Schilling Robotics Diary

30 March 2009

Founded in 1985, Schilling Robotics is a robotics technology company that produces ROVs (remote operated vehicles) and other subsea equipment primarily for deep ocean petroleum and gas exploration for use around the world.  Headquartered in Davis, California, it also has offices in Houston, Texas and Aberdeen, Scotland.  In 2008, it became an employee-owned company with a total staff at year end 2007 of 275.  Further information about the company can be found at www.schilling.com.  For video demonstrations of company activities, see this youtube link, for technology developments in the subsea area, see the Marine Technology Society ROV committee’s site at http://www.rov.org/.

 

Industry analysts from Douglas-Westwood Ltd. estimate that the worldwide market for ROVs will grow by 76% over the five years ending 2011 to $1.458 billion.


World ROV Operations Market 2002-2011 millions

Offshore magazine & Douglas-Westwood Ltd.

Important Links

Schilling Robotics Briefs

Latest entry #32

A Brief History and Timeline of Schilling Robotics:

What’s Next for Schilling—Deep, Deep Subsea Controls

Diary Directories:

Oil & Gas Equipment & Services Companies

ROV-Related Companies

Robotics & Offshore Academic & Research Institutions

Oil & Gas Equip/Services Analysts and Industry Observers

Schilling Products

Schilling Executives

24-Hour Hotlines:

North America +1 530 755 6718

Europe +44 (0) 1224 560 909

General Links:

Marine Technology Society

Offshore magazine

Youtube video of Acergy Core Vehicle

Youtube video of UHD ROV StationKeep

Youtube video of Conan Manipulator

Minerals Management Service:

US Dept. of the Interior

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Publisher's disclosure


Corporate Offices

Davis
201 Cousteau Place
Davis, CA 95618-5412
Tel: 530-753-6718, Fax: +1 530 753 8092
email: sales@schilling.com

Houston
7102 W. Sam Houston Parkway N.
Suite 100
Houston, TX 77040-3164
Tel: +1 281 598 4100, Fax: +1 281 598 4130
email: sales@schilling.com

Aberdeen
Unit N, Nord Centre
Aberdeen
AB11 5DN U.K.

Tel: +44 (0) 1224 560 900, Fax: +44 (0) 1224 560 901
email: schilling.uk@schilling.com

 


Schilling Robotics Briefs

32. FMC Technologies Reports Strong Fourth Quarter Results.

Company Press Release: 16 February 2009

Earnings Conference Call: 17 February 2009

FMC Technologies recently reported strong operating gains for its fourth-quarter and full-year 2008. Results benefited from strong gains in its Energy Productions Systems division that is largely focused on developing Subsea Production systems, systems that allow a single rig to extend tentacles that manage multiple well locations. The company highlighted the following quarterly achievements:

- Record subsea systems revenue of $788 million

- Energy Production Systems operating profit up 39 percent

- Acquisition of a 45 percent interest in Schilling Robotics, LLC completed

- Company provides 2009 guidance for diluted earnings per share of $2.40 to $2.65

During a conference call, management commented further on the company’s Subsea opportunities. During the quarter, FMC “achieved a new Subsea completion depth record of 9,356 feet . . . at Shell’s Perdido Development, located in the Gulf of Mexico.” And “As more complex Subsea systems, such as Subsea Processing, are installed on the ocean floor, we envision increased use of ROVs during the life of the Subsea field, including the initial installation, maintenance, and monitoring of the

 

 equipment on the seabed.” FMC's Chairman, President and Chief Executive Officer Peter D. Kinnear, in response to an analyst’s inquiry, comments, “I think one of the things that was attractive to Schilling, with regards to their joining FMC was our global infrastructure and the way we could maybe help them grow internationally, so we are anticipating that we can help Schilling leverage from that respect and grow significantly into Brazil, into the Far East and other areas, West Africa, that they’re not yet have really penetrated.” He further states, “But I think there’s much, much more complexity going on in the seabed as, most of it’s ROV related and every project we do, there’s significant specialized ROV tooling related to what we do. There’s standard tooling that can hot stab or open a valve or close a valve, but there’s also very, a lot of specialized tooling so, we think there’s just a lot of synergies between what we do and what Schilling can do, and so expanding their global reach, getting us more integrated on the Subsea ROV interfaces with our equipment, we just think there’s good synergies and as Bill said, we think they’re a great little technology company and have a great product.”

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31. What’s Next for Schilling—Deep, Deep Subsea Controls.

Global Province

March 2009

Schilling Robotics, having captured a leading share of the market for robotic manipulators and remotely operated vehicles, is known for its commitment to innovation in deepsea exploration and research. That tradition continues as the company leads the way on developing a new generation of subsea control products that will be critical to enhancing a wide range of deepsea activities. Scientists who’ve planted research facilities on the oceans’ bottoms and oil companies forced to explore in depths up to 2½ miles deep are spurring demand for new products. The “technical ramifications are formidable,” as “more and more of the whole oilfied process has to be done close to the wellhead.” But the rewards are commensurate with the challenges. In what are potentially “more powerful” than space stations, “two scientific observatories,” The Venus program off British Columbia (Victoria Experimental Network under the Sea) and the Monterey Accelerated Research System foreshadow the capabilities and opportunity of Schilling’s research. “For the oil companies these subsea facilities will amount to smart factories, which, in fact, will be more agile and require less direct human contact than the factories of the future that are now emerging on land.”

