IR Report & Message vol.3
Fiscal Year from January 1, 2005 to December 31, 2005

(company code: 6269)

To Our Shareholders

The year 2005 was a successful year for MODEC Group. MODEC
was awarded three new contracts, namely KNOC Rong Doi FSO(Vietnam) in May, Petrobras Espadarte Sul FPSO (Brazil) in Julyand Petrobras PRA-1 FSO (Brazil) in December. MODEC also
started the works for BHPBP Stybarrow FPSO (Australia) project inDecember 2005. These four lease projects will contribute to thegrowth of MODEC Group's financial results in the coming years.
Three FPSOs commenced oil production in 2005; Santos MutineerExeter FPSO (Australia) in March, PEARL Jasmine FPSO
(Thailand) in June and CNR Baobab FPSO (Cote d'Ivoire) inAugust. MODEC owns and operates these three FPSOs, leading
the total number of MODEC operated FPSO/FSOs to nine at theyear end of 2005.
In 2005, the offshore industry was challenged in its reliability by
hurricanes Katrina and Rita. Two TLPs that MODEC had
delivered in the Gulf of Mexico, Prince TLP and Marco Polo TLP,
suffered no damage. However, we recognized the strong
responsibility to tighten our safety and environmental
consciousness once again.
Oil prices have shifted on high level due to the concerns for therefinery capacity. To support the stable energy supply, which has
intensified more than ever, MODEC will keep our continued effort
to improve the quality of floating production facilities and operation
services.

Kenji Yamada
President & CEO
MODEC, INC.

1

TOPICSKNOC Rong Doi FSO Project

Hanoi

MODEC was awarded an FSO charter contract from Korea National Oil
Corporation for the Rong Doi / Rong Doi Tay fields, offshore Vietnam.

Two Contract Awards from Petrobras
In 2005 MODEC was awarded Espadarte Sul FPSO project in July and PRA1 FSO project in December from Brazilian state oil company Petrobras.
(Please see Page 4)

Rio de Janeiro

BHPBP Stybarrow FPSO ProjectIn December 2005 MODEC started the works to provide an FPSO for the
Stybarrow field offshore Australia. The contract was signed with BHPBPin March 2006.
Perth

Three FPSOs Started Charter Services
In 2005 three FPSOs commenced oil production; Santos Mutineer-Exeter
FPSO (Australia) in March, PEARL Jasmine FPSO (Thailand) in June and
CNR Baobab FPSO (Cote d'Ivoire) in August.

PEARL Jasmine FPSO

Public Offering and Third Party Allotment
In December 2005 MODEC, INC. issued new shares and executed the secondary offering of the shares.
Total number of issued shares increased to 37,408,000 shares and paid-in capital increased to 12,391.6
million yen.

2

MODEC at a Glance — Operation Area of FPSO/FSOs

Currently approximately 110 FPSOs and 80 FSOs are in operation worldwide(NOTE). FPSOs were first started to be in use in the
1970s, mainly in the North Sea. In recent years the demands for FPSOs have shifted from the North Sea to other areas
including West Africa, Brazil, Southeast Asia and Pacific. According to the April 2005 report of International Maritime
Associates, Inc., 59 to 72 FPSOs are expected to be ordered in the next five years and the majority of the units will be
deployed in West Africa, Brazil, Southeast Asia and Pacific regions.
To cover the worldwide FPSO markets, MODEC Group has two headquarters, in Tokyo and in Houston. MODEC, INC. in
Tokyo covers Southeast Asia and Pacific markets, while MODEC International LLC in Houston covers West Africa, Brazil andGulf of Mexico markets.

Operation Area of FPSO/FSOs(Total 186 projects, as of November 2005)

indicates the number of MODEC's turn-key FPSO/FSO projects.

CanadaGulf of Mexico
Mediterranean

China

Contrary to its general image as an oil
mecca, Middle East is a relatively small
market for FPSO/FSOs.
The demands for FPSO/FSOs in the
North Sea have been in the decreasing
trend.

