In light of the recent news on potential order cancellations from the Singaporeyards we assess the balance sheet strength of the customers that Keppel Corpand Sembcorp Marine existing order books have exposure to. We believe thecollapse in oil prices together with tightening credit markets has put pressure onoil services companies to review their previous rig orders.

Excluding Seadrill and Scorpion Offshore who have already announced theirintention to relook at their rig orders, the next most highly leveraged listedcustomers are Skeie Drilling & Production (net debt: US$ 2.6bn; ND/E: 2.9x) andPetroVietnam Drilling and Well Services (net debt: VND 2,822 bn; ND/E: 1.0x).Both of these customers have outstanding jackup orders with Keppel.

Our US oil services analyst, Alan Laws, has assessed the credit risk of some USOFS (including major customers of the Singapore yards like Diamond Offshore,ENSCO & Noble Drilling) and believes that they have considerable financialflexibility to weather the storm. Continued turmoil in credit markets has sparkedinvestor concern, however he believes US OFS companies are generally wellcapitalized, maintain adequate liquidity and have solid earnings/cash flow profiles.

Our Euro oil services analyst, Alejandro Demichelis, keeps a cautious view on thesector. However, he believes Euro Oil Service players look well capitalised (netdebt/equity of 8% in 09E) with limited funding requirements near term. WhilstMajors and the larger NOCs should be able to use their strong balance sheets,the ability of smaller players to raise financing to launch new projects has raisedsome question marks.

In light of the recent news on potential order cancellations from the Singaporeyards we assess the balance sheet strength of the listed customers that KeppelCorp and Sembcorp Marine are exposed to. We believe the collapse in oil pricestogether with tightening credit markets has put pressure on oil servicescompanies to review their previous rig orders. We have limited our analysis to thelisted customers due to the limited information available on the status of privatecompanies’ balance sheets.

Excluding Seadrill and Scorpion Offshore who have already announced theirintention to relook at their rig orders, the next most highly leveraged listedcustomers are Skeie Drilling & Production and PV Drilling.

Skeie Drilling & Production has net debt of US$ 2,598mn and gearing (ND/E)of 2.9x as at 30 Sep 2008. The company was established in Sep 2006 andKeppel O&M has a 5% stake (48% Skeie Technology; 46% externalinvestors). Skeie has ordered 3 KFELS Class N jackups from Keppel withscheduled delivery in 2010 and are fully financed with 11% equity and 89%debt. One of the three rigs has secured a contract with Skeie Energy for aminimum of 3 years. We estimate 13% of Keppel’s current order book isattributable to Skeie.

PV Drilling has net debt of VND 2,822 bn and gearing (ND/E) of 1.0x as at 30Sep 2008. PV Drilling is an affiliate of Vietnam Oil and Gas (PetroVietnam)and has outstanding orders for 2 KFELS Class B jackups with scheduleddelivery in 4Q09. We estimate 3% of Keppel’s current order book isattributable to PV Drilling.