 

A “key consideration” in newly emerging deepsea tools is digitalization, an area where Schilling brings competitive advantages. It has a long history of “packaging electronics for use in the ocean deep” and more than 2 decades of practical experience with manipulator arms. And while “subsea exploration and production (being) only 10% wired” provides evidence of under-investment by the oil industry, Schilling “has often spent aggressively on new projects and, for the last five years, its research expenditures have amounted to about 6% of sales on average.” This compares, according to Booz & Co, to the chemical and energy industries’ average of less than 1% of sales. One item currently under development is a serviceable network gateway, a control package that is analogous to a network switch. It is durable, easily portable, remotely reprogrammable, supports multiple interfaces, and has an “open digital pipeline to which companies can attach a variety of equipment and software configurations.”

“At the moment we are just at the beginning of this effort: only a fraction of our subsea oil exploration activities are digitally enabled. Schilling is trying to provide a digital pipeline open to all comers which can give oil explorers and producers hands-on control in the ocean deep.”

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30. Graham Hawkes Spurs Demand for Personal Submersibles Amongst the Super Rich.

USA Today; by Marco R. della Cava; 07 July 2008

Forbes Magazine; by John Sedgwick; 21 April 2008

While scientists and oil and gas explorers have operated in the ocean’s depths for decades, Graham Hawkes has quietly developed a new-era of submersibles that has attracted the attention of the super rich, including the late American adventurer Steve Fossett, venture-capitalist owner of the $180 million Maltese Falcon yacht Tom Perkins, and Virgin Airlines’ high-profile chief executive Richard Branson. But USA Today stresses that Mr. Hawke’s interests go well beyond providing the newest millionaire status symbols, he’s committed to creating a new awakening to the vast nature of the oceans and their importance to our existence. He wonders why we spend so much money and time going to Mars, when the depths of our own oceans go virtually unattended. Recalling a “religious” experience where he was “drifting up in darkness surrounded by billions of photoluminescent creatures, “Mr. Hawkes feels compelled to go beyond scientists to “take writers and politicians, people who can convey the beauty that is there and

 

perhaps do something to take care of it.”

Forbes Magazine pays tribute by writing, “The grand eminence in his field--perhaps the only eminence--Hawkes has personally designed and built three quarters of all the personal manned submersibles ever made, totaling more than 60 craft.” Forbes goes on to write that while Mr. Hawkes’ competitors continue to make what he refers to as the “undersea equivalent of dirigibles . . . bulbous, cumbersome, slow moving craft . . . his are designed to be speed cruisers, the equivalent of an underwater private jet.” His latest incarnation, the two-person Deep Flight Super Falcon, is “. . . able to roam. Its pilot is free to cruise along, taking in the Imax-like view, nose down to descend an undersea cliffside, or soar up to the surface. He can also perform underwater barrel rolls or loop-the-loops.” Mr. Hawkes overseas the development and construction of his submersibles from the headquarters of Hawkes Ocean Technologies located on San Francisco Bay.

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29. Dr. Sylvia A. Earle Mapping the Sea and Its Mysteries.

The New York Times; by William J. Broad

12 January 2009

While much of the attention of manned and remotely-operated subsea vehicles is placed on the efforts of the oil & gas industry’s efforts to explore and operate production facilities at ever greater ocean depths, it is worth noting that there is a vibrant and growing industry extending from millionaires developing personal submarines to scientific research delving into the mysteries of the deepest oceans. A New York times story delving into these trends notes that one such researcher, Dr. Sylvia A. Earle, an oceanographer and former chief scientist of the National Oceanic and Atmospheric Administration, has co-authored a landmark publication, “Ocean: An Illustrated Atlas.” Dr. Earle’s work is credited with having contributed to President Bush’s designating areas of the Pacific Ocean larger than the state of California as marine

 

monuments. Though Dr. Earles early work was stymied by a lack equipment capable of exploring the oceans depths that reach down to seven miles, her efforts at developing “innovative vehicles” spurred her research, including the rise to fame of Prochlorococcus, a microbe “so small that millions can fit in a drop of water.” According to the New York Times article, Dr. Earle comments that this tiny organism provides “one in very five breaths we take.” Got your attention! Though major advances have and are continuing to taking place, Dr. Earle notes in her Atlas that the seabed “is still not as well imaged or mapped as the Moon or the surface of Mars.” Sounds like significant opportunity for innovation and exploration remains. For an enlightening deep-sea slide show, go here.

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28. FMC Technologies Will Acquire 45% of Schilling Robotics for $116 Million.