Majority of Brazil's oil fields exists
offshore and growing demands for
FPSO/FSOs are expected. MODEC covers
Brazil market from Houston office.

Southeast Asia

Middle East
Pacific
North Sea

BrazilWest Africa(NOTE) Source: International Maritime Associates, Inc.
FLOATING PRODUCTION SYSTEMS assessment of the outlook for FPSO vessels, production semis, TLPs and spars – November 2005 –3

Continuous demands for FPSO/FSOs are
expected from Vietnam, Indonesia,
Australia and other countries. MODEC
covers Southeast Asia and Pacificmarket from Tokyo office.

West Africa is one of the biggest
FPSO/FSO markets with many mega oilfields existing offshore Angola, Nigeria
and other countries. MODEC covers
West Africa market from Houston
office.

FPSO Project in 2005 — Petrobras Espadarte Sul FPSO

Brazil is one of the most rapid growing FPSO markets in the world along with
Southeast Asia, Pacific and West Africa. Large percentages of Brazil's oil fields
exists offshore and among major offshore reservoir areas, Campos Basin,
located northeast of Rio de Janeiro, holds numerous oil fields.
In July 2005 MODEC, INC. was awarded a contract from Brazilian state oilcompany Petrobras for the supply and operation of an FPSO. The FPSO will be
installed on the Espadarte Sul field in the Campos Basin in 1,350 meters ofwater depth. MODEC will own and operate the FPSO for eight years withpossible extensions.
The construction work to convert the tanker “Bright Jewel” to the FPSO is
ongoing at Jurong Shipyard in Singapore. The oil production from theEspadarte Sul field is expected in the first half of 2007.

Rio de Janeiro

FPSO Construction Works at Jurong Shipyard

4MODEC Project Location

CLJOC Su Tu Den FPSO **Southeast Asia

KNOC Rong Doi FSO **(Under Construction)

Vietsovpetro White Tiger FSO

CLJOC Su Tu Den FPSO
（Vietnam）

PEARL Jasmine FPSO **JHN Lufeng FSO
Amoco Liuhua FPSOPTTEP Bongkot FSO
MEDCO/MOECO Langsa FPSO **MODEC, INC.
(Tokyo)CNR Baobab FPSO **Marathon Kakap FPSO *Chevron Escravos LPG FSO

Chevron Anoa FPSO

Esso Chad FSO

West Africa

Amerada Hess Oveng TLP & Okume/Ebano TLP(Marathon Tchatamba FSO & MOPU)

BHPBP Stybarrow FPSO **(Under Construction)
CNR Baobab FPSO
（Cote d'Ivoire）

Pacific

Santos Mutineer-Exeter FPSO **(Nexen Buffalo FPSO)
ConocoPhillips Elang/Kakatua FPSO **Santos Mutineer-Exeter FPSO（Australia）

5

MODEC was awarded its first FPSO contract in 1985 and since then MODEC has delivered eleven FPSOs and seven FSOs. MODEC
aims to strengthen its presence in Brazil and West Africa as well as in Southeast Asia and Pacific.

* MODEC owns
* MODEC operates** MODEC owns and operates(relocated or decommissioned)O, INC.

El Paso Energy Prince TLP
Gulf of Mexico

Anadarko Marco Polo TLPMODEC International L.L.C.
(Houston)

PEMEX Cantarell FSO **FPSO *SO

Anadarko Marco Polo TLP（Gulf of Mexico）

BrazilShell Maui-B FPSOPetrobras PRA-1 FSO **(Under Construction)

Shell Bijupira-Salema FPSO *Petrobras Espadarte Sul FPSO **(Under Construction)

Shell Bijupira-Salema FPSO
（Brazil）

PSO

6

Financial Highlights for the Fiscal Year 2005

Financial Highlights for the Fiscal Year 2005
• New FPSO/FSO contract awards boosted• Annual orders were 166.5 billion yen; order backlogs at the year end were 182.1 billion yen• Three FPSOs started charter services• Number of lease units increased to seven• Both revenue and profit increased due to the progress of construction works and the provision of lease, charter
and O&M services• 10.6 billion yen was procured by the new share issue and the third party allotment for the purpose offinancing to expanding lease projects¥ Million

