Giant jackups potentially in 2012; KEP/SMM may benefit

Deutsche Bank AG/Hong Kong,

According to a recent article from Upstream, Norwegian state oil company Statoil is in talks with rig owners about ordering some of the largest jackup drilling rigs ever built. These rigs have been labelled Category‐J rigs and are planned for work on subsea completions. Statoil has requested expressions of interest from jackup owners and are expecting initial responses back in October 2011. If they decide to proceed, tenders could go out by 2012 with potential delivery by 2015. The group indicated that they want to address the problem of the ageing rig fleet in Norway, which ties in with our view that the rapidly ageing global rig fleet will remain a key factor driving the replacement cycle in this sector.

The article highlighted that leading candidates for this program could include Maersk Drilling, Seadrill, and Rowan. Other drillers that may also be interested include Odfjell, Awilco, Noble Drilling, and Ensco. Upstream indicated that Maersk has recently been screening the market for a possible order of the new GustoMSC‐design jackup, the CJ80. Their most recent orders have been for CJ70 rigs, two of which were placed with Keppel in early 2011 at about US$600m each (approximately US$500m per rig for the yard work) and are the largest jackups built to date. The dollar value for each CJ80 rig should be more than US$600m as these CJ80 rigs have variable deck loads that are higher than the 8000 tonne load of the CJ70 units.

We believe KEP and/or SMM are well positioned for the Category‐J rigs, with both being clear market leaders for high specification jackups. Of the three leading candidates for the new rigs, Maersk over the past 12 months has ordered 2 jackups with KEP, while Seadrill has ordered 3 jackups withSMM and 1 semisubmersible drilling tender with KEP. In 2007, Rowan ordered 4 jackups with KEP.