FMC Technologies News Release

26 December 2008

FMC Technologies (NYSE: FTI) has acquired a 45% interest in Schilling Robotics for $116 million in a deal to close before yearend — as expected, the transaction was completed shortly after this announcement. FMC is also buying an option to acquire the remaining 55% of Schilling during the two years beginning in 2012. The two companies’ technologies are nice compliments; FMC Technologies is “the leading manufacturer and supplier of subsea production systems,” for the third time being named the most admired oil and gas equipment company in Fortune Magazine’s annual rankings. Schilling “is a leading producer of ROVs (remotely operated vehicles), ROV manipulator systems, control systems, and other high-technology equipment and services for oil and gas subsea exploration and production.” FMC Chairman and CEO Peter D. Kinnear believes that the combination “is a unique and exciting opportunity to expand (FMC’s) subsea business in a new direction . . .” including the ability to “participate more fully in the increasing integration of remote activities performed on the seabed such as subsea processing, well intervention and production optimization.” Schilling Robotics’ Chairman Tyler Schilling observes, “FMC understands and

 

endorses our strategy to introduce innovative digital technologies in response to the growing communications and control challenges facing our customers in the subsea environment.”

Regarding the news, the Houston Chronicle reports:

While FMC has long been a manufacturer of products that sit on the seafloor and are used to produce and separate oil, natural gas and water, the company has not manufactured its own fleet of remote-operated vehicles, which are used to install and repair underwater equipment.

The Schilling partnership will give FMC the ability to manufacture ROVs, but it will also broaden the company's knowledge of how energy equipment works in the high-pressure, highly corrosive underwater environment, according to FMC Chairman Peter Kinnear. ``This is a great niche expansion for us,'' he said. ``Our scope of services to oil companies will be extended, and our subsea revenue is $3 billion globally, so Schilling will get the international exposure it has been looking for.''

The Chronicle goes on to comment that Tyler Schilling is “particularly excited about a breakthrough ethernet switching product that can be used to depths of 2.5 miles, allowing for better well monitoring and control,” essentially bringing the Internet to the seafloor.

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27. FMC Technologies Equipment Sets New World Deepwater Record.

FMC Technologies News Release

02 December 2008

A new world-record depth of 9,356 feet was recently achieved for the completion of a subsea well using FMC Technologies’ (NYSE: FTI) enhanced vertical deepwater tree system. The record was set at Shell’s Silvertip field in the Gulf of Mexico. It is the latest in a long history of records for FMC dating back to the 1980s, most recently at 8,995 feet in the Gulf of Mexico in cooperation with Anadarko.

 

The recent project leveraged FMC’s award-winning technology that offers “a number of innovative features that provide versatility, installation savings, and operational efficiencies in ultra-deepwater field development.” Given the increasing importance of deepwater development, “Achieving this milestone is an important accomplishment for the FMC and Shell teams,” said John Gremp, Executive Vice President of FMC Technologies.

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26. A Brief History of Schilling Robotics.

Brief History of Schilling Robotics

08 December 2008

During the same decade that man was landing on the Moon, remotely operated vehicles (ROVs) were beginning to explore the depths of the deepest oceans. By the 1980s, energy explorers embraced the technology in order to tap oil and gas reserves locked at depths unsuitable for human exploration. It was during this energy surge that Schilling Robotics was born when Tyler Schilling invented a better manipulator.

A suite of manipulators followed, allowing the company to “seize ¾ of the manipulator market.”

Schilling subsequently made the move into ROVs and is now “moving into subsea controls that will help companies safely and capably maintain their deep sea installations.” Known as ‘workover’ tasks,

 

there are a “host of applications for well maintenance and other aspects of controlling subsea producing wells.” Though routine for shallow-water wells, the products for deepwater applications are just “now being developed. The need for remote control techniques is expanding by leaps and bounds in deep sea offshore petroleum exploration, production, processing, and maintenance.” Schilling’s opportunities in this emerging field will be enhanced by its “ability to tightly network and form enduring relationships” within the exploration community, including with industry leading Oceaneering International.

To read more, go to A Brief History of Schilling Robotics.

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25. Schilling Robotics Historical Timeline

08 December 2008

Dec 2008

FMC Technologies Acquires 45% of Schilling Robotics for $116 million.  The stratetic alliance will allow Schilling to extend its worldwide reach.

June 2008

2000 Manipulators in service.  Installed base of arms surpasses 2000 units.

Dec 2007

27th ROV Delivered.  Momentum in ROV market is clear.

Jan 2006

Acergy ACV.  Acergy selects Schilling Robotics to provide Next Generation ROV platform.

Oct 2005

EXPRO AX-S Control System.  EXPRO is a leader in the field of well flow management.  Schilling enters much larger market to extend capacity of subsea wells and deal with exploration and production problems that arise at depths of 1 to 2 miles.

May 2005

First Hydraulic ROV.  UHD ROV delivered to Geoconsult.

Oct 2003

Management buyout from ALSTOM Alstom changes its strategy.

April 2001

Schilling Enters ROV market.  Quest ROV delivered to Canyon Offshore.

April 1998

New Schilling Subsea Architecture.  Remote Systems Engine (RSE) undertaken.  A $20 million project to create building blocks for all future applications-manipulators, ROVs, subsea controls.  Technology fuels takeoff of company.

Sep 1996

Conan 7-function manipulator.  Designed for middle market, high-volume applications.  Ramps up Schilling market share in manipulators.

Dec 1992

GEC Alsthom Buys Schilling.  Huge expansion of R & D.  Schilling management continues to run independent subsidiary operation.

Aug 1990

Titan 2 manipulator.  Tougher and more dexterous than the 7F.  Speedy line extension.

Feb 1987

Four Titan (titanium) 7F manipulators bought by Ametek.  Also opens new market segment for company — nuclear power.

