January 23, 2015      

Gutsy technology at a thousand fathoms

If you accept that humanity’s future is tied more closely to the oceans than space?a safe position?then attention needs to be paid to the few technology companies preparing to profit amid the sea’s harshest conditions.

One such company is closely held Soil Machine Dynamics Ltd., a top designer and manufacturer of underwater remotely operated vehicles. Based in the United Kingdom, where all of its manufacturing takes place, and with offices in Brazil, Singapore and the United States, SMD is working on an audacious task: Building three remotely operated vehicles to chew up and send up strategic minerals and precious metals literally lying atop the deepest plains of the oceans.

nautSMD

The feat might be the folly that some critics say it is, but SMD would nonetheless seem to have the financial backing and oceanic engineering chops to accomplish it, literally pushing underwater automation to new depths.

Alan Reece founded SMD as an agricultural-engineering firm in 1971, but as demand for trans-ocean cables grew rapidly around 1980, Reece refocused. The company created plows that dig sea-bottom trenches for cables and buries them.

Demand for undersea cables spiked as Internet adoption soared in the 1990s. While that business has matured, redundant lines are being laid today to cope with explosive appetites for smart phones, social media and high-definition online video. Waiting in the wings is a new bandwidth hog, mobile banking, so it would seem SMD will not be starved for trenching-equipment work.

But SMD also serves the offshore-oil industry. In 2003, a year after U.S. retail gas prices began their steep climb toward $4 a gallon — and oil producers rushed to take advantage of surging prices by exploiting more offshore reserves?SMD expanded into work-class remotely operated vehicles. The devices initially were force multipliers for the graying oil industry, but they became essential as drilling moved into depths too great for humans.

Even after the 2008 oil crash during the Great Recession, SMD is regarded as the world’s second-largest maker of work-class (as opposed to research, for example) ROVs. That ranking might mean less today because the oil industry has yet to recover from the crash.

Indeed, SMD chief executive Anthony Hodgson (installed by Inflexion) has been quoted saying the market for marine robotics bottomed out as financing disappeared. SMD had to rebuild that line by targeting only the most credit-worthy clients because the rest could not get financing of any kind.

Perhaps coincidentally, 2008 was also the year that Inflexion Private Equity Partners LLC led a management buyout at SMD, through which Reece (who died in 2013) left to design military products. Reece’s son John, who joined SMD years earlier, remains with the firm. Inflexion now has a 60 percent stake in the company.

Reorganizing for success

Shortly after closing the buyout, the new owners organized SMD around five revenue streams:

  • Remotely operated vehicles
  • Trenching
  • Mining
  • Renewable energy
  • Nuclear power

See related: Deep Sea Dive for Rare Earth Elements

See RBR research report: Robotics in Oil, Gas & Mining: 2015-2020

Renewable energy amounts to offshore windmill farms, a market that is swaying as low oil prices make wind less viable. SMD says very little about its nuclear work, if any.

undersea mining

Which brings us back to mining. Most strategic land-based ores are being exhausted, so miners are prospecting the ultra-deep ocean.

In 2007, publicly held Nautilus Minerals Inc., which is licensed to mine the copper- and gold-rich ocean floor off Papau New Guinea, signed a $49.5 million contract with SMD to design and build three mining tractors to exploit the mineral wealth of the so-called Solwara 1 area . Two of the three vehicles are still being built. See a very detailed animation of how the surface and seafloor operations would work.

Operating in total, freezing darkness 5,250 feet below the surface, the machines (one of which, the bulk cutter, weighs 310 metric tons) would roll across silted plains, turning ore into slurry and pumping it to a production vessel on the surface. No exact date has been announced for deployment.

It is interesting to note that far richer mineral deposits are believed to lie on ocean floors around the world that are four times deeper than Solwara 1. It is safe to assume Nautilus will have active competitors in the near future.

Also, there are environmental concerns. The ocean bottom arguably is the last virgin territory on the planet, and its ecosystem changes at a sub-glacial pace. Dropping hundreds of tons of semi-autonomous wheeled vehicles to remove resources could have the same global impact as decimating microscopic life on the surface. Both environments are fundamental building blocks to everything, all the way up to sharks and whales.

SMD continues apace, and has grown to a sizeable firm. According to various sources, it employs 300 to 400 employees, up from 140 in 2009. Forty workers were laid off in 2013, reportedly because of a slackening wind-farm industry.

SMD?s deep-sea competitors:

This is a field that is attracting capital, and could become a major industry. Those first in any field are never guaranteed success, but SMD has proven itself adroit at spotting opportunities and executing successful strategies. It is worth watching.

Backstory: Soil Machine Dynamics

Soil Machine Dynamics (SMD) was created by five professors from Newcastle University in the 1970s to develop technology for burying underwater pipelines and cables.

SMD?s origins are in agricultural engineering related to research at Newcastle University. In the early 1970?s, the North Sea oil industry required the development of seabed geotechnical knowledge, together with theoretical analysis of the particular problems encountered in seafloor earth moving activities. SMD began to design and manufacture sea floor trenching and ploughing equipment used to lay and bury oil and gas pipelines.

Revenue

After a steady start, SMD rode the technology boom and bust of the late 1990s. The firm benefited from the rush to lay cables for the internet, but its growth slowed instantly when the dot-com crash came in 2000. Its then MD and long-term owner, John Reece, responded by shifting his focus to the oil and gas industry and, in doing so, managed to grow the business into a $56 million concern by 2007.

By 2012, SMD’s annual revenue topped is expected to turn over $210 million, owns four factories in northeast England, and employs over 500 people.

Today the company designs and makes remotely operated vehicles and underwater propulsion and control products for use in hazardous environments such as the Arctic Ocean.

Eighty-one percent of its products are exported, compared with 29 percent in 2008. The largest markets are Japan, China and Brazil, where the company has risen to number one in its field in four years.