Expanding the Oceans' Frontiers

Since the first offshore well was drilled off a pier in California in the late 1930s, the developments in technologies for deepwater production have become incredible feats of engineering – comparable in size and complexity to space technology. By the 1970s, as the industry faced depleting oil reserves on land and in shallow coastal waters, it looked to the horizon and began exploring farther and farther offshore.

Those were exciting times as companies launched a number of semisubmersible rigs capable of drilling in water depths greater than 5,000 feet. While today some of the sixth generation Enterprise Class drillships are capable of drilling in 12,000 feet, the industry was slowed by the emergency response and well-containment issues arising from the Deepwater Horizon incident in the U.S. Gulf of Mexico in 2010.

Today, the offshore industry has addressed many of the issues surrounding safety and well-containment, and there is more exploration and production in the deepwater than ever before. Brazil, West Africa, Australia, the Krishna-Godavari Basin of India, and the U.S. Gulf of Mexico are all hotbeds of activity as are China and Southeast Asia, including the newly opened Myanmar region.

Brazil’s subsalt reserves, found thousands of meters below layers of sand, rock and salt, are considered the most promising offshore oil and gas production region in the world. The discovery of the Tupi Field in 2006 marked the largest such discovery in the Americas since the 1970s. It lies 160 miles off the southern coast of Rio de Janeiro in 7,000 feet of water and under 16,000 feet of sand, salt and rock seabed. Its reserves are estimated at up to eight billion barrels of oil and gas equivalents, which increased Brazil’s recoverable reserves by 50 percent.

The Emergence of FPSOs

As huge reservoirs of oil and gas are discovered in the deepwater and ultra-deepwater regions of the world, floating production systems have become critically important assets. No pipelines exist where these fields are located, hundreds of miles offshore and in thousands of feet of water, and to build one would be prohibitively expensive.

Floating production, storage and offloading (FPSO) vessels perform the function of pipelines and offload their crude onto shuttle tankers or barges that transport it to onshore refineries. They are usually tied to multiple subsea wells to gather hydrocarbons through a series of in-field pipelines. Once the subsea wells are tapped, the oil and gas is sent through flowlines to risers and then onto the FPSO.

FPSOs are equipped with much of the same equipment seen on standard production platforms. These floating units manage water separation, gas treatment, oil processing, water injection and gas compression. For many years, captured gas was re-injected back into the well to increase production or for disposal. Or it was simply burned off. Today, however, gas – in the form of LNG – is considered the energy of the future and is being produced in sustainable amounts of new usable energy.

International Maritime Associates issued a report in March which indicated there are about 216 additional projects being planned for offshore production. Since 2003, more than 150 floating units have been ordered, and it forecast the industry will order another 130 to 200 between 2013 and 2017. Today, FPSOs account for about 63 percent of producing equipment in the offshore with the rest consisting of production semis, tension leg platforms (TLPs), production spars, production barges and floating storage units.

MODEC – Globally Positioned

Toshiro Miyazaki, President and CEO of MODEC, believes the offshore markets will remain strong, and he has strategically positioned the company around the world to meet the growing demand for FPSOs, FSOs and TLPs. Miyazaki began his career in the Accounting Department with Mitsui Engineering and Shipbuilding Company in 1972 and took the reins of the company in 2011. Over the years he has demonstrated his financial and management acumen, critical assets when you are building production units that can cost hundreds of millions – even billions – of dollars.

MODEC (Mitsui Ocean Development and Engineering Co., Ltd.) was established by Mitsui Shipbuilding Co., Ltd. and Mitsui & Co. 45 years ago. It began operations constructing crane barges, jack-up rigs, oil-skimming vessels and single-point mooring systems along with various offshore facilities and related equipment. The first order for an FPSO came in 1985, and in 1986 the company built the first FPSO Kakap Natuna, which was deployed offshore Indonesia for Marathon Oil Company.

In 1970, when the U.S. hit peak oil production of 3.5 billion barrels, Americans were becoming more concerned about the country’s rising dependence (22 percent) on imported oil from the Middle East. In 1972 MODEC opened its Houston office. At that time the U.S. offshore industry was producing about one million barrels per day from the Outer Continental Shelf (OCS) in about 100 feet of water. By 1980 the offshore fields had crept out to 200 feet. The U.S. soon began granting leases for drilling on the OCS and MODEC – with its Houston office – found itself in the middle of the universe for offshore oil production.

In 1988 Mitsui Ocean Development and Engineering Co. officially changed its name to MODEC.