June 1986

Fast Rollout of HV5F.  Two manipulators sold to Sonat Subsea Services in Houston.

May 1985

Founding in Davis. Company started with Prototype of HV5F as Cover Story for SubNotes Magazine.  Small hydraulic manipulator rapidly designed in collaboration with customers.

 

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24. Hobart Birmingham and Taft Symonds Join Schilling Robotics Board of Directors

Company Press Release

13 November 2008

Amidst a time of rapid growth that includes an expanding worldwide customer base and designs on expanding market share, Schilling has announced the appointment of two new directors, Hobart “Hobey” Birmingham and Taft Symonds. As Schilling contemplates future financings and possible business combinations, Mr. Birmingham’s experience in providing “consulting and investment

 

banking services to high technology companies” should help the company navigate through investment complexities both here and abroad. And Symonds’s depth of experience in the oil and gas industry as Chairman of the Board at a private investment firm bearing his name will greatly help Schilling gain market share in subsea controls.

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23. Electronics Make Continuous Inroads into ROVs and Energy Production

Offshore Magazine; EngineerLive

10 November 2008

The Navy was the first to deploy an ROV in the 1950s; it was used to recover a hydrogen bomb off the coast of Spain. Interestingly, it was an all electric ROV. But, as pointed out by William Furlow of Offshore Magazine Volume 60 Issue 3 March 2000, there was a problem with early electric ROV technology; essentially, “as ROVs got larger, so did the thrusters . . . (so) when hydraulics became a practical alternative, the industry quickly shifted to hydraulic thrusters.” While hydraulic technology has some clear advantages, it also faces some limitations, particularly the burdensome weight of the umbilical at newly evolving deepwater operations. So in somewhat of a return to the past, many are looking into the benefits of electronics. In June 2008, EngineerLive spoke to this cycle of technologies by noting, “For the past two decades electric and hydraulic ROVs have complemented each other, with the bigger hydraulic systems finding its main use as work horses within the offshore oil

 

and gas industry, and the electric ROVs as well as many other commercial, scientific and military applications.” They further point out that “electric ROVs have seen a major shift in both size and work capability, and several companies now offer electric work class ROVs as well as deep diving electric ROV systems. Electric ROV systems are now being offered with up to 6000metres as standard.” Schilling’s EHD Electric Heavy Duty ROV combines the advantages of electric propulsion with the performance of heavy-duty, work-class performance.

Electronics, as noted in a September 2008 Offshore Magazine article, continue to make inroads into subsea production. Total E&P Nederland B.V. – a subsidiary of Total S.A., one of the worlds largest oil and gas companies – recently began pumping gas from the Dutch Sector of the North Sea from its K5 field, “mark(ing) the world's first utilization of an all-electric subsea production system.”

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22. Oceaneering International (OII) Third Quarter Record Earnings ($0.99EPS) Boosted by ROV Profits

Company Press Release

30 October 2008

On the back of “healthy demand” for the firm’s subsea services and products, Oceaneering International recently reported another quarter of record profits. And the full year 2008 should result in the firm’s fifth consecutive year of record profitability. Financial market turmoil, declining oil prices and the prospects of a global recession has led company management to be understandably guarded about commodity prices and the level of capital spending. But they expect that “customer spending on deepwater prospects will be less susceptible to a decline in commodity prices than those in shallow water or on land,” and they are confident that with average oil prices above $70 a barrel, the company is set to have another record year in 2009.

Management, in a conference call acknowledging continuing overcapacity in the umbilical market that has led to the decision to reduce capacity at its U.K. plant, said they are anticipating adding 24 to 30 vehicles to its ROV fleet. With more than “80% of (its) investments during the quarter and over 90% year-to-date hav(ing) been in (its) ROV and Subsea product segment,” management expects that the firm’s 2009 capex budget “will be primarily

 

dedicated to support growth of (the firm’s) ROV fleet to meet firm demand.”

Though acknowledging recent market upheavals, management does “see specific signs of a healthy deepwater and subsea market that will drive demand growth for our services and products in 2009 and beyond.” In particular, management reports that, “as of the end of September, over 95% of the existing 210 floating rigs in the world were under contract. And over 80% of these are contracted through 2009. 100 additional floating rigs were scheduled to be delivered during the remainder of 2008 through 2012 and 70 of those have been contracted long-term for an average of six years. This year, seven new rigs have been delivered, four during the third-quarter.” While admitting there is some risk of order cancellation, management notes that even if 20 of the 34 new rigs that haven’t yet begun construction were to be delayed or cancelled, “we're still talking about growth of nearly 40% in the floating rig fleet. And growth of 190% in the high-specification fleet which currently totals 42 rigs.” Bottom line: “Deepwater remains one of the best frontiers for adding large hydrocarbon reserves with high production flow rates at relatively low finding and development cost.”

