Both Ezra’s and Swiber’s ambitious growth strategies into deepwater play are currentlybeing reviewed. In 2007, Ezra Holdings (Ezra) announced several ambitious plans to build atotal of five large Rolls-Royce designed Multi-Functional Support Vessels (MFSVs), which werecapable of service in depths of 3,000m. The total forward capex required was estimated to beapproximately US$650m. Swiber Holdings (Swiber) had an equally ambitious growth strategy,with previous aspirations to build a deepwater drilling barge, Equatorial Driller, which wasintended for deepwater drilling in calmer environment. The cost of this drilling barge wasthought to be in the range of US$300-350m. However, both companies have recently takenmoves to revisit their capex plans and defer these ambitious strategies, citing the financialturmoil as the core reason.

Venturing into deepwater drilling activity – an overly ambitious step taken. We believefalling asset prices and hefty financing costs are the reasons for deferment of Ezra’s andSwiber’s deepwater plans. The weakening oil prices coupled with the deterioration in capitalmarkets could have brought fears of possible cutbacks in oil producers’ capex, leading toreduced drilling opportunities and subsequently, a lower chartering demand for both drilling andoffshore support vessels.

We did mention that these aggressive growth strategies heighten financing and creditrisks concerns. The accessibility to credit facility capacity remains important facilitators tohighly capital intensive offshore marine players’ growth. We had previously expressed ourconcerns that such aggressive expansion plans could inherently heighten debt financing burdenand stretch the balance sheet. We view any move to lower capex as a prudent measure.

Refocusing on core business objective. For its medium-term outlook, Ezra intends tocontinue to strengthen its financial position and focus on consolidating its integrated solutionsapproach within the Asia market. Swiber has also indicated plans to concentrate its business onperforming EPCIC services for the shallow water fields within Asia.

Prefer ASL Marine amongst the smaller cap oil & gas plays. Our top pick for the smallercap oil and gas services and equipment plays is ASL Marine. We continue to like ASL for itsprudent and quality management, strong balance sheet and consistent business strategy.Maintain BUY on ASL Marine (Target Price: S$0.96) and NEUTRAL on Ezra (Target Price:S$0.67) and Swiber (Target Price: S$0.62). We downgrade our offshore & marine sector toNEUTRAL.