4 projects under review. Keppel Corporation (Keppel) said in a pressrelease yesterday that it was reviewing four projects with its clients: 1semisub, US$405m (Scorpion Offshore), 2 Jackups, US$420m (Seadrill)and 1 Multi-Functional Support Vessel, S$69m (Ezra). We understand thatthese discussions are due to Keppel's customers' mitigating their expansionplans in view of the recent unprecedented dislocation in the oil industry.While discussions are ongoing, we postulate some options available. Non-refundable deposits of 5-20% have been paid to Keppel. Work has notstarted on any of these projects.

Scorpion Offshore. It recently announced a 50% YoY rise in revenue toUS$48.8m for the quarter. Net profit rose 64% YoY to US$17m while rigutilisation was high, averaging 98.3%. This semisub was due for delivery in4Q11 and was to be chartered to Petrobras for 6 years. In view of Petrobras'less aggressive but committed expansion, we expect this contract's deliveryto be pushed back rather than cancelled. All of Scorpion's 7 Jackups arecurrently chartered for work.

Seadrill Ltd. Reported its 3Q08 results on 24 Nov 08 with topline rising50% YoY to US$566.2m while net income rose 111% YoY to US$69.3m.Seadrill also received US$2.3b through a sale and lease back agreementfor its deepwater assets. As seen in Exhibit 1, Seadrill has more Jackupsvs. contract work available as demand has been impacted. As such, weexpect Seadrill to likely cancel its order (thus forfeiting its deposit). Wetake the drastic option of cancellation into our forecasting model with 15%retention of its deposit.

Ezra Holdings. Reported FY08 (year end Aug) PATMI rose 157% YoY toUS$175.4 while revenue rose 87% YoY to US$268.3m. While Ezra hassecured financing for 5 vessels, we think that management is mitigatingexpectations of its own customers being able to finance its explorationprograms. While the cancellation of its vessels reduces long term charterrevenue, we think it is prudent to conserve cash in this season. Look out forour separate report on Ezra.

Losing faith. Keppel has risen about 10% since our resumption of coveragelast week, but with the likely cancellation of Seadrill's Jackups, delay ofScorpion's Semisub and cancellation of Ezra's vessel, our SOTP falls toS$5.05 (prev. S$5.24) as we think earnings will be affected in FY09. Thereis also the concern that this might spark a cascade of cancellations in theindustry. As such, we downgrade Keppel to a HOLD (<10% upside)