and lose $330 million within days. She was concerned not so much for the company, but for her Parish whose public services are supported largely through the tax revenue from Edison Chouest Offshore.

Judge Martin Feldman from the Eastern District of New Orleans based his June 22nd opinion, which temporarily batted down the moratorium, on fears that “an estimated 150,000 jobs are directly related to offshore operations” and even a short term ban would cause “irreparable harm” to the economy. Following the judge’s ruling, President Obama’s administration implemented a new moratorium, essentially the same as the old one.

I’m not Gary Chouest, and having that amount of money and responsibility is nearly unfathomable to me at this point, but I can see how his obligations don’t lie with Hornet fans, but with his employees. Families come first. Peoples’ jobs come first. Owning a basketball team would be fantastic, and I’m sure that Gary is just dying to get into the action especially since he already had his feet wet, but being conservative and waiting to see how a life changing oil spill plays out before pressing forward with an indulgence was the right thing to do.

On July 15th the oil spill was finally capped, but that was nowhere near the end of the matter for Edison Chouest. The moratorium for deep water offshore rigs was in effect and was scheduled to remain so until November 30.

Gary Chouest gave his first interview in months on October second and disclosed that as of then, the company had not been forced to lay off any workers. That means that 8,000 people still have jobs and can afford to pay their mortgage, and buy their kids toys. It was understated, as good news generally is, but it is a big deal nonetheless. It was a good sign, if nothing else, that the mass layoffs would not come to fruition, and that the company was still in solid economic shape.

A healthy construction backlog and a major role in the cleanup from the Deepwater Horizon disaster have been enough to stay afloat, Chouest said, but added “If there’s no drilling, it’s going to be a really big difference going forward”.

Well guess what, Hornets fans? Today, the Obama administration announced that the new regulations and safeguards put in place since the spill began are enough to warrant ending the moratorium, thus allowing deep water drilling for oil to resume.

The moratorium was either the last or second to last of a number of roadblocks in which I visualize Gary Chouest trying to run through on his way to eventually becoming the Hornets majority owner. The last remaining hurdle, if it still exists at all, would be the 24-30 million dollars they were rumored to be apart on the sale price.

Although Chouest is a businessman, he’s also a person, and people like to celebrate big wins. Even if he may not come out and say it, his company seems to have come out of this whole thing pretty unscathed, which had to be one of the best case scenarios when the moratorium first too effect.

For some of us, a big win might convince us to spend some extra cash on a vacation, or take a day at the spa. Others might prefer buying a lobster dinner, or splurging on a good bottle of wine. For Chouest though, that might not be enough to really call it a proper celebration. Maybe he needs something more.

A basketball team perhaps…

9 responses to “Lifting of Oil Moratorium is Good News for Hornets Fans”

  1. Extremely informative article- thank you so much for this. Can’t wait to see what happens moving forward.

  2. Good write up.

    You know, you may have finally found a topic that not going to get someone on this thread insulting you. Good job on the tactic.

    I was thinking about how the oil thingy, in it’s worse cases, could drive the team away by just blowing away a good chunk of the disposable income in the area during a time when after-markets Saints tickets are going at 3x face and are just must haves (I’m a ticket holder since before the storm and go to every game, so I see all the new faces).

    Chouest, while tied up in Edison-Chouest, really has beau coup money. These guys, the rich guys, don’t go to the ATM and suck out a quarter billion and money for a coke and slim jim. They go to the bank and have them beg to be the ones to allow Chouest to use their money and they go get the coke and slim jim. He picks one and cuts a check if he feels like it.

    These rich guys live on another planet, basically. This is totally not how my loan officer is treating me . . . at least the first one, but she doesn’t know about second one . . . but that’s neither here nor there . . .

    I think the uncertainty due to the spill’s effects in the area and on the valuation of Edison Chouest make it hard for the banks to comply with the new (or old-yet-not-enforced) rules about collateralized lending. If Edison Chouest is worth alot, but maybe not as much as yesterday, that’s a red flag. Stop. Go directly to work. Do not pass the Hive. Do not collect Chris Paul. Even if the bottom end estimate is worth enough to leverage funds for the Hornets (say $80 million based on the sales figures we kept hearing and a typical 30% equity required for commercial loans for regular folks), and I don’t see how his company could lose 90% of it’s value when the boats and buildings are worth great deal and could be repurposed, the uncertainty in the figures would give bank large enough to deal with this transaction pause in light of all the Wall Street stuff going on since well before the oil leak.

    So my personal take is that it’s a bean counter thing, rather than Chouest’s will, that was the obstacle, or at least the first-of-the-remaining obstacles. In the end I agree with you, but I think this mechanism plays a role. In fact, this being the issue is actually a rosier scenario at this point since it’s essentially a mechanical process to get the financing: I now know the value of the company to be X, so I can lend X/.3 or whatever.

    At any rate, great job. I hope your reasoned optimism catches on and helps mitigate the pessimistic pounding we’ve been enduring for far too long.

  3. Thanks Joe. It’s great to finally hear some specifics about this whole mystery, and good news nonetheless. The fact that this much info, while only a tidbit, has been released can only be a good sign for people like us, I would think. Knock on wood.

  4. During the hornets game in orlando the broadcasters were talking about the owner situation. and apparently they had heard that chouset had decided he did not want to buy the majority ownership from shinn. they went on for a good 2-3 mintues about the situation how chris paul would be unhappy yada yada yada but i clearly heard them say chouset was no longer deciding to buy the team

  5. They were basically quoting from the NY Daily news story but didn’t pay any lip service to the fact that other stories were out there, my guess is because they didn’t know the info was there.

    At any rate, I took their comments as proof that the NY Daily News exists rather than independent confirmation od thw possibly stoey rederrd to.

    • confirmation of the possible story referred to.

      fat-fingered the worss while typing on phone while the scross went ‘behind’ the vottom of rhis window. Anyone else have that happen at all?

  6. The whole moratorium is a smokescreen as far as Chouest is concerned. I work with a lot of these companies that have, charter, sell, or repair ships in the gulf, and they’re all engaged in clean-up work, and making lots of money doing it. So the truth is, there are plenty of businesses that are not hurt by this spill. Besides, in this country, the freeze on oil was only going to last so long. Further, most companies operating in the Gulf, like Chouest’s have business interruption insurance for certain eventualities that cause them to shut down and lose revenue; so, even if they were losing money, which I doubt, they’d recover from that.

    Personally, I think Chouest and Shinn are playing a game of chicken over the price. They need to put the team first, though, and get it done.

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