New orders for offshore projects Hyundai Heavy Industries won in 2002 fell by nearly half from a year earlier to $1.2 billion as the global economic slowdown forced oil majors like ExxonMobil and TotalFinaElf to postpone fresh investments to expand expensive offshore oil & gas development facilities.

But the long-term prospects for Hyundai¡¯s Offshore & Engineering Division remain bright, because the focus of energy development will continue shifting to offshore oil reserves in line with depleting resources on land and in shallow waters. The growth potential for the offshore industries market in the years ahead appears huge as demand for clean energy, such as natural gas, is likely to surge along with evertightening environmental regulations.

  The division is confident its new orders will recover to about $1.5 billion in 2003 and $1.8 billion in 2004, helped by its high-level engineering and management skills and growing recognition of HHI among oil majors as their main contractor. ¡°Our division clearly has the competitive edge, simply because it is supported by the world¡¯s biggest shipbuilder,¡± says Kim Jong-do, a director at HHI¡¯s Offshore & Engineering Division.

  Hyundai Heavy is one of the strongest bidders for a $300-million order ExxonMobil is expected to place in June to build a fixed platform in Nigeria. HHI expects another order worth $100 million in May to install pipelines in India for ONGC (Oil and Natural Gas Corp.). The company is also in the bidding for two to three more projects to build fixed platforms in Southeast Asia, the combined value of which is estimated at $300 million. Those projects aside, a major fillip is likely to come from its bids for FPSOs (floating, production, storage, and offloading) that global oil majors want to operate in West Africa. The price-tag for a single FPSO ranges from $300 to $800 million. In February 2003, HHI received a turnkey order for offshore pipe-laying construction worth $120 million from China Petroleum and Chemical Corp. (SINOPEC) of China.

  The Offshore & Engineering Division¡¯s advantage is that it is capable of carrying out projects on a one-stop-shopping basis; that is, providing engineering, procurement, installation and construction (EPIC) as well as test-runs in one package. This enables HHI to win orders as a main contractor rather than a subcontractor. The status of main contractor can raise the value of an offshore project dramatically. The crown jewel among HHI¡¯s new orders in 2002 was the Kizomba FPSO ¡°B¡± Project from the world¡¯s top-ranked oil company, ExxonMobil. The $750-million project, a repeat order following the Kizomba ¡°A¡± Project, for which HHI was picked as the prime contractor by ExxonMobil in 2001, is to engineer, fabricate and install a super-large offshore facility to be located off the coast of Angola in western Africa.

  The FPSO for Kizomba ¡°B¡± will be the second largest single project ever received by the Offshore & Engineering Division following ¡°A¡± Project. This floating unit is composed of a ¡®hull part¡¯ that will store a total of 2.2 million barrels of crude oil, the ¡®topside¡¯ capable of producing and refining 250,000 barrels of oil per day, and ¡®living quarters¡¯ accommodating 100 crew members. Weighing about 81,000 tons and measuring 285 x 63 x 32 meters, the structure will be set up in Angola¡¯s Kizomba field by June 2005 and delivered to ExxonMobil after a onemonth test-run.

  HHI steadily accumulated technologies and sophisticated project management know-how in FPSO projects with the successful delivery of two FPSOs to Petrobras of Brazil in 1999 and one to TotalFinaElf of France in 2001. The latter, installed at Girassol field off the coast of Angola, involved dividing the work between two business divisions. After the lower ¡®hull¡¯ part was completed in the Shipbuilding Division¡¯s dry dock and the ¡®topside¡¯ part was fabricated by the Offshore & Engineering Division, the two parts were installed and integrated in HHI¡¯s offshore fabrication yard. On the basis of such ingenuity and proven capabilities, Hyundai Heavy is now negotiating with leading oil companies for the construction of the ¡®hull part¡¯ for several FPSO projects.

   During 2002, HHI also received a $160-million order to construct two offshore platforms and install subsea pipeline in turnkey projects from CNOOC AGIP Chevron Texaco Operator Group, known as CACT-OG. H H I ¡¯ s involvement in offshore structures was initiated by an order for 89 jackets and deck structures for the Open Sea Tanker Terminal (OSTT) in the Jubail Industrial Harbor Project from Saudi Arabia in the late 1970s. The multiple projects for the OSTT were an epoch-making event, with their total value of $931 million equivalent to about a quarter of Korea¡¯s national budget at the time. The highlight of the project was that the jackets were fabricated in Korea and transported to Saudi Arabia on barges, a process that went beyond conventional wisdom. The transport of such large structures in rough seas seemed impossible back then.

  Encouraged by its initial success, HHI grew in less than 30 years into a leading turnkey contractor capable of constructing all types of offshore facilities. To date, the Offshore & Engineering Division has completed more than 3 million metric tons of offshore facilities and 2,700 kilometers of subsea pipelines in nearly 100 projects for more than 30 clients worldwide. The global offshore market was scaled at $50 billion in 2002, including $25 billion for fixed platforms, $11 billion for FPSOs and $14 billion for pipelines and other offshore facilities. The market is expected to grow 10-15% annually as oil companies expand their drilling operations into seabeds 2,000 meters deep.

  After consolidating its position as a turnkey contractor through a series of projects from the Oil and Natural Gas Corp of India to install an infill well platform (1986-87), ¡°ICP¡± process platform complex (1986-89) and ¡°ICW¡± process platform complex (1986-89), Hyundai Heavy Industries first made inroads into the North Sea in the early 1990s by obtaining an order from Norsk Hydro of Norway to fabricate a barge jacket. HHI extended its activities to all five oceans with the construction of the large-scale Harding platform for BP in the North Sea in the mid-1990s.

  As Director Kim notes, Hyundai Heavy, as the world¡¯s biggest shipbuilder, can mobilize a range of equipment and facilities for the Offshore & Engineering Division. Super-sized cranes, heavy transporters and a spacious yard are among the key elements that add to HHI¡¯s competitiveness.

  In the late 1990s, HHI developed a unique technology called ¡°Super Lift¡± for fabricating semisubmersible structures in the yard floor instead of in dry dock, which earned international acclaim. The method allows the upper and lower sections of a drilling rig to be mated on the ground and then skidded into the water. Semisubmersibles had been traditionally built on a dry dock. The onshore fabrication method is a technical breakthrough that dramatically reduces manufacturing costs because it allows better use of a yard.

  In 2002, the Offshore & Engineering Division constructed super-large offshore facilities such as Bayu Undan Topsides, Nakika FPUs (floating production units) and Amenam FSO (floating, storage & offloading). Notably, the division adroitly applied the ¡°Super Lift¡± method to a Nakika FPU ordered by Shell of the United States. The innovative lifting technique was registered in the Guinness Book of World Records, and also listed as one of the "Korea¡¯s Ten Best New Technologies of 2002."

  The onshore deck-mating method was also used to build two semisubmersible drilling units-Deepwater Nautilus and Deepwater Horizon- for R&B Falcon. The ultra-large floating facilities were the most advanced drilling units ever constructed at the time. The Deepwater Nautilus was deployed to the Gulf of Mexico in 2000 and began operation in under longterm charter with Shell, while the Deepwater Horizon was completed in 2001, handed over to BP and put into operation in the Gulf of Mexico.