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21. Louis L. Whitcomb of Johns Hopkins University Reports on State of Deep Water Drilling

invited letter to IEEE 2000 International Conference on Robotics and Automation

2000

Louis L. Whitcomb of the Department of Mechanical Engineering, Johns Hopkins University, presciently speaks to the growing demand for underwater robotic vehicles being “driven by the needs of deep water oil production and deep ocean telecommunication cable operations. Much of Mr. Whitcomb’s article addresses the technological challenges faced by the two primary underwater robotics platforms: Remotely Operated Vehicles (ROV) and Autonomous Underwater Vehicles (AUV) that “operate without an umbilical tether.” ROVs are more widely used in oil & gas exploration, while AUVs, limited by technological challenges of manipulator arms, are more generally being used for surveying, research, and maintenance tasks. There are common challenges to underwater robotics, including “the rapid attenuation of acoustic and electromagnetic radiation in seawater (that) severely restricts the range of high resolution acoustic and optical sensors . . . the high ambient pressure of the underwater environment poses formidable design challenges . . . (and) in the case of untethered vehicles, underwater missions are limited not only by on-board battery storage capacity, but also by the severely limited bandwidth and delay

 

inherent in underwater acoustic communication.”

Mr. Whitcomb notes that, “Continued strong demand for oil, coupled with dwindling shallow-water oil reserves, has spurred the development of technically challenging deep water wells.” Estimates are that “production wells will be operating at depths to 2300m (7500 feet) within the next five years.” See citation 19 for details of Petrobras’ initiatives at 8,500 feet). “The oil-field mission of subsea equipment installation, inspection, manipulation, and maintenance demands large high-power ROVs equipped with powerful robotic arms, high-resolution cameras, and sophisticated tool packages to perform a variety of specialized tasks.” Noting the technological challenges regarding umbilical cable power capacity, vehicle power efficiency, power and data transmission, and navigation and control, the author highlights the industry’s “novel” response by pointing to Schilling Robotics’ Quest ROV for its electric thrusters and its SeaNet telemetry system for taking “the data-concentrator approach out of the research laboratory and into the commercial field.”

For more on Johns Hopkins’ ROV research, click here and here.

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20. Oil & Gas Industry Analysts and Other Industry Observers.

Directory of Oil & Gas Industry Analysts and Industry Observers

15 September 2008

We’ve compiled a directory of financial analysts and other observers of the rapidly changing Oil & Gas industry, with a particular emphasis on the petroleum and petroleum equipment industries.

 

Previously we have established lists of oil equipment and service companies and of universities and other institutions focused on both the oil equipment and robotics sectors.

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19. Petrobras' Cesar Palagi Highlights Innovative, Ultra deepwater Technology to be used in Gulf of Mexico.

Offshore Magazine

14 August 2008

Offshore Magazine recently hosted a live webcast presentation with Cesar Palagi, Walker Ridge Production Asset Manager Petrobras America, Inc. (PZE), a world leading drilling and exploration company with 69,000 employees. The company has a history of industry innovation, including in ultra deepwater drilling. Currently, Petrobras is developing two new well sites (Cascade and Chinook) roughly 106 miles south of Louisiana. Initial work began in 2002, but the heavy lifting started in August 2006. The wells will be drilled in an average water depth of 8,500 feet and they will reach ultimate depths of some 27,000 feet. There is substantial industry interest due, in part, to a range of new technologies that will be deployed. Though

 

having used Floating Production Storage and Offloading systems (FPSO) since 1982 off the coast of Brazil, it will be the first time an FPSO will be used in the Gulf of Mexico. Subsea boosting (aimed at increasing the flow of crude), hybrid risers (method for transporting petroleum products in deep water from the seabed up to a floating or semi-submersible surface structure), specialized installation vessels, and the use of offloading oil from specialized floating production storage facilities to shuttle tankers are but a few of the unique technologies that will be deployed. Sufficient flexibility is being designed into the facilities to allow for the connection of up to 13 additional drill sites. Should production meet expectations, additional platforms will surely be deployed.

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18. Simmons and Company International's Matthew R. Simmons Presents Overview of Global Oil Service and Contract Drilling Industry.

Simmons and Company International

31 October 2007

In a presentation on the Energy Markets entitled, “For Lack of a Nail, The War Was Lost,” Matthew R. Simmons, Chairman of Simmons and Company International, makes the case that out of a 25-year depression in the drilling markets, survivors are now enjoying a period of sustainable prosperity, driven in large part to tight rig capacity and deepwater drilling.

In the face of sparse aggregate data on industry assets, there is little doubt that the “oil service/drilling industry is supported by (a) massive employee base.” And the bottom line going forward is the “world needs far more rigs.” Mr. Simmons cautions about overlooking the service industry, where the “rubber meets the road.”

Following a substantial build-out of rig capacity during the 1970s, “massive layoffs occurred” and “bankruptcies were commonplace.” Mr. Simmons

 

commenting, “The industry collapse was (the) energy industry’s worst 20th century downturn.” But there were survivors, and technological advances marched on in areas of “deepwater drilling, horizontal and steerable drilling systems, multilateral well completions, subsea well systems/satellite tiebacks, 3D and 4D seismic, hydraulic fracing, and measurement while drilling.” Survivors are now thriving with 100% utilization rates, strong profitability and rising backlogs.

It is important to note that the “average age of (the) offshore rig fleet is 25 years.” While this raises the risk of equipment failure, it is also driving strong demand for new products with “almost all new builds (being) deepwater units.” But “it will take years to deliver the surge in new deepwater rigs,” and a shortage of people “is now acute.” And while there is no denying the cyclical nature of the drilling industry, “without rigs, reserves remain in the ground.”

