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Franklin manufacturer benefits from high petroleum costs

August 14, 2006

Increased oil and natural gas prices are hammering many manufacturers, but Franklin-based Grimmer Industries Inc. is flying high.

Grimmer specializes in making Hurricane brand air compressors and compressor boosters used in oil and natural gas well drilling and aggregate mining. The company also makes a smaller air compressor under the Grimmer-Schmidt name for the construction industry.

Grimmer has seen its sales double since 2003, to $16 million. The firm is growing its employee count about 15 percent this year and is leasing an additional 12,000 square feet of manufacturing space across the street from its 40,000-square-foot facility along Hurricane Road on the north edge of Franklin.

The company is already booking orders well into 2007, and is looking for ways to increase productivity.

"We have a lot of the same issues with increased energy costs as other manufacturers, but it just so happens our primary clients are doing very well right now, so our orders are backed up," said Grimmer CEO Tim Hollingsworth.

Grimmer was founded in 1969 by John Grimmer, who forged his skills working for Columbus, Ind.-based Cummins Engine Co. He later took on partner Bob Schmidt and together they began making compressors for the construction industry.

Not long ago, the construction segment made up 90 percent of the company's revenue.

In recent years, however, the Hurricane line has far outsold Grimmer's other goods. Sales to the oil, natural gas and mining segments are now 75 percent of the firm's revenue. Sales of the Hurricane line have increased from $2 million in 2002 to $12 million in 2005.

Although the company is still privately held by the Grimmer family, Hollingsworth said the midsize manufacturer doesn't fall back on tradition.

"Our tradition is whatever we're doing now, and whatever we find that works," Hollingsworth said. "We're competing against some awfully big players, like Ingersoll-Rand. We've succeeded by being fast on our feet, flexible and customer-oriented. That's what we do best."

As early as the 1980s, Grimmer executives started to realize the Hurricane line's growth potential. But, Hollingsworth admits, not even longtime company officials saw the magnitude of this growth spurt.

Due to increased demand and limited supply, oil prices have reached record highs in the last 12 months, and the oil companies have gone along for the ride.

ExxonMobil's fourth-quarter profits for 2005, for instance, were up more than 75 percent, to $10.7 billion, the largest quarterly profit ever for a U.S. company. Other oil-producing giants such as Shell, ConocoPhillips and British Petroleum have seen similar profit increases.

By comparison, Microsoft, the world's largest software maker, reported record fourth-quarter earnings in 2005, but those profits were still only about one-third of ExxonMobil's.

Flush with cash, economists said, oil companies have been able to invest in infrastructure and durable goods.

"It's a tough time to be an energy consumer, but at the same time there are naturally going to be some pockets of industry who feel the benefit," said Patrick Barkey, an economist and director of economic and policy study at Ball State University.

Instances of local manufacturers benefiting from oil and natural-gas price hikes are rare, said Patrick Bennett, Indiana Manufacturers Association vice president of environment, energy and infrastructure.

"Certain manufacturers like steel producers that are big energy users are really feeling the pinch, but I'd say almost all manufacturers are feeling some hit from this economic environment," Bennett said. "When high energy costs benefit a manufacturer, that's highly unusual."

But Rodolfo Martell, an oil industry veteran who is now an instructor at Purdue University's Krannert School of Management, said Grimmer could be riding a wave with a relatively long life.

With many oil producers operating at capacity and demand rising unabated, oil producers are looking for every way to increase output, Martell said.

"Oil won't sell at $76 a barrel forever, but it's not going to come down overnight, either," Martell said. "It could take a number of months, maybe years, to come down to a sustainable rate, and only when demand subsides."

Oil producers' best chance to increase productivity, Martell said, is looking for wells that were previously closed. That's where Grimmer compressors and boosters help.

Soaring fuel prices are leading oil companies to dig deeper into the ground to find oil. The air compressors and compressor boosters Grimmer makes help in that process by clearing loose debris from oil wells, company officials said.

A giant drill bit pushes deep into the ground, breaking up rock and soil. As the drill goes deeper, compressed air pushes the loose sediment from the earth. The result is a smooth hole where oil and gas can be extracted. When gas was less than $2 a gallon just a few years ago, it wasn't cost-effective for oil companies to buy the kind of equipment Grimmer makes to drill deeper wells. Oil was drilled down to 10,000 feet and then the well was closed. Now that gas prices are up, oil companies drill deeper into existing wells and even drill sideways from previously drilled wells.

"A lot of our products are for a specialized industry," said Tom Grimmer, Grimmer chief operations officer. "And they can be tailored for a specialized use."

Oil and gas companies buy the custom- and semi-custom-made Grimmer equipment for as much as $300,000, Grimmer officials said. Grimmer's sales footprint spans across North and South America and into Australia, China, Europe, Korea and Egypt.

While growth looks good for the next three years, Grimmer officials aren't resting easy. They're considering adding a second shift, and they recently completed more than 300 hours of training in lean manufacturing with the help of a $53,000 matching grant from the Indiana Department of Workforce Development.

"We've grown by being nimble and willing to change," Hollingsworth said. "We think you have to adapt to survive. That's what we're going to continue to do."

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