2003/12

2004/12¥ Million

2003/12

2005/12

166,5382,409
109,084

160,000

60,000710
57,864625
59,204

2,472
54,974

27,11839,42240,0002004/12250,000

2005/12

Other

231,031EPCI services

76
77,744200,000

150,000 120,104
100,000

50,141
2,489
24,71740,000771,61451,891¥ Million

2003/12

2005/123,320

86,9490

2004/1266,751

120,000

80,000Order backlogs by service types

Sales by service types

Orders by service types

55,044

118
36,76539,77220,00050,00022,935
0

8,176

9,148

14,16643,4480

114,055
91
21,48136,44056,042

48,894
104,315

MODEC Group’s
share in the “Lease,
Charter and O&M
services” of theaffiliates accounted
for by the equity
methodLease, Charter andO&M services

Review of Operations

Review of Operations
In the fiscal year 2005 high oil prices backed the increasing
trend of offshore oil and gas development. In this businessclimate, the Company was awarded three new contracts;
KNOC Rong Doi FSO (Vietnam), Petrobras Espadarte Sul
FPSO (Brazil) and Petrobras PRA-1 FSO (Brazil). The
Company also started the works for BHPBP Stybarrow
FPSO (Australia) project in 2005. Construction works ofthe four new FPSO/FSO projects progressed on schedule.
On the operations side, three FPSOs commenced oil
production in 2005, leading the total number of
FPSO/FSOs that the Company owns and operates to sevenat the year end of 2005.
As a result, both Consolidated Order and Consolidated
Sales recorded the highest; Consolidated Order totaled
166,538 million yen and Consolidated Sales totaled 71,614
million yen. On the profit side, Ordinary Income and Net
Income increased to 5,408 million yen and 3,213 million
yen respectively.

EPCI Services
Construction of newly awarded FPSO/FSO projects andtwo TLPS for Amerada Hess's Oveng and Okume/Ebano
fields progressed on schedule. Construction works of CNR
Baobab FPSO, Santos Mutineer-Exeter FPSO and PEARL
Jasmine FPSO were completed. As a result, sales fromEPCI services totaled 54,974 million yen.

Lease, Charter and O&M Services
Three FPSOs commenced oil production in 2005, adding
the number of the Company's self-owned FPSO/FSOs toseven. In addition the Company operated two FPSOs
owned by oil companies. As a result, sales from Lease,
Charter and O&M Services totaled 14,166 million yen.

Other Services
As after-sales services, the Company supplied spare partsand provided engineering support to the FPSO/FSOs that
the Company had constructed and delivered to the oil
development companies. As a result, sales from otherservices totaled 2,472 million yen.

Outlook for the Fiscal Year 2006
Driving forces for offshore oil and gas development arestrong and the project size of floating production facilities
are getting bigger. Under this business environment, theCompany will continue the marketing activities vigorously
to sign new contracts. The Company intends to make astrong commitment in the safety execution of EPCI works
and the high uptime performance of Operation &Maintenance services. For the fiscal year 2006, theCompany forecasts Sales of 80,000 million yen, Ordinary
Income of 4,500 million yen and Net Income of 3,100
million yen.

8

Consolidated Financial Statements(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Consolidated Balance Sheets–Assets–
Current Assets
Cash and time deposits
Accounts receivable - trade
Inventories
Short-term loans receivable
Short-term lease receivable
Other
Non-Current Assets
Property and Equipment
Machinery and equipment
Construction in progress
Other
Intangible Assets
Other Assets
Investment securities
Long-term loans receivable from an affiliated company
Long-term lease receivable
Other
Total Assets–Liabilities–
Current Liabilities
Accounts payable - trade
Short-term loans payable
Current portion of long-term loans payable
Other
Long-term Liabilities
Long-term loans payable
Other
Total Liabilities
Minority Interests in Consolidated Subsidiaries–Shareholders’ Equity–
Common stock
Capital surplus
Retained earnings
Net unrealized holding gains on securities
Foreign currency translation adjustments
Less-Treasury stock at cost
Total Shareholders’ Equity
Total Liabilities, Minority Interests and Shareholders’ Equity

