Sacramento Business Journal - 17 Apr 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 18 Jan 10)

Layoffs Hit Schilling Robotics as Oil Exploration Slips

By Melanie Turner
Friday, April 17, 2009

Schilling Robotics LLC in Davis, which manufactures unmanned submarines and robotics for the offshore oil and gas industry, has laid off an undisclosed number of workers.

One of the region's fastest-growing companies last year, Schilling had 300 employees in four locations, including 270 in Davis. The company announced the layoffs to staff April 8, but it's not saying publicly how many were affected.

Schilling's subsea products were in great demand last spring, as crude oil prices hit record highs and oil companies pursued more expensive sources of deep underwater oil. At that time, Schilling predicted it would rack up $100 million in 2008 revenue, up from $90 million in 2007 and $58 million in 2006.

To accommodate that growth and relieve crowded working conditions, Schilling leased 25,000 square feet in the Mace Ranch Business Park in September. That was in addition to the company's 75,000-square-foot headquarters there.

Most of Schilling's products are used for underwater oil and gas exploration and production. It manufactures remotely operated vehicles, or ROVs, that perform demanding jobs such as moving pipe at ocean depths of 13,000 feet.

One laid-off employee, who spoke on the condition of anonymity, said more than 15 workers lost their jobs last week. At least some were told they'd collect a salary for two months, he said.

Affected employees will be paid through June 8.

Tyler Schilling, company founder, chairman and chief development officer, declined to comment.

In December, FMC Technologies Inc. acquired a 45 percent stake in the 24-year-old Schilling Robotics. The Houston-based company paid $116 million for its interest in Schilling.

FMC is a major manufacturer and supplier of subsea production systems. Under the agreement, FMC can acquire the remaining 55 percent of Schilling over a two-year period starting in 2012. The deal places a value of $260 million on Schilling Robotics.

Michael King, manager of public relations for FMC, would not comment.

"I can understand them having to lay some people off," said Drew Michel, chief executive officer of ROV Technologies Inc. in Houston and a consultant for the ROV industry.

The type of equipment that Schilling makes - top-of-the-line ROV systems - is used for large-scale projects that are years in the planning and making, Michel said.

"So when they make sales it's not something that can just be turned off just because the price of oil dropped," Michel said. "It's got to hurt them some, but not a lot."

Crude oil prices are lingering around $50 a barrel, down from about $150 a barrel last summer, due to the recession.

When oil prices were high, it was more lucrative for oil companies to go after expensive-to-get oil, which lies in deep water tens of thousands of feet under the surface. The only way to install the infrastructure to produce deep-water oil is with ROVs. Now that the price of oil has dropped, such projects are getting put on hold.

"The big word that's being used now is deferred," Michel said.

He said one of Schilling's competitors, whom he declined to name, was building ROV systems at an "almost unbridled" rate of two a month - "as fast as they could turn them out." These days, that company has scaled back. "Now, they're being more cautious," he said.

The offshore oil industry is "very cyclical" and so, consequently, is the ROV industry, Michel said.

"I do know that they're the best quality company you can imagine in the ROV industry," he said of Schilling. "They're as good as it gets. ...If there's any industry at all, they're going to be there."

Schilling Robotics is "not going anywhere," he said, adding "they've got some really good management."

Phil Otto, a Silicon Valley veteran, was hired last year as Schilling's new president and chief executive officer.

It's unclear how machine shops and material vendors might be affected by the Schilling layoffs.

Titan Gilroy, founder of Titan Engineering, a 35,000-square-foot machine shop in Auburn, last year said that about 60 percent of his firm's revenue comes from the subsea industry. Also at that time, Schilling's founder named Titan Engineering as one of his company's largest suppliers.

Gilroy declined to comment about the layoffs.

Lee Block, sales manager at Snowline Engineering in Shingle Springs, said about 10 percent of Snowline's revenue comes from Schilling. He said there have been no major changes to orders.