By the early 1990s, offshore wells accounted for 30 percent of global crude oil production and 14 percent of natural gas. Almost all of the offshore production took place in waters up to 600 feet (180 meters) in depth. In 1998, MODEC deployed the first FSO in the Gulf of Mexico for Pemex. The FSO Ta’Kuntah is still operating today in the Cantarell Field in the Bay of Campeche, offshore the Yucatan Peninsula.

Expanding the Portfolio

In 2003 the company first listed its stock on the Tokyo Stock Exchange. By that time, according to the company’s estimates, FPSO/FSOs and TLPs made up about 30 percent of the oil and gas equipment used in global production, and MODEC controlled about 17 percent of the FPSO/FSO market. By the late 1990s it decided to operate the facilities as well. Instead of just constructing and selling offshore equipment, it would assemble technical teams and use its vast knowledge and experience to manage the equipment as exploration and production drilling began making its way into the deeper waters of the oceans.

In 2004 MODEC installed an FPSO in 3,182 feet (970 meters) of water in the Baobab Field off the Ivory Coast in West Africa – the deepest such installation at the time. The company was responsible for two million barrels of topside processing and storage. In 2005 the company was one of the first to convert an existing double-hull tanker into an FPSO for the Mutineer-Exeter Field in Australia.

When the global financial crisis struck in 2008, oil prices fell from over $100 to $40 per barrel. But a few opportunistic exploration companies decided to continue development of oil and gas fields in anticipation of future energy demands. As a result, MODEC received four new orders for FPSOs in 2008, which increased its revenues by 152 percent over 2007. Petrobras needed two FPSOs for its Urugua Field and the giant Tupi Pilot Field, and contracts were also secured with BP Angola and Tullow Ghana for FPSOs in West Africa.

Although the recession has carried on for five years and Europe continues its slow climb back to financial stability, the offshore energy markets have remained persistently positive. Brazil, West Africa and Southeast Asia continue to be hotbeds of exploration and production activity, and MODEC has maintained its strong position in the market through new orders and debt repayment, thereby freeing up cash for reinvestment. 

For 2012 the company reported net income of Japanese Yen (JPY) 5.13 billion compared to JPY 3.07 billion in 2011. Under Miyazaki’s leadership, ordinary profits rose from 5,055 billion JPN in 2011 to 9,296 JPN in 2012, and its debt has been reduced from JPY 60 billion to JPY 7 billion.

New Frontiers

With orders for floating production systems expected to grow by more than 40 percent over the next five years, MODEC’s prospects are bright. Currently there are a number of new projects in Southeast Asia, Australia and West Africa that the company has identified for future growth. And its position in Brazil for Petrobras remains very robust as it looks at deploying ten FPSOs in the region. A Gas-to-Liquids Terminal is also expected to be operational in the near future in an as-yet-undisclosed location.

Floating Liquefied Natural Gas (FLNG) facilities and the whole LNG revolution are about to create another huge leadership role for MODEC. It is estimated that 10 percent of the world’s LNG will be sourced from offshore resources, and today there is not a single FLNG terminal/vessel producing anywhere in the world. The industry estimates there is a staggering 240,000 billion cubic feet of stranded natural gas offshore, waiting to be processed and delivered to global markets.

Energy analysts are forecasting that by 2015 the liquefaction capacity of FLNG projects will be about 6.7 million tons per year. MODEC has been working on the development of compact GTL technologies with Toyo Engineering since 2007.MODEC has developed a micro-channel reactor, much smaller and more compact than a traditional GTL facility, in order to construct a floating or modularized plant.

MODEC has also unveiled its SKWID offshore wind-and-current ocean energy platform, a hybrid technology that combines the energy potential of renewable wind and tidal power. The system has a rectangular sweeping area, which will harness low and high-speed winds from any direction with its vertical-axis Darrieus wind turbines that can generate twice as much power as conventional wind turbines with the same diameter.

Adding to SKWID’s clean power generation is its Savonius current turbine, which always rotates in the same direction regardless of the tidal current. MODEC is still testing the system but intends to install its first sub-megawatt model this year with an eye toward commercialization next year.

Miyazaki has spent almost 40 years honing his leadership skills for Mitsui in many capacities. As President and CEO of MODEC, it is his strong accounting background that will keep the company financially focused. But it is his knowledge of shipbuilding, offshore energy, LNG and alternative energies that will ensure the future for the next generation of MODEC leadership.