9

Fiscal year 2005

Fiscal year 2004

(December 31, 2005)(December 31, 2004)

48,83225,061
16,409
2,237
255
2,145
2,721
55,866
7,094
3,168
3,735
191
5,246
43,524
8,463
28,2895,043
1,727
104,698

42,70014,061
14,059
165
9,783
1,735
2,894
23,820
5,708
5,606
–
102
4,769
13,341
3,882
1,745
6,273
1,440
66,521

56,431
18,88927,960
3,107
6,473
8,616
6,478
2,138
65,047
1,807

34,90910,255
12,663
6,652
5,337
7,932
6,345
1,587
42,842
1,393

12,391
13,121
10,434865
1,031
037,843
104,698

7,159
7,675
7,531
575
656
0
22,28566,521

Investments and other assets
increased due to the investments inand financing to the Company's
affiliates that will own and lease
FPSO/FSO units to oil companies.

Short-term loans payable increased
due to the financing to theCompany's affiliates during the EPCI
periods.

Common stock and Capital surplus
increased as a result of the public
offering and the third party
allotment.

Consolidated Financial Statements(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Consolidated Statements of Income
Fiscal year 2005

Fiscal year 2004

(December 31, 2005)(December 31, 2004)

Sales

71,61451,891

Cost of Sales

63,05344,553

8,560

7,338

Gross Profit

4,665

3,559

Operating Profit

Selling, General and Administrative Expenses

3,895

3,779

Other Income

2,978

1,342

Interest income

1,282

836

Dividend income

55Foreign exchange gain

580–

Equity in earnings of affiliates

763

128

Other

346

372

1,465

1,420

Other Expenses
Interest expense

1,261

685

Foreign exchange loss–

420

Depreciation of idle assets

–

229

Other
Ordinary Income
Extraordinary Profits
Gain from sale of fixed assets

204

85

5,408

3,701

–

41

–

41

Extraordinary Loss–

329

Loss on bad debt–

242

Loss on sale of fixed assets

–

86

5,408

3,414

1,010

2,290

–

489

841

1,174

Income before Income Taxes and Minority Interests
Income taxes:
Current
Adjustment to prior years
Deferred
Minority Interests
Net Income

342

557

3,213

2,230

Newly awarded projects pushed up
Sales from EPCI services. Increasing
number of charter and O&M
projects raised the Sales from Lease,
Charter and O&M services.

Three FPSOs owned by theCompany's affiliates started oil
production. As a result, equity inearnings of affiliates increased.

Ordinary Income and Net Income
recorded the highest.

10Consolidated Financial Statements(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Consolidated Statements of Earned Surplus(

Fiscal year 2005

Fiscal year 2004

January 1, 2005 thru
December 31, 2005

January 1, 2004 thru
December 31, 2004

)

(

)

–Capital Surplus–
Beginning balance

7,675

5,175

Increase in capital surplus

5,446

2,499

Issuance of new shares

5,446

2,499

13,121

7,675

Beginning balance

7,531

5,648

Increase in retained earnings

3,213

2,230

3,213

2,230

Ending balance–Retained Earnings–

Net income
Decrease in retained earnings

310

347

Cash dividends paid

297

337

Bonuses paid to directors

13

10

10,434

7,531

Ending balance(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Consolidated Statements of Cash Flows(11

Fiscal year 2005

Fiscal year 2004

January 1, 2005 thru
December 31, 2005

January 1, 2004 thru
December 31, 2004)(

Cash flows from operating activities

11,796

9,623

Cash flows from investing activities

21,528

14,402

Cash flows from financing activities

19,0635,164

Effect of exchange rate changes
on cash and cash equivalents

1,668

119

Net increase in cash and cash equivalents

11,000266

Cash and cash equivalents at beginning of year

14,061

13,795

Cash and cash equivalents at ending of year

25,061

14,061)
Cash flows from investing activities
increased due to the investments inand financing to the Company's
affiliates.
Cash flows from financing activities
increased due to the capital increase
through the public offering and thethird party allotment.