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17. Oceaneering Int’l (OII) Second Quarter Results Boosted by Strong ROV Segment.

Company Press Release & Conference Call

30 & 31 July 2008

Oceaneering International recently reported record second quarter earnings due, in part, to strong performance in the firm’s ROV and Subsea Products groups. Company President and CEO, T. Jay Collins, commented that amidst “rising market demand” Oceaneering “attained all-time high average ROV revenue per day-on-hire” and as a consequence was “raising (the company’s) ROV annual operating income growth range.” In the company’s conference call (available here), management acknowledged slippage in the deployment of umbilicals which are generally deployed late in the overall exploration process; but

 

they also expect “a substantial increase in umbilical throughput for the second half of 2008.” On the basis of the outlook for its ROV segment being “very bright,” more than 90% of the firm’s capital expenditures in the last quarter and year-to-date have been in the ROV and Subsea Products segments. In addition, management stated that they’ll be looking for “additional accretive acquisitions . . .” in line with the firm’s previous purchases of products companies. They further state an interest in ROV acquisitions, acknowledging that “there are (a) limited number of players out there left for us to acquire.”

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16. Schilling Robotics Appoints Clay Cottingham as New Head of Customer Service.

Company Press Release

28 July 2008

Schilling Robotics has announced that Clay Cottingham will be drawing upon his experience in the Navy to help the company implement a new “collaborative” customer service system in his role as the new vice president of customer service. In addition to using close customer ties to improve next

 

generation subsea controls and ROVs, Philip R. Otto makes the case that with the company “well beyond $100 million in annual sales, management must provide an integrated infrastructure that can deliver flawless service and consistent results. I’m pleased to say that we’re on track to get this done.”

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15. SMD acquired by Inflexion; Perry Slingsby Systems acquired by Triton Group.

Thompson Merger News; April 2008

BNET Business Network; March 2007

In the spring of 2008, Inflexion Private Equity acquired via a management buyout SMD, a leading subsea engineering company specializing in remotely operated vehicle systems. Annual capex spending in the work class ROV segment, an area of SMD expertise, is expected to grow “by more than 50% over the next three years as developers are forced to explore deeper waters and increasingly harsh conditions to satisfy sustained demand for oil and gas.”

The SMD acquisition follows a similar management buyout of Perry Slingsby Systems in 2007, a buyout that served to form a new entity, Triton Group Holdings. Perry Slingsby has 50 years experience in

 

the design and production of ROVs, trenchers, Tether Management Systems and other subsea systems and technologies. Though Perry management took investment stakes in Triton, the principal shareholder was SCF Partners. The new CEO of Triton commented, “PSS has grown considerably in the last 3 years and are in an extremely strong position. Additional investment is required to continue this growth and to take advantage of the market conditions and opportunities.”

With the increasing concentration in marine robotics and ROVs, there are very few pure-play companies left in the business today.

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14. Schilling Robotics Surfaces as Privately held leader in ROV technologies.

Underwater Magazine; November/December 2003

The Sacremento Bee; 01 November 2003

Schilling Robotics began operations in 1985 as a specialty maker of manipulator arms for the offshore oil and scientific markets. The firm’s first models became popular amongst subsea participants, eventually capturing the eye of the US Department of Energy. Such attention by the DOE raised Schilling’s profile and the company was acquired by GEC Alsthom in December 1992. Tyler Schilling, the company’s co-founder continued to run and manage the company. When GEC Alsthom went public in 1998, the Schilling assets became know as Alstom Schilling Robotics. It was then that the company began developing its Remote Systems Engine (RSE) that was used by ROV makers as a building block for their newest ROVs. In late 2001, amidst an industry downturn, Alstom decided that it would seek to divest the Schilling assets. CEO and company co-founder Tyler Schilling eventually led a management buyout in October 2003 and began to build on the company’s long history of excellence as a supplier to the offshore drilling and exploration industry. Evidence of the firm’s excellence can be found in its having captured an estimated 75 to 80 percent of the deep-sea robotic manipulator market. The firm’s manipulators can reach depths of 6,500

 

meters (over 4 miles) with the ability to pick “up a seashell” but also “lift 250 pounds and grasp with 2,000 pounds of pressure.” While dominating the market for manipulators, Schilling made a strategic emphasis on manufacturing complete ROVs -- with today’s strong market, clearly a prescient move. A substantial R&D effort while part of Alstom led to Schilling’s own line of ROVs, an all-electric ROV called Quest. Tyler Schilling commenting in late 2003, “We are now in a position to supply customers with components, pre-integrated subsystems, or complete turnkey systems.”

The development of the Quest ROV forced Schilling to deal with integration issues that its customers had to deal with when incorporating Schilling’s RSE into their ROV products, lessons learned enhancing Schilling’s overall product line. Canyon Resources and the University of Bremen were early customers. Building on the success of Quest, Schilling rolled out a newer hydraulic propulsion ROV, the Quest UHD (ultra heavy duty) ROV. According to Tyler Schilling at the time, “With the addition of the Quest UHD, we'll be able to address all segments of the work-class ROV marketplace.”

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13. Paul Whalen, New Senior V.P. of Operations, to Accelerate Systems Delivery.