Non-Consolidated Financial Statements

Non-consolidated Balance Sheets–Assets–
Current Assets
Non-Current Assets
Property and Equipment
Intangible Assets
Other Assets
Total Assets–Liabilities–
Current Liabilities
Long-term Liabilities
Total Liabilities–Shareholders’ Equity–
Common stock
Capital surplus
Capital reserve
Retained earnings
Earned reserve
Voluntary reserve
Unappropriated retained earnings
Net unrealized holding gains on securities
Less-Treasury stock at cost
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Fiscal year 2005

Fiscal year 2004

(December 31, 2005)(December 31, 2004)

22,92848,291101
748,182
71,22025,62016,81529
516,78042,43538,9191,344
40,26322,877503
23,38012,391
13,121
13,121
4,579
68
1
4,509
865
0
30,956
71,220

7,159
7,675
7,675
3,645
68
2
3,574
575
0
19,05442,435(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Appropriation Statements
Fiscal year 2005

Fiscal year 2004

1, 2005 thru
January 1, 2004 thru
( January
December 31, 2005 ) ( December 31, 2004 )Unappropriated retained earnings
at end of year

Transfer from voluntary reserve
Transfer from special reserve for depreciation
Total
To be appropriated as follows:
Cash dividends
Bonuses to directors
Retained earnings carried forward

4,509

3,574

0
4,509

0
3,575

187
18
4,304

127
13
3,434

Non-consolidated Statements of Income(Millions of Japanese yen,Amounts are rounded down to
the nearest million.)

Fiscal year 2005(
Sales
Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Operating Profit
Other Income
Interest income
Dividend income
Foreign exchange gain
Other
Other Expenses
Interest expense
New share issuance expense
Foreign exchange loss
Other
Ordinary Income
Income before Income Taxes
Income Taxes:
Current
Adjustment to prior years
Deferred
Net Income
Retained earnings at beginning of year
Interim dividends
Unappropriated retained earnings
at end of year

January 1, 2005 thru
December 31, 2005

Fiscal year 2004

) (January 1, 2004 thru
December 31, 2004

23,864
22,250
1,614
1,263
351
2,705
1,261
522
764
157
1,138
970
58
–
110
1,917
1,917

19,426
16,226
3,200
1,043
2,156
984
817
5
–
161
959
477
25
406
51
2,181
2,181

9
158
822
1,244
3,434
170

1,455
–
459
1,186
2,500
112

4,509

3,574

)

The Company paid a dividend of 5 yen per share asof December 31, 2005. In combination with interim
dividends of 5 yen per share, the annual dividends
totaled 10 yen per share.

12

Corporate Data (as of December 31, 2005)

Company name:

MODEC, INC.

Management (as of March 28, 2006)

Founded:June 1, 1987

Head office:2-8, Kohinata 4-chome, Bunkyo-ku
Tokyo 112-0006, Japan
TEL: +81-3-5800-6081
FAX: +81-3-5800-6060/6070

Kenji Yamada
President & CEO
Nobuhiro Yaji
Senior Managing Director & COO
Mitsuhiro Mokumoto Senior Managing Director & CFO
Masaki Kawase
Director - FPSO & FSO Division
Naomasa Kosaka
Director - FPSO Operations DivisionPaid-in capital:

12,391,600,000 Japanese yen

Shashank Karve

Director
MODEC International LLC – President & CEO

Saburo Sakamaki
Tamiyoshi Iwasaki
Takao Sunami
Yasuo Asama
Yasuhiro Iwanami
Makoto Yamazaki
Toshiro Miyazaki
Yoshihiro Takizawa

Director

Number of employees: 116 (non-consolidated, including temporary employees)
1,166 (consolidated, including temporary employees)
Main banks:

Sumitomo Mitsui Banking Corporation
Mizuho Corporate Bank, Ltd.
The Chuo Mitsui Trust and Banking Co., Ltd.
The Sumitomo Trust & Banking Co., Ltd.
The Norinchukin Bank

Director
Director
Director
Corporate Auditor
Corporate Auditor
Corporate Auditor
Corporate Auditor

Main Subsidiaries

MODEC International L.L.C.
CANTARELL FSO, INC., S.A. de C.V.
ELANG EPS PTE LTD.
LANGSA FPSO PTE LTD.
MODEC MANAGEMENT SERVICES PTE LTD.
JASMINE FPSO PTE LTD.
MODEC FPSO B.V.
MODEC VENTURE 10 B.V.
MODEC VENTURE 11 B.V.
RONG DOI MV12 PTE LTED.
ESPADARTE MV14 B.V.
PRA-1 MV15 B.V.
STYBARROW MV16 B.V.

13

EPCI service of FPSO/FSO, TLP and Production Semisubmersibles in North & South America and West Africa
PEMEX Cantarell FSO Owner Operator
ConocoPhillips Elang/Kakatua FPSO Owner Operator
MEDCO/MOECO Langsa FPSO Owner Operator
Operator of FPSO/FSOs in Asia and Pacific
PEARL Jasmine Owner Operator
CLJOC Su Tu Den FPSO Owner Operator
CNR Baobab FPSO Owner Operator
Santos Mutineer-Exeter FPSO Owner Operator
KNOC Rong Doi FSO Owner Operator
Petrobras Espadarte Sul FPSO Owner Operator
Petrobras PRA-1 FSO Owner Operator
BHPBP Stybarrow FPSO Owner Operator

Stock Information (as of December 31, 2005)

Number of Authorized Shares ................ 102,868,000

Shareholders Breakdown

Number of Issued Shares ........................... 37,408,000

Number ofshareholders

Number of Shareholders .................................... 4,410
Major Shareholders

63
53

Number ofshares116
21

295,501
2,141,894

Number of
Ratio of
Shares Held shareholding

Name(thousand shares)(%)

Mitsui Engineering & Shipbuilding Co., Ltd.

18,74250.10

Mitsui & Co., Ltd.

2,466

6.59

The Master Trust Bank of Japan, Ltd. (Trust Account)

1,980

5.29

The Bank of New York Jasdic Treaty Account

1,046

2.79

Mitsubishi UFJ Trust and Banking Corporation (Trust Account)

727

1.94

Morgan Stanley & Company International Ltd.

700

1.87

The Chase Manhattan Bank, NA London SL Omnibus Account

621

1.66

Credit Suisse First Boston Europe PB Sec Int Non-Treaty Client

457

1.22

4,766,900

8,420,205

4,157■Individuals, others■Financial institutions■Other Japanesecompanies■Foreigners■Securities companies

21,783,500

Stock Quote
Stock price (yen)
4,000
3,500
3,000
2,500
2,000

05/1

2

3

4

5

6

7

8

9

10

11

12 06/1

2

4

5

6

7

8

9

10

11

12 06/1

2

Volume (thousand shares)

Bank of New York GCM Client Accounts E ISG

455

1.21

Deutsche Bank AG London PB Non-Treaty Clients 613

452

1.21

Total

27,65073.91

Fiscal year end:

December 31 of each year

General meeting ofshareholders:March of each year

Shareholder registration
date for year-end dividend: December 31 of each year
Shareholder registration
date for interim dividend:

June 30 of each year

Shareholding unit:

100 shares

7,000
6,000
5,000
4,000
3,000
2,000
1,000
0

05/1

2

3

Transfer agent:
Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan
Transfer agent office:Chuo Mitsui Trust and Banking Co., Ltd.
Transfer Agent Dept. (Transfer Agent Administration Center)
8-4, Izumi 2-chome, Suginami-ku, Tokyo 168-0063, Japan
Tel: +81-3-3323-7111
Agents:Chuo Mitsui Trust and Banking Co., Ltd.: Branch offices in Japan
Japan Securities Agents, Ltd.: Head office and branch offices

14

2-8, Kohinata 4-chome, Bunkyo-ku Tokyo 112-0006, Japan
TEL: +81-3-5800-6081

Printed on100% recycled paper