Company Press Release

17 July 2008

Schilling Robotics recently announced the latest in a string of management appointments with the news that Paul A. Whalen will assume the position of senior vice president of operations. According to company CEO Philip F. Otto, Mr. Whalen’s experience at Toyota’s Long Beach, CA, manufacturing facility provides him with the skills

 

and practical background necessary to smoothly drive the growth of Schilling’s complex manufacturing systems.” The release goes on to say Mr. Whalen brings an ability to “tackle diverse scenarios in inventory management, production streamlining, quality assurance, and product upgrade.”

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12. Capacity Constraints Crimp Drilling but Spur Strong Pricing.

The New York Times; by Jad Mouawad and Martin Fackler

19 June 2008

The demand is very high for offshore oil exploration and production, but it is quite apparent that both logistical and technological advances need to be made in order to seize the opportunity. The New York Times’ writers Jad Mouawad and Martin Fackler recently spotlighted the “critical bottleneck” that has resulted from a global shortage of drilling ships. The authors note that “the world’s existing drilling-ships are booked solid for the next five years.” In addition to forced exploration delays, shipbuilders “have raised prices since last year by as much as $100 million a vessel to about half a billion dollars.” Prices are rising throughout the supply chain as indicated by “drilling costs for some of the newest deepwater rigs in the Gulf of Mexico have

 

reached about $600,000 a day, compared with $150,000 a day in 2002.” The authors’ note that drilling capacity isn’t the only constraint on energy companies; development costs have doubled in five years, increased competition, steel shortages, insufficient engineering and manufacturing capacity, and an aging work force.

Harris S. Lee, VP in charge of Samsung’s offshore drilling rig business points out, “The oil reserves that were easy to reach are all drying up. The future is in exploring the deep seas and harsh environments,” including the demanding conditions of the Arctic with substantial ice, 50-foot waves and temperatures to minus 40 degrees.

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11. Schilling Apoints New Controller and Head of Human Resources .

Company Press Release

10 July 2008

Schilling Robotics has added two new executives to its expanding management team. John Kehoe, Schilling’s senior vice president and chief financial officer comments that the addition of Gil Llacuna as the company’s new vice president and corporate controller “will enable us to achieve transparency when we undertake financings, but it will also help us achieve superior control over asset management, financial management reporting, and other processes

 

that are critical for successful global enterprises.” At the same time, it was announced that Sally Larocca was appointed to the firm’s newly created position of vice president of human resources. As a leader in the market for ROVs and subsea control systems used in oil and gas subsea exploration and production growing at 40% annually, “Solid recruiting and human resource management is critical for us to be able to rapidly grow our business globally,” comments Mr. Kehoe.

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10. John Kehoe Appointed New Chief Financial Officer; Part of Expanded Management Team .

Company Press Release

25 June 2008

Schilling Robotics reports that at a time of “40% annual revenue growth and accelerated offshore drilling activity” it has appointed John Kehoe as senior vice president and chief financial officer as part of the company’s plan of “installing a fast response, agile management organization.” Philip F. Otto, Schilling’s president and CEO, commented, “John comes aboard as our administrative and financial tasks become more complex and as we free up other key management for critical tasks in their areas. In particular, our founder and chairman Tyler Schilling is now tightly focused on leading-

 

edge development of new products that will take advantage of our solid development platform but also keep us in the forefront of our industry.”

John Kehoe played a key role in Level One Communications’ 50% annual growth between 1995 and 1998 and the eventual sale of the company to Intel in 1999 for $2.2 billion. He also served in a variety of financial and senior management roles in technology companies that include Intel Corporation, Focus Surgery, Inc., Celeritek, Inc., Poqet Computer Corporation, Silicon General, and Texas Instruments.

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9. CNBC’s Jim Cramer Highlights Rapid Growth of Offshore Drilling and ROVs.

CNBC's Mad Money

24 June 2008

Mad Money talk show host, Jim Cramer, recently spotlighted the range of new technologies, including ROVs – “unmanned, joystick-controlled machines (used to) inspect deepwater pipelines, repair leaks, assist in drilling and remove waste material left behind by drillings” -- that have made clean, offshore oil exploration, drilling, and production a reality. During a weeklong series, he spotlighted ROVs as a “critical component” to the overall process of clean energy development.

 

Estimates are for overall offshore drilling investments to be $305 billion from 2007 to 2011, up some 50% from 2004-2006. Deep water spending is expected to grow from 21% to 29% of the total offshore market. A subset of the market for umbilical should grow at a 25% compound annual rate from 2006 to 2011. Schilling Robotics is the worldwide leader in providing subsea robotics and control products to the oil and gas, scientific, and military industries.

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8. Two Schilling Contracts highlight escalating ROV demand

Offshore Source Magazine

May 2008

Offshore Source Magazine’s May 2008 issue speaks to the escalating demand for ROVs with an article that includes a review of Schilling’s contracts to supply ultraheavy-duty UHD ROV systems to Global Industries and Bourbon. The Global contract called for two systems to be delivered during the first quarter of 2008, while the Bourbon deal calls

 

for an initial order for four systems to be delivered over the course of 2008 and 2009. The Schilling ROV units are rated for depths up to 4,000 meters and include several of Schilling’s advanced features, including its extended excursion XE Tether Management Systems and its Remote Systems Engine technology.

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7. Oil & Gas Equipment & Services Companies Directory

Oil & Gas Equipment & Services Companies

02 June 2008

This will link you to our Directory of Companies providing equipment and services to the Oil & Gas industry where you will find links to the companies' home pages. We will be adding to this list. We urge

 

you to supply us with the names of the many companies we are missing, since we want this list to be as comprehensive and useful as possible.

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6. Schilling Robotics to Present at 2008 Offshore Technology Conference

2008 Offshore Technology Conference

April 2008

Schilling Robotics will be presenting (Booth 9517) at the 2008 Offshore Technology Conference being held May 5-8 at the Reliant Center in Houston, Texas. The conference, considered the premier offshore industry event for professionals, service industries and suppliers, has shown growing interest

 

in recent years. Last year's conference accommodated more than 67,000 visitors, an increase of 13% over 2006 and a conference record. There were about 2,400 presenters last year representing more than 30 countries.

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5. Schilling Robotics Appoints Philip F. Otto CEO.

Company Press Release

22 April 2008

With founder Tyler Schilling moving into the role of Chief Development Officer, the company has appointed Philip F. Otto as CEO. In his new role, Mr. Otto will be charged with broadening the firm's senior management team at a time that "demand for (the firm's) equipment and services has reached unprecedented levels." Mr. Otto is "a Silicon Valley veteran and former chief executive of several high growth technology companies."

 

He brings "extensive experience in restructuring and expansion of companies, mergers and acquisitions, as well as broad dealmaking and marketing activity throughout Asia and Europe."

Given the expected changes in deepsea drilling activity over the next five to ten years, entrepreneurial companies are being presented with a "special opportunity".

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4. Global Industries Anchors Subsea Fleet with Schilling's Ultraheavy-duty UHDTM ROVs

Company Press Release

03 April 2008

Global Industries has acquired two of Schilling's ultraheavy-duty UHDTM ROV systems during the first quarter of 2008. The systems "will allow Global Industries to operate in the harshest subsea environments and perform the most demanding construction and intervention tasks."

 

Jim Dore of Global Industries commented, "Global selected Schilling because of its outstanding reputation as a leading manufacturer of ROV systems and robotics. We anticipate that these systems will leapfrog us into yet another phase of strategic growth of Global Industries."

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3. Exxon to Increase Exploration Budget by $1 Billion

The Wall Street Journal; page B1, by Russell Gold

06 March 2008

Challenging political environments abroad have made it increasingly difficult for large oil companies to replace their reserves. But with coffers filled with profits, many, including Exxon, are seeking to broaden their exploration horizons, including offshore areas around Ireland, Greenland, New Zealand, and Madagascar as

 

well as of the coasts of OPEC members Libya, Qatar, Nigeria, and Angola. The biggest oil strike in ten years offshore Brazil last November heightened anticipation for new fields, and the technology for drilling in wells two-miles deep is now available to support exploration in new areas around the globe.

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2. Drilling Activity Hits New High in Ultra-Deep Gulf of Mexico

U.S. Department of the Interior; Minerals Management Service

14 August 2007

The U.S. Department of the Interior reports that "A record number of drilling rigs are currently working in ultra-deepwater in the gulf of Mexico." Never before in the Gulf have 15 rigs been drilling for oil and gas in greater than 5,000 feet of water.

Production has also been on the rise, as evidenced by the start up of Independence Hub, "a semi-submersible platform located in 8,000

 

 feet of water . . . " It is "The deepest production platform ever installed and also the world's largest offshore natural gas processing facility." The MMS reports that, "As the industry continues its exploration in deeper waters, the availability of technology capable of operating in deeper water depths and more extreme conditions becomes an important issue."

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1. Work-class ROV market to grow 76% by 2011

Offshore Magazine; Volume 67, Issue 4; by Rod Westwood

April 2007

Reporting on the results of a study conducted by Douglas-Westwood Ltd., Offshore magazine highlights the tripling of work-class ROVs since 2002 and the expected 76% additional growth by 2011 to $1.458 billion. North American and Europe are expected to account for half of the worldwide market.

"Demand drivers" are primarily the "high and sustained oil prices of recent years" that have led to "high levels of drilling activity and increased

 

installations of subsea wells, pipelines, control cables, and other hardware." Importantly, much of the increased activity "is increasingly happening in water depths beyond the economic reach of manned intervention," thus sparking demand for ROVs.

Analysts also anticipate that shortfalls in rig availability will put rising price pressures for ROV systems, a trend further bolstered by operators using "extra ROV units for redundancy purposes . . . (as) . . . time lost due to ROV failure can be economically disastrous."

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DISCLOSURE: Corporate Diaries are compiled and published by William Dunk Partners, Inc., P.O. Box 3687, Chapel Hill, North Carolina, 27515. All information is taken from publicly available sources that are believed to be reliable, and every effort is made to assure accuracy. Nevertheless, no guarantee or assurance of accuracy can be provided. No offer on our part with respect to the sale or purchase of any securities is intended or implied, and nothing herein is to be construed as a recommendation to buy or sell any securities. Corporate Diaries are independently produced and maintained.

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